Is Gazprom on the verge of losing its natural gas export monopoly?

The long-awaited Nord Stream 2 (NS2) pipeline is arguably the most controversial energy project in the world. Although its completion has long been uncertain, favorable political, economic and environmental developments have worked in its favor. Recently, Gazprom, owner and operator of the pipeline, announced its completion. However, legal challenges remain that threaten its early start, a start that would be in the long-term interests of Russia and in the short-term interests of Europe. By now, most readers who follow international energy developments know that the Russian gas pipeline project has divided Europe. Eastern Europe, which is suspicious of Moscow for historical reasons, opposed the project because they feared it would increase Russia’s influence. The Germans, who would gain the most, have long insisted on the commercial nature of the initiative. Berlin implicitly accepted the political implications of the project when it hit a deal with the United States in supporting Ukraine and warning Russia about the militarization of NS2.

The United States under the Trump administration sought to dislodge the project through sanctions that significantly slowed construction activity. European companies like Allseas canceled their contracts because they feared Washington’s wrath. Gazprom was therefore forced to use two less sophisticated ships that were to be brought in from the Pacific region. The sanctions seriously delayed the project, but Gazprom’s persistence has finally paid off as the pipeline is now complete.

Related: Two Industries Get Slammed By Super High Oil And Natural Gas Prices However, legal hurdles could dampen Russian optimism. First, the German regulator BNetzA needs approve the NS2 certification request before gas can flow through the pipeline. The draft decision must be sent to the European Commission, which will give its opinion. The German BNetzA will then make a final decision. The process could take four months until January 8e, 2022.

Moreover, Europe unbundling legislation is another serious obstacle to the activation of NS2. According to European legislation, the generator and the grid operator cannot be the same legal entity for more than 50 percent of the transmission capacity.

The capacity of the pipeline can only be fully utilized when another producer is authorized to use NS2. However, since the breakup of the Soviet Union, Moscow has insisted on Gazprom’s monopoly on exporting natural gas through the country’s massive pipeline infrastructure to Europe. By ensuring the monopoly of the company, the Russian government intends to maximize its financial potential and state revenues.

Rosneft has already tried to break this monopoly thanks to its good relations with Moscow. In vain. Over the years, the state-owned enterprise has become the star of the Russian energy industry due to its domestic and international successes. Rosneft CEO Igor Sechin is a confidant of President Putin and regularly auctions the state by making investments in line with Moscow policy despite modest financial gains.

Related: Energy Crisis In Europe Is Driving Up Natural Gas Prices Around The World

This time, however, the state may change its position as the Energy Ministry prepares a report on ending Gazprom’s export monopoly via NS2. According to Interfax, which quoted Deputy Prime Minister Alexander Novak, Rosneft asked authorisation to use the remaining 50 percent of the pipeline.

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

Despite Moscow’s pivot to Asia, the Russian energy industry remains heavily dependent on the lucrative European market. Rosneft’s attempt to break Gazprom’s monopoly aims to improve the company’s political position in Moscow while increasing the flow of income to the state vault.

By Vanand Meliksetian for OilUSD

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