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EU & Nord Stream 2 Headed Towards Legal Arbitration

The European Commission and the Nord Stream 2 gas pipeline company are drifting toward legal arbitration in their dispute. While EU taxpayers are at risk of being hit with huge fines and the Gazprom-led company is faced with uncertainties that are very difficult to evaluate. Nord Stream 2 has given the European Commission a deadline ntil 12 July in an attempt to settle the dispute. With this deadline now passed, the next step is legal arbitration under the Energy Charter Treaty in a case that carries significant risks for both sides. The controversial €11 billion new gas pipeline linking between Germany and Russia under the Baltic Sea is set to double Russian gas shipments to the EU’s largest economy.

The mega-project led by Russian gas monopoly Gazprom also includes Western European investors Engie, OMV, Shell, Uniper and Wintershall. Germany strongly supports the project, while its main opponents are Poland and the Baltic countries. Nord Stream 1 pipeline did not raise concern at the time of its construction when even then energy Commissioner Günther Oettinger attended its inauguration in 2011, together with German Chancellor Angela Merkel, then French Prime Minister François Fillon and Dutch Prime Minister Mark Rutte. But the situation is markedly different now before the completion of the Nord Stream 2 project, aimed at doubling the capacity of the existing offshore pipeline.

Tensions grew between the EU and the Kremlin with President Putin at its helm, especially after Russia annexed the Ukrainian region of Crimea. It has also become clear that Moscow uses its gas export monopoly as a political weapon in the dispute with Ukraine over gas transit fees, raising concerns about European Union’s reliance on Russian gas. Under pressure from Poland and the Baltic states to legislate on Nord Stream, the European Commission tabled an amendment to the EU Gas Directive in November 2017, but legal experts have argued that the amendment is drafted in such a way that all existing pipelines can enjoy a derogation from EU gas market rules under the updated Gas Directive, except Nord Stream 2. Thus, this has led the Nord Stream 2 chief lobbyist to argue that this “discriminatory legislation” affects not only the interests of Nord Stream 2 and its shareholder Gazprom, but also the projects of its five Western European financial investors.

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