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    Denmark Might not Apply Continental Shelf Law: NS2


Denmark might approve the draft amendment to the law on the continental shelf but might also decide not to apply it to NS2, whereas the EC appears to be drafting changes to the Gas Package that could affect it.

by: William Powell

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Natural Gas & LNG News, Europe, Corporate, Exploration & Production, Import/Export, Investments, Political, Ministries, Infrastructure, Pipelines, Nord Stream Pipeline, Nord Stream 2, OPAL, News By Country, Denmark, Russia

Denmark Might not Apply Continental Shelf Law: NS2

Denmark's parliament is likely to approve the amendment to its law on the continental shelf, but that does not mean that it will choose to apply it in the case of Nord Stream 2, said Nord Stream's financial director Paul Corcoran.

The Danish amendment would enable the government in Copenhagen to push the planned 55bn m³/yr Russian gas export line Nord Stream 2 (NS2) out of Denmark's exclusive economic zone (EEZ) if it judged it necessary for security or defence reasons, Corcoran told the European Autumn Gas Conference November 8.

The existing 55bn m³/yr Nord Stream 1, now operating at 90% of capacity, already passes through the Danish EEZ.

A change of route will add to the costs as the seabed of a new route would need to be surveyed for the relevant distance, said Corcoran, and would also extend the time it takes to lay it, although he did not say by how much in either case. It was a "bizarre conversation" to be having at this late stage, he added, noting that the Danish draft law enjoyed cross-party support but that did not mean the government would decide to apply it.

About a sixth of the linepipe has been weightcoated in readiness for laying on the seabed; and the company is planning to start seeking approvals from the five littoral states this year, starting with Germany and ending with Russia in early summer next year, he said.

Assuming approval from Germany this year, the onshore work can begin in 1Q2018, including the start of construction of Eugal, a new pipeline which will carry 45bn m³/yr south to the Czech Republic. The other 10bn m³/yr capacity in NS2 would enable gas to be flowed west to the region where output is falling: the UK, the Netherlands, and eventually Norway. Norway though that had a record gas year for exports in 2016-17, producing 123bn m³ for sale on the continent thanks to Troll and Oseberg fields.

Corcoran said that the European Union was an excellent market that functions well, and that pipelines, not LNG, played the key role of delivery the cheapest gas to Europe.

Several speakers had referred to Asia a 'winning' the LNG tug of war as more deliveries were going that way than to Europe, although by paying more for gas than the latter, they could be said to be losing it.

Analyst John Twomey from Bloomberg New Energy Finance said that the signs were ominous for northwest Europe this winter in terms of supply, and prices could spike. After four mild winters, "will the gas market get away with it this year?" he asked delegates.

A key indicator was the large price difference between March and April 2018, March being the last month of this coming winter. It was very big, only narrowing in October as German storage filled up in the mild weather, and traders became more relaxed about storage levels at the end of the season, he said. 

Energy Union not a legal document

Lawyer Ana Stanic of E&A Law pointed out at the conference that any change to the EU Gas Directive, the amendment process of which is starting November 8, had to be general and could not be aimed specifically at NS2. In her talk, she also said that the EU's Energy Union was not legally binding and there was no need to reference it when assessing such things as intergovernmental agreements. Other delegates told NGW that it was no more than a digest of existing energy packages and was designed as a means of appeasing Poland, which had been pressing for the anti-competitive plan to create a single gas buyer for the EU.

"I do not know what is being proposed [with respect to amendment to the Gas Directive," she said, "but the EC has to be very careful, or the drafting could affect other projects. It must also not breach World Trade Organisation principles, she said. LNG projects could also be affected depending on the wording, she said.

Danila Bochkarev, senior fellow of Brussels-based think-tank EastWest Institute, agreed that politicising commercial markets was not a good principle, and that the aims of the Energy Union had already been covered by the third package. That had already had its desired effect of lowering energy prices and bringing them into alignment, from the Czech Republic to the Dutch Title Transfer Facility, he said.

Where there were distortions and market inefficiencies, those could be attributed to the appropriate regulation not being legally valid, such as some of the later network codes that had been slow to take effect; or to states intervening, to block their intended effect on their own markets.


William Powell