APPENDIX 6
Memorandum by Ciba Speciality Chemicals
PLC
INTRODUCTION
1. Ciba Specialty Chemicals[12]
welcomes the opportunity to contribute to the Trade & Industry
Select Committee's Inquiry into the UK's Security of Gas Supply.
A reliable, low cost energy supply is critical for our manufacturing
options, therefore the possibility of our gas supply being shutdown
and the consequences of this are of great concern.
SYSTEM FORECAST
2. Although we are unable to provide with
authority any information on the gas supply situation, the evidence
available to us leads us to conclude that the situation has deteriorated
since last winter. This evidence includes reduced North Sea output,
insufficient new sources to compensate for this and the relentless
increase of gas prices in the forward market. The latter factor
is of particular significance to us, as it appears to indicate
a belief that the market will be tight over the next year. As
a significant user of energy on our manufacturing sites we are
extremely concerned by this scenario.
IMPACT OF
GAS SHUTDOWN
3. The proposal to shutdown our gas supply
would result in:
— High Energy Costs & Uncertain
Availability. Although we have the ability to switch to fuel oil
there remains a high level of uncertainty with respect to the
availability and price of alternative fuels. We therefore believe
it is entirely possible that we would require to shutdown our
operations in the event of a shortage of gas. This would have
adverse short and long term impacts on our business, which is
already under severe competitive pressure.
— Potential Loss of Business, We would
require sufficient notice to ensure we can fulfil our customer
orders on time. We are not convinced from recent discussions at
the Demand Side Working Group, set up by Ofgem that NGT would
give sufficient warning.
— UK & EU Emission Trading Schemes,
There is a significant impact on our emission targets when burning
on oil. Our energy efficiency decreases and our emissions to atmosphere
increase. It is not desirable for any plant to operate on oil
under the present Emissions Trading Schemes.
— Increased Legislative Burden. Although
we have the ability to switch some equipment from gas to oil burning,
this is only permitted in the event of an emergency. Our authorisation
under Integrated Pollution Prevention and Control (IPPC) does
not allow oil burning for other reasons. We would require to apply,
in writing, to the relevant Environmental Authority for a Notice
of Variation to our IPPC Authorisation. We would also have to
inform the agency, giving sufficient advanced notice, of any proposed
shutdown of gas and switch to oil burning.
If burning on oil, the agency requires
to be notified of the time, date and duration of each interruption.
They also apply stringent emission monitoring & reporting
procedures.
Ofgem have been asked to assist in
discussions with the environmental agencies to allow alternative
fuels to be burned under these circumstances, however progress
in this area has been limited.
— Site Operations, Although we have
the ability to switch to fuel oil it does not protect all our
operations. We currently have a small Firm Gas Allowance to ensure
we maintain various critical operations on site. If this supply
is also cut off we will have a total site shutdown, with resultant
loss of production.
— Safety Implications, Not only do
we require advance notice for the reasons above it is imperative
that we are able to shut our plant operations down safely before
switching fuel. Notice is required to plan and implement our plant
shutdowns effectively.
POSSIBLE RESPONSE
4. Demand side response is yet another activity
which would distract us from our core activities. It should
only be used as a measure of last resort. In addition, as a minimum
we would require the following to be implemented.
— Actions need to be put in place to
give those businesses affected as much notice as possible to fully
explore all operational options. We would suggest that NGT are
best placed to carry out this task.
— Up-to-Date, real time information
on gas flows should be available to gas consumers, in accordance
with Energywatch recommendations. Progress on this to date has
been too slow.
— Appropriate incentives should be
in place to maintain adequate stocks of alternative fuels across
the country.
— Measures to compensate those impacted
adversely by fuel switching in terms of emissions trading should
be considered.
— Any necessary modifications or variations
to environmental or other legislative authorisations require to
be fast-tracked with the relevant authorities.
SUMMARY
5. We're very pessimistic about the security
of supply situation with UK gas over the next two years and only
see this resulting in further increases in gas and electricity
prices and greater volatility in the markets.
Our business is already suffering real job losses
because of increasing competition from the rest of Europe as well
as the Far East. The possibility of unplanned interruptions to
our gas supply this winter, and the consequent damage to our business,
has been noted by our Headquarters in Switzerland and will be
viewed as yet another reason why investment in UK is no longer
attractive. Measures must be put in place, as a matter of urgency,
to allow appropriate management of any gas shortage by minimising
disruption, ensuring availability of alternative fuels, maximising
notice periods and easing regulatory restrictions.
12 Ciba Specialty Chemicals contributed to TISC Inquiry
into Fuel Prices. Back
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