Germany’s effort to block EU rules from applying to the Russia-backed Nord Stream 2 pipeline suffered a blow Thursday when France balked at backing Berlin.
The fight boils down to a set of EU gas rules up for discussion by member countries on Friday. Germany wants to halt the update of the Gas Directive, which it worries will interfere with its appetite for Russian gas. But Paris put its foot down, and won’t let Germany get its way.
EU ambassadors will decide Friday morning whether to start talks with the European Parliament on proposed amendments to the EU’s Gas Directive, aimed at ensuring the EU’s gas liberalization rules apply to pipelines coming to the bloc from third countries.
Berlin has been frantically trying to assemble a blocking minority in the Council, but could come up short. The final blow was likely France’s admission that it will abandon Germany.
“France intends to support the adoption of such a directive,” French foreign ministry spokeswoman Agnès von der Muhll told reporters on Thursday. “Work is continuing with our partners, especially with Germany, on possible changes to the text.”
But even if the revamped directive is passed, it won’t stop Nord Stream 2 — which is already under construction. What it could do is cause delays and hurt Gazprom’s bottom line. The new rule could also be a wild card in separate negotiations with Ukraine over future gas transit through the country.
Nord Stream 2 is meant to ship 55 billion cubic meters of gas a year to Germany and is backed by five Western European companies — Austria’s OMV, Anglo-Dutch Shell, France’s Engie and Germany’s Uniper and Wintershall.
The project is fiercely resisted by many Central European countries, worried it will allow the Kremlin to use gas supplies as a political weapon in its former empire; the Commission is also wary because it undercuts efforts to make the bloc less dependent on Russian energy. Washington has also expressed its disapproval.
Marco Giuli, an analyst at the European Policy Center, a Brussels think tank, said the directive’s effects “mostly refer to possible delays.” That’s because the pipeline would find itself covered by two different regimes: the EU’s gas rules at the German end and Russian rules at the other.
Because of that, the EU and Russia would have to strike a political deal on how to regulate the pipeline, or alternatively Gazprom could ask Brussels for an exemption from the rules as it did for OPAL, the onshore leg of Nord Stream 1, the sister pipeline of Nord Stream 2.
The Commission approved that request, and Gazprom now uses nearly all of OPAL’s capacity.
The revised directive could also “provide the Commission with the possibility to introduce a cap on Gazprom’s ability to utilize capacity in Nord Stream 2,” said Katja Yafimava, senior research fellow at the Oxford Institute for Energy Studies. The Commission could argue that its revamped rules mean the pipeline has to provide access to third parties. Gazprom has an export monopoly on the infrastructure.
“While the [Commission] may believe the amendment would put it into a position of strength vis-à-vis Russia or Gazprom, in my view this is an illusion,” said Yafimava.
If the Commission limits Gazprom’s use of Nord Stream 2, that could create problems farther down the line; capacity for EUGAL, the onshore leg of the pipeline in Germany, is already fully booked by companies wanting to buy Russian gas under legally binding contracts, Yafimava said.
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“One should expect significant litigation to follow should these contracts be violated,” she said.
The directive could also impact ongoing talks between Russia and Ukraine, overseen by the Commission, on a new gas transit agreement once the current one expires at the end of this year.
Yafimava said applying the revised Gas Directive rules to Nord Stream 2 “would undermine chances of securing the post-2019 Ukraine transit agreement.”
However, if the directive succeeds in delaying the completion of the pipeline — due to be finished by the end of this year — that could “improve Ukraine’s position” in the transit talks, Giuli said, as Russia would need to ensure continued access to the European market.
Nord Stream 2 says construction is going according to schedule, although the pipeline still needs one construction permit from Denmark.