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Gas (Supply and Demand)

3.51 pm

John Hemming (Birmingham, Yardley) (LD) (Urgent Question): To ask the Secretary of State for Trade and Industry to make a statement on gas market prices and supply and demand.

The Secretary of State for Trade and Industry (Alan Johnson): Early yesterday, National Grid issued a gas balancing alert as a prudent signal to the market to increase gas supplies further. That was a planned measure and not an emergency response. National Grid took that action in response to an increase in gas demand due to the cold weather, problems on the supply side with the Rough storage facility being out of operation, and low delivery through the interconnector at the weekend. That resulted in a significant call on short-range gas storage and the resulting spike in the gas price.

As of today, the demand-supply situation has eased compared with yesterday. Demand has fallen to a near seasonal norm. Supply has increased, with greater flow through the interconnector. We are also seeing deliveries through the Isle of Grain and a further shipment of liquid natural gas is due to dock tomorrow. Deliveries from the North sea are performing strongly. National Grid expects supply and demand to balance today and does not anticipate the system being out of balance in the coming days. But National Grid, Ofgem and my Department will of course continue to monitor the situation carefully, in case of any change in the anticipated demand-supply picture.

There is no doubt that Rough being closed is making things more difficult than they otherwise would be. Rough accounts for about 80 per cent. of our total storage capacity. It can supply 10 per cent. of average daily winter demand. Were it in operation, we would not be experiencing any problems this week. Hon. Members may recall that an accidental fire a few weeks ago shut the main pumping station; the damage caused is still being repaired. We are in close contact with Centrica, which owns the facility, and understand that it will not be back in action for a couple of months.

It is, of course, normal for storage to be used during the course of the winter. We would expect the market to be drawing on short and medium-range storage in current circumstances, particularly at this late stage of the winter. We have had a spell of colder weather later in the winter and the UK's long-range storage facility has been shut for a month. The gas system and market has responded to those circumstances.

Let me reiterate that on present information, we are not expecting a formal gas supply emergency. While it is clear that we must not be complacent, it is equally important not to cause unnecessary panic. The present situation does not threaten domestic, or the vast majority of commercial and industrial, supply. And even were there to be an emergency, National Grid would be able to maintain supplies to domestic and other key gas consumers.

Of course the situation has had a major impact on prices. The spot gas price has increased significantly since the weekend. I know that for some heavy industry it is not easy to make alternative arrangements and the
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high prices will have an impact. The market is responding to a tight demand-supply situation, as we would expect. Gas suppliers have every incentive at those prices to maximise supply from all possible sources and we are in close contact with the operators of the interconnector to ensure that it flows as much as possible.

Market liberalisation in mainland Europe is a key factor in reducing energy costs for British consumers. That is why we have been encouraging the European Commission to take action and why we warmly welcomed the hard-hitting report that it published on 16 February. We shall continue to press for market reform.

Looking forward, significant new import infrastructure—new pipelines and liquefied natural gas import terminals, as well as increased storage—is to be delivered by the energy sector in coming years. Representing some £10 billion of investment, that will increase security of gas supply to the UK and should reduce upward pressure on UK prices.

In short, the circumstances are exceptional: our largest storage facility is out of action and we are experiencing an unseasonably cold spell of weather. None the less, supply is meeting demand and the market mechanisms are working, albeit at a relatively high spot price. National Grid, Ofgem and my Department continue to monitor the situation carefully.

John Hemming: The country is on a knife edge. What will the Secretary of State say to the 7,000 people who may lose their jobs in the plastics industry? What will he say to domestic consumers, who have seen price increases and are likely to see more? What have the Government done since long-term storage went out on 16 February?

If there is too little storage, as I think we all accept, why do we not import more on mild days? Why is the trigger for a gas balancing alert so high? On Sunday 319 GWh was taken from short-term storage, but there was no gas balancing alert. Had the same rate been taken on Monday and today, we would be in a gas emergency now. How can the Government expect UK industry to cope with energy prices in this country that are 50 per cent. greater than those in the United States of America?

Why do the Government do so little about energy security and reducing demand? The Prime Minister says, "Not me, guv—nothing we can do." Cold weather    is now predicted. Short-range storage has approximately 50 million cu m and the Hornsea facility has 48 million cu m. Why do the Govt not do something about demand and supply?

Alan Johnson: I do not think that the country is on a knife edge. A gas balancing alert has been issued. That mechanism has operated in the electricity sector for a number of years, and as the hon. Gentleman knows, it has recently been introduced in the gas sector. It is an extremely important mechanism for telling the market that demand is exceeding supply, which means that the market responds to that. Saying that the country is on a knife edge is, I suggest, a wee bit of hyperbole.

The hon. Gentleman asks what Government are doing. The one thing that the Government should not do is interfere in the market. I would be interested to
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know what the Conservatives would do in such circumstances. The days when our energy was provided by state monopolies were bad for the consumer, bad for the energy supply situation and bad for the country.

The hon. Gentleman talks about the effect on consumers, but according to the most recent figures, we in this country are still enjoying the cheapest domestic gas in Europe. Industrial customers have had problems this winter, not only because of the problems caused in all European countries by high oil prices—Germany's wholesale gas prices have increased by 80 per cent., Denmark's by approximately 40 per cent. and France's by 20 per cent.—but because we have a tight situation in the UK this year, and probably will next year, too. We discussed that during the important debate in the House in January.

The analysts and experts misjudged the amount of gas that would come from the North sea. The period of adjustment to that is difficult, but it would have been ludicrous for this country to have storage facilities when it had a reserve in the North sea. The Netherlands and Norway, which also have indigenous supplies, do not have huge amounts of storage. We must get the right balance in terms of transfer across.

I think that the system is working for the benefit of consumers. We have had a difficult winter, but what the Government should do about that is to ensure that the market is operating properly—that is a particular issue for Europe—and that Ofgem and the right mechanisms are in place to see any possible crisis coming and deal with it. There is no national emergency at the moment; there is a gas balancing alert.

Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab): Does my right hon. Friend accept that the hon. Member for Birmingham, Yardley (John Hemming) is displaying more than a little opportunism and hypocrisy, given the background of the Liberal Democrats' energy policy? Although he is right to raise the issue of gas supply and demand being in balance, he and his party fail to tackle the issue of the country's energy supplies being in balance. Will my right hon. Friend confirm that the Government's policy is to ensure that there is a balanced energy supply in this country, especially on the base load?

Alan Johnson: My hon. Friend makes his point very powerfully. It is extraordinary that as we look to energy supply for the future and having security of supply, which every country is looking for, and given that the days of cheap indigenous fuel are probably gone for ever, the Opposition should rule out one option. We believe that all those options, including nuclear power, should be looked at properly. We do not rule out any of those options until we have had the arguments and the analysis to come to a proper conclusion.

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