Naftogaz today filed a complaint to the European Commission against Gazprom for abuses of dominance in European gas markets.

The main target of the complaint is Gazprom's construction of the Nord Stream 2 gas pipeline between Russia and Germany. Nord Stream 2 is the longest submarine gas pipeline in the world, at 1,230 kilometres. Gazprom owns and controls Nord Stream 2. It is a substantial investment of almost EUR 10 billion, partially financed by a consortium of European gas companies.

Nord Stream 2 constitutes an abuse because it has no rational economic explanation. The EU currently has vast excess import capacity for natural gas, and has no need for the additional 55 billion cubic metres of additional capacity through Nord Stream 2. The Ukrainian gas transmission system together with the other existing routes to Europe already have more than ample capacity to cater for EU consumption of Russian gas. Nord Stream 2 is apparently designed to render existing pipeline networks redundant.

Since Nord Stream 2 has no economically rational explanation, its purpose can only be anticompetitive.

In particular, Nord Stream 2 is a predatory investment which creates a powerful entry deterrent weapon against imports of liquefied natural gas (LNG) into the EU, because excess capacity threatens the ability of new LNG projects to recover their capital costs.

Secondly, Nord Stream 2 is intended to entirely bypass the Ukrainian gas transmission system, which would be left stranded, or at least significantly marginalised.

A third major concern is that Nord Stream 2 changes the direction of gas flows in Europe, resulting in material increases in transportation costs and therefore gas prices for several EU Member States in Central and Eastern Europe, leading to a partitioning of the EU gas market.

The fourth concern with Nord Stream 2 is its use to restore Gazprom's dominance over gas supplies in Ukraine by threatening the abandonment of the Ukrainian transit route unless Naftogaz agrees to reverse the outcome of the previous arbitrations in Naftogaz's favour.

In addition to the abusive strategic investment in Nord Stream 2, the complaint addresses three further abuses.

First, the change in the direction of gas flows caused by Nord Stream 2 will make so-called "virtual reverse flows" – subtracting gas in the counter-flow direction from gas flowing in the main direction – through Ukraine impossible, affecting trade between EU Member States bordering Ukraine, and make imports from Europe to Ukraine more expensive.

Second, Gazprom refuses to sign efficient "swaps" with independent Russian producers and producers in Central Asia, which would grant them indirect access to the European to Ukraine market and enhance competition.
The third abuse concerns so-called "anticompetitive vertical foreclosure" in Germany through Gazprom's integrated company Wingas, one of the largest gas sales companies in Germany. Through its dominance in the upstream market and its integration with Wingas, Gazprom is able to foreclose downstream rivals in Germany, contrary to Article 102 TFEU.

Naftogaz's complaint addresses new abusive practices of Gazprom that were not addressed by the Commission in its commitment decision in 2018, where the Commission concluded a long-running investigation into Gazprom by imposing a series of commitments in respect of Gazprom's cumulative efforts to segregate EU gas markets and, having succeeded in doing so, impose unlawfully high prices.

The complaint proposes a series of remedies that would mitigate Gazprom's anticompetitive behaviour, inter alia by requiring that Gazprom makes gas available to European purchasers on Ukraine's Eastern and Western borders at a price equal to the price offered to Nord Stream 2 customers adjusted for relevant transportation costs.

Naftogaz wishes to make clear that Gazprom is no ordinary antitrust defendant. In addition to the enormous economic power that Gazprom wields in the EU, Gazprom is through its control by the Russian Federation a geo-political and geo-economic tool. Gazprom's behaviour does not arise unintentionally or in a vacuum, but is part of a wider strategy for increasing EU reliance on Russian gas, and therefore the Russian Federation, as well as partitioning the EU gas market between its Western Member States and those in Central and Eastern Europe. At the same time, Gazprom's abusive behaviour serves the dual purpose of harming Naftogaz and Ukraine.