Poland Regulator Kills Partner Participation in Nord Stream II

On August 13, five European firms (Uniper, Engie, OMV, Royal Dutch Shell and Wintershall) announced that they were withdrawing from their commitment to join the Russian-led Nord Stream II pipeline project due to an inability to respond constructively to the objections given by Poland‘s regulatory agency, Urzedu Ochrony Konkurencji I Konsumentow (UOKiK) in July.  Those objections stemmed from a decision that the pipeline project would threaten the pricing power of Poland’s LNG terminal at Swinoujscie and hand Gazprom inordinate influence over the Polish gas market.

Gazprom is not prevented by this ruling from continuing its efforts to construct Nord Stream II, however, it will now have to finance the project on its own or come up with a new way to structure the JV that will meet the approval of the Polish regulator.  It will also have to contend with a pending decision from the European Commission on whether offshore pipelines fall under its Third Energy Package regulations, which bars companies from owning both the pipelines and the gas running through them.  It does not appear that such a decision is imminent (the EC was originally supposed to rule on the issue in July).  Financing the $8 to $11 billion project alone would be a challenge for Gazprom, likely forcing it to divert funds from other projects such as the Siberian natural gas pipeline to China (the so-called, “Power of Siberia” pipeline).

This is a highly significant development for Central and Eastern European states looking to exert their will on this project that, strategically and potentially financially, would carry a heavy cost for them, permitting Russia to deliver gas directly to Western Europe.  Without transit supplies to Western Europe hanging in the balance, Russia’s negotiating position with these countries would be strengthened considerably on everything from energy supplies to the linkage of such agreements to other (even unrelated) topics.  This decision presents a major obstacle to this agenda.  Although Gazprom and Moscow are unlikely to give up on Nord Stream II, this decision will likely divert Russian attention back towards “Turk Stream” and Southeastern Europe as a priority focus for its energy and strategic influence planning.