Nord Stream 2 ‘Fits with the Market’: Gazprom M&T

The European division of Russian export monopoly Gazprom believes its Nord Stream 2 line is compatible with the third energy package of the European Commission.

The head of regulatory affairs for Gazprom Marketing & Trading, Alex Barnes, told a European gas conference in Vienna January 21 that it was not merely compatible but that it would also help to develop the EU gas market.

He dismissed questions of EU gas demand, energy policy and diversification as beside the point, saying that the accusations against Nord Stream 2 lack a factual basis. Some of it them arose from a misunderstanding of what a market is.

“In a market, it's market players who make decisions whether or not to invest, and whether or not there'll be demand for their project in the future. Governments, politicians, regulators are certainly welcome to have their ideas and their views on this, but they're not the ones who decide,” he said. “It's the market players who make the decision, and it's they who bear the risk.”

Nord Stream 2, he said, is a completely privately funded project that is not requesting EU ‘Projects of Common Interest’ status as many other projects are.

Barnes also challenged the notion that building a pipeline forced customers to purchase the gas delivered through it: “just because I’ve built a pipeline, that doesn't mean that you have to buy my gas. The idea that that somehow it's undermining diversification of sources is just not true.”

Pillars of the Union

Referring to the pillars of the energy union, he conceded that energy security and supply were completely legitimate goals, as were a fully integrated energy market and liberalization, decarbonization of the economy, energy efficiency and competitiveness, which Nord Stream 2 would contribute towards.

Barnes said that Gazprom has a long history of making sure that it gets its gas to European markets. “Long before the energy union came into effect, Gazprom has been diversifying routes, so that gas that goes to Europe does not rely on one route alone, so we've had Yamal and Nord Stream.

“In terms of trust, I can't think of a bigger statement of trust than you spend billions of dollars putting infrastructure in place looking for extra market, because unlike LNG, pipelines can't change direction.”

He said Gazprom's investments in gas storage close to its customers also bolstered such trust. Moreover, he said Russian gas will have to compete with other sources of energy: other sources of gas, as well as coal and renewables.

In regards to the isolation of some European markets, he noted the fact that some EU-sanctioned gas interconnections have not yet been put in place, “So, it's not actually the importers who are bringing gas into Europe who will have the ability to do this; it's the European member countries themselves.” And “whatever happens to other import routes, you'll still have the gas arriving in Europe and able to reach the markets that require it,” he said.

Principle of non-Discrimination

Nord Stream 2 is an offshore pipeline from a non EU, non-European Economic Area country, and just like other import pipelines coming from other geographies, the third package doesn't apply to it. These include lines from north Africa to southern Europe, for example.

He said applying the principles of the third package – separation of the business of energy supply from the means of transporting it – to Nord Stream 2 but not to other lines was discriminatory.

A better approach, he said, would be to ensure that plenty of gas can reach Europe and, once there, flow to where it was required. “The European internal market,” he said, “is no longer about point-to-point pipeline routes; you get gas to the market, to the hubs and then it goes to where it's needed according to the price.”

Barnes said this is what has already been seen in northwest Europe: a market with entry-exit hubs, third-party access to capacity, and market-based balancing.

“There's a market there, and irrespective of where gas comes into Europe, it is able to flow. So the idea that bringing gas into Germany isolates eastern Europe or Poland is not true,” he said.

Delegates on a panel following Barnes' speech were asked what would happen to the stranded assets of the gas infrastructure from Ukraine to Slovakia if Nord Stream 2 were to be built.

Fielding the question, the chair of the gas committee of the European Federation of Energy Traders,  Doug Wood, was doubtful if Nord Stream 2 would “not cost Europe a cent” and said that its implementation could strand many other pipelines. “Then we may still be paying for other things in addition to that. And we don't really have a format at the moment to discuss how these things may play out that allows shippers to book with confidence longer term [capacity] contracts.”

Gazprom has booked long-term capacity in the Slovakian pipeline system on a ship-or-pay basis covering 50bn m³/yr, committing it to spending money on that route until 2028. But according to Ukraine's pipeline company Naftogaz Ukrainy, this has enabled Gazprom to block reverse flow of gas into Ukraine through that system.

Drew Leifheit reporting from Vienna; edited by William Powell