Baltic States – CIS, Direct Speech, Energy, EU – Baltic States, Gas

To the Speaker of Parliament

In accordance with §27 of the Parliamentary Rules of Procedure you have, Mr. Speaker, sent to the Minister of State concerned the following written question KKV 426/2016 vp signed by MP Elina Lepomäki (National Coalition), et al:

Does the Government see a geopolitical dimension in the Nord Stream 2 project and

Does the government intend to conduct a security analysis of the Nord Stream 2 project, as Sweden has done?

In response to this question I state the following:

Nord Stream 2 is a joint business project between Russian Gazprom and five European energy companies: The German companies BASF and UNIPER, French Engle, Dutch Shell and Austrian OMV. The companies entered into an investment agreement for the project in September 2015 after the project had had a break for a couple of years. The five European companies intended to participate in the project with a stake of 50 percent in Gazprom's project company Nord Stream 2 AG, which was founded in Switzerland. The recent preliminary statement of Poland's competition authority according to which the planned ownership arrangement would distort competition on the Polish market, however, prevented this. The companies are still negotiating on how cooperation should be implemented. Nord Stream 2 AG has stated that the project proceeds according to plan in any case.

The companies have estimated that the project is economically viable and that it responds to the future gas demand in the EU Member States. The basis for the calculations include the decreased gas production in the North Sea and in the Netherlands, a possible modest increase in gas consumption as replacement of coal as part of the energy transition, and in Germany replacing nuclear energy with renewable forms of energy. The views on the need and profitability of the Nord Stream 2 gas pipeline differ greatly, as well as on the role of gas in the future energy portfolio of Europe. It is up to the investing companies to do the assessments and to shoulder the risks.

The Nord Stream 2 Project is a continuation of the two gas pipelines Nord Stream 1 which began operating in 2011 and 2012. According to Nord Stream 2 AG's plans the new lines would run next to the Nord Stream pipelines in the Finnish EEZ, but not in Finland's territorial waters. In the EEZ, the coastal State has more limited rights and obligations than in territorial waters.

The rights and obligations associated with the use of the exclusive economic zone are laid down in the UN Convention on the Law of the Seas and the Act on Finland’s Economic Zone (1058/2004) based on the Convention. In its own economic zone, a coastal state has the exclusive right to explore and exploit, conserve and manage living and non-living natural resources as well as to other economic exploitation and exploration of the zone. The coastal state also has jurisdiction with respect to the establishment and use of artificial islands, installations and other structures, as well as the protection of the marine environment and marine scientific research. The coastal state's rights in the economic zone are limited by Article 58 of UNCLOS, according to which all states have the right to freedom of navigation and overflight of the coastal state’s economic zone and the laying of submarine cables and pipelines and other internationally lawful uses of the sea related to these freedoms.

According to § 6 of the Act on the Finnish economic zone, the Government may on application give consent for activities in the exclusive economic zone which relates to the economic exploitation of the zone. The government’s consent to the economic utilization of the exclusive economic zone is determined at a general meeting of the State Council on the proposal of the Ministry of Employment and the Economy. Among others, the Law on Environmental Impact Assessment Procedure (468/1994) and the Water Act (587/2011) apply to the economic zone. The project requires an Environmental Impact Assessment process (EIA) under the national law, which also covers the international hearing referred to the Convention on Strategic Environmental Assessment in a Transboundary Context (Espoo Convention, Finnish Treaty Series 67/1997) as well as a building permit under the Water Act.

The Finnish authorities have to process the applications for permits and the EIA reports require for Nord Stream 2 in the normal order in accordance with national legislation and international obligations in the same way as for the Nord Stream 1 Project.

The Nord Stream 2 Project has been formally pending since 2013, when the national EIA process and the international environmental assessment process under the Espoo Convention started, and when the Government granted a conditional approval for survey of the seabed in the Finnish EEZ to carry out environmental impact assessments. When Nord Stream 2 AG applied for a renewal of the exploration permit, the State Council issued a conditional agreement to surveys on December 3, 2015. The license is valid until December 31, 2018.

Nord Stream 2 AG's report on the environmental impact assessment is expected to be submitted to authorities in February 2017. The licensing process is expected to start in June-July 2017 when the environmental impact assessment process is completed.

The Nord Stream 2 Project must also comply with applicable EU legislation. In particular, the expected interpretation of the European Commission about how the EU's third package for the internal energy market is applied to the project has an impact on how the pipelines can be used, and thus on the assessment of profitability. The application of the third package for the internal energy market would among other things require to differentiate the seller from the transporter of gas, and it would stipulate a right for companies other than the ones owning the pipeline to use the capacity.

Some Member States are critical about the project because, among other things, it is viewed as breaching the objectives of the EU’s Energy Union about reducing dependence on Russian gas and as weakening the EU's common policy towards Russia. The critics claim that it is inconsistent that energy cooperation with Russia is pursued in such a way that weakens Ukraine's position. They believe that the Ukraine would lose a considerable part of its current revenues from gas transit of approximately two billion euros. The project has also been criticised for undermining the security situation in the Baltic region.

In addition to these common reasons, each country that opposes the project has its own national interests for opposing it.

Other member states, including Finland, have maintained a mainly neutral position, meaning that the project is seen as a commercial undertaking that can be implemented if it meets the requirements of EU legislation, international law and national legislation.

Finland has no national special interests to oppose or to support the project. The project does not affect Finland's energy security, and according to the current assessment it has no other direct security impacts on Finland. For Finland the most relevant criteria for the assessment of the project are the environmental impacts.

The concerns of the critics of the project are understandable. There is a geopolitical dimension to major energy projects of Russia and other countries. These concerns must be adressed in other ways than by blocking energy projects based on political reasons, unless the law provides such a margin of discretion. Regarding the activities which take place in Finland's exclusive economic zone, Finland's jurisdiction is limited by the rights that the UN Convention on the Law of the Seas stipulates for all states.

The Finnish Government views that the EU's energy security is best enhanced at market conditions by developing the functioning of the internal energy market. Dependence on Russian gas in Europe is effectively reduced by diversifying routes and sources for gas import and by strengthening the EU gas market legislation, the network of transit pipelines and LNG infrastructure, which is currently implemented in a comprehensive manner as part of the EU Energy Union.

Ukraine should remain a major transit route for gas supply even if the Nord Stream 2 pipeline is completed. This is supported by both commercial reasons and reasons related to energy supply. It can be achieved if Ukraine's technically poor and technologically risky gas network can be modernized at least partially and operated according to EU regulations, including the third energy package for the internal energy market, which Ukraine has committed to as a member of the Energy Community. The modernization would require investments of several billions. A decrease of transit shipments through the Ukraine has no significance for the Ukraine's safety of gas supply, because already now the Ukraine's independence from gas supplies directly from Russia for its national consumption is largely ensured by functioning transmission capacities from EU member states to Ukraine, and by considerable gas storages in the Ukraine.

The concerns about the security policy impact of the construction of the Nord Stream 2 Project on the Baltic Sea Region are largely the same as discussed in connection with the Nord Stream 1 Project. After completion of Nord Stream 1, the security situation in the Baltic region has deteriorated, but the construction of Nord Stream 2 next to the existing lines is currently not expected to have an impact on Finland’s security. Also the construction phase is not expected to be associated with any particular security threats, because the monitoring of the permit conditions during the construction phase and the legislation on the use of Finnish ports and territorial waters allow for efficient regulatory supervision.

The authorities continuously monitor the project. When the application is processed with a view to the government’s consent according to § 6 of the Act on the EEZ, ministries and other authorities submit their statements about the project. There are no plans to carry out a separate security policy assessment. According to our information Sweden is not preparing any separate security policy assessment.

For Finland, Nord Stream 2 is primarily a commercial project that can be implemented, as other commercial energy projects, if it meets the conditions in European law, international law and national legislation. After an EIA and the government’s consent the construction of the pipeline requires a water permit, which means that the project is ultimately an environmental issue. Finland's position towards Nord Stream will continue to be determined by the rule-of-law, the EIA and the objective of strengthening the EU's energy security.

Helsinki 28.9.2016, Prime Minister Juha Sipilä