New Gazprom pipeline faces long wait for EU legal clearance

Wed Dec 4, 2013 12:23pm EST

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* Commission says working constructively on legal solution

* Gazprom says South Stream gas already has buyers

By Barbara Lewis

BRUSSELS, Dec 4 (Reuters) - Gazprom's giant South Stream gas project cannot operate on EU territory unless it complies with the bloc's energy law, and it could take years to do so, the European Commission said on Wednesday.

EU law does not allow energy suppliers to own the pipelines they use for shipment, but Russia's gas export monopoly still has forged ahead with its multi-billion-euro South Stream pipeline into southeastern Europe, avoiding Ukraine.

Last month, it started work on the Serbian section of South Stream.

Gazprom Deputy Chairman Alexander Medvedev told a Brussels meeting that all 63 billion cubic metres (bcm) of gas that will flow through the link had found buyers.

Addressing the same meeting, a senior Commission official said EU authorities were working to find a legal solution to South Stream but it would take time.

"In all openness and frankness, the South Stream link will not operate in the territory of the European Union if it's not in compliance with EU law," said Klaus-Dieter Borchardt, director of the Internal Energy Market in the energy department of the European Commission.

"I can only reiterate our willingness to work constructively," he said. "It will take not months; it will take maybe two years."

The difficulties concern tariffs and EU legislation, known as the Third Energy Package, that says the owner of resources cannot also own the infrastructure through which they are shipped.

Borchardt agreed with Medvedev that Commission law did not stop Gazprom from building its pipeline.

But he said Gazprom could not: "Hand a baby to us and then say, 'Now how can we operate it in accordance with the Third Energy Package?'"

Relations have deteriorated since the Commission announced it was investigating Gazprom on suspicions that the company has hindered the free flow of gas across Europe and imposed unfair prices in some cases.

EU Competition Commissioner Joaquin Almunia said on Wednesday that Gazprom had offered concessions to stave off those charges.

The interest of both Russia and the European Union in alternative gas supply routes dates back to a series of disputes between Russia and Ukraine over unpaid gas bills, notably in early 2009 when gas deliveries into the European Union were seriously disrupted.

While Russia has focused on alternative supply routes, the European Union has also sought alternative suppliers.

Nervousness about disruption has grown after Ukraine's refusal to sign a partnership agreement with the European Union triggered a political crisis and popular unrest. (editing by Jane Baird)

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