Examination of Witnesses (Questions 280-299)
PROFESSOR JOHN
GITTUS
27 JUNE 2006
Q280 Mark Hunter: You have been fairly
free, with due respect, in your opinions up to now.
Professor Gittus: I have just
responded to questions.
Mark Hunter: As somebody who clearly
knows a lot about the subject I was interested in what your opinion
is.
Chairman: To be fair to the Professor
he has been expressing what he regards as facts up to now; now
he is being asked to make a commercial judgment, is that the difference?
Q281 Mark Hunter: I am not asking
for a commercial judgment, I am interested in a personal opinion.
Professor Gittus: In regard to
the facts I have given information about premium; of course I
have, I have given it freely, but they are not opinions. I cannot
answer your question, but I could no doubt go away and think about
it and come up with an answer and I would be very willing next
week to try and send you an answer.
Q282 Mark Hunter: We are just interested
in your views about it.
Professor Gittus: Yes, it is a
very valid one because it is in the news and it is very likely
to occur, but I have not analysed it but I will send the Clerk
my answer.
Mark Hunter: I will look forward to receiving
it in due course.
Chairman: We are hoping to be able to
speak to Gazprom at some stage so your views would be very much
welcomed, thank you very much indeed. Tony Wright.
Q283 Mr Wright: It is quite clear,
and I think it is accepted throughout the industry and the wider
general public, that the gas coming from the UK Continental Shelf
is running out and quite clearly we are going to have a deficit
in terms of the gas that we require, but that would be more than
offset by the gas that we are going to get from Norway and the
Netherlands, certainly for the foreseeable future. Coupled with
that, the new contracts that have been given now with Exxon and
with Centrica with regard to LNG supplies from Qatar and possibly
Malaysia ought to add to that and the greater storage that we
will have in terms of the LNG. Are you not painting a scenario
that really is not going to happen in terms of the problems that
you related to us with regard to UK dependence on gas from Russia
and Iran? That scenario really is not going to happen, is it?
Professor Gittus: But that is
not the scenario that I have addressed. In my Platts paper I have
summarised what I have done, and in an answer to a question over
here I indicated that I have covered all the gas supply countries.
Q284 Mr Wright: You say within the
paper itself "The most unreliable source of energy is gas
piped from Russia and from Iran. In addition to gas piped from
Russia and Iran, the UK imports LNG from Algeria and Qatar."
You mention that within the paper itself, so obviously you raise
the spectre and also you have said here today quite clearly and
at length about the problems of supply through Russia, whether
through the Ukraine or through other countries.
Professor Gittus: Yes.
Q285 Mr Wright: That is an issue
that you are addressing, but quite clearly it will not be an issue
as far as the UK supply of gas is concerned. Do you accept that?
Professor Gittus: No, that is
not what I have said in the paper.
Q286 Mr Wright: What I am saying
to you is that the problems with the supply of gas from Russia
are not going to be an issue for the UK.
Professor Gittus: But I have spelled
out in the paper that one would forecast that it would be a problem.
Q287 Mr Wright: What I am saying
to you is that we are going to be more than offset with our supply
that we are missing from the UK Continental Shelf by supplies
from Norway and the Netherlands, so the Russian scenario does
not even enter into our equations.
Professor Gittus: So we shall
never import gas from Russia?
Q288 Mr Wright: I am not saying we
should never import gas from Russia, but what I am saying to you
is that quite clearly it should not even be a concern of ours
about the security of supply from Russia because there will be
LNG from Qatar and Malaysia, there will be natural gas coming
via Norway through the Langeled pipeline, from the Netherlands
through the interconnector and we will have enough supply for
the foreseeable future.
Professor Gittus: That is your
analysis and it is quite different to mine.
Q289 Mr Wright: Your analysis is
that we will actually have to rely at some time or other on gas
coming through Russia.
Professor Gittus: Not rely on
it, but we shall receive it.
Q290 Mr Wright: Will it be integral
to the security of supply issues to the UK's economy?
Professor Gittus: I forecast that
it will, yes. I may be wrong and I have not seen the data on which
you are basing your statements so I could very well not be correct,
but from the information that I have got, I forecast that if we
go down the route of abandoning nuclear and relying, when once
our own gas supplies have been run down, on gas imported from
within Europe but also from outside Europe, then I have given
my forecasts on the likelihood that we will have interruptions.
I cannot challenge what you say because I have not seen your numbers,
you have seen mine.
Q291 Mr Wright: For instance, Exxon
told us quite clearly that their supply of LNG from Qatar alone,
if that was to supply the UK, they have enough supplies for the
whole of the UK gas requirements for 250 years. That is quite
significant. I am not suggesting that they are just going to supply
the UK, but they are the type of figures that we are talking about
in respect of the gas that is there, and I accept that perhaps
Qatar is not as secure as the supply from Norway through Langeled
or through the Netherlands, but that just indicates the amount
of gas that is out there in the market.
Professor Gittus: Let me tell
you this, Saudi Arabia has got enough oil to supply the UK's requirements
for 250 years; admittedly, it is supplying all sorts of other
markets so we cannot just rely on them, but they and the other
Arab countries starved them somewhat in 1974 and reduced their
supplies to Japan to such an extent that the country was almost
ruined.
Q292 Chairman: The consensus of the
evidence we have heard until now from academics, regulators, industry
is that there is plenty of gas out there and actually we do not
need to worry, but what we ought to worry about is the way the
European gas market functions and the way the UK gas market rather
than availability, but you are putting up a very strong flag that
the past is not necessarily a guide to the future.
Professor Gittus: What I am saying
actually is that our past experience with oil from risky countries
should be looked at when you are considering taking our supplies
of gas from equally risky sources. You should look at it.
Q293 Chairman: The argument that
the Soviet Union and I mean the Soviet Union never broke a gas
supply contract, despite the Cold War, should not concern us;
that is again a misleading guide to the future?
Professor Gittus: It is part of
our guidance, obviously, it is part of our experience, but I would
not just go on that, I would go on the very simple fact that I
have raised, which is that we will be importing gas from risky
countries and is it not possible that they will do for us with
gas what the Arab states did for us with oil?
Chairman: Other colleagues want to come
in, but I am going to bring in Mick Clapham who has got a question
on another aspect of carbon and security of supply, and then we
will take supplementaries on the whole thing. Mick can do his
coal one.
Roger Berry: Mine follows yours though,
Chairman.
Chairman: Very quickly then.
Q294 Roger Berry: Over the years
of the Soviet Union and so forth the insurance industry would
have been coming up with figures about risks of doing business
with the Soviet Union. Given that there is no problem with gas
exports, would those numbers have suggested that this was a highly
risky activity or not?
Professor Gittus: I could not
hear exactly what you said, sorry.
Q295 Roger Berry: Given that during
the Cold War, Russia did not fail to honour gas contracts and
therefore it appears that there were not problems, the insurance
industry presumably in assessing the risks of trade with the Soviet
Union, my guess would be—correct me if I am wrong—that
they would have suggested higher risks then than today. My question
is was the experience of gas exports from the Soviet Union consistent
with the indicators that the insurance industry were giving in
relation to risk assessment?
Professor Gittus: None of us received
any gas from the Soviet Union at that time.
Q296 Roger Berry: No, but you have
said that the figures you used, as I understand it, do not relate
to gas specifically, they relate to specific business and political
risk factors as indicated in your paper.
Professor Gittus: I do not know,
I do not know what the risk factors were at that time, we are
going back 20 years, but I can find out.
Q297 Roger Berry: That would be interesting.
Professor Gittus: Chairman, I
will undertake to send those numbers.
Chairman: I am trying to think where
the Soviet Union actually exported its gas to; I think it exported
it to Germany, but I am exposing my ignorance which is never a
good thing for the Chairman to do. Let us go on with Mick Clapham's
question.
Q298 Mr Clapham: Professor, I gain
from what you said earlier that you perceive that we should hedge
against the risk of interruption in the supply of gas by ensuring
a diversity of energy mix, would that be correct?
Professor Gittus: Absolutely correct,
yes.
Q299 Mr Clapham: Of course, within
that energy mix is coal which at the current time provides about
33% of our electricity generation.
Professor Gittus: Yes.
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