NS2 pipeline to be regulated by EU legislation: Germany

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German energy regulator Bundesnetzagentur denied on Friday a waiver to the Nord Stream 2 gas pipeline from European Union regulations, Kallanish Energy reports.

The consortium led by Gazprom, Nord Stream 2 AG, had submitted an application for an exemption from the regulation for the part of the pipeline running in German territory.

As the project runs from Russia to Germany, the exemption due to it being from a third party country outside of the EU could only be granted if the gas interconnects was complete before May 23, 2019.

“Since the Nord Stream 2 pipeline had not been fully laid by 23 May 2019, the Bundesnetzagentur has rejected the application for derogation made by Nord Stream 2 AG,” the regulator said. “When it is put into operation, therefore, Nord Stream 2 will be subject to German regulatory requirements and European rules on unbundling network access, and cost regulation.”

The ruling is likely to result in further delays and higher costs for the project. The consortium might need to set up a separate transport operating company, seek bids by third parties to participate in gas auctions, and have the fees charged on the network monitored by German authorities.

The pipeline, which has had its final pipe-laying halted due to U.S. sanctions, was expected to enter operations in early 2020. The controversial project is designed to transport 55 billion cubic meters per year of natural gas from Russia to Europe, via Germany.

Backed by European energy firms Shell, Engie, OMV, Whintershall and Uniper, the project has faced strong rejection from some countries such as Poland and Ukraine. They’ve claimed the line will increase the Russian gas monopoly in Europe.

Nord Stream 2 AG told Kallanish Energy it disagrees with the decision and the rejection for derogation “exposes the discriminating effect of the amended EU Gas Directive.”

Citing international legal experts, the consortium said that narrowing the definition of “completed” to the conclusion of the physical construction of a gas pipeline violates fundamental rights in EU law. It also breaches the constitutional guarantees from the German Basic Law.

On May 23, 2019, the pipeline had been completed from the perspective of economic functionality. The company had made “irrevocable investments worth billions of euros long before the European Commission announced its plan to amend the Gas Directive,” a spokeswoman said.

“We await receiving the official decision and will then evaluate it and consider further actions to preserve our rights, including appealing this decision in the German courts,” she added.

The spokeswoman noted, “the procedures concerning the Gas Directive have no impact on the finalization of construction works.” She didn’t say when these should be completed.

The EU Gas Directive was amended last December.