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Poland's PGNiG joins procedure on Nord Stream 2 legal exemption request

Highlights

Gazprom-owned gas pipeline developer applied for derogation

PGNiG included in proceedings due to conclude in May

Poland points to 'adverse' implications of Nord Stream 2

London — Poland's PGNiG said Thursday it has been given the right to join a procedure examining whether to allow the controversial Nord Stream 2 gas pipeline to be exempted from certain EU energy legislation.

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The Gazprom-owned Nord Stream 2 development company in January asked the German energy regulator Bundesnetzagentur for a derogation from the EU's third energy package requirements for the planned 55 Bcm/year pipeline.

That would allow the pipeline to be exempted from third-party access and unbundling rules, and requirements on transparent tariffs.

PGNiG argues that Nord Stream 2 should not be given special treatment and applied in February to join the procedure on whether to approve the derogation.

"PGNiG and its German subsidiary PGNiG Supply & Trading have been allowed to join a procedure in which Nord Stream 2 is seeking a derogation from the EU's Third Energy Package requirements," the Polish company said in a statement.

By joining the procedure, PGNiG will be able to present its view on why Nord Stream 2 should not be allowed the exemptions.

Energy security

PGNiG CEO Jerzy Kwiecinski said Nord Stream 2 would be damaging to regional energy security.

"PGNiG and the Polish government have consistently pointed to the adverse implications of Nord Stream 2 for the security of supply and competition in the gas market in Central and Eastern Europe," Kwiecinski said.

"Including us in the procedure will help us to defend the interests of the PGNiG Group and gas consumers in the course of the derogation procedure. Nord Stream 2 must not be given preferential treatment."

Poland believes Nord Stream 2 – which would double the capacity of the direct subsea Russia-Germany corridor to 110 Bcm/year – concentrates too much of Europe's gas supply on one source and one route, and could see less Russian gas transit Poland to Europe.

In accordance with applicable law, the decision on whether to grant the derogation will be made by the Bundesnetzagentur, with the proceedings to be mandatorily concluded by May 24.

Nord Stream 2 filed its derogation request with the Bundesnetzagentur in January.

According to PGNiG, the amendments to the EU Gas Directive that came into force in May last year mean derogations from EU law are available solely to pipelines completed before the amended directive came into effect.

Nord Stream 2, though, is seeking to have the amendments in the gas directive canceled.

It began arbitration proceedings in September in a bid to force the EU to annul changes to the directive, having already asked the EU's General Court in July last year to annul what it called "discriminatory" changes.

Nord Stream 2 argues that its Eur9.5 billion ($10.7 billion) investment was committed and nearly half the pipeline already laid before the new rules entered in force in May last year.

Just 160 km of Nord Stream 2 are left to lay in Danish waters after the US implemented sanctions in December against companies laying the pipeline, prompting principal pipe-layer Allseas to halt work.

The section of the pipeline in German waters was completed before the EU directive amendments came into force.

Investments in other gas import pipelines – such as the first Nord Stream pipeline and links with North African countries – that were made before the directive amendments were adopted are protected through a waiver.

Nord Stream 2 argues that it was singled out despite having committed its investments long before the directive amendment was adopted.

Arbitration cases such as that launched by Nord Stream 2 typically take two to four years, meaning the changes will have entered into force in Germany well before the arbitration proceedings are concluded.

Nord Stream 2's separate appeal to the EU's General Court is expected to take 20 months to reach its conclusion, implying a decision in around March 2021.

Alternative vessel

Russia had planned to bring Nord Stream 2 online by the end of 2019, but first permitting issues in Denmark and then the US sanctions meant the project was delayed.

Russian President Vladimir Putin has said the pipeline should become operational by the first quarter of 2021 at the latest and that Russia has the capability to complete the pipeline without international assistance.

A vessel called Akademik Cherskiy has been widely billed as a replacement for the Allseas' vessels.

The Akademik Cherskiy arrived into the port of Nakhodka in eastern Russia in October last year, and left port in early February, originally destined for Singapore.

However, according to cFlow, Platts trade flow software, the Akademik Cherskiy is now headed from the Mozambique capital Maputo.