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Mr. Eric Martlew (Carlisle) (Lab):
I believe that there is a sixth dimension. Only a year ago, my constituency experienced the worst flooding in the United Kingdom. Electricity was cut off in 150,000 properties for three days because of substation flooding. The substation involved has now been proofed, but according to United Utilities there are nine more substations—large ones—in the north-west which are much more likely to be flooded than the one in my constituency. As global
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warming advances, there is an immediate danger to electricity supplies throughout the country. Many substations were built near rivers because they needed the water for cooling purposes. Will the Minister look into the problem?
Alan Johnson: I am aware of the problems in Carlisle, and of the enormous efforts made by my hon. Friend, as a constituency Member, to help the town recover. I have described five problems that affect the security of energy supply, which is the title of our debate. My hon. Friend has raised the important issue of electricity generation, which will be covered by the review to which I shall refer shortly. It can also legitimately deal with the safety of substations in the context of environmental damage such as that experienced in Carlisle.
Andrew Miller (Ellesmere Port and Neston) (Lab): Will my right hon. Friend give way?
Alan Johnson: I will give way one last time.
Andrew Miller: The point raised by our hon. Friend the Member for Carlisle (Mr. Martlew) is important in the a geopolitical context. Climate change will clearly be a big driver in the energy debate. Is it not important for Britain to maintain its pre-eminence on the nuclear side, so that we can promote our standards of safety and control in that industry elsewhere in the world?
Alan Johnson: My hon. Friend brings me to the next part of my speech, which is about the energy review. As I have emphasised before, this is a review with no pre-determined outcome. It embraces all sources of energy; it is not a review of nuclear energy alone. On 23 January, we will publish the review consultation document, which, I hope, will draw out the breadth of opinion on these complex issues. Ahead of that review, in today's speech I want to focus on the security of our gas supply, which has understandably been the cause of greatest concern in recent weeks.
Gas generates around 40 per cent. of the UK's electricity, and approximately 35 per cent. of final UK gas consumption is used in our homes. Because of the decline in North sea production, we knew that this winter was going to be tighter than in the past. Combined with an early cold spell, that caused the problems that we witnessed in November. Gas storage was drawn down earlier than usual and prices rose to historically high levels, despite the fact that there was actually enough gas to meet demand. The price increase meant that many power generators reduced their gas use by switching to other forms of generation, which substantially reduced demand and helped to balance the market. For some major industrial energy users, these abnormally high prices created significant problems.
Looking back, ahead of the winter we had worked closely with the industry and others to try to ease the effects of high gas prices through the gas prices working group, and through the report on, and seminars on, the forward gas market. Last year, new gas import and storage capacity came on stream, including the new liquefied natural gas terminal at the Isle of Grain, which has received eight shipments since it opened in
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November. The interconnector doubled its capacity and has been importing at record levels recently. Moreover, new storage capacity came on line at Humbly Grove, in Hampshire.
So, today, storage and import capacity is up, gas supply has met demand each day this winter, and storage levels are healthy. However, I am not satisfied with the under-use of some of our import infrastructure. Although the interconnector has been importing at new highs and has responded to price signals, it still has not delivered gas to the UK at full capacity. The lack of liberalisation of EU energy markets, which was mentioned in an intervention, is at the heart of the problem. Ofgem has asked the European Commission to investigate urgently the interconnector's operation, and I am pleased to say that this work is now well under way.
We know that a tension exists between the liberalised energy markets in Britain and the largely unliberalised energy markets in Europe.
Mr. Ellwood: I am very grateful to the right hon. Gentleman for allowing me to intervene a second time. The Government were recently in charge of the EU presidency for six months. Was that not an ideal opportunity to get to the core of this issue and to sort out a gas market in Europe?
Alan Johnson: The hon. Gentleman's interventions are beautifully timed. I was about to say that, thanks to the work of my hon. Friend the Minister for Energy at the December Energy Council, the European Commission agreed to make full use of its legal powers to tackle the serious malfunctions in EU energy markets. Member states have also agreed a wide range of actions designed to bring about tangible improvements in the functioning of European gas and electricity markets.
Looking ahead, in the next couple of years new pipelines from Norway and the Netherlands will open, which will eventually be capable of providing up to a third of our annual gas needs. Two new LNG terminals are being constructed at Milford Haven, and further terminals are planned at Canvey Island and Teesside. Two further storage facilities are currently under construction at Aldbrough and Holford.
Mr. Michael Clapham (Barnsley, West and Penistone) (Lab): In the next 18 months to two years, 28 per cent. more gas is likely to be available as it comes down from Norway, and there could be a second dash for gas. If that occurred, at the same time as we are seeing a move to decommissioning nuclear stations and some of the old coal-fired stations, by 2020 we could be as much as 70 per cent. dependent on gas. That would be to the great detriment of the UK. Does my right hon. Friend feel that we need a mechanism to limit the proportion of electricity generated by gas to the current 40 per cent.?
Alan Johnson:
No, I do not rush to that kind of conclusion, but I agree that it highlights the need for diversity of supply. The whole point of the review is to look forward to ensure that, as well as the other issues relating to a properly competitive market, dealing with fuel poverty and climate change, we must ensure
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security of supply. That means diversity, and not being too dependent on any one source of energy. The point that my hon. Friend has raised is a crucial issue for the review—and it may come to the conclusion that there should be a level above which gas should not go. Who knows? I do not.
Alan Johnson: I shall take one more intervention, and then I shall make some progress.
Mr. Philip Hollobone (Kettering) (Con): Is it not the case that, because we shall now be importing such a huge amount of gas, Britain's electricity generation industry will, for the first time in our history, be too dependent on primary fuel sourcing from overseas? Never before in our history will we have been so dependent on fuel imports to generate electricity.
Alan Johnson: The hon. Gentleman is absolutely right. That is exactly the issue at the heart of the review—not only what we are sourcing from abroad but where we are sourcing it from. As for gas, Norway and the Netherlands are hardly unstable countries, and they will supply the major part of it. None the less, that is an important element in the review, and I agree with what the hon. Gentleman said.
The investments will increase supply. But, given the background of our increased reliance on imported gas over the next 15 to 20 years, and the important investment decisions that multinational companies will be making on where to invest, in which the price of energy will be a crucial factor, we cannot rely on those developments alone. We need to remain alert to new ways of increasing supply, and be quick to build on new developments in the way in which we supply, import and store gas.
Rapid advances in technology are taking place, with the potential to make a real difference. Britain's legal framework needs to be capable of dealing with those developments. Today, I can announce new measures to increase the potential for gas storage in the UK. First, we will revise the legal regime covering new offshore gas storage and offshore gas unloading. When parliamentary time is available, I will introduce legislation to achieve that.
Over the next decade, companies will be able to use new technology to create salt caverns offshore and store gas in them. There is strong potential for gas storage in a number of geological formations offshore, in areas such as the Irish sea and the southern North sea. That could significantly add to the UK's gas supply capacity. There is already commercial interest in creating those new facilities. We will ensure that the right framework is in place to allow them to be created. The new framework will also facilitate innovative proposals for unloading liquid natural gas tankers at offshore mooring buoys connected by pipeline to the shore.
Secondly, we will also examine the onshore consents regime, with the possibility of further legislation if appropriate. This work will move forward in parallel and in conjunction with the energy review, and the Barker review of land use planning, established by the Chancellor and Deputy Prime Minister.
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