Changes to EU gas directive open to interpretation - experts

Author: Diane Pallardy

2019/02/20

LONDON (ICIS)--The European parliament and council have provisionally agreed on amendments to the EU gas directive, but the final text is still open to interpretation, according to experts.

While the latest additions protect member states’ sovereignty over energy sources, ultimately the European Commission keeps a veto in key decisions. This includes exemptions and member states’ ability to negotiate agreements with third countries.

Change for exemptions

According to the approved amendment, a member state where the first connection point of a pipeline originating from a non-EU country is located will be able to exempt the new pipeline from the directive on several conditions.

Among others, this country will have to consult with other member states likely to be affected by the new pipe and the third country. The exemption must also not be detrimental to competition in those member states.

The wording allows for different interpretations of what are the relevant member states likely to be affected by such a pipeline.

“One interpretation could be member states belonging to the same regional risk group under security of supply regulation,” Oxford Energy Institute researcher Katja Yafimava told ICIS.

Given the amended directive is only applicable in the territorial seas of the member state where the first connection point with the EU network is located, there should be no other concerned member states, according to energy law professor Kim Talus.

However, it would be difficult for Berlin to argue that Nord Stream 2, the Russian offshore project pipeline set to deliver gas to Germany, does not concern other member states, according to Jean-Arnold Vinois, Energy adviser at the Jacques Delors Institute.

The concerned countries could include Finland, Sweden and Denmark all crossed by the pipe, Czech Republic and Austria connected to Nord Stream 2’s onshore connecting pipeline EUGAL, and Poland and Slovakia which may fear a reduction of Russian gas transiting through their territory, he explained.

A fierce opponent of Nord Stream 2, Poland, could claim the pipe threatens its gas transit and energy security, and the country has already been vocal about these concerns, EastWest Institute fellow Danila Bochkarev pointed out.

But it would be difficult to prove its objection is market-based, as there is no indication transit via the Yamal pipeline will be affected and Poland can already receive up to 90% of its gas imports from Germany and its LNG terminal, he added.

The concerns are higher for Ukraine, which has more transit capacity than Poland and the transit contract of which with Russia ends in 2019, but Ukraine is not an EU member state.

The EU General Court set a precedent in 2017 when it rejected Warsaw’s appeal over the commission’s decision to grant more capacity to Gazprom on the Opal pipeline, Nord Stream 1’s onshore leg. There is strong certainty that the court will not support potential Polish objections to an exemption for Nord Stream 2, Bochkarev said.

“Ultimately the decision which countries are affected will be up to the commission,” Polish Centre for East European Studies analyst Agata Loskot-Strachota told ICIS.

Conflict of law resolved

The previous proposals included a shift of competences form member states to the Commission, which the French senate considered in breach of the principle of subsidiarity in the EU Treaty and the International Energy Charter ratified by the EU.

The text now stated that the EU may adopt measures in accordance with the principles of subsidiarity and proportionality.

Member states will remain sovereign to determine their energy supply and their energy mix, according to Loskot-Strachota and Vinois.

Nonetheless, Yafimava noted that the commission’s power over member states’ exemptions for new pipelines from third countries and the fact that it could initiate infringement procedures against member states in respect to derogations for existing pipelines from third countries suggests that the amendment could have a negative impact on national energy rights. “Furthermore the amended directive could make it easier for the commission to revisit its old idea of requesting a mandate to negotiate a bilateral agreement with Russia on Nord Stream 2, which also could have an impact on a member state’s choice of energy mix,” she added.

A commission’s intervention could affect Germany’s choice of energy mix but also the functioning of the bloc’s internal market as Germany is a key natural gas hub and exports to all its neighbours.

In 2017, Germany consumed 90.2 billion cubic meters (bcm) according to a BP statistical review and imported 53.4bcm from Russia, this number reached a new record high of 58.5bcm in 2018, Gazprom data showed. Although a significant part of Russian gas flows through Germany only transit the country to supply other EU markets, Germany is the largest importer of Russian gas.

Brussels veto on IGAs

The commission will have the power to authorise or block negotiations for intergovernmental agreements (IGAs) between a member state and a third country.

A new article in the directive allows the commission to make such decisions assisted by member states. Brussels is given implementing powers by co-legislators, which are thus able to control the commission’s decisions, according to Vinois.

However, several experts disagree. Leigh Hancher, director of the energy union law at the Florence School of Regulation believes that the commission will have exclusive competence to conclude IGAs, while Loskot-Strachova underlined the limited, advisory role of member states.

Brussels can stop member states from signing an IGA if it considers it not compliant with the union’s acquis which includes the gas directive, Yafimava explained.

Next steps

The provisionally agreed text will be translated into all EU languages and submitted to the countries’ legal experts. Member states and the parliament will then vote on it. If the text is adopted, member states will have nine months to transpose it into national legislation. Only once they have done so, the directive will enter into force. Infraction cases cannot be brought forward while countries are transposing EU directives into national legislation, Bochkarev underlined.

Construction of Nord Stream 2 is going according to schedule and the pipe is set to start deliveries by the end of 2019. If Berlin is slow to bring the amended directive into national law, the pipeline could be finished before the directive effectively enters into force. This would mean Germany could grant Nord Stream 2 a derogation without needing Brussels’ approval.