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Highlights

Sees no need for a further mandate to act on this

Makes option to regulate just EU section most likely

New rules set to apply from around April 2020

Brussels — Germany plans to regulate Russia's Nord Stream 2 gas link using its national sovereignty, a senior government official said Monday, which means only the EU section is set to be covered under agreed-in-principle changes to the EU's gas directive.

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"We would like to say that we will be implementing this compromise directly, and do not see any need for a further mandate," parliamentary state secretary at the federal energy ministry, Thomas Bareiss, told the EU energy ministers' council in Brussels.

That implies Germany will not seek an intergovernmental accord with Russia for the entire 55 Bcm/year Nord Stream 2 pipeline -- for which it would need a mandate from the European Commission -- but will focus on regulating the EU section, which covers 12 nautical miles from Germany's coast.

"We are...glad that gas pipelines will be covered by the sovereignty of the member states through whose territory or seas they go through, and will be the responsibility of that member state's competent authorities," Bareiss said.

"We have a clear rule now, we have clear legislation, and it will be implemented in full," he said.

Bareiss's comments also implied Germany will still aim to block the European Commission's outstanding request to the council for a mandate to negotiate an EU-level intergovernmental agreement with Russia for the entire length of Nord Stream 2.

Germany will have to start regulating the EU section by around April 2020 at the latest, assuming formal approvals go through as expected and the changes enter into force -- become fixed in law -- around July.

The changes could see Nord Stream 2 having to submit to regulated tariffs for the EU section of the pipeline, which would be approved and monitored by the German federal energy regulator.

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A technical solution to enable such split regulation could be setting up a virtual balancing point where the EU section starts offshore, according to industry observers.

Nord Stream 2 is planned online at the end of 2019, and can flow gas without changing its operational rules until the new rules apply.

After that, it can only flow gas if it complies with the new rules.

One option is for the Nord Stream 2 project company, a full subsidiary of Russia's state-owned gas export monopoly Gazprom, to ask for an exemption from the new rules.

But process for granting such exemptions can only start formally once Germany has transposed the rules into its national law.

If Nord Stream 2 has already started flowing gas by then, it would have to stop until the exemption was granted, which usually takes about six months.

However, an exemption is not guaranteed, and even a positive decision may face a legal challenge which could suspend it temporarily pending a formal ruling.

Polish energy minister Krzysztof Tchorzewski told the council his government welcomed the compromise on the gas directive, but remained opposed to Nord Stream 2.

"It still deprives Ukraine of its role as a [Russian gas] transit country," he said.

Russia has said gas flows via Ukraine to the EU are likely to drop to just 10-15 Bcm/year once Nord Stream 2 comes online.

It sent around 87 Bcm through Ukraine in 2018.

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

-- Edited by Dan Lalor, newsdesk@spglobal.com