Select Committee on Trade and Industry Written Evidence


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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