EU Draft Regulation Muddies the Waters (GGP)
The amendment of the Gas Directive has got off the regulatory starting-block and trialogue appears to have found a common language for the amendment, but of course council and parliament would still need to vote and adopted regulation needs to be implemented by the Member States. This process will coincide with the European elections and the appointment of the new European Commission.
The proposal agreed on February 8 and published by the Council February 11 (https://data.consilium.europa.eu/doc/document/ST-5874-2019-REV-1/en/pdf) gives Member States the right – taking into account "the previous lack of specific Union rules applicable to gas [ ] transmission lines to and from third countries – to grant derogations from certain provisions of Directive 2009/73/EC to such [ ] gas transmission lines which are completed at the date of entry into force of this Directive". This relates to unbundling, designation of the transmission system operator, third party access, fixing/approving tariffs, etc.
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This is still a preliminary document -- the text is still not published and still not finally agreed by the co-legislators -- and it is too early to speculate regarding the derogation principles and the projects which might be affected by this change in regulation. So at this point, it is mostly speculation which is already leading to conclusions disconnected from the market realities.
Some commentators conclude that with a EU regulatory status, Gazprom could use only parts of the capacity (for instance the FT editorial 'Nord Stream 2 marks a failure for EU energy policy' published February 13. The speculation there is that, somehow, 10% of capacity has to be made available to third parties.
Actually, if regulations were to be applied under third-party-access (TPA) rules, 100% capacity has to be made available to third parties in an open competitive process such as auctions. However, this does not mean that a single shipper could not ultimately book all the capacity, it is just about how much of the capacity can be offered and for how long.
The German pipeline Opal was subject to a specific arrangement and in any case, it is now almost fully used (https://ivo.opal-gastransport.biz/ivo/physicalFlows?4#showData) at its' entry point in Greifswald where the Nord Stream 1 pipeline connects with the German network. This data shows that the Opal deal does not prevent the shipper being able to use the full capacity at least at the entry point.
The most important aspect of the reported agreement is the geographical scope: application is limited to territory or territorial waters of the member state where the pipeline connects to the European gas market. This avoids a clash with UN Convention of the Law of the Seas and one unnecessary conflict of laws. This is a good compromise that should satisfy all parties with regard to Nord Stream 2.
Media exclusively focus on the NS 2 which has not being built yet. However, this often unjustified attention hides an important fact: other pipeline operators in Italy, Ireland and Spain now need to figure out how to get derogations or where necessary, how to re-negotiate with the EU support their existing intergovernmental agreements (IGA). Just to give some examples:
- In case of Ireland: UK – Ireland gas interconnectors may soon become interconnections with a third country with no governing framework in case of a "no-deal-Brexit".
- In case of Spain: Gazoduc Maghreb-Europe and Medgas connecting Algeria and Spain.
- In case of Italy: Greenstream pipeline connecting Lybia and Italy; Transmed connecting Tunisia and Italy.
These are all important issues that need clarifying, but if you are a pipeline operator you should take these developments into account in one way or another.
Last but not least: the amendment creates a competence shift and increases the EU role in concluding and amending existing and future IGAs. It also creates an additional uncertainty for the investors as the rules keep changing mid-game. Many investors will look to Brussels now for reassurance that this type of politicisation does ultimately not undermine their legitimate expectations. If this trend continues, the EU will end up with an infrastructure sector in which only tax-payer funded subsidy programmes like the CEF can provide funding, with political strings attached. It would roll back the liberalisation of the market into some central planning model.
Danila Bochkarev is senior fellow at the East-West Institue, focusing on energy and economic security issues. He is writing here in a personal capacity, not expressing the views of his organisation.
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