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Austria fails to get EU accord on Nord Stream 2 natural gas link rules

Brussels — EU proposals to regulate offshore gas links such as Russia's planned 55 Bcm-a-year Nord Stream 2 gas pipeline to Germany are to continue in 2019 after Austria ran out of time to broker an accord among national governments during its six-month EU presidency.

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Proposes process to select offshore links impacted

55 Bcm/year Nord Stream 2 due online end-2019

No guarantee new rules will ever be agreed

Austria has no more meetings planned to discuss draft changes to the EU gas directive targeting offshore gas links with non-EU countries, and so it passes to the Romanians, who take over the EU presidency on January 1, an EU diplomatic source said.

The file can only move forward once the EU's 28 national governments acting in the EU Council have agreed a negotiating position to open talks with the European Parliament, and there is no legal deadline or obligation to do this.

"At the moment the council is split roughly in three: one third support changing the directive, one third are against and the remainder are not committing to a position yet, so there is no clear way forward," the diplomatic source said.

The deadlock in the council makes it increasingly likely that Russia will be able to bring the pipeline onstream by the end of 2019 as planned, before any new rules enter into force, meaning it would have to be treated as an existing pipeline when and if new rules ever apply.

Under the European Commission's original proposals from November 2017, existing pipelines would be eligible for waivers of up to 20 years from having to comply with so-called third-energy-package rules, such as stricter unbundling of grids from parent energy companies, third-party access and tariff regulation for the section in EU territory.

PROPOSED OFFSHORE LINK LIST

Austria, whose biggest gas company, OMV, is an investor in Nord Stream 2, has proposed as a compromise setting up a formal group to compile an EU list of "International Transmission Systems of an Internal Market Dimension."

The group would be made up of the EC, national governments, regulators, transmission system operators, EU energy regulatory agency ACER and formal EU gas TSO body Entsog, but only the governments and the EC would have powers to decide which pipelines go on the list.

Any government, project promoter or the EC could propose adding a pipeline to the list, meaning Nord Stream 2 would definitely be considered.

"No-one questions that Nord Stream 2 has an EU dimension," the diplomatic source said.

Only pipelines put on the list would have to comply with EU internal market rules, making the Austrian proposal potentially more targeted than a blanket rule affecting all offshore links with non-EU countries.

National governments would still be able, however, at "their discretion and in close consultation" with the EC, to grant waivers for up to 20 years, renewable, to pipelines on the list that were completed before the changes enter into force.

These waivers would only be allowed if they do not have a negative impact on competition, the EU's internal gas market or supply security, or include conditions to offset any such concerns.

Austria also proposed allowing such waivers to pipelines under construction when the rules enter into force, which would make Nord Stream 2 immediately eligible, as work has already started.

The EC would have to assess how including a pipeline on the list would affect EU gas-market competition and supply security at the national and EU level, as well as the feasibility or viability of the pipeline and the need for clear and stable framework conditions.

Austria's proposal appears to allow the national government where the pipeline first lands -- so Germany for Nord Stream 2 -- to veto putting a pipeline on the list, as long as it presents "substantiated reasons" for this.

The proposal does not include any timings on how long it would take to set up a group, assess candidate pipelines and adopt the list.

"It's a first draft -- it's not clear yet how it will develop or if it will find enough support to move forward," the diplomatic source said.

US WANTS EXTRA RULES

The US is urging EU countries to support the EC's proposals to bring Nord Stream 2 under EU internal market rules, its assistant secretary for energy resources, Francis Fannon, told reporters on Tuesday.

The US has consistently criticized Nord Stream 2 and Russia's 31.5 Bcm/year TurkStream pipeline project, which is also due onstream at the end of 2019, for diverting Russian gas transit away from Ukraine, which is currently the EU's single largest supply route for Russian gas imports.

"We encourage all parties to stop the project [and] support the update to the gas directive," Fannon said.

The US wanted Germany to drop its political support and also continued to encourage Denmark to refuse planning permission for Nord Stream 2, he said.

Russia already has the permits its needs from the other four countries en route: Russia, Finland, Sweden and Germany.

US President Donald Trump has the power to impose sanctions on companies involved in Russian energy export lines such as Nord Stream 2, but has yet to exercise it.

Fannon would not comment on future sanctions actions, and reiterated that all companies working in that sector were are risk.

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

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