Energy Community Forwards Ukraine's Complaint to EC
The Energy Community Secretariat officially transferred Naftogaz Ukrainy’s complaint against the 55 billion cubic metres/year Nord Stream 2 project to the European Commission on January 5th, Naftogaz said the following day.
Its complaint has two points: first that the Russian-backed pipeline in its present form might breach the regulatory framework of the Energy Community; and second that it might interfere with the proper functioning of the Energy Community gas market owing to “the significant competition concerns it poses.”
Naftogaz claims that the pipeline does not meet the unbundling requirements applicable in the Energy Community and the EU's directives -- these forbid gas and pipeline transmission system operators from owning and selling the energy they carry – and nor could it seek an exemption from them, as building it would not improve competition. In fact, it would worsen the security of supply and be detrimental to the efficient functioning of the Energy Community gas market, the state-run monopoly said.
Ukraine argues that transiting “reasonable volumes of Russian gas” through Ukraine and allowing virtual reverse flow at all interconnection points between Ukraine and the EU would allow the gas markets of Central, Eastern and Southern Europe to be smoothly integrated with the rest of the Energy Community.
The project is also likely to be anti-competitive either as a collusive action to prevent, restrict or distort competition or as an abuse of dominance in the Energy Community. In this respect, the patterns and efficiency of use of the existing gas infrastructure must be scrutinised, Naftogaz said.
Gazprom’s long-term ship-or-pay deal with EUstream has enabled it to retain full control over the giant Slovakian transmission pipeline system’s flows, physical and virtual, in either direction, meaning gas now physically flows eastwards into Ukraine through a very much smaller pipeline than it could otherwise use, limiting imports to 15 bcm/y. However, it is possible for gas importers to reduce their offtake at the border with Ukraine, and so virtually flow gas to Ukraine, if they can replace it economically elsewhere.
Gazprom argues that its gas deliveries to Europe are at risk from abstraction by Ukraine – whose Soviet-era system does not allow for separate metering of transit flows and domestic use – and that it would be irresponsible as well as commercially naïve to rely on just one route when so much gas has gone missing in the past. It has signed up major European players to join it in Nord Stream 2, including the Anglo-Dutch major Shell, which was hoping to explore for shale gas in eastern Ukraine before the war. The second Nord Stream line would allow Gazprom to dispense with Ukraine's transit system.
In its statement, Naftogaz points out that the Ukrainian gas transmission system is a direct, reliable and competitive route for delivering Russian gas to the EU. It transits most of the Russian gas that flows to Turkey and all the Russian gas that flows to the EU except for the Baltic States.
Gazprom has been for many months the object of an investigation by the EC on competition grounds, although no date has been set for a decision. The EC sent a Statement of Objections to Gazprom for alleged abuse of dominance on Central and Eastern European gas supply markets in April 2015. Gazprom requested an oral hearing, which took place December 15th, in line with the EC's standard antitrust procedures.
The EC is not bound by any specific timeframe to decide on the case. Antitrust investigations depend on a number of factors such as the complexity of the case and the degree of cooperation of the entities investigated, among others.