Proposed Nord Stream 2 unbundling model ‘not EU compliant’ – Ukraine gas TSO

LONDON (ICIS)–The Ukrainian gas transmission system operator has called on European authorities to carry out a thorough review of the certification application submitted by the company operating the Nord Stream 2 pipeline amid concerns of anticompetitive behaviour, GTSO said in a statement on Thursday.

GTSO said Nord Stream 2 AG should not benefit from any exemptions, noting that the independent transmission operator (ITO) model chosen by the company for its unbundled transmission operations may not be compliant with existing EU regulations.

Earlier in June, Nord Stream 2 AG filed a request for certification under the ITO model, but Polish incumbent PGNiG as well as EU representatives raised subsequent questions about the choice, noting that it was available only to TSOs that existed before 23 May 2019 when EU rules were amended.

“We believe that competent European authorities will thoroughly review an application submitted by Nord Stream AG, recognising that it does not meet the most substantive conditions for the certification under the preferential ITO model,” GTSO said in the statement.

“Nord Stream 2 was not a part of the vertically integrated undertaking on 23 May 2019, so exceptions should not be applied to the ownership unbundling model [OU].

“To be sure, the OU model has been designed specifically to prevent anticompetitive behavior or political interference in the energy trade,” the statement said.

The comments follow news on Tuesday that the Dusseldorf Higher Regional Court had ruled that the EU’s third energy package would apply to the Nord Stream 2 pipeline, a wholly-owned subsidiary of Russian gas producer Gazprom.

The court dismissed a challenge by the pipeline operator and upheld a ruling by Germany’s Federal Network Agency BNetzA in May 2020 which aimed to prevent infrastructure owners from obstructing access to their assets.

EU RULES APPLY

Under the latest verdict, the transmission operations of the pipeline would have to be completely unbundled from the gas supplier. It also means that third party access would apply to the 55 billion cubic metre/year pipeline and that Gazprom may only use 50% of its capacity to ship gas to Europe via Greifswald, the north German landing point.

But the verdict contrasts with Russian legislation, which allows Gazprom to hold a monopoly on pipeline exports.

“We welcome the decision of the Dusseldorf Higher Regional Court, which dismissed a bid by Gazprom that sought exemption from the Third Energy Package for its Nord Stream-2 pipeline,” GTSO said of the ruling.

“We believe that the foundational principles of the European gas regulations – ownership unbundling, third-party access, and transparent tariffs – should be applied to all gas routes without any exceptions.

“It will help assure fair competition and moderate market volatility. Moreover, the latest ruling is a great testament to European energy solidarity and is essential for region-wide energy security.”

DISCRIMINATION

In a statement, Nord Stream 2 AG did not respond to the comments from GTSO regarding its chosen unbundling model.

The company said only that it had taken note of the German court decision and would evaluate it, informing the market about its next steps in due time.

“Nord Stream 2 AG maintains that the company is being unlawfully discriminated [against], considering that all other import pipelines who had invested before the new rules entered into force are eligible for such a derogation under the amended Gas Directive,” the statement said.

“The rejection of Nord Stream 2 AG’s application for a derogation exposes the discriminating effect of the amended EU Gas Directive.

“On the effective date of May 23, 2019, the pipeline was completed from the perspective of economic functionality. Based on the applicable legal framework at that time, the company had made investments worth billions of euros long before the European Commission announced its plan to amend the EU Gas Directive,” it said.

Nord Stream 2 AG said the EU amendment requiring the application of EU rules to pipelines completed on and after 23 May 2019 was still being challenged in the EU’s Court of Justice and under the Energy Charter Treaty.

UKRAINE DELIVERY POINTS

Ukraine, which holds a five-year shipping contract with Gazprom, has been fiercely opposed to the Nord Stream 2 pipeline.

The pipe, connecting Russia to northern Germany via the Baltic Sea, is expected to reroute what is a historic gas transit path through Ukraine.

GTSO has repeatedly emphasised its compliance with EU rules for third party access and transparency and is even insisted on moving the delivery points for Russian gas from its borders with western neighbouring countries to its eastern interconnection points with Russia.

This would effectively allow more companies to use the Ukrainian transmission system, which can carry up to 146bcm/year.

Such a move would need Russia’s agreement.

On Thursday, GTSO said the existing contract which expires in 2024 should be extended by another 15 years to guarantee the stability and security of supplies to European markets.