The lifting of OPAL capacity restrictions leads to shifting gas flows on Nord Stream

September 2017 | Anders Norlen

Recent rulings by the European Court of Justice and the Regional High Court in Düsseldorf have increased flows on the OPAL pipeline from Nord Stream to the Czech Republic.

On July 26, in a preliminary decision, the European Court of Justice ruled that the complaints made by Polish company PGNiG were to be deemed “temporarily void,” meaning that the previous ruling by German regulator Bundesnetzagentur from December 2016 on the OPAL pipeline was to be upheld. The implication of this ruling has, in an initial phase, been increased physical flows from the Nord Stream system on the OPAL pipeline and a subsequent decrease in flows on the NEL pipeline.

Background to the ruling

The Nord Stream pipeline system connects Vyborg in Russia with Greifswald in Germany through a 1,200 kilometer subsea pipeline, capable of carrying 55-58 bcm of natural gas per year from Russia to the European market. At landfall in Germany, two pipelines were built to carry the Nord Stream gas to market: the 21.8 bcma NEL pipeline going west towards large demand centers in western Germany and the Netherlands and the 36.5 bcma OPAL pipeline running south through eastern Germany before connecting with the Czech transmission system at the German-Czech border.

The OPAL pipeline was granted an exemption to third-party access from the EU’s third energy package rules under article 22 of the Second Gas Directive in June 2009, effectively giving Gazprom the right to book all capacity on the pipeline without the TSO having to set aside any capacity for other shippers.

This ruling was subsequently challenged by the European Commission, in effect limiting the capacity of the pipeline that can be utilized by Gazprom to 50% of its technical capacity. However, in October 2016, the European Commission reverted its previous decision, de facto lifting the share bookable by Gazprom to 80% and potentially 100%.

The challenge to and upholding of the Commission’s ruling

The October 2016 decision was immediately challenged by PGNiG who was concerned that the decision would impact the energy security of Poland. Suing through both the European Court of Justice and the German Higher Regional Court in Düsseldorf incontrovertibly turned the regulation of the OPAL pipeline back to pre-October 2016 status.

In July 2017, both the European Court of Justice and the German Higher Regional Court issued rulings upholding the decision by the European Commission from October 2016 lifting the share of the capacity that Gazprom can utilize on the OPAL pipeline to between 80% and 100%.

Impact of the ruling

The immediate impact of the ruling was a sharp increase in physical flows on the OPAL pipeline from ~60 mcm/d before the ruling to ~85 mcm/d by August 9, with a subsequent drop in flows on the NEL pipeline that have stabilized on a higher overall level indicating higher flows through the Nord Stream system (Exhibit 1).

The longer term impact will likely be a larger share of Russian flows into Europe on the Nord Stream and OPAL systems with a subsequent reduction in flows on the transit pipelines through Ukraine. On an annual basis, this could amount to a total of 10-12 bcm or between 14-17% of the total volume transited through Ukraine from Russia[1].

Exhibit 1: Gas flows downstream of Nord Stream have shifted from NEL to OPAL, following the July court rulings to lift restrictions

Gas flows downstream of Nord Stream have shifted from NEL to OPAL, following the July court rulings to lift restrictions

  • The lifting of the OPAL restriction shifted flows downstream of Nord Stream away from the NEL system to the OPAL system, moving volumes towards markets in Central Europe
  • Ultimately increased utilization of the OPAL pipeline can bring an additional 40 mcm/d (15 bcm) into the European market through the Nord Stream system
SOURCE: McKinsey Energy Insights EU PipeFlow Model, ENTSOG, McKinsey analysis

[1] Based on full year Jan 2016-Dec 2016 numbers through Ukraine-Slovakia interconnection point


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About the authors

Anders Norlen is a specialist in McKinsey's London office.

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