The idea to have a cohesive energy policy in the EU is ingrained in the Treaty on the Functioning of the European Union as well as in the Energy Union, with the first point of the EU energy union strategy being: security, solidarity and trust. This was interpreted by the European Commission in 2014:
“Government interventions that affect this market framework, such as national decisions on renewable energy or efficiency targets, decisions to support investment in (or decom-missioning of) nuclear generation, or decisions to support key infrastructure projects (such as Nord Stream, South Stream, TAP or a Baltic LNG terminal) need to be discussed at European and/or regional level to ensure that decisions in one member state do not undermine security of supply in another member state.”
(European Commission, 2014)
In order for the objectives of the Third Energy Package to be achieved, EU requires its liberalisation rules to be applied uniformly. In the case of gas networks, Directive 2009/73/EC concerning common rules for the internal market in natural gas, better known as the “Gas Directive” is of relevance in the discussion surrounding Nord Stream 2.
Historical pipeline precedents
Whilst there is currently a debate over whether EU laws apply to the entirety of the NS2 pipeline, for which the pro-NS2 camp is arguing that it does not, what is interesting from a legal perspective is to see how the directive has been implemented previously. As the Gas Directive requires that all new gas infrastructure must comply with a common standard, it follows that the Commission has begun to bring already constructed infrastructure, in the case of the Yamal-Europe pipeline into conformity with the rules (Riley, 2016).
In addition, in December 2013, the director for energy markets at the European Commission said that the bilateral agreements for the construction of the South Stream pipeline was in breach of EU law and would need to be re-negotiated. The Commission highlighted issues such as breach of the ownership unbundling rules, the need to ensure non-discriminatory access of third parties to the pipeline, and addressing the tariff structure of the pipeline. These issues are something that the NS2 pipeline has to address as well and it is possible that a legal challenge would “jeopardise the prospects of the pipeline”.
Application of Gas Directive
The Gas Directive requires that all new infrastructure must comply with a common standard, ownership unbundling, third-party access and tariff regulation, with some restrictions contained in Article 36. The amendment to the directive henceforth confirms that EU law will apply in the section of the NS2 pipeline running in German territorial waters. The next question then, is whether the same legal framework will apply for the entire pipeline – to the section running from the end of the German territorial sea to the Russian border.
One argument for how the scenario would look like in order to comply with the amendment is that the rights to operate the German section of the pipeline could be transferred to a German transmission service operator (Yafimava, 2019). There are several issues with this argument, the first being that EU law would still have to apply within the section of NS2 that runs in EU territory – namely that of energy unbundling, third party access and tariff regulations. After all, the pipeline will still run as one continuous pipeline and it would thus be difficult to picture how the actors involved would resolve these issues. In addition, there is also a possible issue of having to re-file for permit rights if a new company were to be created to operate the German section of NS2. In this case, it would be difficult to see the permit rights being easily granted given the large opposition against NS2 currently by the Central and Eastern European states.
As a result, it is possible that Nord Stream 2 may not be an “eventuality”, as some have proposed and that legal challenges loom in the future.
Note: Another interesting legal case to consider is Poland’s PGNIG taking legal action against the EU in their decision on the Opal pipline, of which the verdict will be delivered in 2019, see:
https://www.reuters.com/article/pgnig-gazprom-opal-idUSL5N1E03FA
Nord Stream 2 Project: A clash of energy security, market & geostrategy in Europe 