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GAS Nord Stream 2 6 October, 2021 12:30 pm   

Gazprom vs. EC – round two at Poland’s request may tank Nord Stream 2

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It’s time for a second antitrust investigation against Russia’s Gazprom. Poland is opening another front in the battle against the dominance of this supplier and its Nord Stream 2 project. This is because the first investigation did not result in Russians changing their behavior, as they now use the gas price crisis to manipulate the market -writes Wojciech Jakóbik, editor-in-chief at BiznesAlert.pl.

Russia uses Trojan horses and fait accompli policy

Experts are debating whether Gazprom’s maneuvers on the gas market in 2021could be legally challenged. For instance, the company’s ability to further limit gas transit via Ukraine was possible thanks to a 15-year deal with Hungary’s MVM on supplying 4.5 bcm of gas a year via a route through the Turkish Stream pipeline, Serbia and Austria, bypassing Ukraine. The contract is legal, and Hungarians had the right to sign it. However, it is incompatible with the priorities of the common energy policy of the European Union, because it was signed to the detriment of Ukraine, which is a member of the Energy Community. However, it is difficult to find a legal basis for challenging this decision, precisely because of the cooperation of Budapest, which for this reason looks once again as Moscow’s Trojan horse.

Critics of Gazprom argue that the company is using gas price increases to force the start of deliveries through the disputed Nord Stream 2 pipeline, which requires regulatory certification in Germany once its operation is adjusted to EU regulations. The Russians may want to convince the Europeans to allow them to start the deliveries before the above process is over, or launch the pipe by implementing ad-hoc solutions. They argue that the start of deliveries through Nord Stream 2 will lower gas prices in Europe.

Quoting the Danish Energy Agency, the Kommersant daily has reported that the operator of the disputed Nord Stream 2 wants to start filling the first thread of the pipeline with gas, because, according to the newspaper, the company managed to carry out the technical certification necessary to start deliveries. The newspaper speculates that this may be the result of the agreement between the US and Germany on Nord Stream 2 from July 2021. The deliveries can start only after regulatory certification, that is, once it has been approved that the pipe works in accordance with EU laws. “The news about filling the pipeline with gas has already slightly reduced gas prices,” argue the authors of the article. This confirms the thesis that the Russians want to use high gas prices to accelerate the launch of Nord Stream 2. Any certification by the German regulator, the Bundesnetzagentur, still needs the approval of the European Commission. Its decision may be challenged in court. Russia uses a policy of fait accompli, but it is already clear that there may be grounds for questioning it. Poles may participate in the regulatory certification of Nord Stream 2, we have already written about this topic, to which the German regulator, but not only, has already agreed.

Round two with Gazprom

The Polish Press Agency reports that Warsaw expects the European Commission to investigate whether Gazprom is manipulating the natural gas market in Europe to increase the prices. The matter is to be discussed during the coming EU Council summit.

EU leaders will meet on 20-21 October in Brussels. According to the diplomatic source of the Polish Press Agency, that’s when Poland will want to talk about the probe into Gazprom. “A few countries asked to organize a special discussion,” the source claimed. They also stated that one of the reasons why gas prices are going up was Gazprom’s decision to limit gas supply to individual EU states. They also explained that the capacity booked for the two main gas pipelines that transmit the raw material from Russia to the EU (via Belarus and Poland, and Ukraine and Slovakia) has been almost halved. “The gaps in the transmission of the gas are significant and gas storage facilities have not been filled up, both of which contributes to the prices growing,” said the diplomat.

“Our source also claimed that it is possible that the topic will appear at the informal dinner of EU leaders scheduled for Tuesday, which will be held before the Wednesday EU-Western Balkans summit in Slovenia. They also indicated that there is a good chance that in the conclusions of the EU summit, which will be held at the end of October, there will be provisions on the gas market and Gazprom, including a call to the EC to investigate the actions of the Russian giant, which are resulting in an increase in gas prices,” the Polish Press Agency wrote.

It can therefore be said that Poland demands a new antitrust investigation by the European Commission against Gazprom. It is worth reminding that the previous investigation on unfair practices in Central and Eastern European markets was initiated back in September 2011. The Commission did find that the Russians abused their market position as they imposed unfair prices, split the market thanks to infrastructure on which they had impact and did not allow competition to tap into their pipes. However, the penalty imposed on Gazprom did not eliminate the problem. It has been contested by PGNiG in the Court of Justice of the European Union since the time of Piotr Woźniak’s team, which challenged the Commission’s decision as insufficient, because it agreed to a settlement with Gazprom, as a result of which it was supposed to lift the ban on the re-export of its gas (which it had already done), include gas prices in European gas hubs in its pricing formulas (but no details were provided), agree to revise the price upon the client’s request, and allow for the change of gas reception points.

The European Commission did not impose a penalty of up to 10 percent of turnover on Gazprom, despite the harsh treatment of Facebook or Google earlier. The EC did not do it during the years-long investigation, which ended only in 2018, and then agreed to a settlement that did not force the Russians to change their behavior. It accepted Gazprom’s proposals, which were inadequate to the situation, and made it easier to build the contentious NS2 pipe. Whereas the company’s decision to use the gas prices crisis in Europe to its advantage clearly shows that it continues its monopolistic practices. The push for an ad-hoc solution with regard to the regulatory certification of Nord Stream 2 can serve as an example here. By blocking the development of infrastructure that makes it possible to become independent of Russian gas, for example by obstructing the development of reverse flows on the border with Ukraine, Nord Stream 2 can strengthen Gazprom’s position and raise gas prices in Central and Eastern Europe. The lack of transparency when it comes to tariffs may be hiding the fact that Russians choose less profitable routes for political reasons, as can be the case with Nord Stream 2. It is worth noting that the European Commission has not changed the relations between Poland and Russia with regard to the Polish section of the Yamal gas pipeline, citing intergovernmental agreements on which it has no influence.

The 2021 gas crisis is like the oil crisis in the 20th century

A new antitrust investigation could reveal how Gazprom is using the existing and planned infrastructure to cement its position in Central and Eastern Europe. The company doesn’t offer a new supply route, because it wants to remove the supply through Ukraine. It won’t give us any new gas, because it just wants to divert it from the Dnieper to Nord Stream 2. It does not offer a reduction in gas prices, because it can even cause increases in the region where Poland is located. It may hide the fact that Nord Stream 2 is less competitive in terms of price than deliveries via the Yamal pipe or Ukraine by means of a certain coupling of the tariffs for the disputed gas pipeline, and thanks to supply contracts with the customers who are also the project’s lenders. In addition, it is worth recalling that the Office of Competition And Consumer Protection is still investigating the violation of market rules by Gazprom and may add new insight to the Commission’s possible proceedings. This procedure may further affect the certification process for Nord Stream 2, which may take until spring or summer 2022, and even longer if there is indeed an antitrust investigation. There exists a legal basis on which Gazprom’s attempts at pressuring Europe by hiking up gas prices may be challenged. The current situation should encourage Europe to punish the monopolist and further develop alternatives in the form of other suppliers and reduce dependence on fossil fuels, not just coal, but gas as well. The gas crisis of 2021 should lead to similar changes as the oil crisis of the 1970s. In Poland we have a saying “a Pole is wise after the event”. However, in this instance we were wise before it, so hopefully the rest of Europe will get wise after, and make the right decisions during the EU Council in late October. It’s time for a new antitrust investigation against Gazprom.