EU General Court's Ruling on the OPAL Pipeline
11 SEP 2019 Spotlight
On 10 September, the EU General Court rendered a decision that restores the legal situation of the OPAL gas pipeline—an onshore extension of the Nord Stream 1 pipeline—to that of 2009. This means that Gazprom is forced to reduce the utilisation of the pipeline by more than 12 bcm per year. To maintain its exports to the EU, Gazprom will have to increase gas transit via Ukraine. However, bypassing this country has been Russia’s strategic objective for years. Although the ruling is based on the treaty principle of energy solidarity, Russia will be describing it as a political decision, citing, for example, that it was issued shortly before winter’s growing demand and the expiration of the company’s gas transit contract with Ukraine, valid until the end of 2019.
EU General Court's Ruling on the OPAL Pipeline EU General Court's Ruling on the OPAL Pipeline

What was the decision? 

The court annulled the decision of the European Commission (EC) of 28 October 2016 that allowed Gazprom to use the entire capacity of the OPAL gas pipeline (the previous EC decision limited its use to half). According to the court, the 2016 EC decision breached the principle of energy solidarity under Art. 194, para. 1 of the Treaty on the Functioning of the EU (TFEU), because the EC did not analyse the possible consequences of permitting Gazprom to use a greater share of OPAL capacity on the energy policy and security of gas supply in Poland. From the Polish point of view, the particularly important point in the court’s decision is that when assessing the consequences of decisions regarding gas pipelines, the EC must also consider the situation on gas markets in individual EU countries, not only the Union’s in general. 

What are the legal consequences? 

The decision means that, in accordance with the previous 2009 EC decision, Gazprom will be able to use only up to 50% of OPAL’s capacity to deliver gas to the Czech Republic and farther. The EC is obliged to enforce this limit and demand without delay that the German energy regulator implement the judgment. However, the court’s decision may still be set aside by the Court of Justice (CJ) if the EC or Germany, which supported the EC in the proceedings before the court, lodge an appeal (for procedural reasons, Gazprom cannot file it). Even if they do appeal, the judgment will not be automatically suspended unless they also submit a request for interim measures and indicate the circumstances justifying them, and the CJ accepts it.

However, it will be difficult to prove such circumstances exist. As regards the appeal itself, it may take a year or more for a decision. 

What does this mean for gas supplies to the EU? 

The cap on the capacity of OPAL might decrease Gazprom’s gas supplies to the EU (after record high in 2018) and Russia’s share of the EU gas market in favour of LNG, e.g., from the U.S. Short-term prices also might increase, the result of lower supplies via OPAL, which could boost the demand for gas from Gazprom competitors. This opens up an opportunity for additional U.S. LNG, supplies of which to the EU increased from 2 bcm in 2017 to 3.6 bcm in 2018 and to 7 bcm as of the end of June 2019 (contributing to significant gas-price reductions in Europe this year). Lower gas exports via OPAL do not pose a threat to gas supplies to the EU, even in the short term because the natural gas storage volumes in the EU continue to be record high due to the expiring contract for transit through Ukraine and the low prices of gas. 

How will the OPAL verdict influence the trilateral gas talks on gas transit via Ukraine? 

Reducing gas exports via OPAL (which means also a cap on the Nord Stream 1 pipeline) means that if Gazprom wants to maintain its share of the European gas market, it should increase gas transit through Ukraine. However, increasing gas exports via Ukraine runs counter to Russia’s strategy, which aims to bypass it by, for example, the construction of Nord Stream 1 and 2. The ruling strengthens Ukraine’s position during the upcoming negotiations, which are scheduled for 19 September. The current gas transit contract expires at the end of 2019 and to date, the negotiations have been delayed by the Russians. However, it does not mean that they will be more constructive this time. The Russians could use a possible failure of the negotiations to pressure the EC or Germany to appeal the verdict as soon as possible.