German regulator consults on Nord Stream 2 derogation decision

Author: Diane Pallardy

2020/05/05

LONDON (ICIS)--German regulator BNetzA has sent its intended decision on potential derogation of Russia’s Nord Stream 2 pipeline project from EU rules to parties that are involved in the process.

The consultation will last until 8 May.

The derogation would exempt the project from EU rules enforcing third party access to pipeline capacity, and legal separation of Gazprom as the owner of the pipeline from suppliers of gas using it. In reality, Gazprom is the only potential supplier from Russia.

The project is designed to double Russia’s direct pipeline export capacity to Germany as the first entry point to the EU to 110 billion cubic meters (bcm) per year. Around 94% of the offshore pipeline had been laid in the Baltic Sea as of late December, when US sanctions against the main pipe-laying ships of the project forced them to stop pipelay work.

Two Russian pipelayers that could finish the project are now stationed in the Baltic Sea, vessel tracking websites Marine Traffic and Vessel Finder show. The Akademik Chersky arrived just outside the Russian port of Kaliningrad over the weekend and the Fortuna is in the German port of Mukran.

BNETZA DECISION

BNetzA sent its intended decision to the interested parties, the agency told ICIS, without specifying what the intended decision was.

After the period for comments ends on 8 May, “it is intended that a decision will then be taken in a timely manner,“ the agency added.

In mid-January, BNetzA launched the procedure to look into the derogation request from the pipeline’s developers.

A decision has to be made by 24 May. The agency will indeed observe this deadline, though its decision may not be final, a spokesperson for BNetzA told ICIS in mid-January. But the whole process could take “more than ten years,” with potential for appeals and litigations from other actors such as the European Commission, member states, or other companies, the spokesperson underlined.

A derogation procedure has also been launched for Nord Stream, the existing twin pipeline of Nord Stream 2. The derogation request for Nord Stream has also not yet been decided, BNetzA told ICIS on 4 May.

REMAINING CONSTRUCTION WORKS

There remains around 160 km of Nord Stream 2 pipes to lay in the Danish exclusive economic zone.

The Russian pipelaying ships Akademik Chersky and Fortuna could complete this work , although the project developers have yet to provide plans.

The Akademik Chersky was initially intended to work on Sakhalin projects, but left the Russian Far East in February and arrived in the Baltic Sea over the weekend.

The Fortuna, stationed in the German port of Mukran since October, may also be a logical option to finish the project.

“We are actively looking for solutions and will inform about it in due time,” project developers told ICIS on 4 May. “All other works like the completion of landfalls and offshore works for stabilising the pipeline continue as planned,” they also said.

The Danish Energy Agency had not received any information regarding the vessels, the agency told ICIS on 4 May.

EU GAS DIRECTIVE

Pipelines completed before 23 May 2019 can apply for a derogation, which is granted by the regulatory authority of the member state where the pipeline first enters the EU network. Future pipelines can apply to the European Commission for an exemption.

There is no clarity on what is considered a pipeline “completed before 23 May.” Meanwhile, “future” pipelines are projects not yet built and for which “the level of risk attached to the investment must be such that the investment would not take place unless an exemption was granted,” the EU gas directive states .

In the case of Nord Stream 2, its construction was underway and its final investment decision was made before the directive was changed.

ONGOING LEGAL DISPUTES

In mid-April 2019, developers of Nord Stream 2 asked the European Commission to consider the pipeline completed and eligible for a derogation.

But as they did not receive such guarantees, in late July they asked the EU general court to cancel the changes to the directive which they consider discriminatory.

In late September, the developers launched a second legal dispute on the basis of the Energy Charter Treaty (ECT). They argued that the amendments to the EU gas directive are in breach of the ECT’s investment protection provisions.