Baltic States – CIS, Ecology, Energy, EU – Baltic States, Gas, Legislation

The European Commission adopted specific energy security strategy in May 2014. At that time, the EU member states felt vulnerable to external energy shocks and the Commission called on national policy makers to diversify and reduce dependency on particular fuels, as well as on energy suppliers and routes.

In the new Commission’s policy guidelines a Union “energy union” was based on a framework strategy, which involves energy security, solidarity and trust; it was adopted in February 2015.

Security of Supply Package

The key drivers of energy security remain the completion of the internal energy market and more efficient energy consumption. However, past years have shown that diversification of energy sources, suppliers and routes were crucial for ensuring secure and resilient energy supplies to Europe too.

In February 2016, the European Commission presented its Security of Supply Package, which responded to many security challenges. The package has sent a strong signal to member states that the EU energy union shall include a combination of creating a secure and resilient Energy Union, and on and closer cooperation among the states in energy security.

Thus, the package included proposals to a revised Security of Gas Supply Regulation, an LNG and storage strategy, changes to the scrutiny of Intergovernmental Agreements in the field of energy to make sure they are in line both with European law and security of supply objectives, and a Heating and Cooling strategy to moderate demand, which also contributes to enhancing energy security.

The package is not fully implemented; presently it is scrutinized by the two EU co-legislators, the Parliament and the Council.

Nord Stream 2 project

In the recent letter of nine EU member states’ Prime Ministers (mostly Nordic and Baltic States) to Commission President regarding the project’s legal, geopolitical and economic issues, they voiced great concern of gas companies’ plans in building Nord Stream 2.

The Commission and some member states’ are of the opinion that, if built, Nord Stream 2 would have to fully comply, as any other infrastructure project, with existing EU legislation, including that on energy and environment.

The EU law applies in principle also to off-shore infrastructure under the jurisdiction of the EU member states including their exclusive economic zones. Therefore the EU sectorial legislation shall be applied and assessed in regard to their specific energy policy’s provisions.

The Nord Stream 2 construction as an important infrastructure project is taking place in complicated legal sphere; often it could run counter to the interest of economic operators in the adjacent member states. One thing is certain, according to the Commission: the project is to function in a legal certainty; it cannot be exclusively operated only according to Russian law. Against the background of colliding legal regimes, Nord Stream 2, should operate under a legal framework which also takes duly account of the key principles of the EU energy market rules.

Nord Stream 2 – environmental aspect

The project’s energy infrastructure needs to comply with EU environmental legislation, as almost all energy infrastructures can face disruption, or even catastrophic interruption, e.g. Deepwater Horizon disaster in the south of US.

Germany has exemplary rules for the operation of pipelines connected to Norway. These rules not only fully respect the EU 3^rd energy package, but also, regarding the environment, set out the rules for operation, maintenance and environmental monitoring of the three pipelines leading from Norway to Germany. These rules are set down in legally binding agreements between the countries; the Commission has examined the agreements, so that transparency and firmness of these rules were checked.

As regards the operational safety aspects of the Nord Stream pipeline, these could have significant effects on human health. They are therefore to be assessed under the relevant national safety and environmental legislation (such as the Environmental Impact Assessment Directive).

Hence the Commission will urge the pertinent member states to clarify issues of environmental liability; the Commission is currently reviewing the situation at all sub-sea entry points into the EU, and will assess what further action may be needed.

And regarding the onshore section of Nord Stream 2, whatever its route on EU territory, the rules of the Third Energy Package must be duly respected and the Commission will ensure their correct application.

New source of supply: controversies

But the impact of the Nord Stream 2 project goes clearly beyond purely legal issues. The Nord Stream 2 could alter the landscape of the EU's gas market while not giving access to a new source of supply or a new supplier, and further increasing excess capacity from Russia to the EU. This raises concerns, and the Commission is fully aware that this aspect will play a key role in the debate between the EU, Russia and the member states.

Regarding the Energy Union objectives, the EU would financially support only those infrastructure projects that are in line with the core principles of the energy union aims, including the EU Energy Security Strategy.

Diversification of energy sources, suppliers and routes is crucial for ensuring secure and resilient supplies to European citizens and companies. However, the Commission is of opinion that Nord Stream 2, as presented so far, does not meet these conditions.

Another controversy deals with the security of supply: Nord Stream 2 could lead to decreasing gas transportation corridors from existing three to at least two, while abandoning the route through Ukraine. Also the Jamal route via Poland could be endangered. Such a reduction of routes would not improve security of supply for Europe, argued the Commission.

In April 2016, the Commission adopted a joint framework on countering hybrid threats, which meant that some critical infrastructures (e.g. energy networks) are highlighted as potential targets. The member states’ diversification strategy has to be seen also in this light, while building a resilient and secure Energy Union.

Despite economic and political challenges, Ukraine continues to be seen as a reliable gas partner and transit country for EU; hence it is in the interest of all parties that Ukraine remains a significant gas transit corridor. The successful implementation of the gas winter 2015 package, with the constructive engagement of both Russia and Ukraine and facilitated by the European Commission, has helped to secure domestic consumption in Ukraine and contributed to smooth transit supply of Russian gas to the EU.

The European Commission stands ready to continue the successfully proven format and to enlarge the trilateral talks to the negotiation of a new transit contract between Russia and Ukraine, as the current one comes to an end in 2019.

To this end, the completion of energy sector reforms in Ukraine is of utmost importance and should be further implemented. There is no better reassurance for Ukraine to remain a transit country and to attract investors to its gas assets then by completing ownership unbundling of Naftogaz and setting up an independent energy regulator in line with the 3^rd Energy Package. Commission has reaffirmed that Ukraine would have the EU support to make the necessary “game-changing steps” in the right direction.

Regarding the market impact of the Nord Stream 2 project, the Commission is carefully analyzing all project’s impacts on European competitive gas markets. In implementing the 3^rd Energy Package, the Commission made sure that no market operator is able to leverage its dominant position to the detriment of consumers. To this end, European LNG strategy aims at ensuring that all EU states have access to liquid LNG markets, which are a competitive alternative to other suppliers.

The EU agrees that all energy projects must be fully aligned with the EU's core policy objectives, including energy security. In the end, the EU and the member states should not look in an isolated way on infrastructure projects: they have to find comprehensive and well balanced solutions, benefitting all states alike, including European neighbors and trading partners.

In his speech at the conference Commission Vice-President Maroš Šefčovič underlined the necessity of frank and objective discussion about gas volumes the member states really need in the future in the post-CoP21 context and against the background of the 2030 climate and energy framework.

To enlarge the debate, the Commission has also approached IEA and ENTSO-G, which were ready to contribute; this would also help to better assess, what are the most cost-efficient routes really needed.

The Commission is convinced that only together the EU member states can succeed in achieving the goals of a resilient Energy Union with an ambitious climate policy that is to provide the member states with secure, sustainable, competitive and affordable energy.

Reference: Speech by Vice-President Maroš Šefčovič at a conference “Nord Stream II – Energy Union at the crossroads”, Brussels, 6.04.2016 in:

http://europa.eu/rapid/press-release_SPEECH-16-1283_en.htm?locale=en