Nord Stream 2 To Put End To “Ukrainian Monopoly” In Gas Transit, If It Makes It Past the EU Gas Directive

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The launch of Nord Stream 2 will put an end to the “Ukrainian monopoly” in gas transit, the head of the Austrian OMV concern involved in the implementation of the Nord Stream 2 project Rainer Seele said in an interview with the German publication Frankfurter Allgemeine Zeitung.

After the launch of the gas pipeline, Eastern European countries will lose their ability to set too high transit prices, which is a positive thing in regard to competition, Seele said.

However, in his opinion, Ukraine cannot be neglected, since the European Union, after giving up on atomic energy and coal, will need more natural gas than earlier. Therefore, energy companies, including OMV, will be interested in using all available transit routes, he added.

As Seele said, there is a clear balance between Europe and Moscow on the energy issue: one needs gas, and the other needs money from selling it. He also recalled that Russia has remained a reliable supplier of natural gas over the last 50 years.

Separately, EADaily reported on the upcoming amendment to its gas directive. After it, Nord Stream 2 will be able to work at half capacity and its management will be transferred to an operator independent from Gazprom.

The final version of the EU gas direct appears to be a compromise between France and Germany. Germany, having concluded an intergovernmental agreement with Russia, can make an exception and not demand that Nord Stream 2 be controlled by an independent operator, and half of its capacity be reserved for independent suppliers.

However, Berlin needs permission from Brussels for the upcoming negotiations regarding what terms it can agree on, and the document itself must be approved by a special committee of EU countries.

The majority of votes will win, and quotas between countries are distributed according to population. According to the outlet, it is clear that Poland and the Baltic countries will vote against any exceptions and Germany will have to seek support, from France and Italy, whose reaction is difficult to predict.

The European Commission (EC) may agree to permit negotiations and approve the final document within 90 days in each case. At the same time, the EC has the right to also request additional information, which will further increase the time. Thus, in the planned form – Gazprom is the owner of the pipeline and the only supplier – the project will be able to begin operation almost 1 year later, if not longer.

Deputy Director of the National Energy Security Fund (NESF), Aleksei Grivach, agreed that the exceptions for the pipeline may be refused, but a poorly motivated “no” will be grounds for court proceedings. “If you remember, the WTO arbitration acknowledged that the EC actions on restricting the use of the OPAL gas pipeline capacity (the above ground continuation of the Nord Stream) were illegal,” the expert said.

If Nord Stream 2 is limited to 50%, then half of the gas planned for delivery via it, the other 27.5 billion cubic meters, will have to be transferred via the Ukrainian route. And this is an additional $750 million a year in transit payments with an increase in the cost of transporting gas through the Nord Stream 2 due to underloading.

A leading analyst at the Oxford Energy Research Institute, Katya Yafimava, told the European edition of New Europe that the German regulator NRA would have a strong position not to place serious restrictions on Nord Stream 2, since most of the Baltic gas pipeline capacity, Eugal, is already booked at auctions, and the European Commission had no objections to the procedure.

Any other version of the work of Nord Stream II in the new conditions will require serious concessions from the Russian holding, experts say. Therefore, it is not for nothing that the head of Gazprom, Alexey Miller, spoke about the possibility of building a second Turkish stream.

It will not fall under the gas directive if, as in the case of the first, the infrastructure in the EU will be built and owned by other companies.

According to EADaily, Dmitry Marunich, co-chairman of the Ukrainian Energy Strategies Foundation, claimed that Gazprom can create a virtual hub in the Baltic and sell half of the gas for Nord Stream 2 with delivery at the entrance to the gas pipeline. The basis for this is already in place – the Gazprom Export electronic trading platform, which the company launched in Autumn 2018.

“It is not clear what will happen with the management of the gas pipeline itself, which, in fact, is built only with the money of Gazprom,” says Dmitry Marunich.

In Germany, the Russian holding through the companies WIGA and Wintershall owns about 50% of the above ground sections of Nord Stream 2 – Opal and NEL.

According to Dmitry Marunich it is still possible to put the Baltic gas pipeline into operation, without it being subject to the gas directive.

“In Brussels, all the necessary procedures will be held in the near future. However, the amendments must also be agreed on by the parliaments of all EU countries. For this purpose, they are given 9 months. And, we can assume, in an extreme case, allies of Russia when it comes to the gas pipeline, such as Germany or Austria, can delay ratification for the longest duration. Thus, for them, the amended law may begin to operate after the commissioning of Nord Stream 2. In this case, the Baltic gas pipeline will be considered as introduced earlier, and Germany will be able to independently determine the conditions for it.”