Poland has fined Russia’s state-owned Gazprom $7.6 billion and five European companies a combined $61 million for allegedly forming an illegal partnership to build the controversial Nord Stream 2 (NS2) pipeline to bring more Russian natural gas to Europe.
Gazprom management told NGI Thursday that the company “fundamentally disagrees” with Wednesday’s decision by Polish anti-monopoly authority, the Office of Competition and Consumer Protection, aka UOKiK, and plans to appeal. The $11.2 billion NS2 pipeline project was not implemented by a joint venture but by a Gazprom subsidiary, “with the attraction of debt financing” provided by the European companies, management said.
“UOKiK’s decision violates the principles of legality, proportionality and fair trial, and the unprecedented size of the fine indicates a desire to oppose the implementation of the Nord Stream 2 project by any means,” management added.
The 5.3 Bcf/d NS2 line would run 745 miles roughly along the path of the existing 5.3 Bcf/d Nord Stream line from Germany to Russia, doubling capacity through the Baltic Sea. It is expected to significantly reduce reliance on the historically troubled Ukrainian transit of Russian gas, as well as reduce demand for liquefied natural gas (LNG) imports.
Poland, which imports U.S. LNG, is opposed to NS2, claiming it would jeopardize European energy security by strengthening Gazprom’s position as a gas supplier.
It is unclear whether Poland’s fines would delay NS2 completion, which has been built to within 100 miles of the German shore. The first NS pipeline was built by Gazprom and European energy firms Wintershall Dea GmbH, E.ON subsidiary PEG Infrastruktur AG, NV Nederlandse Gasunie and Engie. Gazprom holds the controlling 51% stake.
To address Polish anti-monopoly concerns, NS2 was ostensibly developed as a Gazprom subsidiary, with the Russian operator providing half of the financing. Engie, OMV, Royal Dutch Shell plc, Uniper SE and Wintershall provided the remaining financing. UOKiK said Wednesday each European firm provided about $1.12 billion.
UOKiK said it assessed the maximum fine allowed by European Union (EU) regulations of 10% of annual turnover because of the alleged lack of transparency and cooperation of the firms.
“First and foremost, Uniper, Engie, OMV, Shell and Wintershall are customers, and sometimes also competitors of Gazprom on the gas market,” said UOKiK President Tomasz Chrostny.
“The fact that a joint venture is financed by participants of the gas market and not by financial institutions proves that all the entities involved share the same economic interests,” he added.
UOKiK management said the European firms are “quasi stakeholders” because they would be entitled to take over stocks of NS2 in the event of a default. It said that under EU regulations it is entitled to take over assets and order the dissolution of NS2.
OMV, Shell and Uniper officials told NGI Wednesday they disagreed with the decision, while Wintershall and Engie declined to comment.
“Financing agreements do not constitute a notifiable concentration under Polish merger control law and there is no such precedent in the previous practice of competition authorities,” Uniper spokesperson Oliver Roeder said. The company is considering an appeal, which could take as long as five years. Fines would not be due until appeals are exhausted, he said.
“We are convinced that NS2 has an energy-economic rationale and that Germany and Europe will need more gas in the future and will have to be supplied with it flexibly and reliably,” Roeder said. “This is why we at NS2 are committed as a financial partner and are also pushing ahead with the construction of an LNG terminal (for the Atlantic routes, among others).”
The completion of NS2 was delayed in December by U.S. sanctions on pipe-laying activities in the Baltic Sea and could be delayed further by possible U.S. sanctions proposed by the Trump administration in July on project participants. The administration and some U.S. legislators have said Russia is trying to strengthen its stranglehold over European gas customers through NS2 and have proposed U.S. LNG exports as an alternative.
The move was made after the United States previously delayed completion by imposing sanctions in December on pipe-laying activities in the Baltic Sea, prompting Gazprom to use its own ships instead of contracting with another firm. Analysts told NGI they expected the line to be completed by 2021 despite the sanctions.
Rice University’s Anna Mikulska, a nonresident fellow for the Center of Energy Studies at Baker Institute for Public Policy, told NGI Wednesday she does not expect the Polish move to delay the project. However, U.S. sanctions could lead to further delays. Gazprom’s pipe-laying ships are in Kaliningrad, Russia, conducting seal trails, after being anchored in a German port for months, said Mikulska, an expert on the European energy market.
The pipeline would likely be completed as the fines are litigated first in Polish courts and then EU courts, she said.
“All of this will take time, however, and will be costly adding to an already expensive and delayed project,” Mikulska said. “After the project is appealed the companies can go forward with the project, potentially risking, however, inability to use the pipeline once completed, if the final verdict is not to their liking.”
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