I. Introduction1

The war unleashed by Russia in Ukraine in February 2022 led to "the first truly global energy crisis in history".2 In the "new reality", cardinal and urgent adjustments to the energy strategies and laws of many countries are obviously required, as well as a fundamental rethink of the role of interstate gas markets in the energy transition and energy security, including from the point of view of influencing the legal regulation of national and regional gas markets.

The urgent need to reevaluate the role of interstate gas markets in the energy transition and ensuring energy security is especially urgent for the direct participants in the "gas war" unleashed by Russia: firstly, the European Union (EU) with its single gas market, which is the largest importer of Russian gas; and secondly, Russia, which will have to solve the problem not only in an emergency mode redirection of gas flows from West to East, but also take into account the regulatory aspects of the common gas market to be created within the framework of the Eurasian Economic Union (EAEU)3 , which is scheduled to be launched on 1 January 2025. The ongoing gas war between Europe and Russia will inevitably produce a tectonic shift

not only in the global gas market, and will also reduce the prospects for the successful creation of the EAEU's common gas market. It has already become obvious that ensuring energy security will take priority for Russia over its geopolitical aspirations of recreating the Soviet Union by way of the EAEU. Indeed, the launch of the EAEU's common gas market does not provide any economic benefits to Russia and Kazakhstan, as gas exporters that use superprofits from gas exports to cross-subsidise their populations and industry. Russia and Kazakhstan, therefore, have been interested in maintaining the status quo in the regulation of their domestic gas markets, because this enables their state-owned vertically integrated gas companies (i.e. Gazprom PJSC ('Gazprom') in Russia and JSC NC QazaqGaz ("QazaqGaz") in Kazakhstan) to continue their practice of cross-subsidising their own local population and local industries at the expense of foreign consumers, as well as their remote regions at the expense of their gas-producing regions.

Nevertheless, the 'new reality' (i.e. the collapse in demand for natural gas from Russia in Europe because of the war in Ukraine) and the imminent official launch of the common gas market of the Eurasian Economic Union in 2025 require urgent and long-overdue reforms of the domestic gas markets in Russia and Kazakhstan. The war in Ukraine has already resulted in a significant drop in imports from Russia of pipeline gas to Europe, that has only partially counterbalanced by a noticeable increase in imports of pipeline gas from Russia to China. Moreover, it should be expected that countries and regions with natural gas reserves, such as the EAEU (in particular Russia and Kazakhstan, as its main gas suppliers), will place more emphasis on domestic consumption of natural gas within the borders of the EAEU than on exports. Russia faces the challenges of increasing the competitiveness of its domestic industry, gasifying the country at the expense of cheap domestic gas, and "pivoting to Asia". It is now subject to substantial international sanctions, and faces the prospect of a complete embargo on oil and gas and, accordingly, the lack of windfall profits from gas exports to Europe. Overcoming these challenges will require the Russian economy and the Russian gas industry to be placed on a war footing. Russia is already developing a new energy strategy with a planning period until 2050, since its current strategy, although adopted as recently as June 2020, is no longer relevant, because it does not take into account the global challenges and transformations in energy markets caused by the war in Ukraine. In particular, natural gas is likely to play a much larger role in Russia's new energy strategy than it used to do. Interestingly, Kazakhstan, another gas-endowed country within the EAEU, has also reset its energy priorities. Its 'Comprehensive Development Plan of the Gas Industry until 2026', adopted in July 2022, confirms a key role of natural gas in future energy balance and whole economy of the country, whereas before the gas industry in Kazakhstan was largely neglected.

The next few years, therefore, will see a real test for the principle of energy solidarity in the EAEU law4 as well as the willingness of Russia to create the EAEU's common gas market and, therefore, to move forward with real integration of national economies under the auspices of the EAEU. It has yet to be seen, in particular, whether Russia and its gas industry are ready to effectively subsidise economies of other member states of the EAEU or, as they say, "Bolivar cannot carry double".

II. Legal Basis for the Common Gas Market of the EAEU

It is evident that the regionalization of economies is actively taking place in the world, including in the form of integrations of national gas markets. In particular, within the framework of the EAEU, the EAEU law has emerged as a new regional legal system and a common gas market is being created, and the EAEU member states have pledged to pursue a coordinated energy policy. Accordingly, since Russia uses its weight to determine the development of the EAEU, and the other EAEU member states welcome the prospect of gaining a competitive advantage due to cheap Russian gas, we should expect an increase in the role of natural gas in the energy balance of all EAEU countries. As EAEU law as a new regional law prevails over the domestic laws of individual EAEU member-countries, consent to obey common rules under the EAEU law by its member states is another example of states conceding powers over their national energy economies – i.e., a very rare exception from the predominant energy nationalism of the states. The only similar example internationally in the gas sector is, of course, the single gas market of the EU, based on the consent to common rules in an energy chapter of the European Union Treaty.

The legal basis for the undergoing formation of the common gas market of the EAEU consists of the following major legal instruments:

  1. Articles 79, 80, 83, 85 and 104 of the Treaty on the Eurasian Economic Union dated 29 May 2014 (the "EAEU Treaty").
  2. The Protocol on the Rules of Access to Services of Natural Monopoly Entities in the Sphere of Gas Transportations Using Gas Transportation Systems, including Fundamental Pricing and Tariff Policy as Annex 22 to the EAEU Treaty (the "Annex 22").5
  3. The Concept of Formation of the Common Gas Market of the EAEU as approved by Decision No. 7 of the Supreme Eurasian Economic Council dated 31 May 2016 (the "Concept").
  4. The Program for the Formation of the Common Gas Market of the EAEU as approved by Decision No. 18 of the Supreme Eurasian Economic Council dated 6 December 2018 (the "Program").6
  5. The Plan of Measures to Form the Common Gas Market of the Eurasian Economic Union as approved by Decision No. 18 of the Supreme Eurasian Economic Council dated 6 December 2018 (the "Plan").7
  6. The Procedure for the Submission of Information in Electronic Form by the Authorized Bodies of the Member States of the Eurasian Economic Union Within the Framework of the Formation of the Common Gas Market of the Eurasian Economic Union as approved by Decision No. 146, dated 2 September 2019, of the Board of the Eurasian Economic Commission.
  7. In accordance with section 33 of the Program, an international agreement on the formation of the common gas market of the EAEU (the "Gas IGA") shall be developed8 and it should include, among other things, the following:
    1. principles of functioning and regulation of the common gas market of the EAEU;
    2. the procedure for interaction of the Member states of the EAEU in the transportation and supply of gas from third states and (or) to third states, including ensuring the prevention of resale to third states of gas purchased on the common gas market of the EAEU;
    3. principles of ensuring access to gas transmission systems
    4. principles of pricing and tariff policy formation in the common gas market of the EAEU;
    5. the procedure for disclosure of information by Member states and subjects of the common gas market of the EAEU and the formation of a list of information to be disclosed;
    6. the procedure for the exchange of information containing information related, in accordance with the legislation of the Member states, to information of limited distribution (access);
    7. the list of information provided in the course of interaction of authorized bodies, the Eurasian Economic Commission and subjects of the common gas market of the EAEU in electronic form;
    8. the procedure for the adoption of acts regulating the common gas market of the EAEU and providing for the non-application of these acts with respect to gas originating from the territories of third States and used in the territories of Member States or supplied by this Member State in the territories of third States, as well as gas produced in the territory of a Member State and supplied by this Member State to third States.

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1. The research underlying this article has benefited from financial support from the Research Grants Council of Hong Kong (General Research Fund Grant No. CUHK14608118). The author has also greatly benefited from discussions with Professor Anatole Boute. The usual disclaimer applies.

2. IEA, 2022. Gas Market Report, Q3-2022. Paris: IEA. https://www.iea.org/reports/gas-market-report-q3-2022

3. The Eurasian Economic Union ('EAEU' or "EEU") is a Russian-led economic union between the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic and the Russian Federation, which together control a fifth of the world's gas reserves. See video lecture "Common Gas Market of the EAEU" dated 12 January 2022 and given by Alexander Malets, Deputy Head of the Oil and Gas Policy Department of the Energy Department of the Eurasian Economic Commission. Available at (in Russian): https://www.youtube.com/watch?v=lggg2Fzry3k

4. It can be argued that there is a legally enforceable principle of solidarity in the law of the EAEU, since in accordance with Article 79 of the EAEU Treaty, the EAEU member states have pledged to "conduct a coordinated energy policy". According to Boute, this principle of solidarity exists in EU law. See: Anatole Boute, The Principle of Solidarity and the Geopolitics of Energy: Poland v. Commission (OPAL Pipeline) (2020). Common Market Law Review, Volume 57, Issue 3 (2020) pp. 889 – 914

5. Importantly, in accordance with Article 104 of the EAEU Treaty, the provisions of Annex 22 shall cease to be effective once the Gas IGA, as defined below, takes legal effect.

6. According to this Program, the establishment of the EAEU's common gas market is planned to be carried out in three phases. According to Decision No. 21 dated 11 December 2020 of the Supreme Eurasian Economic Council, the leaders of the EAEU member states decided to move to the second phase of establishing the EAEU's common market for natural gas. While according to section 12 of the Program the second phase should have been completed no later than 1 January 2022 with the creation of the infrastructural, technological and legal bases of the common gas market, as of end-November 2022 the second phase was still not officially completed, meaning that the creation of the EAEU's common gas market is already behind schedule.

7. Unlike other legal instruments from this list, the Concept, the Program and the Plan constitute soft law and not the hard law of the EAEU. The Plan provides a list of other legal acts and timeline of their development in furtherance of further improvement of the legal basis for the common gas market of the EAEU.

8. The future model of the EAEU's common gas market will be finally determined in this special international treaty (i.e. Gas IGA) to be adopted, in theory, by end-2022 under the EAEU framework. The draft of the Gas IGA as an agreement has been developed by Russia and was presented for consideration by other EAEU member states at the end of April 2021. At end-November 2022 three key disputes hindered the conclusion of the Gas IGA: (i) formation of tariffs for gas transportation services, (ii) import of gas by the EAEU member states from third countries and (iii) existing long-term bilateral international agreements between the EAEU member countries in the field of gas, provisions of which contradict general principles of the EAEU's common gas market. 9 Boute, A., 2022. Shaping the Eurasian gas market: the geopolitics of energy market regulation. Geopolitics. P. 19.

Originally Published by Ogel

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