Gas Directive amendment: implications for Nord Stream 2

In February 2019, the EU reached a political agreement to amend the Gas Directive to extend its scope to apply to pipelines from third countries to the EU. The proposal is aimed primarily at Nord Stream 2 – a pipeline which would bring Russian gas to Germany and has been under construction across the Baltic Sea since August 2018. This Insight analyses several options under which Nord Stream 2 could proceed once the amended Directive enters into force in July 2019 and is transposed into member states’ law within the subsequent nine months. It argues that the option leading to the least possible regulatory change and uncertainty for Nord Stream 2 is the one under which the German regulatory authority would confirm Nord Stream 2 compliance with the amended Directive, subject to inter alia a transfer of ownership and/or operatorship of the entire pipeline or its German section to an existing or a new TSO, with subsequent certification. On the other hand, the option under which Nord Stream 2 could be granted an exemption from some of the Directive’s requirements would cause a significant amount of regulatory uncertainty and operational delays due to the significant discretion of the EC over the conditions that could be imposed on it as part of the exemption. The option of concluding intergovernmental (between Germany and Russia) or international (between the EC and Russia) agreement on Nord Stream 2 operation is unlikely to be at all workable.

While the amended Directive is unable to halt construction of Nord Stream 2 – as some EU member states hoped it would – it is capable of delaying or suspending its operation. The amendment has created significant regulatory uncertainty about the degree of utilization of Nord Stream 2, and consequently of the EUGAL pipeline in Germany, to which it is planned to be connected. Nonetheless, it is unlikely that a significant cap – that is higher than the 20 per cent reservation quotas already applied in respect of EUGAL capacity – would be imposed on Gazprom’s utilization of capacity in Nord Stream 2 due to significant legal constraints.

By: Katja Yafimava

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