1) The EU's recent decision to allow Gazprom to increase capacity on the German OPAL pipeline will allow Russia to supply more gas through Nord Stream and less through Ukraine, hurting Ukraine. 2) While the EU has investigated Gazprom for antitrust violations regarding market dominance and unfair pricing, decisions like OPAL signal the EU's ambiguity in balancing business and political interests. 3) Ukraine risks losing billions annually from less Russian gas transit and should strengthen its energy diplomacy and reforms to defend its interests and lobby the EU to block projects like Nord Stream 2 that undermine Ukraine.

1. Ukrainian version of this article was published on the Evropeiska Pravda website -
http://www.eurointegration.com.ua/articles/2016/11/4/7056945/
‘OPAL’ of Discord. Why the EU supports Gazprom’s anti-
Ukrainian plans?
Mariia Melnyk, Junior Expert at DiXi Group, Lukáš Kulich, Intern at DiXi Group, M.A. in International
Energy, Sciences Po Paris
The recent decision of the European Commission allowing Gazprom to use more capacity of
the German OPAL pipeline has created a swirl in media. Due to this decision, Russia will be
able to supply more gas through the Nord Stream pipeline and less through the Ukrainian gas
transmission system.
Media equally noted that this decision on antitrust case against Gazprom reveals ambiguous
perspectives within the European Commission. Despite the abuse of its position in European
gas market, Gazprom will not have to pay a large fine. Is Brussels preparing a treachery that
will damage Ukraine’s interests? Let’s find out!
A bit of history
In the last decades, Gazprom has been trying to consolidate its own position as the dominant
gas supplier to Europe. For a long time, the Russian company succeeded to do so and it still
remains the largest supplier of gas to Europe with a share of over 30%.
Share of Gazprom’s gas imports to Europe
Source: Gazprom.com
Thanks to its largest market share, Gazprom tried to enter the European market with non-
market methods. Gazprom has repeatedly resorted to manipulation of the market by the

2. interruption of "blue fuel” flows to Europe; many people may recall the situation in 2009
when due to the conflict with Ukraine, Gazprom put at risk the cessation of gas destined into
the EU. Europe remains very sensitive to this issue since there are still some countries in the
Southeast Europe which are 100% dependent on Russian gas; this represents an opportunity
for the company to repeat such a manipulation. In order to determine the percentage of
Europe's dependence on Russian gas, we divided the gas pipeline imports from Russia in
chosen countries by their overall consumption of "blue fuel” in 2015.
The dependence of European countries on Russian gas
Source: Created by DiXi Group based on International Energy Agency data
In return, Europeans have consistently fought against such manipulations. In 2003, the EU
raised the question of the dominant position of Gazprom. The European Commission and the
Gazprom reached an agreement signed after the background attempts of the Russian company
to isolate gas market in Italy. The agreement gave the possibility to Italian Eni to resell the
gas purchased earlier from Gazprom not only within but also outside the country. This
agreement canceled so-called terms of delivery (the destination clause), prohibiting any resale
of the supplied Russian gas.
However, only the ‘gas wars’ in 2005 and 2009 pushed Brussels to take decisive action on
Gazprom. The main consequence of gas wars was the adoption of the Third Energy Package -

3. a set of directives and regulations allowing competition and diversification of gas suppliers in
national gas markets.
Unfair prices: the beginning of antitrust investigations
In 2011, a massive revision of long-term contracts began between Gazprom and its European
partners. In particular, energy companies in Germany and Italy, E.on and Eni, appealed to the
Russian company for a revision of contract prices of gas, arguing on the basis of shifts in
global gas market. Furthermore, in 2011, Lithuania raised concerns over her contract with
Gazprom.
Attempts to negotiate fair prices for gas ended in vain. Due to lack of agreement, German
E.on, Italian Eni and Lithuanian Lietuvos dujos decided to file a lawsuit against Gazprom.
Other gas buyers, including Polish PGNIG and the Czech unit of German RWE, decided to
join these players in these efforts.
In September 2011, the EU launched an inspection in offices of buyers working for Gazprom
and its associated companies in Central and Eastern Europe. In Europe, similar actions were
initiated based on suspicion of unfair prices in 8 countries: Bulgaria, Czech Republic,
Hungary, Poland, Slovakia, Estonia, Latvia and Lithuania. The last event in the conflict,
which led to the beginning of investigations, was the Lithuanian complaint to the European
Commissioner Joaquin Almunia on the methods of Gazprom’s unfair competition.
In September 2012, the antitrust investigation against Gazprom intensified. This investigation
was initiated by the EC Directorate General for Competition and involved three main
allegations, namely obstructing free flow of gas between European countries, hindering
diversification of gas supplies and charging unfair prices. In 2015, Ukraine began its own
antitrust investigation against Gazprom.
During the five years of the antitrust case, the Commission made several breaks in
investigation, arguing that the Commission needed to study the case in a greater detail.
According to some analysts, suspensions in investigations occurred for two reasons: the
bureaucracy within the European Commission and the effective use of Russia’s leverage over
the EU. The new Commissioner for competition, Mrs Margrethe Vestager, who began her
duties in November 2014, argued for protection of European businesses. In her Financial
Times interview, Mrs Vestager stated that the main purpose of the Commission is to achieve
the best outcome for the protection of households and businesses in Europe by ensuring free
flow of gas into Central and Eastern Europe at competitive prices.
If you really need, may you?
Despite concerns in Europe over Gazprom’s position, the European Commission published on
October 28 of this year rather a sudden decision on the OPAL gas pipeline. The most
interesting fact is that according to European directives, namely the Article 36 of Directive

4. 2009/73/EC concerning common rules for the internal market in natural gas and other EU
antitrust laws, participants are not allowed to abuse their position in the market.
The decision of the European Commission is illogical since the Russian company received
permission to get more access to the OPAL pipeline. This decision will consequently give
more credibility to Gazprom’s claim to supply the EU market with additional gas from 7.7 to
10.2 bcm and the total volume of gas flowing from Russia will reach up to 28 bcm. Analysts
from Stratfor argue that this decision will strengthen Gazprom’s effectiveness in lobbying for
Nord Stream 2.
This decision surprised Ukraine and the country began to think about eventual losses and
consequences. According to Naftogaz, Ukraine may lose annually about 10 billion cubic
meters of gas in transit what is equivalent of about 290 million dollars of profit. In the case of
Nord Stream 2, losses could reach up to 2 billion dollars. In 2015, the transit of Russian gas
through Ukraine amounted to 67.1 billion cubic meters, equivalent to 66% of the total volume
of gas transported by Gazprom to Europe. At the same time, Ukraine’s revenue from gas
transit services in 2015 amounted to about $2 billion. Prospects for Ukraine in this direction
are not bright and in fact, Ukraine has already been losing up to 10 billion cubic meters of
transported gas per year and the contract signed with Gazprom on Ukrainian transit services is
valid only until 2019.
Even though Brussels has not officially expressed its support for the project, there are more
reasons to believe that the Commission is ready to coordinate the implementation of Nord
Stream 2 under certain conditions. Instead of adhesion to the principles stated in Third Energy
Package (including marine parts), the EU could develop a regulatory scheme which will allow
Gazprom to increase its load capacity first and then to raise it to full capacity, as it happened
in the OPAL pipeline case.
Despite the lack of a clear position, the Vice President of the European Commission, Mr
Maroš Šefčovič, continues to emphasize that the Ukrainian gas transit to Europe remains the
priority in relations between the EU and Gazprom. The EU position is ambiguous due to the
fact that on the one hand, EU member states are governed by the laws and regulations of the
EU but at the same time, their governments seek to do business that will benefit countries
themselves.
The paradox mentioned above can explain Germany’s position. In 2012, the country
consumed 88 billion cubic meters of gas and it is predicted that in 2020, consumption will
increase up to 95 billion cubic meters and the European overall consumption is expected to
increase as well. Gazprom is currently the largest supplier of "blue fuel” in Germany. Due to
the forecasted growth in gas demand and the uncertain situation with other sources of gas
supply, the German industrial lobby argues that Russian gas projects are of economic nature
exclusively.

5. Germany natural gas imports
Source: Wingas.com
The struggle continues
It would be nevertheless premature to believe that Gazprom will overplay EU policies by
using the inconsistencies within the European community. If the gas war of 2009 was the
impetus for the creation of a common EU external energy policy, the hybrid war of Gazprom
in 2011-2014 became the key prerequisite for the founding of the Energy Union.
The Brussels‘ ambitious strategy should not be underestimated as it evolves quite rapidly in
the pace of European bureaucracy. If the Energy Union framework strategy was adopted in
2015, then the European Council agreed in June on the main elements of the draft decision on
establishing an information exchange mechanism targeted on intergovernmental agreements
between EU member states and third countries. This document represents one of the
cornerstones of the Energy Union: the Commission will assess the intergovernmental
agreements on gas suppliers before these agreements are signed.
This agreement means that if the decision enters into force by the end of 2016, any agreement
on Russian gas supply will require a permission from Brussels. Such permission will be
difficult to obtain if the agreement should increase Gazprom’s share in the markets where it
dominates; such an action would otherwise lead to distortions in competition and to an
impeded market access for other suppliers. Thus, the position of Europe on the Nord Stream 2
becomes more defined and clearer: "the project should be implemented in accordance to
European rules."
Ukraine and EU officials are not alone in their fight against Nord Stream 2. At the forefront of
the opposition in Eastern and Southern Europe is Poland, which has intervened in the
implementation of the project by blocking creation of a joint enterprise between Gazprom and
five energy companies operating in the EU. Gazprom is therefore obliged to finance its

6. project itself. Regarding the US position, the United States is also opposed to the
implementation of the Nord Stream 2. According to a US statement, the country is deeply
concerned about the threat of energy security in Eastern Europe and the Baltic states if the
Nord Stream 2 is realised.
The front is united
As long as there is no final decision of the European Commission antitrust case against
Gazprom, one may only predict the likely limits of the EU-Gazprom compromise and its
consequences for Ukraine. In light of the OPAL decision, observers believe that a large
"package" deal between the EU and Russia will be adopted.
Considering this situation, Ukraine should think seriously about the development of her
energy diplomacy, focusing primarily on energy security at both long and short term
perspectives. This focus will help to defend her own interests and to avoid further pressures
from Gazprom. Lithuania can serve as a successful example for Ukraine: having entered the
EU, Lithuania started using all the leverages at her dispositon to combat monopolization of
her domestic energy market by Russia. Among several Lithuanian mechanisms to combat
Gazprom’s domination, the most important elements are implementation of the Third Energy
Package, adoption of diplomatic agreements and initiatives, and a the launch of a new LNG
terminal.
Further Ukraine’s steps must be concerted and targeted, namely:
1) The Government of Ukraine should contribute to the implementation of further reforms in
the gas sector. This represents a crucial step in increasing Ukraine‘s investment attractiveness
what will allow securing foreign investors' support and consequently increasing Ukraine’s
lobbying effectiveness.
2) The Commission has shown its ambiguity regarding the integration of Ukraine into the EU:
while the EU Deputy Prime Minister for Energy Mr Maroš Šefčovič has affirmed EU‘s great
interest to cooperate with Ukraine, the European Commissioner for Competition, Mrs
Margrethe Vestager, has opened the back door for the realization of the Nord Stream 2.
Therefore, it is advisable to arrange negotiations between Mr Šefčovič, Mrs Vestager and
Ukrainian officials in order to clarify any ambiguities of the EU in its relationship to Ukraine
and to call together for the strengthening of relations between Ukraine and the EU.
3) It is equally important to develop cooperation between the countries of Central Europe
(Hungary, Poland, Slovakia) which are also transit countries for Russian gas. Ukraine should
support efforts of Poland and of other countries in blocking the North Stream 2 project, which
violates EU efforts to diversify its sources of supply. If needed, Ukraine should express her
strong support for the abovementioned countries in their possible appeal against the European
Commission at the European Court of Justice.
4) Finally, Ukraine should develop a fruitful dialogue with German officials and businessmen
in order to raise German interest to invest in the Ukrainian transit infrastructure what would
be more profitable than constructing new pipelines.

7. At the same time, effective coordination of efforts of politicians, diplomats, businessmen and
experts in the field of gas markets is the key to a concerted and powerful campaign to combat
Nord Stream 2 and other projects that conflict with the interests of Ukraine and of the West.