Controversial Nord Stream 2 pipeline grapples with legal setback

27 August 2021

A German Court this week served a significant legal setback to the already widely controversial Nord Stream 2 gas pipeline between Russia and Germany under the Baltic Sea. According to the court’s decision, the pipeline cannot be exempt from the EU’s 2019-amended gas Directive. 

The 2019 amendment of the Directive, which sets out common EU-wide rules for the gas market, extended its legislative scope to pipelines to and from EU third countries and sought to increase competition in the gas market. For this, the directive requires that companies operating gas pipelined to be separate, or “unbundled,” from those that produce, transport and distribute gas. 

As such, the court’s ruling means that Russia’s semi-state gas company, which funds some 50% of the project, will be required to open the new pipeline’s capacity to other market players. This would further increase the delays, costs, and viability of the already widely contested project by economists, environmentalists, energy experts and European countries. 

The pipeline project, designed to circumvent the eastern European countries such as the Ukraine and Poland, has long been viewed as a potential energy security risk as it would further increase Germany and Western Europe’s reliance on Russian gas supplies. Moreover, energy experts and environmentalists questioning the overall feasibility of the new gas pipeline, particularly in light of the EU’s carbon neutrality target by 2050, as well as the increasing shift towards renewable energy sources and opportunities of green hydrogen. 

In its court case, the pipeline’s operating company, the Nord Stream 2 AG, alleged that the 2019 legislative amendments to the gas Directive were specifically aimed at politically stymieing the project and discriminate against the pipeline. The company had based its case on the argument that it had already finished the pipeline’s construction from an economic point of view, and that this should suffice. Germany’s energy regulator, however, refused to accept that reasoning on the basis that both the pipeline’s construction work itself, as well as its onshore operating site are under construction. As such, it reasoned that Nord Stream 2 would not qualify for an exemption under the EU’s gas Directive. In its judgement this week, the German court supported the regulator’s position. 

The court’s judgement is only latest political and economic headache for the controversial pipeline which only has 15km left to be build according to a statement by Russian President Putin during a meeting with German Chancellor Merkel last week. Over the past years, both the Trump and Biden Administration have slapped repeated sanctions on companies involved in the pipeline’s construction, while at a meeting with Chancellor Merkel last week, Ukrainian President Volodymyr Zelenskiy insisted that Nord Stream 2 is a “dangerous weapon.” 

While Chancellor Merkel stressed that “gas should not be used as a geopolitical weapon,” and that sanctions would be on the table if Russia didn’t comply, the pipeline’s political and economic future will be in the hand of her successor in Berlin’s Chancellery.