As the European Commission announced a settlement with Gazprom on Monday (13 March), officials told euractiv.com it was “highly likely” that the executive will approve the controversial Nord Stream 2 pipeline project.
Seen as one of the most political cases launched by the executive’s powerful competition policy department, the decision exonerated Gazprom from a fine that could have reached 10% of its annual turnover.
In return, the Russian state-owned monopoly accepted various commitments aimed at ensuring the free flow of gas across Europe at competitive prices, the EU’s Competition Commissioner Margrethe Vestager told reporters yesterday.
This decision was seen as part of a broader package that will determine EU-Russia energy relations and, more broadly, the future of EU energy policy.
The Nord Stream 2 project has until now remained an outstanding issue between Brussels and Moscow. The pipeline aims at bringing Russian gas directly to Germany through the Baltic Sea, circumventing central and eastern countries. It would double the capacity of the existing Nord Stream pipe.
Commission Vice-President Maroš Šefčovič and his colleague Miguel Arias Cañete, both responsible for energy, have expressed their concern about the project in the past, saying it would reinforce Gazprom’s dominance as Europe’s single biggest supplier of natural gas.
Central and Eastern EU member states were particularly worried about the project, which strengthens Moscow’s hand in the region.
But Germany is pushing very hard to get a green light for the pipeline, which would make Berlin a major gas dealer in Europe, replacing Ukraine and relegating liquefied natural gas resources to a secondary role.
Green light after German elections
EU officials said European Commission President Jean-Claude Juncker is considering to move forward on Nord Stream 2 and was “highly likely” to give the project the go-ahead in the coming months.
The decision is expected in the next few months and could be announced after Germany’s general elections in September.
Juncker has shared some of the eastern member states’ concerns in the past, saying Nord Stream 2 would strengthen Gazprom’s “dominant” position in Europe.
“The impact of a pipeline such as Nord Stream 2 goes beyond legal discussions. If built, Nord Stream 2 could alter the landscape of the EU’s gas market while not giving access to a new source of supply or a new supplier,” Juncker wrote in a letter last June.
In recent years, Europe has embarked on a crusade to diversify its gas supplies. The most promising new sources include ramping up imports of Norwegian gas, the Midcat pipeline pumping Algerian gas through Spain, and the arrival of LNG from the US, Canada, and Mexico.
But such a strategy would require years to be completed, and partly relies on a troubled southern neighbourhood. Against this backdrop, Russian gas appears to be a cheaper, faster and more secure option, although not all European partners would benefit equally.
In order to compensate for Nord Stream 2, Poland, Slovakia and Ukraine are negotiating with Berlin for gas to pass through their pipelines, in order to retain part of the transit fees.
These fees represent an important source of revenue for these countries. In the case of Slovakia, it amounts to 1.5% of its GDP, officials said.
In addition, the Commission is looking into ways of guaranteeing reverse gas flows between Hungary and Slovenia and Germany and Poland. These countries stand to be the most affected by Europe’s increased dependency on Russian gas.
In order to minimise Moscow’s clout over EU gas markets, Cañete is pushing for the signature of an intergovernmental agreement with Russia on energy matters. But EU officials acknowledged this was unlikely to be accepted by Germany and Russia.
For some, this agreement would be the only option to limit Moscow’s influence, as the Commission has no other legal instrument to block the plan. The executive’s legal service concluded that the EU’s third energy package, aimed at introducing some safeguards to limit Gazprom’s power, did not apply to offshore projects such as Nord Stream 2.
“It raises a number of legal concerns that are still being analysed right now,” Vestager said on Monday. “Juncker said that we have a preference for projects that unite rather than divide. So it is still open what colleagues can do legally in this case,” she added.
Even if EU rules applied, experts doubt the project could be derailed.
Georg Zachmann, a researcher at the Bruegel economic think tank in Brussels, pointed out that the unbundling clause, introduced to dismantle Gazprom’s control over gas supply and infrastructure, would have limited impact on Nord Stream. Indeed, the ownership of the pipeline would remain in hands of Germany, which is a close ally of Moscow on the project.
“There is an extremely low opportunity to stop the project,” Zachmann said.
The Commission argued that concerns of Eastern EU member states were addressed under Monday’s settlement.
In order to ensure the free flow of gas at competitive prices in Europe, Gazprom accepted the removal of all contractual barriers that currently restrict the free trade of gas in Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Poland, Hungary and Slovakia.
Isolated markets such as the Baltic states and Bulgaria could have access gas deliveries from Central European countries. Budapest, Warsaw and Bratislava could request to ship part of their packages to these nations.
But gas swaps of this kind would have no impact over Gazprom’s broader strategy to split Europe in two halves: lower prices in western countries and higher ones in the east.
The reason is that these gas shipments would be allowed only from central and eastern countries, and future gas coming to Germany via Nord Stream 2 would not be allowed to reach isolated regions.
Moreover, the physical dependence on Russia would remain.
Once Nord Stream 2 is in place, Zachmann believes that there is a risk that most of the gas would be brought to North-Western Europe to compete with LNG.
“Under this scenario, Gazprom might be able to push for higher prices in central and Eastern Europe and South East Europe, including Italy,” he explained.
Instead of imposing a fine for past misbehaviour, Vestager defended the deal agreed with Gazprom as a “forward-looking solutions” that would benefit citizens from Eastern Europe.
But she warned that if the Russian company breached the terms of the agreement, a fine amounting to 10% of the annual turnover could be imposed more rapidly.
Commission officials explained that a compromise with Gazprom would have been impossible to reach if a fine had been imposed on the Russian company, citing Gazprom’s approval to drop compensation claims for Bulgaria’s decision to withdraw from South Stream, another Russian pipeline project.
The settlement will be open for comments for seven weeks. This period is a bit longer than the usual four-week consultation period held for these kinds of decisions.