The need for fair #energy in Europe

Last week, the European Commission waded in to one of the most heated rows affecting the EU. Brexit? No. It offered to negotiate directly with Russia about the Nord Stream 2 gas pipeline, which aims to bring Russian gas to Germany under the Baltic Sea. The pipeline – an initiative to pump gas straight to Germany to avoid transiting through hostile Ukraine and the fearful eastern European countries – has caused the biggest rift between Germany and EU member states – since, well, the last big rift over migration control and the euro. Why? writes Fairenergy.eu Director Peter Wilding.

Since the announcement of the Nord Stream 2 project in June 2015 at the St Petersburg International Economic Forum, it has been mired in controversy. Concern has been expressed by a number of EU governments as to the impact on their supply security, the project’s compatibility with EU law and the principles of the Energy Union.

The issues boil down to three massive questions which are existential to the EU and its most important policies.

First, security. In the EU, a more strategic role for imported gas is desired in order to ensure the security of supply and as a backup for the growing renewable energy share. This problem is that there is general consensus that this strategic import should not be under control of Russia.

Second, diversity. In view of the more strategic role of gas, the diversification of the supply routes is more important than ever. The view is that the Third Energy Package (TEP) has to be applied to all pipeline projects, including Nord Stream 2.

Third, the environment. Proud of its record in protecting habitats, combatting climate change and enforcing renewable energy rules, Nord Stream 2 drives through Baltic areas which are environmentally sensitive.

Add on to this, a new more isolationistic US policy to aim at self-supply by promoting domestic shale gas production means that the EU cannot rely on the US as back up for its energy policy and has more than before to make its own plan as regards security of supply. The view is that Nord Stream 2 is a purely geopolitical project for the Russian Federation that threatens energy security of Europe and supply diversity on Central and Eastern European markets.

All of these issues are the campaign red lines of fairenergy.eu. It is vital to understand that consumers might want the cheaper prices that Gazprom promise but, as Oscar Wilde once said: “A cynic is someone who knows the price of everything and the value of nothing.” If the EU stands for anything, it is the geopolitical reality chipping away at the foundations of Brussels’ energy security, diversity and green principles.

On security, the Ukrainian gas transmission system remains the one single route of gas transit to Europe that is not controlled by Russia (Gazprom), unlike Nord Stream 1 and the corridor through Belarus. Nord Stream 2 would double the capacity of Nord Stream and that would make it possible to deliver gas to Europe without using the Ukrainian transit infrastructure that is not controlled by Gazprom. Switching supplies to routes fully controlled by Gazprom will give the Kremlin in the long run significant geopolitical leverage vis-à-vis Germany and other EU Member States. Central and East European countries like Poland, Check, Slovakia, Hungary, Romania, Bulgaria, Ukraine and Moldova will become 100% dependent on Russian good will in terms of availability of imported gas, accessibility and pricing.

On diversity, the Third Energy Package is designed specifically to prevent supplier’s dominance on transmission infrastructure and to improve energy security of the EU. The same rules should be applied to all players. Currently, Nord Stream 2 project is assumed to be violating competitions rules. This was the official reason for western companies Uniper, Wintershall, Shell, OMV and Engie withdrawing from the Nord Stream 2 project. This happened after Poland's cartel office blocked its clearance based on concerns that Gazprom and its partners could bolster their market power, for example by dictating flows and prices to Poland once the Siberian gas reaches Germany via the Baltic Sea. Now Gazprom is the only shareholder to the project and the strict application of the third energy package of the EU is even more relevant.

On the environment, the EU Commission has released a new set of proposals aiming at de-carbonization towards 2050. This includes in the transitional phase a strategic role of gas in the so-called capacity mechanisms and a revitalized ETS system which should make gas more competitive compared to coal.

The battle now continues. It has been the subject of debate both in the European Parliament and in a European Council summit. Most recently the Polish competition authority issued objections against the Nord Stream 2 joint venture vehicle, based on concerns over the anti-competitive effect of the project within the Polish market. Added onto the strategic concerns, fairenergy.eu will contend:

• EU law does apply to Nord Stream 2. It is indisputable that Union law applies in its own internal waters and territorial seas that Nord Stream 2 passes through
• Nord Stream 2 is a transmission pipeline under EU law to which the full weight of the EU’s liberalisation obligations apply, including ownership unbundling, third party access and tariff regulation obligations.
• NS2 entirely cuts across the principles of the Energy Union, as set out in the Commission’s Communication on Energy Union.
• Nord Stream 2 concentrates routes and increases supply dependency on a single supplier. In broader policy terms, Nord Stream 2 will undermine the measures taken by the EU and the US to support Ukraine following the annexation of Crimea, and the occupation and invasion of parts of eastern Ukraine.

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