Nord Stream 2 and the Security of Gas Supplies in the Energy Union

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1 Nord Stream 2 and the Security of Gas Supplies in the Energy Union 22 February 2016, Berlin Adam Janczak Deputy Director of the EU Economic Department Polish Ministry of Foreign Affairs

2 State of play / the NS2 context Gazprom discriminates between different European buyers price disparities cannot be explained by difference in terms of distance, purchased volumes or alternative supply options) EC antitrust case against Gazprom EC Statement of Objections against Gazprom (Apr 2015): company is suspected i.a. of charging prices to wholesalers that are significantly higher compared to Gazprom s costs or to benchmark prices Estimated welfare loss for the EU due to gas market inefficiency from bn EUR/year [ACER] to 30 bn EUR/year [Booz&Co] EU dependence on Russian gas around 39 per cent of gas imports to the EU come from Russia (2013) Gazprom Prices, Source: Interfax (2015) Source: EC

3 Nord Stream 2 increases EU dependence on Russian gas contrary to EU diversification goals (potential new sources less attractive) the EU may miss the LNG bonanza with USA, Kanada, Australia entering the market in case of PL it may downgrade economic prospects for LNG Świnoujście lacks economic justification: over-capacity of existing supply transit routes from Russia to the EU 230 bcm available vs. 119 bcm of imports in 2014 (utilis. rate 51 %) shipping fees: 43 USD/1000 c.m. (NS) vs. 34 USD/1000 c.m. (UA)* existing transit contracts with SK (to 2028; 630 meur of fees in 2014) and BG (2030; 90 meur/2014)* * Source: Reuters, Moscow Times, EEGA

4 Source: Gascade Gazprom s growing market share in DE may help to impact market functioning control of supplies and infrastructure (especially UGSs) will give the company more levarage on prices in PL, Mallnow case is seen as a harbinger of Gazprom s pressure on DE market Additional invevestements in DE grid necessary: OPAL capacity 36 bcm/y NEL capacity 20 bcm/y more UGS?? Nord Stream 2 even with limited OPAL, system in Eastern DE inefficient (Mallnow case a proof)

5 Nord Stream 2 NS2 may be against EU law thrid package rules (third party access, independent pipeline operator, fair tariff rules ect.) public procurement (Gazprom awards companies with construction contracts) competition law (PL competition authorities analyse NS2 consortium s application) Naftohaz complaint against NS2 (incompliance with EnCom rules) and it requires comprehensive analysis Any new infrastructure should entirely comply with the Third Energy Package and other applicable EU legislation as well as with the objectives of the Energy Union. (European Council s Conclusions, December 2015 ) offshore sections should also comply (not only in the territorial sea, but also in EEZ - CJEU judgements: C-347/10, C-6/04) It certainly is against energy policy goals (no diversification of suppliers nor sources!)

6 Source: gazprom NS2 / Ukraine harmful to Ukraine and thus contrary to EU assistance for UA (1,8 bn EUR of planned EU assistance vs. 2 bn USD/y of gas transit income loss) destruction of Europe s biggest and most important transit routes (NS1&2 and Yamal capacities bigger than EU gas needs; UA route redundant) thanks to UA transit both sides have reason to negotiate: UA still needs RU gas and transit fees RU needs UA route to deliver gas to the EU

7 SoS legislative package published by the EC on 16 February 2016 SoS package may alleviate NS2 s negative impacts, if fully applicable to NS2 Consists of i.a. review of Security of Gas Supply Regulation (994/2010) and Decision on Intergovernmental Agreements in Energy (IGA, 994/2012) EU Strategy on LNG and Underground Gas Storage Most important proposals Transparency of gas contracts with dominant suppliers only LTCs; duration min. one year 40 per cent threshold of market dominance landmark conclusion of March 2015 European Council

8 Enhanced regional cooperation Regional risk assesments and preventive /crisis management plans CEE region: CZ, DE, PL, SK Solidarity clause SoS legislative package published by the EC on 16 February 2016 (does not take into account a planned NS2!) Most important proposals obligation to help protected consumers in crisis-stricken MSs, even at the expense of own non-protected consumers Source: European Commission

9 NS2 follow-up actions NS2 is a stress test for the Energy Union concept s credibility CION to make comprehensive analysis of NS2 s conformity with the EU law and take legal actions, if necessary NS2 affected NRA(s) are to (similarly to the PL section of the Yamal pipeline): - Coordinate and approve tariffs - Apply TPA - Certify NS2 s TSO to OU model

10 Thank you for your attention Adam Janczak Deputy Director of the EU Economic Department Polish Ministry of Foreign Affairs