EU cannot extend regulation to Nord Stream 2

The legal opinion by the Council of the European Union is a setback to the Commission’s effort to regulate Gazprom’s Nord Stream 2 pipeline. The opinion, dated 1 March, said the Commission’s proposal “lacks any reasoning on the regulatory power of the Union over offshore pipelines” crossing an EU nation’s exclusive economic zone (EEZ). In addition, it states that applying EU rules to offshore pipelines, such as Nord Stream 2, may violate the UN’s Convention on the Law of the Sea.

The Commission sought to regulate Gazprom’s Nord Stream 2 because of concern that Russia’s plan to double the gas it could pump under the Baltic Sea to Germany would bypass the traditional routes via Ukraine and ultimately undercut efforts to reduce dependence on Moscow and its support for Kiev.

In 2017, the Commission proposed the changes to its gas directive, whereby all import pipelines would have to comply with rules that require they apply non-discriminatory tariffs, make at least 10% of capacity available to third parties, and not be owned directly by gas suppliers.

The Nord Stream 2 project, fully owned by Russia’s gas export monopoly Gazprom, is far from complying with the rules of the EU’s third energy package. However, Russia has taken this up with the World Trade Organisation.

The Commission’s legislative proposal was also overwhelmingly opposed by European energy industries. The Commission had asked for public comments on the proposal to change the gas directive by 31 January 2018. All statements (22 submissions) from European industry associations rejected the proposal.

The Commission’s actions to regulate Nord Stream 2, including by seeking a mandate from member states to negotiate directly with the Russian government, challenges large member states who have companies invested in the project. Specifically, German energy groups Uniper and Wintershall, Anglo-Dutch group Shell, Austria’s OMV and France’s Engie, as the five European energy firms financing the 1 225 km pipeline to carry 55 billion m³/y of gas.