September 2017The OPAL Exemption Decision:
a comment on the CJEU’s ruling to reject suspension

Introduction: the 2016 OPAL exemption decision1
In June 2009, the European Commission (EC) adopted an exemption decision (“The June 2009
exemption decision”), which prevented Gazprom from being able to utilise more than 50 per cent ofcapacity in the OPAL pipeline (one of Nord Stream 1’s onshore extensions). This led to a situation whencapacity in OPAL (and Nord Stream 1) remained underutilised as there was a continuous lack ofdemand from third parties. In October 2016 the EC revised its decision and allowed Gazprom to bid forthe remaining 50 per cent of OPAL capacity alongside third parties at auctions organised by the
PRISMA platform (“The October 2016 exemption decision”). 2 The decision effectively guaranteed thethird parties’ access to up to 20 per cent, as Gazprom was not allowed to outbid them for that share.
Furthermore, the decision allowed the EC significant room for manoeuvre, both in respect of judging
whether conditions for a further increase of capacity offered to third parties are met, as well as in respect
to the certification of OPAL’s operator (OPAL Gastransport). 3 In November 2016 the German regulator(BNetzA), OPAL Gastransport, Gazprom, and Gazprom Export signed a settlement agreement (“TheNovember 2016 settlement agreement”) bringing the rules of operating the OPAL pipeline in line with
the October 2016 exemption decision. In December 2016 the first auctions were held for OPAL
capacity.4
Although the October 2016 exemption decision established a fine balance between the interests of allparties involved in line with the EU acquis, it was met with an avalanche of criticism from several central
and eastern European countries, which argued that Gazprom’s increased access to OPAL capacity
would undermine their energy security.
Especially sharp criticism came from Poland and its 100 per cent state-owned gas company, PGNiG,
which filed several complaints against the decision in the Court of Justice of the EU (CJEU), calling for
it to be temporarily suspended (until the date of delivery of the judgement on substance) and eventuallyannulled:

PGNiG’s German subsidiary (PGNiG Supply & Trading GmbH) vs EC (4 December 2016, case T849/16),5

1

The author is grateful to Professor Jonathan Stern, a distinguished research fellow on the OIES Natural Gas Research
Programme, for his useful comments on the paper. Responsibility for all the views expressed and all the conclusions reached issolely that of the author.
2
For a detailed analysis of the October 2016 exemption decision, see Yafimava (2017).
3
Yafimava (2017), p. 15-17.
4Ibid. p. 23-26.
5
Action brought on 4 December 2016 – PGNiG Supply & Trading v Commission (Case T-849/16), OJ C 38/42, 6 February
2017.

Energy Insight: 18

Katja Yafimava

Poland vs EC (16 December 2016, case T-883/16),6



PGNiG vs EC (1 March 2017, case T-130/17).7

In parallel, on 15 December 2016 PGNiG and its German subsidiary, PGNiG Supply & Trading, filed acomplaint at the German Higher Regional Court in Düsseldorf (“The Düsseldorf Court”) in respect of
the aforementioned November 2016 settlement agreement, calling for its temporary suspension.

Applications for provisional suspension granted in December 2016: auctions halted
On 27 December 2016 the General Court of the CJEU issued a decision to provisionally suspend
execution of the October 2016 exemption decision, requesting (a) the EC to present ‘detailed
explanations with respect to the proposed procedure of capacity allocation on the OPAL pipeline’ and(b) PGNiG Supply & Trading to submit ‘an in-depth analysis of the EC’s decision impact on the security
and competitiveness of gas supplies to Poland’.8 In January 2017 a CJEU spokeswoman stated thesuspension would be in place until other interim measures have been decided or the President of theGeneral Court lifts it.9 It was expected by the gas community that the CJEU would clarify its position on
the interim measures in the first quarter of 2017, indicating how and whether the exemption decision
was to be applied until the judgements on the applications for its annulment are made.10 On its part,
OPAL Gastransport stated that should the suspension be lifted by 13 March 2017, it would be possible
to re-start monthly auctions, while noting that it would be too late to re-start annual auctions.11 However,
the CJEU provided no indication of its position and made no decision during the first quarter of 2017.
On 30 December 2016, the Düsseldorf Court followed suit and adopted an interim decision toprovisionally suspend the November 2016 settlement agreement (which brought the rules of access to
OPAL capacity in line with the 2016 exemption decision) with immediate effect. This suggested theJune 2009 exemption decision (under which Gazprom could not utilise more than 50 per cent of OPAL
capacity) remained in force. Consequently, the Düsseldorf Court ordered BNetzA to suspend any
further daily, weekly, monthly, and annual auctions for the remaining (i.e. non-exempted) 50 per centof OPAL capacity. The suspension was to remain in place until a decision is made by the Düsseldorf
Court under the urgent appeal procedure. The Court stated that it had decided on the suspension ‘inthe light of’ the CJEU’s interim decision made on 23 December 2016. 12 In early March 2017 the Court
decided to keep the suspension in place until March-April 2018.13 Notably, this decision was adopted
after it would have been too late to offer additional OPAL capacity at the annual auctions planned for 6
March 2017.14 This suggests that given that – contrary to expectations – the CJEU made no decisionon the interim measures in the first quarter of 2017, the Düsseldorf Court might have waited for suchdecision to be made before the time when it would have still been possible to hold annual auctions (ifthe suspension had been lifted). Had this happened, the Court could then have simply taken the samedecision as the CJEU. However, given that this did not happen, the Court decided to keep thesuspension in place, perhaps also reflecting an unwillingness to lift it before the CJEU itself decided to
do so.

Action brought on 16 December 2016 – Republic of Poland v Commission (Case T-883/16), OJ C 38/52, 6 February 2017.
Action brought on 1 March 2017 – Polskie Górnictwo Naftowe i Gazownictwo v Commission(Case T-130/17), OJ C 121/48, 18 April 2017.
8
PGNiG (2016).
9‘Gas industry awaits clarity on OPAL capacity issue’, Interfax Natural Gas Daily, 12 January 2017.
10
It is worth noting that on average it takes between 1.5 and 2.5 years for the CJEU to make its judgements, therefore it isimportant that there are interim measures covering the period during which the CJEU is preparing its judgement on substance.
11‘Extra OPAL capacity sales for Apr still possible’, Platts European Gas Daily, 2 March 2017.
12
Oberlandesgericht Düsseldorf, VI-3 Kart 1203/16 (V), 27 July 2017 (“The Düsseldorf Court Decision”) (in German).
13‘Court blocks OPAL capacity auctions until next year, says PGNiG’, Russia & CIS Oil and Gas Daily, Interfax, 7 – 15 March2017.
14‘Extra OPAL capacity sales for Apr still possible’, Platts European Gas Daily, 2 March 2017.
6
7

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of
the Oxford Institute for Energy Studies or any of its Members.

2

Applications for suspension rejected in July 2017: auctions restart
Finally, on 21 July 2017 – just before the CJEU closed for the summer holidays – the President of theGeneral Court of the CJEU issued an Order (“The President’s Order”), stating that he ‘rejects theapplications for a stay of execution15 of the Commission’s decision that 50 per cent of the transportcapacities of the OPAL gas pipeline are to be subject to a bidding procedure’. 16 In so doing the Orderlifted the suspension of the October 2016 exemption decision until judgements are made by the General
Court on the applications for its annulment.17 The Order indicated that ‘[I]n light of the average durationof proceedings’ such judgements ‘will probably be delivered during 2019’. This means that the October
2016 exemption decision will continue to apply and remain valid at least until 2019.
On 27 July 2017, the Düsseldorf Court followed suit and repealed its previous December 2016 decision,
which ordered BNetzA to suspend the November 2016 settlement agreement, confirming the continued
validity of the October 2016 exemption decision. Subsequently, BNetzA withdrew its provisional orderto implement the December 2016 decision thus enabling OPAL Gastransport to re-start the auctioningof OPAL’s capacity in line with the November 2016 settlement agreement with immediate effect. First
auctions for daily capacity were held on the PRISMA platform on 1 August 2017. 18
The timing of both the CJEU and the Düsseldorf Court decisions was important as it allowed thesuspension to be lifted before 31 July 2017 thus enabling Gazprom to utilise spare capacity in OPAL atquarterly auctions held on 7 August 2017 for the third and fourth quarters of 2017 and the first andsecond quarters of 2018.19 OPAL Gastransport data suggests that on 2 August 2017 flows via OPAL
increased by approximately 25 per cent thus confirming Gazprom’s keenness to use OPAL capacity. 20
On 9 August 2017 Gazprom announced that it used the OPAL pipeline to full capacity for the first timesince the suspension was lifted.21

The July 2017 CJEU President’s Order: rationale for rejecting suspension
The threshold for granting the application for suspension (a stay of execution) is very high. The
President’s Order recalled that a stay of execution ‘may be granted if it is established that to grant it is,
prima facie, justified in fact and in law and that it is a matter of urgency that it be granted in order toavoid the party seeking it suffering serious and irreparable harm before the decision in the mainproceedings is made’ (emphasis added). Thus for a stay of execution to be granted both requirements
must be met. The fact that the Court, having requested additional materials from both the EC and
PGNiG/Poland and having considered them for more than half a year, finally decided to reject a stay of
execution and lift the suspension demonstrates unequivocally that the Court believes the threshold for
granting the suspension was not met.
As stated in the President’s Order, the main PGNiG/Polish government argument against the executionof the 2016 exemption decision was that ‘the increase in transport capacities through the OPAL pipeline
will lead, necessarily, to a reduction in the transports of gas via the Yamal-Europe and Fraternité gas
pipelines (which also transport natural gas from Russia to Western and Eastern Europe) and,accordingly, will threaten the security of the gas supply in Poland or will adversely affect competition’.
The Court appears to have refrained at this stage of the proceedings from explicitly expressing a viewon whether the (first) requirement for a stay of execution to be granted – that is prima facie justification

15

A legal term, which means an order to temporarily stop an auction or an earlier court decision being carried out, Cambridge
Dictionary Online.
16‘The President of the General Court rejects the applications for a stay of execution of the Commission’s decision that 50% of
the transport capacities of the OPAL gas pipeline are to be subject to a bidding procedure’ (“The President’s Order”), General
Court of the European Union, press release No 83/17, Order of the President of the General Court in Cases T-849/16 R, T883/16 R and T-130/17 R, Luxembourg, 21 July 2017.
17
The President’s Order.
18
PRISMA is the joint capacity booking platform of major European transmission system operators.
19‘Court to hear Gazprom access to Opal case’, Platts European Gas Daily, 5 July 2017.
20
OPAL Gastransport website flows data.
21‘OPAL pipeline operating at full capacity: Gazprom’, Reuters, 9 August 2017.

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of
the Oxford Institute for Energy Studies or any of its Members.

3

in fact and in law – is met. However, the wording of the Order, which reads ‘even if the certainty of theharm alleged […] were sufficiently demonstrated’, appears to suggest that in the Court’s view thecertainty of the alleged harm (threat to the security of supply or reduction of competition) has not been
sufficiently demonstrated at present.
The Court is unequivocal that the (second) requirement for a stay of execution to be granted – that is
urgency – is not met. The Order starts by saying: ‘there are two contracts concluded by Gazprom which
are currently applicable, namely a transit contract for the transport of natural gas via the Polish sectionof the Yamal-Europe pipeline to supply the Western European markets (including Poland) until 2020[“the transit contract”] and a contract concluded in 1996 with PGNiG for deliveries of natural gas until
the end of 2022 [“the supply contract”]’ and continues: ‘[C]onsequently, the use of the transport capacityof the Polish section of the Yamal-Europe pipeline and Gazprom’s deliveries to the Polish market are,prima facie, guaranteed until the aforementioned dates’. Thus the Court believes that even if thecertainty of the alleged harm were sufficiently demonstrated, such harm ‘could occur at the earliest only
on expiry of those [supply and transit] contracts’, thus suggesting there is no reason for granting a stayof execution prior to their expiry. Given that the Court stated it would likely deliver its judgement on
substance22 during 2019 (i.e. before the expiry of the transit contact), the requirement of urgency would
continue to be unmet by the time such judgement is made, thus giving the Court no reason to revise
until the end of the proceedings. The Order further states that the applicants ‘have failed to adduce
sound evidence that they are unable to await the outcome of the proceedings in the main actions without
being exposed to serious and irreparable harm’. Finally the Order declares that ‘the requirement ofurgency is not met’. Given that both requirements – prima facie justification in fact and in law andurgency – need to be met for a stay of execution to be granted, the Court rejected the application for astay of execution on the basis that (at least) one requirement (urgency) is not met.
It is worth stressing that on 23 December 2016 the CJEU only granted a provisional suspension of
execution of the 2016 exemption decision, with the decision on whether or not to approve an
unconditional suspension was to be taken after the CJEU had a sufficient time for careful considerationof the cases. Given that the two cases were filed in quick succession on the 4 and 16 December 2016
in the run-up to the Christmas holidays (with the third case being filed on the 1 March 2017), the factthat the CJEU only granted a provisional suspension suggests that (a) it did not feel there was sufficientjustification for granting an unconditional suspension, and (b) it felt that granting a provisional
suspension was appropriate as it would have allowed it more time to analyse the cases in detail before
deciding whether to leave it in place. Thus we disagree with the argument advanced by some expertsthat the CJEU’s grant of a provisional suspension in December 2016 implied that PGNiG had
demonstrated it had a prima facie case and it will suffer serious and irreparable damage if thesuspension was not granted.23 On the contrary, had the CJEU believed this to be the case it would nothave made such suspension provisional. By granting a provisional suspension the CJEU had simply
allowed itself sufficient time for assessment of whether a suspension was justified, following which it
ruled definitively that it was not. Furthermore, the Court’s decision not to introduce any other interim
measures in respect of how the exemption decision could be applied before a judgement is made on
the substance, suggests that the Court has no reason to believe that the exemption decision is not inline with the EU acquis.

The July 2017 CJEU’s Order: implications for final judgement
Understanding the CJEU’s reasoning, which led it to decide to lift the suspension, is important in its
own right as it could provide an insight into the court’s thinking and hence final judgement on theapplications for annulment of the October 2016 exemption decision.
The CJEU clearly views the presence of commercial contracts in place under which Gazprom is obliged
to transit and supply gas across, and to, Poland as a guarantee for continued supply to Poland and useof capacity in the Yamal-Europe pipeline until these contracts expire. Specifically, the Order reads: ‘…

22
23

I.e. to rule whether or not to annul the October 2016 OPAL exemption decision.
Riley (2017).

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of
the Oxford Institute for Energy Studies or any of its Members.

4

the use of the transport capacity of the Polish section of the Yamal-Europe pipeline and Gazprom’sdeliveries to the Polish market are, prima facie, guaranteed until the aforementioned dates [end of 2019and end of 2022 respectively]’ (emphasis added).
This suggests that the CJEU, when making its judgement in 2019, is likely to consider which contractual
arrangements might replace the existing supply and transit contracts upon their expiry.
It is worth recalling that the existing Polish-Russian agreements envisage extensions of both existing
supply and transit contracts. As far as the supply contract is concerned, the Polish-Russian long-tern
gas sector cooperation agreement, signed in January 2010 by Gazprom, PGNiG and EuroPolGaz,
envisaged its extension to cover the period until 2037.24 However, Poland has since made clear that it
did not plan to renew this contract after its expiry at the end of 2022. In May 2017, the Polish government
representative for energy infrastructure, Piotr Naimski, was quoted as saying that although Poland ‘did
not rule out’ buying Russian gas if the price is ‘competitive enough … but definitely not as part of a longterm contract’ (emphasis added). 25 It is worth noting that Poland’s successive governments haverepeatedly stated their determination to diversify their gas imports and reduce dependence on Russiangas. To this end, Poland expressed an intention to increase imports of LNG by expanding the capacityof its LNG terminal at Świnoujście on the Baltic Sea. At present, Poland has a long term supply contract
to import Qatari LNG under its Qatargas contract while also purchasing spot LNG from Norway under
its Statoil contract.26 Poland has also imported its first US LNG cargo in 2017, while the Polish president
announcing an intention to conclude a long term supply contract to import US LNG. 27 Furthermore,
Poland wants to start importing pipeline gas from Norway. With a view of doing so, it has conducted afeasibility study and requested expressions of interest for capacity in Baltic Pipe connecting Poland with
the Norwegian Continental Shelf via Denmark.28 On its part, Gazprom has never suggested it would
refuse to supply gas to Poland and repeatedly expressed readiness to renew the existing supply
contract.29
As far as the transit contract is concerned, the January 2010 Polish-Russian cooperation agreement
stipulated its extension until 2045.30 This commitment was later re-affirmed in the October 2010 protocol(amending the August 1993 Polish-Russian intergovernmental agreement (IGA)), which stipulated thatthe two countries would ‘aim’ that a new contract to transit around 28 bcma of gas across Poland during
2010-2045 would be concluded ‘as soon as possible’ (Art. 2). 31 Although Gazprom has since repeatedly
expressed readiness to renew the transit contract, with deputy CEO, Alexander Medvedev, saying inJanuary 2017 that ‘[W]e don’t have plans for and haven’t even thought about cuts or stoppages to transit
via Poland’, 32 Poland’s position remains unclear and, according to Medvedev, ‘…Poland does notintend to prolong the transit deal’. 33 Interestingly, in August 2017, the Polish foreign minister, Witold
Waszczykowski, when asked whether Poland plans to renew the transit contract, was quoted as saying‘Maybe, yes. But only if Russia offers a much lower price [for gas] than now’.34 This statement appears
to be at odds with the EU acquis, under which gas transmission is a regulated business whereby neither
the fact of allocation of capacity nor its price (tariff) could be conditioned on the price of gas fortransportation of which such capacity is used.

24

Gazprom (2010).
‘Poland aims to end long-term gas supplies from Russia after 2022’, Reuters, 31 May 2016.
26
Poland has a long term supply contract to import Qatari LNG (Qatargas contract) while has also been purchasing LNG from
Norway on spot basis (Statoil contract), see PGNiG Annual Report 2016, p. 53.
27‘Trump says gas deal with Poland should take '15 minutes', 7 June 2017.
28
Gaz-System (2017).
29
At present, the supply contract is under arbitration by the Stockholm Institute of Arbitration, where it was referred to by
PGNiG due to disagreement with Gazprom on price, see PGNiG Annual Report 2016, pp. 53-54.
30
Gazprom (2010).
31‘The 2010 Protocol amending the 2003 Additional Protocol’, 29 October 2010.
32‘Gazprom says Poland transit deal delay endangers gas exports to EU’, Reuters, 25 January 2017.
33
Ibid.
34
‘Vzaimnosti i gotovnosti k dialogu mi ne vidim’ (in Russian), Kommersant, 7 August 2017.
25

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of
the Oxford Institute for Energy Studies or any of its Members.

5

Importantly, any transmission contract replacing the existing transit contract would have to becompatible with both the Polish-Russian IGA and the EU acquis (specifically the Third Energy package(TEP), as represented by Third Gas Directive, Regulation 715/2009, and ACER Regulation, and the
EU Network Codes (NCs)). The TEP outlined general rules in respect of Transmission System Operator(TSO) certification and unbundling, transportation tariffs, and third party access (TPA): our previous
analysis concluded that the IGA (as amended in October 2010) is compatible with the TEP. 35 The EU
Network Codes prescribed more specific procedures, including on capacity allocation mechanisms(CAM NC) and tariffs (Tariffs NC) which together with congestion management procedures (CMP) (setin Annex to Regulation 715/2009) constitute a regulatory framework under which capacity is allocatedand congestion is managed within the EU.
All EU Network Codes and CMP apply to intra-EU interconnection points (IPs) whereas their application
to entry points from third countries is subject to the decision of the relevant national regulatory authority.
Thus, as far as capacity in the Yamal-Europe pipeline is concerned, the Polish regulator would be
obliged to apply the CAM NC and CMP at the IP with Germany whereas such an application would be
optional in respect of the IP with (non-EU) Belarus. It is worth noting that ACER has published a list of
IPs to which CAM NC applies (as part of its annual contractual congestion reports) which included interalia IPs between Poland and Ukraine, which suggests that the Polish regulator has indeed decided toapply the CAM NC to entry points from third countries. 36
Thus if one assumes CAM NC and CMP applicability to IPs with both Germany and Belarus, capacity
in the Yamal-Europe pipeline (once it becomes available upon expiry of the existing transit contract) –both at the Polish-German and the Polish-Belarusian IPs – would have to be allocated via auctions asthese are the only means available under CAM NC for allocating existing capacity (Art. 8 of the CAM
NC).37 This would apply to bundled entry-exit capacity at the Polish-German IP and to entry capacity at
the Polish-Belarusian IP. Realistically, it is Gazprom and/or its European buyers that would be likely to
be interested in bidding for Yamal-Europe capacity. Notably, due to an obligation to offer the maximum
technical capacity (Art. 6.1 of the CAM NC) the Polish TSO would be required to offer technical capacity
in Yamal-Europe to any network user, including Gazprom. Furthermore, it would be impossible for any
network user, including Gazprom, to hoard capacity in Yamal-Europe as the TSO would be required by
the Polish regulator to apply firm day-ahead use-it-or-lose (UIOLI) CMP ‘if, on the basis of the yearlymonitoring report of the Agency […] it is shown that at IPs demand exceeded offer […] (a) for at least
three firm capacity products with a duration of one month or (b) for at least two firm capacity productswith a duration of one quarter or (c) for at least one firm capacity product with a duration of one year or
more or (d) where no firm capacity product with a duration of one month or more has been offered’,thus suggesting that it would become prohibitively expensive for any user to prevent other users fromutilising Yamal-Europe capacity.
On the other hand, if one assumes that CAM NC and CMP are not applicable to the Polish-BelarusianIP, then allocation of capacity at the entry point to the Polish system could be made by means otherthan auctions (e.g. “first-come-first-served”). Given that Gazprom holds a monopoly on Russian pipelinegas exports and given that Belarus covers most of its gas import requirements from Russia, realisticallyGazprom would be the only party interested in booking Yamal-Europe entry capacity at the PolishBelarusian border. However, should any delivery points, specified in Gazprom’s European long term
supply contracts (LTSCs), be renegotiated and moved to e.g. the Polish-Belarusian border, Gazprom’s
European buyers could also become interested in booking Yamal-Europe entry capacity. In our view, it
would be impossible for the Polish TSO to refuse to offer entry capacity either to Gazprom or to any
other party, as this would contradict both the World Trade Organisation (WTO) and the Energy Charter
Treaty (ECT) principles of freedom of transit.

35
36
37

Stern and Yafimava (2017), p. 19.
ACER (2016); ACER (2015).
CAM NC. Alternative allocation mechanisms are possible in respect of incremental capacity (Art. 30).

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of
the Oxford Institute for Energy Studies or any of its Members.

6

An important caveat to the above analysis is that the terms of the Polish-Russian IGA might impact
some of its assumptions, specifically in respect of the mandatory application of auctions at IPs (bothintra-EU and with third countries). This is because the IGA (as amended in October 2010) stipulated
that Poland and Russia would aim for a conclusion of a new contract to transit around 28 bcm of gas
across Poland annually during 2020-2045 thus creating legitimate expectations on the part of Gazprom
that it would continue to be able to transit this volume after the expiry of the existing transit contract.
Should any aforementioned auctions result in Gazprom only being able to book less than 28 bcma of
capacity in Yamal-Europe, these expectations would not be fulfilled. Therefore, it could be argued thatthird parties should not be allowed to outbid Gazprom for capacity in Yamal-Europe for the amountnecessary for delivery under its existing European LTSCs. This approach would be in line with theagreement achieved between the EU and Russia in the Gas Advisory Council (GAC). 38
Gazprom has a portfolio of LTSCs, under which the majority of its gas is exported to Europe, with expiry
dates stretching up to 2035.39 These LTSCs oblige Gazprom to deliver gas to agreed delivery points(at various European borders); they also oblige European buyers to purchase a minimum offtake (“Takeor Pay” (TOP) quantity) at a defined price irrespective of opportunities that might arise in other markets.
Under-delivery by Gazprom constitutes a breach of contractual obligations; under-offtake by aEuropean buyer only constitutes a breach if the buyer did not pay for the gas it failed to take below TOP
volumes. Normally a TOP clause of 85 per cent of annual contractual quantity (ACQ) and a possibility
to nominate to a maximum of up to 125 per cent of ACQ would be expected in a traditional Gazprom
LTSC but it is understood that in some contracts the TOP levels have been reduced to 70 per cent of
ACQ over 2010-2015 (as a result of renegotiations and arbitrations). Under these LTSCs Gazprom has
to deliver as much gas as its European customers nominate (up to a maximum which can be up to 125
per cent of ACQ) and although it is only required to deliver contractual minimum TOP volumes, it would
have to pay penalties for failing to deliver the difference between the contractual minimum andnominated volumes. This suggests that Gazprom would need to have access to export capacity at leastat the 70-85 per cent TOP level (~126-153 bcm) for meeting its TOP commitments and up to ~220 bcm
if it wants to avoid penalties for not meeting maximum nominations and maximise sales. Overall there
are significant limitations on the options to reduce the volumes in these LTSCs or to terminate them
before expiry.
If the OPAL exemption decision is upheld and if one string of Turkish Stream is built (but Nord Stream
2 is not built), the overall total annual export capacity available to Gazprom in 2020 would be around
225 bcm (including the Ukrainian and the Polish transit networks), approximately matching the
maximum nominations level in Gazprom’s European LTSCs. This suggests that even if Gazprom were
to be able to utilise more than 50 per cent capacity in OPAL, it would still need Polish and Ukrainiantransit capacity if it were to deliver on European buyers’ maximum nominations (~220 bcm). Gazprom
would be able to meet its 70 per cent TOP obligations (~126 bcm) without transiting its gas acrossPoland only if it was able to rely on 50-60 bcm of capacity in the Ukrainian network, and it would be
able to meet its 85 per cent TOP (~153 bcm) only if it was able to rely on 70-80 bcm of capacity in the
Ukrainian network. (This calculation necessarily overestimates Gazprom’s ability to meet its obligations
as it is only based on the assessment of overall export capacity and does not take into account domestic
pipeline constraints within the EU which would limit it further). Importantly, according to OIES research,even if LTSCs were to disappear, in 2020 Europe could still need to import ~200-220 bcm of Russian
gas to meet its requirements. Gazprom would only be able to export these volumes to Europe withouttransiting gas across Poland if it was able to utilise 110-130 bcm of Ukrainian capacity. But Gazprom’s
ability to utilise capacity in the Ukrainian network post-2020 is not assured, because its existing transit
contract will expire at the end of 2019. Furthermore, unless technical modernisation of the Ukrainiansystem takes place before 2020, its ability to transit more than 90 bcm in 2020 could not be guaranteed.
Notably, Ukraine stated in 2013 that it might close down half of its network thus reducing its transit

38

Conclusions of the 7th EU-Russia Gas Advisory Council, 14 June 2013, pp. 5-6. These Conclusions suggest that should theimplementation of the TEP and the network codes have a negative impact on Gazprom’s ability to meet its existing contractual
obligations, transitional arrangements would be agreed.
39
Pirani and Yafimava (2016). Notably, Gazprom’s sales outside LTSCs have increased sharply over 2015-2016.

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of
the Oxford Institute for Energy Studies or any of its Members.

7

capacity to ~50 bcm.40 In 2016, it repeated its intention to ‘optimize’ the network leaving it capable oftransiting volumes in the range of ‘zero, 30 and 70 bcm’.41 Given that Ukraine, unlike Poland, is not an
EU member state – although it is a contracting party to the Energy Community Treaty – the legal meansfor ensuring that a new transit contract will be concluded and be compatible with the EU acquis is
uncertain. This suggests that even if the OPAL exemption decision is upheld, thus enabling Gazprom
to utilise more capacity in Nord Stream, Gazprom’s contractual obligations and European buyers’ gasdemand are such that capacity in the Yamal-Europe pipeline would need to be utilised post-2019 either
by Gazprom (if delivery points in its existing LTSCs remain unchanged) or by its European buyers (ifrenegotiated or new supply contracts specify the Polish-Belarusian border as a new delivery point) on
the basis of new transportation contracts.
Consequently, the CJEU will be likely to adopt the same view in its 2019 final judgement as it did in its
July 2017 Order i.e. that the 2016 exemption decision will not necessarily lead to a reduction of gas
transport via the Yamal-Europe pipeline as new transmission contracts would provide a prima facie
guarantee of continued transit, and hence to reject the application for the annulment of the October
2016 exemption decision.

Possible impact of Gazprom’s competition commitments and Nord Stream 2 on
CJEU’s final judgement
In making its final judgement, the CJEU is likely to take into consideration two more factors, which are
not fully present yet but will be relevant in 2019:

progress (or lack thereof) reached on the construction of Nord Stream 2 pipelines (planned to becompleted by the end of 2019, and run parallel to Nord Stream 1), regulatory treatment of Nord
Stream 2’s EUGAL pipelines (planned to run parallel to OPAL), and whether their regulatory
treatment will be the same as for the OPAL pipelines (governed by the October 2016 exemption
decision);

acceptance (or otherwise) by the EC’s Directorate for Competition (DG COMP) of Gazprom’scommitments in respect of its sales to central and eastern European countries made in the courseof anti-trust investigation and their implementation by Gazprom.42

By 2019 it will be clear whether Nord Stream 2/EUGAL will have proceeded on schedule and whether
Gazprom’s commitments have been implemented. Therefore, the CJEU would be able to assess theirpotential impact both on competition and on the security of gas supply to Poland, in conjunction with
the October 2016 OPAL exemption decision. This, in turn, could influence the CJEU’s judgement onwhether to uphold the latter. Given that the EC adopted its exemption decision around the time when
DG COMP came to its provisional agreement with Gazprom on the commitments, it must have taken
into account their impact on both Polish security of supply (as Poland was one of the six countries
assessed during investigation) and competition. Furthermore, DG COMP itself spoke in favour of thecommitments, saying their acceptance and implementation would improve competition in central andeastern Europe. 43 This suggests that the commitments are unlikely to lead the CJEU to annul the
exemption decision on the grounds of causing a threat to security of supply and competition. 44
In our view, it is also unlikely that Nord Stream 2 would be a factor leading the CJEU to annul the
exemption decision, but it is possible that its final judgement might provide an indication as to whether
the October 2016 exemption decision might serve as an adequate guidance for the regulatory treatment
of Nord Stream 2’s onshore extensions.

‘Transity trubyat otboy’, Kommersant, 23 September 2013 (in Russian).
‘Ukraine may decommission part of gas network in lower Russian supplies: paper’, Reuters, 13 September 2016.
42
For detailed analysis of Gazprom’s commitments, see Stern and Yafimava (2017). Should DG COMP accept them, thecommitments will cover the period of eight years.
43
EC (2017).
44
Notably the commitments envisage a right of a buyer to request a change from the existing delivery points to the new ones,
see Stern and Yafimava (2017).
40
41

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of
the Oxford Institute for Energy Studies or any of its Members.

8Conclusions
The July 2017 decision by the President of the CJEU to reject the stay of execution of the October 2016
exemption decision suggests that the latter will remain in force at least until 2019 (meaning that theauctions of OPAL capacity will continue), when the CJEU is expected to make its judgement on
substance, confirming or annulling the exemption decision. Should the CJEU confirm the exemption
decision it will continue to apply until 2033, thus enabling Gazprom’s continued utilisation of more than
50 per cent of OPAL capacity. In the event of the CJEU not confirming the exemption, Gazprom’s
utilisation of OPAL capacity would be capped at 50 per cent.
The approach taken by the President of the CJEU in his judgement to reject the stay of execution due
to the continued validity of both long term transit and supply contracts, taken together with Poland’s
official position not to renew the long term supply contract upon expiry and make post-2019 contractual
arrangements for transit conditional on a gas price reduction, suggest that the CJEU is unlikely to annul
the exemption decision. This is because Gazprom’s contractual obligations and European buyers’
projected gas demand in the 2020 time-frame will require capacity in the Yamal-Europe pipeline tocontinue to be utilised post-2019 either by Gazprom (if delivery points in its existing LTSCs remainunchanged) or by its European buyers (if renegotiated or new supply contracts specify the PolishBelarusian border as a new delivery point). Therefore it is likely that new transportation contract(s)enabling the utilisation of Yamal-Europe pipeline post-2019 will be concluded. This suggests thatannulment would be groundless as the future presence of such contracts would mean that theexemption decision would not necessarily lead to a reduction of flows via Poland, thus refuting thePoland’s argument.
More generally, Poland argues that a reduction of gas transit across its territory would threaten its
security of gas supply and competition. This suggests that it views the continued transit of Russian gas
across Poland as a guarantee of continued supply of Russian gas to Poland. The logical connection
between the two is not clear given that supply and transit are contractually separate issues. Even if thislogical connection were to be valid – which we do not believe – the argument appears inconsistentgiven that senior Polish politicians and executives have said that its long term contract for imports ofRussian gas will not be renewed when in expires in 2022. There is no clarity in respect of post-2019
contractual arrangements for transit which appears to equate to delaying tactics. Therefore, in our view,
it would be unreasonable to expect the Court to annul the exemption decision on its basis. It is worth
noting that Poland has concluded a long term supply contract for Qatari gas and has stated its intention
to conclude a long term supply contract for US LNG, both of which question the claim that its securityof gas supply is threatened.45
When making its final judgment, the CJEU is likely to take into account the impact of Gazprom’scommitments (made in the course of DG COMP investigation into its gas sales in central and eastern
Europe as well as the progress of Nord Stream 2, but these factors are unlikely to lead it to annul the
exemption decision. However, they might cause the judgement to reflect whether the October 2016
exemption decision should serve as guidance for the future regulatory treatment of the Nord Stream 2
onshore extensions (the EUGAL pipelines), given that Nord Stream 2 would significantly expand
Russia’s export capacity towards Europe.

45

PGNiG Annual Report 2016; ‘Trump says gas deal with Poland should take '15 minutes', 7 June 2017.

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of
the Oxford Institute for Energy Studies or any of its Members.

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The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of
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11