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EU envoys endorse draft rules for Russia's Nord Stream 2 gas link: source

Highlights

Rules now need formal approvals from EU Parliament

Germany will have until spring 2020 to apply rules

NS2 can only flow gas after rules apply if compliant

Brussels — EU ambassadors have endorsed an informal accord on new rules for operating offshore natural gas links like Russia's planned 55 Bcm/year Nord Stream 2 link to Germany, an EU diplomatic source said Thursday.

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This keeps the rules on track to enter into force -- meaning be fixed in law -- around mid-2019, after further formal approvals from the European Parliament and EU Council, representing national governments.

In principle, if Germany waits until the last moment to apply the new rules, Nord Stream 2 could flow gas until the end of next winter without any operational changes.

But it can only flow gas after Germany applies the new rules if it is compliant with them.

The planned changes to the EU's gas directive, agreed informally by the parliament and council earlier this month, could mean Nord Stream 2 having to submit to regulated tariffs for the section in Germany's territorial waters.

Nord Stream 2 is due online at the end of this year, after the rules come into force, meaning it will be considered a new pipeline and not eligible for the same waivers available to existing offshore gas links to non-EU countries.

The rules apply once governments have transposed them into their national law, and they have up to nine months from the rules entering into force to do so.

That means Germany could apply the rules at any point from around mid-2019 to around March or April 2020.

EXEMPTION OPTION

One way for Nord Stream 2 to comply with the new rules is for the project company to ask the German authorities for an exemption for the EU section of the pipeline, which is 12 nautical miles from the German coast.

But this process could only start formally once Germany has applied the new rules.

The exemption process normally takes around six months to complete, and Nord Stream 2 would not be allowed to flow gas during that time.

Developers of new onshore pipelines that have applied and gained such exemptions under the EU's current gas directive have sought to do so in time to ensure they had them before they were ready to flow first gas.

Other options to become compliant include either Germany or the EC on behalf of the EU negotiating an intergovernmental agreement with Russia that would govern the entire length of Nord Stream 2.

The EC asked national governments in June 2017 to give it a mandate to negotiate such an EU-level deal with Russia. It is still waiting for a decision.

It is quite common for individual governments to be late in transposing EU directives into national law, and the EU's only recourse is to open formal infringement procedures against laggards.

These procedures can ultimately result in fines imposed by the EU Court of Justice, but the process is usually slow, and stops as soon as the country concerned complies.

-- Siobhan Hall, siobhan.hall@spglobal.com

-- Edited by Jonathan Dart, newsdesk@spglobal.com