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Brussels — The company building Russia's Nord Stream 2 gas link to Germany is mulling its next steps after talks with the European Commission failed to resolve its concerns about new EU gas rules within a three-month deadline.

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The planned 55 Bcm/year link is facing tariffs regulated by Germany for its section in German territorial waters by February 24, 2020, at the latest, unless it gains a waiver from the EU's amended gas directive.

The Swiss-registered, Russian-owned Nord Stream 2 company told the EC in April the new directive could breach Energy Charter Treaty rules intended to protect international investors, unless the project is granted a waiver on the same terms as other import pipelines.

The formal three-month consultation expired Friday without an amicable settlement.

Nord Stream 2 can now go to the courts or international arbitration to argue its case.

"We will assess what next steps to take in order to protect our legitimate rights and interests as an investor," Nord Stream 2 special adviser Sebastian Sass told S&P Global Platts.

There are no further time limits imposed by the ECT, he added.

The EC and Nord Stream 2 executives met once on June 25 to discuss the issue.

The EC described this as a "technical meeting," and said it was an ongoing process.

Nord Stream 2 still wants to resolve the issue through "constructive dialogue" if possible, Sass said.

COMPLETED VS NEW STATUS

Nord Stream 2 wants the EC to confirm that it will be treated as a "completed" pipeline under the amended gas directive, which extends internal market rules to the EU section of offshore links to non-EU countries.

The pipeline is planned to be online by the end of this year, when Russia's transit contract with Ukraine expires, and so it is not obviously eligible for such a waiver.

Nord Stream 2 argues, however, that the Eur9.5 billion ($10.7 billion) investment was committed and nearly half the pipeline already laid before the new rules entered in force on May 23.

Completed pipelines are eligible for a full waiver from the new requirements, including regulated tariffs, for up to 20 years, or more if renewed.

This covers Russia's 55 Bcm/year Nord Stream 1 link to Germany, and existing links to Spain and Italy from North Africa.

PROJECT UPDATE

Nord Stream 2's start could be delayed until mid-2020, depending on which route permit it gets for the Danish section across the Baltic Sea, and when it is granted.

The section in German territorial waters that is covered by the gas directive is complete, and all the materials for building the onshore terminal have been delivered, Sass said.

More than 1,500 km of pipes had been laid by July, around 63% of the total needed for the two lines of 1,200 km each.

Pipes are currently being laid in the Finnish and Swedish Exclusive Economic Zones and in Russian waters, and building work continues at both landfall areas in Russia and Germany.

"The project is proceeding according to plan," Sass said.

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

-- Edited by James Burgess, newsdesk@spglobal.com