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Mr. Alan Duncan (Rutland and Melton) (Con):
On 16 February, I asked the Minister to explain the Government's policy for establishing onshore strategic energy stocks that stand a chance of lasting for more than a few days. The answer, in effect, was that we have very little storage and will not do so for some time. That largely explains why Britain is so acutely vulnerable to
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the sort of extreme price spike that we are facing today. British business lives in fear that its fuel costs will rocket to ever more punishing levels, and that it might even be cut off altogether. Yesterday National Grid, for the first time under the new warning system, issued a gas balancing alert. If there is one positive point to be drawn from this situation, it is that at least we know that the warning system is working.
For the next year at least, the UK will remain perilously sensitive to short-term gas price volatility. We have a free market in energy; the rest of Europe does not. Even when our prices are high, they still do not sell to us. This Government singularly failed to address this issue during their presidency of the European Union last year. Our gas production is falling, which is made worse by the Chancellor's tax regime, and during the winter we are now forced to import a growing percentage of our gas requirements. The gas comes mostly through only one pipeline, our shipped liquefied natural gas imports are not at the volumes we need, our storage capacity is puny and now our strategic vulnerability has been exacerbated by a cold snap across Europe, a fire at the Rough storage facility in the North sea, a drop in supplies from Norway and a strike by French gas workers. It is all happening at once.
Yesterday the price of gas for immediate delivery shot up from about 60p per therm to a peak of 255pan increase of 400 per cent. Today it is trading at about 225p to 250p for delivery within the next week or so, but for delivery in April the market is much lower at about 65p. This is the ultimate short-term market squeeze. To put it bluntly, is it not the case that there is simply nothing we can do in the immediate future, and that the excruciating exposure that Britain and its companies face will not be remedied for at least another year? Is it not the case that additional capacity to import by pipeline or ship and our capacity to store larger quantities will not come on-stream for another year? Is it not also the case that British companies that will have to endure another winter of impossible uncertainty and soaring fuel bills will not thank this Government for their culpable lack of foresight?
I agree that the current situation shows that the gas balancing system works. I disagree with the hon. Gentleman's comments about our presidency. The major issue is still that, with prices yesterday running at their highest level ever, we were not getting the gas through the interconnector that we should have been getting. Some of that was caused by the strike in France, but the primary cause was that in the European Union, principle has not been put into practice. During our presidencyas we have explained on many occasions, most recently in the debate in this Chamber in Januarymy hon. Friend the Minister for Energy was instrumental in convincing the commissioner and the European Union to open not just one but three lines of inquiry, one of which will result in anti-trust cases against certain EU member states within a matter of weeks. That is just on the basis of the interim report from Commissioner Kroes. My hon. Friend the Minister for Energy is at the Energy Council in Brussels even as we speak, seeking to ensure that we maintain that momentum. I agree that we have not changed the situation in Europe overnight, nor did we change it during the six months of our presidency, but we have put in place measures that will lead to liberalisation across Europe.
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As for our storage capacity being puny, 300 million cu m a day is coming into this country from the North sea, which is 75 per cent. of our supply. Rough has the capacity to introduce 10 per cent. of our daily demand in winter and, because total capacity is 3,340 million cu m and we can bring it in at a rate of 43 million cu m a day, we have 77 days of supply in Rough. There was an explosion at the Rough facility, which is close to my constituency, and I agree that there has been a combination of events, but we are not in an emergency. Our market has benefited UK consumers, both industrial and domestic, for many years. The worst thing the Government could do would be to step into the market with our size 16 hobnail boots. That happened in Canada and the Canadians have regretted it ever since.
Andrew Miller (Ellesmere Port and Neston) (Lab): The current situation underlines more than anything else could the need for a balanced energy supply. My right hon. Friend said that the vast majority of commercial and industrial users were not under threat, but in the light of the needs of large businesses in my constituency, can he assure me that supplies to major gas users in the north-west are being prioritised in the interests of those important businesses?
Alan Johnson: We have not got to that situation yet. We have a gas balancing alert, but no action has been taken because we are not in an emergency situation. The only action that is happening is that companies themselves have decided to reduce their energy needsand who can blame them, at the pricebut that is a natural mechanism. There is no question of prioritising anybody's gas needs at present; there is just a gas balancing alert, not an emergency.
Mr. Edward Davey (Kingston and Surbiton) (LD): Given that this is the first time that National Grid has ever warned British industry that gas supplies may be shut off, does the Secretary of State regret the fact that the Minister for Energy told the House only last November that the UK was "awash with gas"? What will the right hon. Gentleman say to the thousands of employees laid off because of the recent hikes in gas prices? Have the Government not been negligently complacent about Britain's gas crisis, especially the lack of gas storage infrastructure? When Germany has storage facilities for 75 days and France for 66 days, is the right hon. Gentleman not just a little embarrassed that without Rough the UK has storage capacity for only 12 days?
Rather than listing excuses, as the Secretary of State has done today, will he confirm that Ministers were warned about the danger several times in recent years? Is not it the case that if we had those extra facilities, gas prices for UK industry would be lower today and the alert would not have taken place?
I welcome the hon. Gentleman to his new positionand immediately disagree with him. He says that this is the first time in the whole history of our fabulous nation that we have had a gas balancing alert. Yes, that is truebecause gas balancing alerts were introduced for the first time this winter. That is the simple fact. The system worked, and it was right to introduce it. When my hon. Friend the Minister for
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Energy spoke last November, the situation was completely different; we had not lost the Rough facility. A cold snap in December led to companies taking gas out of storage early in the winter, which was expensive and put up prices. The issue was not about gas supplies; there was plenty of gas around in December.
The hon. Gentleman raised another issue that was completely wrong, too. He put a bizarre question: could I confirm that in Germany and France there is lots of storage, whereas in the UK, without Rough, we do not have so much storage? Yes, I can confirm that. As Rough holds 80 per cent. of our storage capacity, I can confirm to Opposition Members that when Rough is out of action our storage capacity is reduced. I hope that that helps them.
Paddy Tipping (Sherwood) (Lab): Does the Secretary of State recall that the hard-hitting EU report that he mentioned sprang directly from the Heads of Government discussions at Hampton Court? Is not the real issue before usthe key way forwardtransparency in the European market? We have talked about that for a decade. Is it not now time that the EU took action?
Alan Johnson: My hon. Friend is absolutely right: transparency is key. At the moment, we have to try to find out what facilities exist in other EU member states and what can come through the interconnector. It is because there is no transparency that no member state knows what is happening with energy supplies. He is absolutely right to mention Hampton Court, where we set in train the process for reaching an understanding across the EU about energy supplies, and the situation at Christmas between Russia and Ukraine was a real wake-up call. If we had not raised that issue at Hampton Court, other member states would have realised, following what happened at Christmas, the need to have an energy supply policy throughout the EU.
Peter Luff (Mid-Worcestershire) (Con): There is nothing particularly unseasonal about the weather this MarchMarch can often be a very cold monthand we face these problems again next winter. Indeed, the problems are exactly as the Select Committee on Trade and Industry foresaw in its report published in December, to which the Government responded so constructively. As little can be done over the next 12 months to correct the situation fundamentally, we referred to the need to take mitigating action, particularly for industrial and commercial customersfor example, fuel switching and removing some of the restrictions on emissions. The Government responded positively to that idea and said that they were exploring it with the Environment Agency. Can the Secretary of State update the House on what more the Government have done to enable such mitigating action to be takennot just for this winter but, I am afraid, for next winter as well?
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