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Energy Union, Security of Supply and IGAs: Latest developments in EU law impacting gas

Posted by on 03 May 2017
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Written by Ana Stanič, founder of E&A Laq Limited and speaker at next week's Flame event in Amsterdam.

Last month saw the adoption of amendments to two key pieces of EU legislation concerning gas: the Decision on Intergovernmental Agreements (“IGA Decision) and the Security of Gas Supply Regulation (“Revised SOS Regulation”). Over the same period the discussions regarding Nord Stream 2 have intensified.

A lot of the discussion, especially amongst EU politicians, in respect of the above legislation and Nord Stream 2 centred on the concept of the Energy Union. Confusingly, many involved in the discussion seem to believe that Energy Union is a legal concept and a legal measuring rod for assessing projects, agreements and domestic laws and plans. So for example, gas infrastructure projects such as Nord Stream 2 are said to be “incompatible with the Energy Union”.

But what does it mean for a project to be “incompatible with the Energy Union”? Such language may be taken to suggest that there are legal rules that define the Energy Union? But, is the Energy Union even a legal concept?
The answer at present is “No”. The Energy Union is not a legal concept. Furthermore, a project cannot be prevented from going ahead on the grounds that it is “incompatible with the Energy Union”. Nor can an agreement or a law or a national plan be legally assessed by reference to Energy Union objectives or principles. At present, the Energy Union is merely a set of political objectives In fact, there is not yet a consensus even about what the Energy Union means in political terms.

A misunderstanding over the concept of the Energy Union held up the adoption of the amendments to the IGA Decision. In its comments on the Commission’s proposal to amend the IGA Decision the European Parliament sought to have agreements between an EU Member State (MS) and third countries which concern oil and gas subject to assessment by the Commission as to their compatibility with the “Union’s energy security objectives” and “Energy Union objectives” before they could be concluded.

Given that the reference to “Energy Union” is not to a legal term or concept, it is encouraging from a legal perspective that paragraph 9 of the Explanatory Memorandum of the amended IGA Decision makes absolutely clear that “the relevant Union energy policy objectives, solidarity between Member States and Union policy positions adopted in Council or European Council conclusions…should not form part of the legal assessment undertaken by the Commission of IGAs before they are concluded”.

As such, pursuant to Article 5 of the amended IGA Decision which entered into force yesterday an IGA between a MS and a third country concerning oil and gas can only be signed after the Commission has assessed whether it is compatible with EU law.   Up until now such IGAs were subject to such an assessment by the Commission only after they were concluded.

The removal of references to the Energy Union from the IGA Decision is therefore a very positive development since it reinforces legal certainty and clarity. And legal certainty and clarity are key to ensuring investment in new energy infrastructure in the EU. We are currently in the third round for listings of Projects of Common Interest. The next list will be drawn up by November of this year. Given the currently low gas prices and the expected arrival of cheap LNG from the United States, the stability, certainty and clarity of the EU regulatory framework is vital for the realisation of new infrastructure projects, be it for the construction of LNG Terminals, inter-connectors or ambitious deep sea pipelines such as the East Med pipeline.

Lack of clarity and certainty as the nature and scope of the solidarity obligations imposed on MS under the Revised SOS Regulation held up its adoption. Last Thursday finally saw agreement between the Parliament and the Council on the final text of the amended SOS Regulation. The three principal new provisions of the Revised SOS Regulation are as follows. First, a solidarity obligation is imposed on MS to help neighbouring MS to ensure gas supply to households and essential social services so that in an emergency such customers will be prioritised over the supply to consumers other than households and essential social services in neighbouring Member States. Second,) MS are required to coordinate at a regional level and develop a common approach to security of gas supply. Third, gas companies are required to notify long term contracts that are relevant for security of supply which represent 28% of the annual gas consumption of a MS to the Commission. Importantly, the Commission’s proposal to extend the solidarity obligation of MS to cover countries signatories to the Energy Community Treaty (including Ukraine and Georgia) was rejected by the Council after DG Legal confirmed that it was incompatible with the provisions of the Lisbon Treaty. The final version of the Regulation makes no reference to the Energy Union either.

The attention of the gas sector will now turn to the Winter Package. Although this legislation concerns electricity the potential impact on gas is significant not least because it sets out the templates for national energy and climate change plans, contain references to the Energy Union, proposes to alter the decision making mechanism for ACER and seeks to introduce regional bodies which are not envisaged under the Lisbon Treaty.

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