Nord Stream 2: Pipeline spat with EU evolves into ECT dispute

A long-simmering row over plans for two new pipelines that would carry natural gas from Russia into Germany has advanced quickly in recent months, after gas company Nord Stream 2 submitted a notice of arbitration against the EU under the ECT on September 26, 2019. At issue, according to Nord Stream 2, is a set of changes to existing EU regulations that were announced two years ago, which it claims hurt the company’s investments on various grounds.

Nord Stream 2—owned by Russian gas company Gazprom but headquartered in the Swiss city of Zug—is aiming to build two pipelines that would complement the current pipelines under the original Nord Stream project. Nearly 2,000 kilometres of pipeline have already been built in the Baltic Sea, according to an August 2019 announcement on the company website.

If completed, these pipelines would allow for Russian natural gas to be transported directly to northern Germany, while bypassing Poland and Ukraine by constructing these pipelines underwater rather than over land.

In its notice of arbitration, according to excerpts reported in the news, Nord Stream 2 claims that the EU’s move to revise its Gas Directive of its Third Energy Package two years ago, and thus apply the same regulations to gas pipelines from third countries entering the EU market as what applies to purely internal pipelines, has violated the FET standard under the ECT. The company has also claimed that the treatment is discriminatory.

The revisions will affect those parts of the pipeline in the territorial waters of EU member states, and Nord Stream 2 does not have the option to negotiate a reprieve from its changes due to its start date for operations.

“Nord Stream 2 AG has now decided to ask the arbitral tribunal to determine that the European Union is in breach of its international law commitments under the [treaty] and to make orders requiring the EU to discontinue its breach,” said Sebastian Sass on the company’s behalf, according to comments reported by various news outlets. Notably, the company has also lodged a similar complaint against the European Parliament and the European Council at the CJEU, asking that the changes be annulled.

The European Commission, for its part, has previously described the move to revise the Gas Directive, which deals with gas pipelines that enter and operate in the EU market, as “not aimed at preventing the construction of any new gas pipelines” in response to questions over whether the move was linked to the Nord Stream 2 plans. Brussels said that the situation with that company is one of many showing the need for “legal clarity” in this area, given the multiple regulatory frameworks previously involved.

These developments come just as ECT members prepare for negotiations on modernizing the decades-old agreement, which has faced harsh scrutiny on numerous counts over the years, including the famously high levels of compensation awards. Questions have also been raised over whether the ECT members should consider termination or withdrawal as options.