Weekly Overview: Brexit, Nord Stream 1&2
In the last full week before the June 23 UK referendum on whether to leave the European Union, energy markets were untroubled, even if sterling weakened on fears of an exit. “Energy isn’t central to this debate,” said a source at pipeline operator Interconnector, which links the UK to Belgium.
In many respects the UK has influenced the development of the EU gas market, being the first country to go for ownership unbundling, non-discriminatory pipeline access, revenue-neutral balancing and incorporating large chunks of the US model into its own network code – the contract setting out the commercial obligations on shippers and the transmission system operator.With its own highly liquid hub and interconnections, it is already future-proof.
On the other hand, membership of the EU hasn't been a silver bullet for its energy market: despite vigorous lobbying, it lost the argument on the ability to retain the start and finish of its gas day as defined in EU network codes, despite having much more to lose from changing it than other member states.
But in or out, as non-member Norway has demonstrated, the EU's trading rules will still have to be observed: in order to continue as a major exporter, Norway had to break up its gas sales cartel early last decade, for example, in order to comply with competition law.
Gazprom is also coming to grips with EU laws on unbundling commodity and capacity ownership, as the EC erects obstacles in the the way of Nord Stream 2, giving it uncertain capacity rights in onshore pipelines in Germany. This raises the – admittedly remote – prospect of a spur line from Nord Stream 2 running all the way to an underused UK production platform and related export pipeline system to the UK NBP, thus allowing some of the capacity to escape EC rules.
The UK energy ministry has been clearly divided on the Brexit issue. Owing to civil service rules, secretary of state Amber Rudd and her department have been unable to comment publicly recently. In March however she said that leaving would be an “electric shock” costing consumers at least £500mn a year if it leaves the EU. That shock is unlikely to refer to the abandonment of the nuclear plant proposed for Hinkley Point C – which many would consider a relief, bearing in mind the high electricity price that the majority French-state-owned plant's owners are guaranteed.
But her junior minister Andrea Leadsom has been banging the drum for exit. ”Leaving the EU will give us freedom to keep bills down, to meet our climate change targets in the cheapest way possible and of course to keep the lights on,” she said, apparently referring to security of supply arrangements that the EC is putting in place.
One benefit the UK would lose would be funding from the European Investment Bank. The bank told NGE that in the event of a vote to leave, “the legal obligations concerning EIB loans already agreed will not change. Existing borrowers will not face any change in contracts that have already been signed with the EIB…. However it must be noted that future support for long-term investment in the UK by the EIB could be at risk if the UK were to leave the EU. In the event of a Brexit vote it can be expected that the role of the EIB would be discussed in withdrawal negotiations and the EIB's future lending in the UK would be considered by the bank's 28 EU member state shareholders.
The EIB says it has supported more climate related investment in the UK than any other country worldwide and unlike other European countries there is no national infrastructure bank in the UK that could replace the European Investment Bank overnight. Over the last eight years the EIB has provided €43bn for long-term investment in the UK, compared with €1bn in all the European Free Trade Area countries combined: Norway, Switzerland, Iceland and Liechtenstein.
St Petersburg Forum: the EU returns despite Ukraine
At time of press, delegates from EU member states had flocked to the St Petersburg International Economic Forum in Russia, including such heavyweights as the president of the European Commission Jean-Claude Juncker; Italy’s prime minister Matteo Renzi, and former French president Nicolas Sarkozy. This compares with last year’s event, after the imposition of sanctions following Russia's involement in eastern Ukraine and the Crimea. Then, the main EU trophy for Russia's president and main forum sponsor, the St Petersburger Vladimir Putin, was the economically-harassed Greek PM, Alexis Tsipras.
According to a senior Russian official speaking to the Financial Times June 16, sanctions would be discussed in Putin’s meeting with Juncker, “but it’s not like we are pushing for this now… We see that the understanding in Europe is growing that we are natural partners and it is against their interests to artificially distance themselves from us just because the Americans tell them to do so.”
Also present was former UK Conservative energy minister, Charles Hendry, who told Sputnik on the sidelines that Nord Stream 2 was needed. "It's important that we diversify the routes of Russian gas [deliveries] into Europe. Nord Stream 2 does have an important part to play in that process.” Hedging his bets he also identified the Southern Gas Corridor, a big EU-US-backed project, as another key route for gas into Europe.
Nord Stream 1 & 2
Gazprom CEO Alexei Miller took the floor to present Nord Stream 2 in a newish light: the line is all about gas production and gas demand moving north, in Russia and Europe, respectively.
But also in his speech was an airing of plans to limit to a relative trickle the amount of its gas that might flow through the central export route that brings Russian gas to Ukraine. This would be done by closing down compressor stations and decommissioning linepipe, and save billions cumulatively; but it would also entrench Gazprom’s position as monopoly exporter as other Russian gas producers would find their access to European markets blocked.
The first Nord Stream line has proved somewhat of a disappointment as the EC has prevented Gazprom from using more than half the OPAL pipe, which brings gas south from Greifswald on the Baltic coast to central Europe. Nord Stream 1 has, in consequence, been running at no more than 82% of capacity.
But this is being reconsidered, the European Commission told NGE June 16, as it received in May a notification of a settlement agreement by the German energy networks regulator, the Bundesnetzagentur.
The new agreement aims at revising the conditions of the use of the OPAL pipeline as laid down in the 2009 exemption decision, and this has triggered the restart of “internal procedures for the EC decision concerning OPAL.” These are ongoing and the EC said it would “carefully assess the review request in line with the Gas Directive 2009/73 of the Third Energy Package and with other relevant EU rules.”
The Berlin-based regulator told NGE June 16 that it was hoping for a decision next month.
William Powell