15 Nov 2016

Nord Stream 2: A Legal and Policy Analysis

Alan Riley

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Author: Alan Riley

Series: CEPS Special Report No. 151      No of pp: 30

This paper offers an in-depth legal and analytical argument that the EU’s energy regulatory regime applies to Nord Stream 2. It finds it indisputable that Union law applies in its own internal waters and territorial seas that Nord Stream 2 will pass through, and highly probable that Union law applies in the exclusive economic zone through which Nord Stream 2 will also passes. It goes on to argue that Nord Stream 2 is a transmission pipeline under EU law to which the full weight of the EU’s liberalisation measures apply, including ownership unbundling, third party access and tariff regulation obligations. It further argues that not only will Nord Stream 2 find it difficult to comply with the liberalisation obligations, but also that it will not be able to obtain Article 11 security of supply certification required under the Gas Directive. The paper also examines the options for applying an intergovernmental agreement solution to reconcile Nord Stream 2 with EU law. It argues that while the legal problems arising from an agreement between the Russian Federation and one or more EU states make such an agreement improbable, the political problems in obtaining a mandate to negotiate an agreement from the Council at EU level also make an EU-Russia agreement unlikely. It goes on to argue that Nord Stream 2 cuts across the Union’s energy security principles enshrined in Council and Commission documents on Energy Union. Finally, the paper argues that Russia and the EU should move beyond diversionary pipeline disputes to making the most out of developing a gas single market from which both can benefit.

Alan Riley is a Senior Fellow at the Institute for Statecraft, Temple Place, London.