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Is Gazprom About To Lose Its Natural Gas Export Monopoly?

The long-awaited Nord Stream 2 (NS2) pipeline is arguably the world’s most contentious energy project. While its completion was uncertain for a long time, favorable political, economic, and environmental developments have worked in its favor. Recently, Gazprom, the owner and operator of the pipeline, announced its completion. However, legal challenges remain which threaten its quick startup, a startup that would be in Russia’s long-term and Europe’s short-term interest. By now, most readers who follow international energy developments know the Russian gas pipeline project has split Europe. Eastern Europe, which has a distrust of Moscow due to historic reasons, objected to the project as it fears that it would increase Russia’s influence. The Germans, who stand to gain the most, insisted for a long time on the commercial character of the initiative. Berlin implicitly accepted the political implications of the project when it struck an agreement with the U.S. to support Ukraine and by warning Russia on the weaponization of NS2.

The U.S. under the Trump administration sought to dislodge the project through sanctions which significantly slowed construction activities. European companies such as Allseas canceled their contracts as they feared Washington's ire. Gazprom, therefore, was forced to utilize two less sophisticated ships that needed to be brought in from the pacific region. The sanctions seriously delayed the project, but Gazprom's persistence has ultimately borne fruit as the pipeline is finished now.

Related: Two Industries Getting Slammed By Sky High Oil And Natural Gas Prices However, legal impediments could lessen Russian optimism. First, the German regulator BNetzA needs to approve NS2’s certification application before the gas can run through the pipeline. The draft decision needs to be sent to the European Commission who will give advice. Afterward, the German BNetzA will make a final decision. The process could take four months until January 8th, 2022. 

Furthermore, the European unbundling legislation is another serious impediment to NS2’s activation. According to European law, the producer and system operator cannot be the same legal entity for more than 50 percent of the transport capacity.

The pipeline’s capacity can only be fully used when another producer is allowed to use NS2. However, since the break-up of the Soviet Union, Moscow has insisted on Gazprom’s monopoly on the export of natural gas through the country’s massive pipeline infrastructure to Europe. By ensuring the company’s monopoly, the Russian government intends to maximize its financial potential and the state's income.

Rosneft has previously attempted to break this monopoly through its good relations with Moscow. To no avail. Over the years, the state-owned company has become the Russian energy industry’s poster-child due to its successes domestically and abroad. Rosneft’s CEO, Igor Sechin, is a confidant of President Putin and regularly does the state’s bidding by making investments that comply with Moscow's policies despite modest financial gains. 

Related: Europe’s Energy Crisis Is Driving Up Natural Gas Prices Worldwide

This time, however, the state could change its position as the Energy Ministry is preparing a report on ending Gazprom’s export monopoly through NS2. According to Interfax, which cited Deputy Prime Minister Alexander Novak, Rosneft has applied for permission to use the remaining 50 percent of the pipeline.

It is an easy solution to a difficult problem as it is very unlikely that the European Commission will provide an exception to the unbundling legislation even when there’s a supply crisis on the European gas market. By allowing Rosneft to use the pipeline, Moscow could send a conciliatory message towards the EU where the European Parliament has asked the Commission to start a probe on possible market manipulation by Gazprom.

Despite Moscow’s pivot to Asia, the Russian energy industry remains highly dependent on the lucrative European market. Rosneft’s attempt to break Gazprom’s monopoly is aimed at improving the political standing of the company in Moscow while increasing the flow of revenue to the state’s coffer.  

By Vanand Meliksetian for Oilprice.com

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Vanand Meliksetian

Vanand Meliksetian has extended experience working in the energy sector. His involvement with the fossil fuel industry as well as renewables makes him an allrounder… More