German Regulator Set to Deny Nord Stream 2 Waiver From EU Rules

(Bloomberg) -- The Nord Stream 2 natural gas project faces a legal blow that may further delay the start of the controversial subsea pipeline from Russia to Germany.

The German energy regulator plans to deny the project an exemption to European rules that require separate ownership of gas and transmission lines, a Nord Stream 2 spokesman said. The Bundesnetzagentur confirmed it sent its intended decision to the project's participants for comment last week.

“We do not agree with this conclusion,” the Nord Stream 2 spokesman said. “We will wait for the formal decision of the authority and of course evaluate it and further actions to preserve our rights.”

A refusal by the German regulator will mean yet another obstacle for one of the key export projects for Russia's Gazprom PJSC. Construction of Nord Stream 2 has been stalled since the end of last year, when the U.S. imposed sanctions on companies involved in building the pipeline.

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Only a small section of pipeline along the bottom of the Baltic Sea is missing for the project to be completed. Under the amended Gas Directive, exemptions can only be granted to pipelines that have been completed before May 23, 2019. Should Germany's regulator reject Nord Stream 2's application, the German section of the project would have to be compliant with the European requirements to separate pipeline ownership from the gas supplier.

Bundesnetzagentur's consultation period with parties ends May 8, opening up the possibility for a final decision by May 24.

Options

In order to comply with the rules in case Germany denies an exemption, Gazprom can set up an independent transmission operator or system operator, according to Katja Yafimava, senior research fellow at The Oxford Institute For Energy Studies.

Another possibility could be to transfer the pipeline's ownership from Gazprom to a newly established subsidiary. It could also transfer the operation rights of the German section to either one of the existing German transmission system operators or to a newly established one, while maintaining the Gazprom-owned Nord Stream 2 company as an operator of the Russian section.

Nord Stream 2 declined to comment on the options on the table. But it said it will appeal the German regulator's decision.