Here is my talk [English & Ukrainian videos] for the Ukraine Energy Security Dialogue of 01.12.21, via Zoom, organized by Kyiv’s Dixie Group. Program & Speakers are below.
I outlined failures of the legal and political models Russia’s Gazprom has embraced to eventually bring the Nord Stream 2 pipeline into operation under the anti-monopoly provisions of the EU’s Third Energy Package law..
Critical observers have understandably interpreted the public optimism and “gas-Godfather”-like posturing of Kremlin and Gazprom officials as evidence of self-confidence, even arrogance. In contrast, here I outlined what actually amounts to a history of repeated failures of Nord Stream 2 AG strategies.
I termed its first two failed strategies as “Plan A” and “Plan B,” and the current one as “Plan C.”
To eventually put the pipeline into operation under EU law, Plan A (from well before the final September 2015 project announcement) was that five European energy majors (I refer to them as “IOCs” in the video, i.e., “international oil and gas companies’). However, that strategy failed. The Polish national Competition Authority ruled against EU firms’ participation on grounds of not having taken into account or consulted with any Polish firms regarding the competitive impact of the project on the Polish gas sector. The European Court of Justice eventually upheld this decision, saying the principle of energy solidarity was guaranteed by the EU’s fundamental Treaty.
Next, Plan B was to sell half of the pipeline to a German or German-Russian firm. Here, the threat of US sanctions always presented a formidable obstacle for any publicly held firm that might be an appropriate buyer. No matter the details of sanctions up till the present; given Moscow’s penchant for mischief, the future prospects of the investment – which has to be considered at least a 25-30 year investment – being lost due to new sanctions on Russian gas imports has always been seen as considerable.
However, in addition, I highlighted that aside from this general sanctions risk, the particular way US diplomats rather “craftily” used existing US sanctions, around March of 2021, especially killed any Gazprom/NS2 AG hopes of finding a buyer.
What the diplomats did is to go to German banks, threatening to sanction them should they be found to have any firms who are working on the pipeline as clients. This led to German banks informing German firms that their business was no longer wanted if they were working with NS2 AG. This was a very successful “virtual” application of sanctions, as the US officials did not have to now find the firms involved and prove to government lawyers back in DC, with high certainty, that if they were sanctioned, there would be no later embarrassing cases in US courts where a company was found to be targeted without sufficient documentation.
Simply put, once the banks made their unwillingness to be involved clear, no German company will now touch this pipeline. It is simply too risky.
NS2 AG (i.e., Gazprom) now needed a Plan C. Plan C is that Nord Stream 2 AG claims to itself be legally “independent” of its parent firm Gazprom (a rather shaky, even ludicrous legal assertion, considering the details of EU competition case law), to be “competent” to run the pipeline and that it will do so in a “neutral” manner.
Already, this tortured legal claim has caused the German regulator (i.e., the BNetzA), that must decide if Nord Stream 2 AG can itself be the operator of the pipeline, which its parent, Gazprom, owns to “pause” the proceedings while NS2 AG relocates itself from Switzerland to Germany to become a firm under German jurisdiction.
(Oh, and then there was the earlier, plainly desperate claim, that the pipeline was in fact already legally “complete” in sufficient time to avoid application of EU law, since “finance commitments” were “complete” although the pipeline still had many kilometers to be laid.)
In short, Gazprom and its wholly owned subsidiary, NS2 AG, is in deep legal difficulty. Although the pipeline itself could not be prevented by sanctions from being completed, Gazprom’s legal struggle to bring this pipeline online is being ever-more constrained.
As for the further geo-economic implications (e.g., EU and Ukrainian gas security, the future of Russian gas transit via Ukraine, etc.) and geostrategic implications (e.g., what is Putin up to with all those troops on Ukraine’s borders, etc.), I will continue to discuss these in detail in upcoming posts and published articles. – Tom O’Donnell in Berlin.
The Global Barrel 