Frontier Economics supported Nord Stream AG’s application for derogation of the Nord Stream Pipeline from the primary provisions of the EU Gas Directive by providing an expert report detailing the economic implications.
The Nord Stream pipeline travels from Russia through the Baltic Sea to Germany and has been in operation since November 2011. The application for derogation by Nord Stream AG was required as a result of a new EU Directive, adopted in 2019. This new directive extended the core provisions of the Third Energy Package, namely unbundling of transmission system operators, third party access to infrastructure and tariff regulation, applicable to interconnectors between the EU and third countries
On 20 May 2019, after a 5-month revision process, the derogation was granted by the German Federal Network Agency (BNetzA), initially valid for 20 years. According to a statement by Nord Stream AG, the Federal Network Agency highlighted in particular, the Nord Stream Pipeline’s contribution to security of supply and confirmed the absence of detrimental effects on competition on the European internal gas market.
These issues were at the core of our expert report, where we analysed the impact of the Nord Stream Pipeline and its potential derogation from European energy regulation on security of supply and competition in the European Union. The positive contribution of the Nord Stream Pipeline to security of supply is clear as:
- It provides an additional transport infrastructure element, which increases the diversification of transport routes;
- It does not depend on transit through third countries, avoiding risks such as technical failures in transit countries;
- It will connect Germany and the EU to the Russian gas fields of the future;
- It creates the possibility to import additional gas volumes to compensate declining domestic natural gas production in the EU.
Fears that the Nord Stream pipeline could affect security of gas supply and market prices in Eastern Europe are unfounded, thanks to the strong market integration and the creation of diversified import options in those countries in recent years.
In addition, as part of the legal requirements for the derogation application, our expert report showed that the derogation itself of the Nord Stream Pipeline from the regulatory provisions will not lead to negative impacts on security of supply or on competition on the EU gas market.
Frontier regularly advises clients on a wide range of energy and regulatory topics.
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