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Policy Brief / Gas

Nord Stream 2 and the EU Regulatory Framework: Challenges Ahead

Author(s): DUDEK Jerzy, PIEBALGS Andris

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ABSTRACT

Highlights

  • An approach towards Nord Stream 2 (NS2) will set a precedent for other new pipelines importing gas from third countries into EU.
  • The EU-part of NS2 should follow rules of the Third Energy Package and the non-EU part of NS2 could either be subject to EU law by territorial extension or be governed by an EU-Russia agreement relating to the whole pipeline. The latter would need to be in line with the EU Treaties, which explicitly place an obligation on the EU to ‘ensure security of energy supply’ and ‘ensure the functioning of the energy market’.
  • Gas Market Directive should apply to the part of NS2 that is located in the EU territory. It requires a full liberalisation regime, and it remains unclear if derogations from the regime are possible. The EU part and the non-EU part of NS2 are legally connected and regulating one part influences the other. In case of lack of an EU-Russia international agreement, the non-EU part of NS2 could be subject to EU law through a territorial extension, which is widespread in EU law.
  • NS2 will have a substantial impact on the current arrangements for the gas security of supply. New stress tests are necessary to assess the measures needed to mitigate the impact of NS2 on the security of supply.
  • NS2 will impede competition in the EU energy market and will deter necessary investments in the gas infrastructure. The existing divide between Western and Eastern markets will be deepened, and the cost for the EU of establishing a well-interconnected market will significantly increase. The final settlement of the EU antimonopoly investigation against Gazprom should find remedies for these market challenges.