The European Union debate on the on-going revision process of the Gas Directive continues as businesses and companies are concerned that changes will affect rules on existing and new pipelines with non-EU countries, including Nord Stream-2 from Russia to Germany. Russia is an important gas supplier to Austria and OMV has signed a financial agreement on Nord Stream-2.

In a letter seen by New Europe to Austria’s Sustainability Minister Elisabeth Köstinger, who’s country is holding the presidency of the EU Council and will have to decide on how to proceed with the file on the amendments to the Gas Directive, Markus J. Beyrer, the Director General of BusinessEurope, a lobby group representing enterprises of all sizes in the EU and six non-EU European countries, said his organization is concerned that the “lack of a proper impact assessment to document the initial proposal creates an unfortunate precedent and is in contradiction with the EU’s ‘Better Regulation’ principles.”

He noted that while several issues have now been discussed and, in some cases, answered by the European Commission there are still a number of legal, technical and socio-economic aspects that have not been properly assessed yet, notably security of gas supply, investments protection, uneven level playing field, policy uncertainty.

Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, told New Europe on October 19 that she shares these concerns and believes there are several issues with this proposal to amend the Directive.

Yafimava noted that if amended, the Directive would provide both the European Commission and a member state where the first interconnection point is located with a significant degree of discretion in respect of regulatory treatment of the EU end of a pipeline coming from a third country by means of derogation and exemption processes, potentially having an impact on the degree of utilisation of the pipeline from a third country, for example Nord Stream-2, and consequently on the degree of utilisation of intra-EU existing or new pipelines, for example EUGAL to which Nord Stream-2 is planned to be connected, Yafimava said.

According to the Oxford Institute expert, if the Directive is amended, this would strengthen the Commission’s chances of getting a mandate on negotiating an intergovernmental agreement on Nord Stream-2 with the Russian government in line with core principles of the EU energy law.

“Although the amended Directive would only apply to the EU end of Nord Stream-2, it could enable the EC to approach the Russian government with a suggestion to agree a framework for the entire pipeline,” Yafimava said, adding that, for example, the Commission could say that as long as the EU end of Nord Stream-2 does not comply with the amended Directive, it would have to secure an exemption from the German National Regulating Agency (NRA) which would ultimately have to be approved by the Commission, which in turn could impose a legally binding fixed or floating cap on Nord Stream-2, conditional on the degree of utilisation of the Ukrainian corridor. In addition, the Commission could then issue a negative option in respect of certification of Nord Stream-2, which would not be binding but of which German NRA would have to take “utmost opinion,” she said.

“It is debatable whether all this would strengthen the EC position as it would bring it into a direct conflict with the German government and the German NRA, as any cap on NS2 capacity would inevitably impact the rate of utilisation of EUGAL pipelines, all of marketable capacity in which was allocated in 2017 for 20 years under legally binding contracts, thus suggesting potential litigation,” Yafimava said, arguing that the Commission’s position is already undermined by the fact that Nord Stream-2 was initiated well before the EC proposal to amend the Directive was made as well as by the fact that its construction has already started.

Yafimava opined that the amendment would not strengthen the chances of success of the trilateral gas talks between Russia, Ukraine, and the EU on reaching a post-2019 transit agreement, but would undermine them further.

She explained that as Russia perceives that the Directive will be amended in the future, thus potentially reducing capacity available for Gazprom in Nord Stream-2, it could be less willing to conclude a longer-term agreement on Ukraine transit in respect of volumes Gazprom sees reasonable and commercially attractive, because Russia could worry that conditions of such agreement would potentially apply to much higher volumes than it feels comfortable with sending across Ukraine.

Yafimava warned that “this all is clearly seen as an outright politicization of EU regulation and as such it would undermine especially third country investors’ confidence in the EU regulation with consequences being felt outside the energy sector.”

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