Berlin Rejects an Expected Waiver for Gazprom to Realize the Original Configuration of the Nord Stream 2 Gas Pipeline

On May 15, Germany’s energy regulator Bundesnetzagentur (BNetzA) rejected a Gazprom application for an exemption from the EU’s Gas Directive under the rationale that the project was not completed by May 2019, when the Directive amendments were finalized.  Gazprom has argued that the NS2 project should be classified as completed (for the purpose of receiving the waiver), as all investments were finalized and construction had already begun when the amendments were ratified by the EU

BNetzA’s had announced in early May that it was likely to decline Gazprom’s waiver request just weeks after news that Polish gas operator, PGNiG, will participate in derogation proceedings that will determine whether Gazprom receives an exemption from EU gas market regulations laid out under the Third Energy package. The Directive, which mandates that the Third Energy Package apply to non-EU gas operators, such as Gazprom, was intended to prevent Russia’s monopolization of European gas supply.  BNetzA’ ruling will force Gazprom to abide by the 2019 EU Gas Directive, which would effectively prevent Gazprom from assuming singular control over the NS2 pipeline. 

It has generally been expected that Berlin would exempt Nord Stream 2 from the Third Energy Package, permitting it to proceed mostly as planned. At the time that the Directive in question was passed, EU member states conceded to a clause that delegated enforcement of the Directive to the country receiving the pipeline.  This gave Germany the authority to enforce or exempt Gazprom and Nord Stream 2 from EU regulations that would prohibit Russia from owning and operating the pipeline, while also serving as the sole supplier of its throughput.

The operating company for the project, Nord Stream 2 AG, sued the European Union over these matters in September 2019, claiming that EU regulations were “discriminatory” and in violation of international law.  Arbitration, however, could take 2–4 years.  In the meantime, Nord Stream 2 AG continues to pushback on EU regulations in other ways.  While experts have expressed the view that a waiver denial will not necessarily delay the construction of the pipeline itself, would add operational challenges and could significantly delay expected increases in the flow of Russian gas to Germany (and, through Germany, to other Western and Central European states).  This would also impact the profitability and financial viability of the project, particularly at  time when EU gas market demand is in significant decline. .

Completion of the pipeline has also been delayed by U.S. sanctions.  Nord Stream 2 AG, has yet to disclose the new timeline for completion of the project, as the back-up Russian pipelaying vessel, the Akademik Cherskiy, continues to wait outside the German port of Mukran for further guidance on resuming work. The project company has thus far only indicated that it is “actively looking for solutions” to finish pipelaying work, but that it will not disclose technical, commercial, or scheduling details of the project due to the threat of sanctions.