And How to Read them in Ukraine

1. Changes to the Gas Directive
And How to Read them in Ukraine.
Dr. Alan Riley, Verkhovna Rada, Kyiv, 29th March 2019

2. The Amendment?
• February Amendment to the 2009
Gas Directive….has anything
really changed?
• EU legal rules and Russian gas,
especially on German territory do
not appear to work well together?
• Will there be any real change?
• Actually significant-at least delay
for Nord Stream 2?
• May result in pipeline being
blocked?

3. The New Law
• Import Pipelines are expressly provided
to be subject to EU law within territorial
sea
• Jurisdiction limited to Member State
where a pipeline first lands on EU
territory.
• Derogation Procedure for existing
pipelines. Nord Stream 2 not an existing
pipeline
• In principle full EU law apply to Nord
Stream 2

4. Nord Stream 2’s Obligatons
• Ownership Unbundling, Transparent Tariff
Regime, Third Party Access & Gas Release
Programme
• Gazprom has to sell the pipeline; transparent tariffs
trigger pricing disputes with other customers; TPA
gives Gazprom’s Russian competitors direct access
to EU markets and gas release improves market
liquidity
• More fundamentally Gazprom is subject to the
same legal regime as other energy actors…loses
political leverage
• Plus Article 11: Lex Gazprom?

5. Escape Routes I
• Article 36 Exemption
• Empowerment Procedure
• Both procedures are EU law
procedures & controlled by the
Commission
• Standards the same-Single
Market, Competition & Supply
security
• Problematic for Gazprom

6. Evidence for the prosecution
• Difficult for Nord Stream 2 to meet
the legal standards of Article 36 or
the Empowerment Procedure
• Larsson’s detailed evidence of gas
cut offs 1991-2004; gas crisis 2006
and 2009, threats and cut off due to
reverse flows in 2014.
• The loss of transit security for CEE
states
• The impact on reverse flow (a EU
and Ukrainian interest)
• Nord Stream 2 dividing the single
market

7. Escape Route II: The Stub
• Hive off the pipeline in territorial waters
approx 50km German, and 50km Danish
• Place that part of the pipeline in a
separate company and only apply EU
law to that pipeline.
• Still have to comply with OU, tariff
regulation and gas release. Query TPA?
• More fundamentally wholly artificial-
EU and esp the Gas Directive 2009
avoids legal formalism
• Also will NS2 need new permits?

8. EU Jurisdiction?
• Has been assumed that jurisdiction to
territory of EU (for NS2 territorial
seas) limits EU jurisdiction
• But impossible to separate one whole
pipeline.
• EU has developed a territorial
extension doctrine…could apply here
• e.g. Gazprom Export Monopoly only
has value if there is access to the EU
end of the pipeline in EU territory
• ECJ likely to take the view that EU
does have jurisdiction.

9. But EU Law Does not Apply in Germany?
• NEL pipeline, 2009
• Nord Stream 1, 2009
• OPAL questionable
first exemption, 2009
• OPAL second
exemption decision,
2016
• EUGAL, 2017

10. Unlike in the rest of the EU
• Yamal Import Pipeline..fully
subject to EU law..including
an Art 11 assessment.
• South Stream Pipeline-
Bulgaria faced with
infringement proceedings for
South Stream onshore and
offshore in territorial waters

11. The Law Bites Back
• OPAL second exemption legal
challenge. T-883/16
• Not new infrastructure, No account of
A36 terms
• Poland already obtained interim
measures in EU Court
• Gazprom Commitments Decision
• Both cases will be lost by the
Commission
• OPAL ruling July-Shadow over any
German decision on NS2
• Encourage more litigation against NS2

12. Problems for NS2
• NS2 faces delay at least-consider
restructuring?
• Prospect of legal problems any way
it moves
• Prospect of Re-Permitting all the
routes
• Prospect of substantial and multiple
litigation
• Denmark
• Also Turk Stream 2?

13. Russian Reaction
• Seek to get the pipeline built or
near built
• Do not comply with EU rules
• And wait for the expiry of the
Ukrainian transit
• Bulgargas Evidence
• Seek to Coerce the use of NS2
• Its EU law or no gas-your choice?

14. Ukrainian & EU Response
• Problem with Ukrainian transit
cut off in January 2020 is that
Ukraine’s reverse flows via
Brotherhood will also no longer
flow
• Domestic Production
Improvements/Fuel Switching
• EU-Ukrainian Co-operation
-New Pol/Ukr Pipeline
-Regas Ships
• Case for EU/Ukrainian Strategic
Energy Security Co-operation
• Role of US