Dr Alan Riley - 24/02/2017

On 28 October 2016, the European Commission approved the decision of the Bundesnetzagentur, the German energy regulator, to revise the terms of its 2009 OPAL decision.  That decision exempted the OPAL pipeline from EU rules on third party access and tariff regulation.  The effect of the revision is to substantially increase Gazprom’s access to the capacity of the OPAL pipeline and thereby to extend Gazprom’s dominance in Central and Eastern Europe.  Following a challenge by a subsidiary of the Polish state energy company, Polskie Górnictwo Naftowe i Gazownictwo, the EU General Court suspended the Commission’s decision.  The final ruling of the General Court will cast a long shadow over the commitment of the Commission to the Energy Union and in particular the security of EU gas supplies.  The judgment will also impact the ability of Gazprom and its partners to build the proposed Nord Stream 2 pipeline.

 

1.0. Brussels Under Pressure and a Polish Challenge

 

On 28 October 2016, the European Commission’s (“Commission”) approved the decision of the German energy regulator, the Bundesnetzagentur (“BNetzA”), to revise the terms of its 2009 decision to exempt the Ostseepipeline-Anbindungsleitung (“OPAL”) from EU rules on third party access and tariff regulation.[2]  The effect of the OPAL Decision is to substantially increase the amount of pipeline capacity that may be booked by Gazprom.  The consequences of the decision are far-reaching and jeopardise the EU’s plans to pursue a resilient Energy Union.  In addition to strengthening Gazprom’s dominant position in the Czech market, the OPAL Decision could increase Central and Eastern Europe (“CEE”) and Germany’s dependence on Russian gas since it materially reduces incentives to build alternative gas transit routes.

 

Remarkably, the OPAL Decision proceeds entirely by reference to conditions of supply in the German/Czech border area, neglecting the broader policy and security implications.  The decision pays little heed to one of the touchstones of EU energy policy, namely reducing dependence on Russian gas through a diversification of supply and routes.

 

Given these concerns it is not surprising that PGNiG Supply & Trading GmbH (“PST”), the German subsidiary of the Polish state-controlled energy company Polskie Górnictwo Naftowe i Gazownictwo (“PGNiG”), challenged the OPAL Decision.[3]  On 4 December 2016, it lodged an appeal with the EU General Court (“General Court”) for the annulment of the OPAL Decision together with a separate application for its suspension (so called ‘interim measures’).[4]  This was followed by the Polish Government launching its own action on 16 December with an application for the annulment of the OPAL Decision and a separate request for interim measures.[5]  On 23 December, the General Court temporarily suspended the OPAL Decision.  At the time of the publication of this paper, that suspension remains in force.  The General Court is currently awaiting responses to a series of additional requests for information from the Commission and PGNiG.  It also needs to rule on applications to intervene in support of the Commission from Germany, OPAL and Gazprom Export. 

 

The threshold for granting interim measures is high and applications are rarely successful.  This is because an applicant has to demonstrate that (i) it has a prima facie case, and (ii) it will suffer serious and irreparable harm if the suspension is not granted.  It follows that PST’s successful application is indicative of the strength of its case.  For the reasons outlined below, there is a high likelihood that the General Court will strike down the OPAL Decision.  The judgment will not only impact the operation of the OPAL pipeline, but also raises questions as to the viability of the proposed configuration of the Nord Stream 2 pipeline.  In particular, it may jeopardise plans to build the Europäische Gas-Anbindungsleitung (“EUGAL”) pipeline.  This pipeline will connect Nord Stream 2 with the German mainland, and is intended to carry approximately 50bcm of natural gas annually into the heart of Central Europe. 

 

2.0. The OPAL Pipeline

 

The OPAL pipeline runs 470km from Greifswald on the German coast (Nord Stream’s landing point) to the Czech border.  The pipeline was built to feed natural gas from Nord Stream 1 and deliver it into Germany and Central Europe. It has a total annual pipeline capacity of 36.5bcm.  WIGA Transport Beteiligungs-GmbH & Co. KG (“WIGA”), a joint venture between BASF’s subsidiary Wintershall and PAO Gazprom, currently holds an 80% co-ownership share in the OPAL pipeline.  Uniper, an E.ON affiliate, owns the remaining 20%.

 

In 2009, the Commission approved the BNetzA’s 2009 decisions to exempt the OPAL pipeline from third party access and tariff regulation in accordance with the 2003 Gas Directive[6] (the “OPAL 2009 Decision”).[7] As a condition of approval, the BNetzA was required to impose a 50% cap on the capacity that could be booked by dominant players in the upstream and downstream Czech gas markets (i.e., Gazprom and RWE).[8]   This cap could only be lifted if an optional annual gas release programme of 3bcm was implemented.  The main principles of a gas release programme were agreed between the BNetzA and Gazprom in 2011.[9]  However, in 2013, Gazprom indicated that it did not intend to implement the programme.[10]

 

The OPAL Decision significantly expands Gazprom ability to book capacity on the pipeline.  50% of OPAL’s capacity will be exempt from rules on third party access and tariff regulation.  40% will be subject to tariff regulation, but it will be sold at auction.  The final 10% (expandable to 20%) will be made available from the Gaspool trading hub in Germany with Gazprom being able to bid for the capacity at base price. 

 

The Commission has underlined the importance of auctions as a means of opening up the market.[11]  However, this entirely overlooks market reality.  OPAL was built for one reason: to act as the connection pipeline for the delivery of Russian gas from Nord Stream 1 into Eastern Germany and Central Europe.  In practice, Gazprom’s export monopoly means that Nord Stream 1’s principal gas entry point (i.e., Griefswald) only carries Gazprom-sourced gas.  Although there are other entry points along the pipeline, the economic reality is that only Gazprom’s partners are likely to make use of those entry points.  These partners are highly dependent on Gazprom for gas as a result of their upstream asset relationships.[12] 

 

It follows from the above that however formally open the auction process may seem on paper, most of the capacity will in fact end up in Gazprom’s hands.  This is evidenced by the events that followed the OPAL Decision until its suspension on 23 December, 2016.  During that period, a number of day-ahead capacity auctions were held and on monthly auction on 19 December 2016. It is understood that all of the available capacity was booked by Gazprom. This led to an increase in the capacity utilisation of the OPAL pipeline.  According to OPAL Gastransport GmbH & Co. KG, the operator of the OPAL pipeline, on 27 December, “OPAL was loaded 81% in Greifswald and 91% in Brandov”.[13]  This reflects the significant increase in gas transit through the OPAL pipeline between 22 December 2016 and 16 January 2017.   At the Greifswald entry point, gas transit volumes went up from an estimated daily average of 59.4 mcm between 1-22 December to levels sometimes in excess of 100 mcm per day; and at the Brandov exit point, gas transit volumes went up from an estimated daily average of 64.5 mcm between 1-22 December to levels sometimes in excess of 90 mcm per day.[14]   Moreover, the corresponding reduction of gas flows via the Urengoy–Pomary–Uzhgorod (“Brotherhood”) pipeline, the Ukrainian transit route, is the clearest indication yet that increased access to the OPAL pipeline is a critical part of Gazprom’s plans to divert gas flows from Ukraine.[15] 

 

3.0. An examination of the OPAL Decision

 

Following a delay of over two months, the OPAL Decision was published on 3 January, 2017.  A close examination of the decision reveals fundamental gaps in the analysis, and the key arguments used to justify changes to the terms of the OPAL 2009 Decision are singularly unconvincing.

 

3.1. The Basis for the Review of the 2009 OPAL Decision

 

The 2009 Gas Directive contains no review mechanism for exemption decisions.[16]   Similarly, the OPAL 2009 Decision contains no specific review clauses.  It follows that there is no clear legal basis for the variation of the OPAL Decision.  Consequently, the Commission relied in part on its decisional practice in connection with the Nabucco pipeline (“Nabucco Decisions”)[17] to justify its decision to review and revise the OPAL 2009 Decision.[18] 

 

However, the Nabucco Decisions are not as helpful a precedent as they first appear.  This is because the circumstances that led to the Commission’s decision to review (and vary) the Nabucco Decisions were fundamentally different.  In particular, the plans to build the pipeline were not advanced and the final decision approving the investment had not yet been taken.  Moreover, there were a series of developments that necessitated an extension of the exemption including delays to the start of the exploitation of the Shah Deniz II gas field in Azerbaijan, the main source of supply for the Nabucco pipeline; the delayed conclusion of the Intergovernmental Agreement between the countries along the pipeline route; and difficulties obtaining long-term financing as a result of the 2007-2008 financial crisis.[19]  By contrast, the OPAL pipeline has already been constructed: there is no clear basis to draw a parallel with the factors that led to a review of the Nabucco Decisions.  These differences of fact call into question the Commission’s decision to attach precedential value to the Nabucco Decisions.

 

Moreover, a key requirement for an exemption to be granted is that but for the grant of an exemption, the infrastructure would not be build.  This is reflected in the wording of Article 36 (1)(b) of the 2009 Gas Directive which provides that:

“the level of risk attached to the investment must be such that the investment would not take place unless an exemption was granted”

 

It follows from the above that even if it is possible as a matter of procedure to conduct a review of an exemption, the wording of the 2009 Gas Directive does not appear to permit a review of exemption decisions where the investment has already been made and the infrastructure is operational.  Even more so where the effect of the review is to give a greater benefit to the owner of the pipeline that was identified as a dominant gas supplier (see below).   There may be grounds to justify a review of an exemption where market conditions have changed radically or the continued operation of the OPAL pipeline is at risk as a result of financial difficulties.  However, Gazprom remains dominant in [Germany] and the Czech Republic and there was no suggestion in the OPAL Decision that the financial viability of the pipeline was at stake.  If the conditions that were imposed in the OPAL 2009 Decision were sufficient to ensure the construction, operation and solvency of the pipeline, it is difficult to justify granting a dominant Gazprom increased access to capacity.

 

3.2. Key Competition, Security of Supply and Internal Market Conditions.

 

Article 36 provides that in order for an exemption to be granted, a series of cumlative conditions must be satisfied[20].  The Commission’s assessment of two key conditions is fundamentally flawed in the OPAL Decision, namely:‘

 

“the investment must enhance competition in gas supply and enhance security of supply; and

...the exemption must not be detrimental to competition or the effective functioning of the internal market in natural gas…”[21]

 

The scope of the Commission’s analysis is narrow and entirely focused on the Czech market.[22]  Given that gas can flow onward from the OPAL pipeline and into other parts of the EU, an assessment of whether the above conditions have been satisfied would necessarily entail consideration of the impact of the decision on competition in the wider EU market, not least neighbouring territories in CEE.  This point is reinforced when one takes into account the potential adverse impact on Poland.  The fact that Gazprom is able to deliver natural gas into Poland via OPAL (i.e., from West to East), leaves PGNiG vulnerable to predatory pricing.  Indeed, Gazprom is aware of the terms of its long term supply contract with PGNiG, which would enable it to target a lower price than what PGNiG is able to offer its customers.  The effects of Gazprom employing such a strategy would be two-fold.  In addition to increasing Gazprom’s share of Polish gas supplies, PGNIG would be forced to pay for the gas it has not been able to sell under the ‘take or pay’ clause of its long term supply contract.[23] 

 

The possibility that Gazprom would be able to engage in such a strategy was put beyond all doubt in the period that followed the adoption of the OPAL decision until the suspension of the General Court began to bite: increased flows through the OPAL pipeline were inversely reflected by a sharp decrease in flows through the Brotherhood pipeline, which carries gas through Ukraine and Slovakia (see above). [24] 

 

The increased utilisation of OPAL is also likely to negatively impact the delivery of more competition in the marketplace both in terms of new routes and modes of supply.  We already have real world evidence of the negative competitive impact of the OPAL pipeline.  Following the OPAL 2009 Decision, investors exited the competing Nordal pipeline project which would have run partly in parallel with the OPAL.[25]  Equally, the impact of increased utilisation of OPAL is likely to undermine incentives to deliver interconnectors in Poland, the Czech Republic and Slovakia which would make it possible to obtain greater access to the Świnoujście LNG terminal in Poland.  These interconnectors are in fact one of the four gas corridor priorities set out in Commission Delegated Regulation 2016/89/EU.[26]

 

A further consequence of the narrow frame of reference in the OPAL decision is that the Commission has overlooked the potential impact of the increased utilisation of the OPAL pipeline on the security of gas supplies in CEE.  The existence of the Yamal-Europe (“Yamal”) and the Brotherhood pipelines provides CEE EU Member States with a degree of ‘throughput security’.  A reduction in the flow of gas that is destined for Western Europe will lead to a corresponding reduction in throughput security.  Given Gazprom’s history of politically-motivated gas supply interruptions, this danger cannot be dismissed as merely hypothetical.    According to Robert Larsson, between 1991 and 2004 there were over 40 politically motivated interruptions of Russian gas and oil supplies in CEE and Baltic States.[27]  More recently, Gazprom cut off gas supplies to CEE states in an attempt to stop gas from being dispatched via reverse flow to Ukraine in 2014 and 2015.[28]

 

The security of Ukraine’s gas supplies is also a relevant consideration to the Commission’s assessment since both the EU and Ukraine are members of the Energy Community.  In particular, the loyalty clause contained in Article 6 of the Energy Community Treaty provides that the Commission should at least take into account the open market and security of supply concerns of Ukraine.[29]

 

However, increased gas flows through the Gazprom-controlled Nord Stream 1 and OPAL pipelines are likely to make it more difficult for Ukraine to obtain reverse gas flows from EU Member States.  A reduction of reverse flows limits the ability of Ukraine to benefit from competitive North West European hub pricing.   Naftogaz, the Ukrainian state energy company has been able to successfully obtain reverse flows of gas from CEE EU Member States and Germany to replace most of its Russian gas imports, and pay significantly less for imported gas.[30]  These reverse flows have been critical to the improvement of Ukraine’s security of supply.  Crucially, Naftogaz is able to rely on its wholly-owned domestic transit system, the Brotherhood pipeline and the pipeline networks of CEE states, where Gazprom influence and ownership is limited.  Gazprom’s interests in the Nord Stream 1 and the OPAL pipeline, and potentially Nord Stream 2 and its connection pipeline EUGAL, increase its  control over gas flows through CEE.[31]  This will threaten future reverse gas flows.  Moreover, the additional transit costs associated with gas that is delivered via Nord Stream I, OPAL and the CEE pipeline network will render the delivery of gas through the Brotherhood pipeline less financially attractive.

 

Astonishingly, none of these matters are acknowledged – still less discussed – in the OPAL Decision.  Instead, the Commission undertakes a myopic examination of the Czech and German markets. However, even within that limited frame of reference, it is difficult to see how permitting Gazprom to make greater use of the OPAL pipeline will enhance competition in accordance with Article 36 of the 2009 Gas Directive.  The decision to allow Gazprom increased access to OPAL capacity will strengthen its dominant position in the Czech Republic and increase Russian gas flows to Germany.  It also undermines rather than enhances local security of supply as it makes both the German and Czech markets more dependent on Russian gas.[32]

 

4.0. A Misleading Commission Press Release

 

A further disturbing feature of this case was the opacity and lack of transparency surrounding the OPAL Decision as well as the fact that the little information that was provided by the Commission was highly misleading.  For over two months, the only information the public had concerning the OPAL Decision was limited to the press release of 28 October, 2016.

 

Given the discussion above of the actual effect of the OPAL Decision, it was staggering that Commission chose the following headline:  “Gas Markets: Commission Reinforces Market Conditions in Revised Exemption Decision on OPAL Pipeline.”  In what is perhaps the most misleading paragraph, the press release makes the following claim:

 

“The Commission has today adopted stricter exemption conditions for the operation of the OPAL gas pipeline. The Commission wants to ensure properly functioning liquid and competitive gas markets in Europe, and today's decision follows these guidelines.”

 

For the reasons outlined above, this is clearly not the case.  The effect of the OPAL Decision is to permit Gazprom to potentially access the entire capacity of the OPAL pipeline, whereas its access was previously restricted to 50% of capacity.  Furthermore, the statement ignores the adverse impact of the OPAL decision on security of supply and competition.  Indeed, the Commission’s actions are entirely inconsistent with ensuring ‘liquid and competitive gas markets’ in Europe.

 

5.0. Conclusion: OPAL, the Rule of Law and EU Energy Security

 

The OPAL Decision raises significant concerns about respect for the rule of law and diminishes the credibility of the EU’s energy security policy.

The Commission is supposed to be the ‘Guardian of the Treaties’, and has a responsibility to consistently apply the ‘acquis communautaire’. The OPAL Decision represents a clear failure by the Commission to correctly apply the terms of Article 36 of the 2009 Gas Directive.  This is compounded by the willingness of the Commission to mislead the public and the European Parliament over the true consequences of its decision.  Equally concerning, is the fact that the delayed publication meant that Gazprom could access the additional capacity before interested third parties could read the decision.  The OPAL Decision appears to be another example of the Juncker Commission positioning itself as a ‘Political Commission’.[33]  It demonstrates a failure to recognise that its overriding duty is to apply, support and enforce EU law, and not gloss over those rules in order to accommodate a political fix.

 

In addition, the OPAL Decision undermines the credibility of the EU’s Energy Union.[34]  This is one of the policy priorities of the Juncker Commission.  At its heart is a commitment to diversify supply sources and routes in order to increase the EU’s resilience to supply gas interruptions recognising that “energy policy is often used as a foreign policy tool”.[35]  The OPAL Decision undermines that commitment.  As outlined above, it threatens alternative supply routes and strengthens Gazprom’s dominant position since it lowers the likelihood of market entry by alternative suppliers, and threatens future reverse flows. If the Commission cannot be relied upon to support the implementation of the Energy Union, there is a considerable credibility and legitimacy gap.

 

The OPAL Decision is also important as a precedent for EUGAL, the connection pipeline for Nord Stream 2.  If Nord Stream 2 is built, as outlined above, EUGAL will follow the same route as the OPAL pipeline.  This would bring an enormous supply of gas amounting to 50bcm into the heart of CEE (see above).  The problems attached to the OPAL pipeline would be exacerbated considerably by EUGAL.  Nord Stream 2 represents strategic over-investment on a massive scale, designed to stifle alternative infrastructure initiatives and reinforce Gazprom dominance in CEE.

 

However, the problem for the Commission, Gazprom and its partners is that the OPAL Decision is now subject to the scrutiny of the EU General Court.  The Commission’s failure to take into account prevailing market conditions in CEE and wider geo-political considerations in its assessment of competition and security of supply makes it likely that the General Court will strike down the OPAL Decision.  Furthermore, any judgment by the General Court could impact the prospect of the Commission issuing an exemption decision for the construction of the EUGAL pipeline.

 

 

 


[1] In the interests of full disclosure it should be noted that Dr. Riley is an adviser to PGNIG and Naftogaz.

[2]Commission Decision on review of the exemption of the Ostseepipeline-Anbindungsleitung from the requirements on third party access and tariff regulation granted under Directive 2003/55/EC (the “OPAL Decision”), C(2016) 6950 Final, 28.10.2016.  See also Commission Press Release, Gas Markets: Commission Reinforces Market Conditions in Revised Exemption Decision on OPAL Pipeline, IP/16/3562, 28 October 2016.  

[3]Case T-849/16 PGNiG Supply & Trading v Commission

 

[4] For a full set of pleas, see Case T-849/16: Action brought on 4 December 2016 – PGNiG Supply & Trading v Commission, OJ C 38, 6.2.2017.

 

[5] PGNiG, Polish government supports PGNiG in OPAL case, 19 December 2016.

[6]Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC (“2003 Gas Directive”), L 176, 15.7.2003.

 

[7]Ausnahmegenehmigung der Bundesnetzagentur für die OPAL Gasleitung Gemäb Art. 22 der Richtlinie 2003/55, C (2009) 4694 Final, 12.6.2009.  Each decision dealt with the separate co-ownership parts/interests (Bruchteilseigentum) of OPAL, namely E.ON Ruhrgas’ 20% co-ownership share and WIGA’s 80% co-ownership share.  The OPAL Decision only deals with WIGA’s 80% co-ownership share.

 

[8] The Commission requested a modification of the BNetzA’s decisions under Article 22(4) of the 2003 Gas Directive.

 

[9] OPAL Decision, op cit, paragraph 27.

 

[10] ICIS, No natural gas-release programme for OPAL – Gazprom, 23 January 2013:  “The European Commission's requirement for a 3Gm³/year gas release program [sic] in order for Gazprom to get full access to OPAL is modest in terms of volume.  However, a matter of principle is at stake here for Gazprom, according to Valery Kryukov, oil and gas analyst at investment company IFD Kapital. "If [Gazprom] makes concessions today by complying with the requirements of the [Commission], this will create a precedent as a result of which Gazprom could lose more than just those gas volumes," Kryukov told ICIS on Wednesday.”   

 

[11]See Commission Press Release, Gas Markets: Commission Reinforces Market Conditions in Revised Exemption Decision on OPAL Pipeline, op cit: “the Commission notably requests that a significant amount of the pipeline's capacity has to be made available as a reliable – so called "firm" – capacity for competitors.” See also EurActiv, Sefcovic says Opal pipeline controversy ‘very technical and complex’, 30 January 2017: “Šefčovič further explained that what the Commission proposed was the real opening of this pipeline for others who would like to transport gas: up to 20% within 3 years, with the possibility of reviewing the decision.

[12] Uniper has significant operations in Russia where its core activities include power generation and sales as well as the import of natural gas to Europe via long-term supply contracts with Gazprom (see www.uniper.energy/en/what-we-do/where-we-operate/russia.html).  In 2015, Wintershall and Gazprom completed an asset swap.  Under the terms of the agreement, Wintershall acquired the economic equivalent of 25.01% of the blocks IV and V in the Achimov formation of the Urengoy natural gas and condensate field in Western Siberia.   In return, Gazprom acquired Wintershall’s share in their jointly operated natural gas trading and storage business as well as a 50% share in the activities of Wintershall Noordzee B.V., which is active in the exploration and production of oil and gas in the southern North Sea (the Netherlands, the UK and Denmark) (see www.wintershall.com/press-media/press-releases/detail/basf-and-gazprom-complete-asset-swap.html).

 

[13] Russian News Agency TASS, Operator says OPAL gas pipeline load reaches 81%, 28 December, 2016.  Although the OPAL decision was suspended on 23 December, Gazprom’s capacity bookings under the revised rules covered the period that followed the suspension of the OPAL Decision.  This meant that the impact of the reimposition of limits on Gazprom’s ability to book capacity after the suspension of the OPAL Decision was not felt until early January.  For further details see,  Gas News, Gas Transit Through Ukraine Decreases Against the Surge at Nord Stream After the Decision on OPAL, 30January, 2017.

 

[14] Central Europe Energy Partners, OSW: The OPAL pipeline: controversies about the rules for its use and the question of supply security, 1 February 2017.

 

[15] Reuters, Gazprom warns of steep gas transit cuts via Ukraine after 2020, 16 June, 2016; and RT, Russia to stop gas delivery via Ukraine by 2019, push ahead with Turkish Stream – Miller, 13 April, 2015. 

 

[16]Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (“2009 Gas Directive”), OJ L 211, 14.08.2009.  

 

[17]Exemption decision on the Austrian section of the Nabucco pipeline (“Nabucco Austria Exemption Decision I”), CAB D(2008) 142, 8.2.2008; Exemption decision on the Austrian section of the Nabucco pipeline (“Nabucco Austria Exemption Decision II”), CAB D(2008) 1094, 22.10.2008; Exemption decision on the Romanian section of the Nabucco pipeline (“Nabucco Romania Exemption Decision”), C(2009) 5135, 23.6.2009; and Exemption decision on the Bulgarian section of the Nabucco pipeline (“Nabucco Bulgaria Exemption Decision”), CAB D(2009), 20.4.2009; and Exemption decision on the Hungarian section of the Nabucco pipeline (“Nabucco Hungary Exemption Decision”), C(2009) 3034, 20.4.2009 (together the “Nabucco Decisions”).

 

[18] OPAL Decision, op cit, paras. 20 and 21, and in particular footnotes 11 and 12.

[19] See Nabucco Austria Exemption Decision II, op cit, para. 11; Nabucco Romania Exemption Decision, op cit, para. 5; and Nabucco Bulgaria Exemption Decision, op cit, para. 4.

[20]In addition to that of Article 36(1)(b).

 

[21] 2009 Gas Directive, op cit, Article 36(1)(a) and Article 36(1)(e). 

 

[22] OPAL Decision, op cit, paras. 48-53, and 105-116.  Paragraph 49, which deals with the enhancement of security of supply, contains a cursory reference to the possibility of shipping additional capacities “through OPAL to Czech Republic and beyond to other EU Member States and neighbouring countries, in particular Slovakia and Ukraine.”  However, the OPAL Decision fails to consider Gazprom’s strong opposition to reverse flows from CEE to Ukraine or its interruption of gas supplies to CEE countries in order to block those reverse flows (see below).   

 

[23] Take or pay obligations require the buyer to agree to purchase a specific amount of gas or pay a fee, in the event that gas is not purchased.

 

[24] See Gas News, op cit.

 

[25] Szymon Zaręba, Challenging the European Commission Decision on the OPAL Gas Pipeline, PISM, No. 84 (934), 6 December 2016.

 

[26]Commission Delegated Regulation 2016/89/EU of 18 November 2015 amending Regulation (EU) No 347/2013 of the European Parliament and of the Council as regards the Union list of projects of common interest, OJ L 19, 27.1.2016, Part B para. 6.

 

[27] Robert Larsson, Russian Energy Policy; Security Dimensions and Russia’s Reliability as an Energy Supplier, Swedish Defence Research Agency, FOI, Stockholm (2006).

 

[28] See for example The Guardian, Hungary suspends gas supplies to Ukraine under pressure from Moscow, 26 September 2014; Reuters, UPDATE 2 – EU-Russia gas duel deepens with Slovakia supply cut, 1 October, 2014; EU Energy Post, Interview Andriy Kobolev, CEO Naftogaz: Gazprom breaches EU Law by blocking reverse flows to Ukraine, 4 March 2015.

 

[29]Treaty establishing the Energy Community.  Article 6 provides that: “The Parties shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Treaty. The Parties shall facilitate the achievement of the Energy Community’s tasks.  The Parties shall abstain from any measure which could jeopardise the attainment of the objectives of this Treaty” (emphasis added).

 

Article 2(1) provides that: “The task of the Energy Community shall be to organise the relations between the Parties and create a legal and economic framework in relation to Network Energy, as defined in paragraph 2, in order to (a) create a stable regulatory and market framework capable of attracting investment in gas networks, power generation, and transmission and distribution networks, so that all Parties have access to the stable and continuous energy supply that is essential for economic development and social stability, (b) create a single regulatory space for trade in Network Energy that is necessary to match the geographic extent of the concerned product markets…” (emphasis added).

 

[30] See for example Naftogaz Europe, Ukraine imports record volume of reverse-flow gas from EU, 30 January, 2015; and Bloomberg, Ukraine ‘Happy’ to Pay EU Gas Price in Move Away From Russia, 3 November, 2016.

 

[31] Gazprom does have a 48% shareholding in the Yamal pipeline, but its control over the pipeline is limited on Polish territory and reverse flows have been possible.

 

[32] The Czech Republic’s access to natural gas from Western Europe has been increased since 2011 as a result of the OPAL pipeline.  However, whilst this does enhance security of supply from a purely quantitative standpoint, this overlooks the fact that Gazprom’s dominant position has been reinforced.  Moreover, the OPAL pipeline reduces the incentive to build alternative routes and encourage new suppliers.

[33] See Jean-Claude Juncker, Time for Action – Statement in the European Parliament plenary session ahead of the vote on the College, Speech at European Parliament Plenary Session, Strasbourg, 22 October, 2014: “I want the Commissioners to feel free.  The Commission President-elect was asked to do all he could to form a political College, so you must respect the fact that the Commissioners have political opinions which, through their reflections, feed into debate within the Commission” (emphasis added).

 

[34] See European Commission, Priorities, Energy Union and Climate: Making energy more secure, affordable and sustainable.  

 

[35]European Commission, Energy Union Package, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank, Framework Strategy on a Resilient Energy Union and Forward Looking Climate Change Policy (“Framework Strategy for the Energy Union”), COM(2015) 080 final, 25.2.2015, pages 4 and 6.   There are a number of passages in the Framework Strategy Union that have been widely been interpreted as a thinly veiled reference to Russia including:  “The political challenges over the last months have shown that diversification of energy sources, suppliers and routes is crucial for ensuring secure and resilient energy supplies to European citizens and companies…Work on infrastructure projects has accelerated in recent years, even more so in light ofrecent events at the European Union’s Eastern border.”