House of Commons portcullis
House of Commons
Session 2006 - 07
Publications on the internet
Public Bill Committee Debates

Draft Petroleum Act 1998 (Third Party Access) Order 2007

The Committee consisted of the following Members:

Chairman: Hywel Williams
Bone, Mr. Peter (Wellingborough) (Con)
Burt, Lorely (Solihull) (LD)
Clapham, Mr. Michael (Barnsley, West and Penistone) (Lab)
Davey, Mr. Edward (Kingston and Surbiton) (LD)
Dean, Mrs. Janet (Burton) (Lab)
Ellwood, Mr. Tobias (Bournemouth, East) (Con)
Field, Mr. Frank (Birkenhead) (Lab)
Foster, Michael Jabez (Hastings and Rye) (Lab)
Hendry, Charles (Wealden) (Con)
Heyes, David (Ashton-under-Lyne) (Lab)
Lilley, Mr. Peter (Hitchin and Harpenden) (Con)
McCabe, Steve (Birmingham, Hall Green) (Lab)
Mole, Chris (Ipswich) (Lab)
Owen, Albert (Ynys Môn) (Lab)
Palmer, Dr. Nick (Broxtowe) (Lab)
Wallace, Mr. Ben (Lancaster and Wyre) (Con)
Wicks, Malcolm (Minister for Science and Innovation)
Mark Etherton, Committee Clerk
† attended the Committee

Fifth Delegated Legislation Committee

Tuesday 12 December 2006

[Hywel Williams in the Chair]

Draft Petroleum Act 1998 (Third Party Access) Order 2007

4.30 pm
The Minister for Science and Innovation (Malcolm Wicks): I beg to move,
That the Committee has considered the draft Petroleum Act 1998 (Third Party Access) Order 2007.
Members will recall that the Langeled South pipeline from offshore Norway to Easington in England was formally open by Prime Ministers Blair and Stoltenberg in October this year. Gas through that pipeline, sourced from a number of Norwegian fields, is already heating our homes. Indeed, I am reliably informed—I thought I might be asked this question—that only this morning the new pipeline was bringing gas into Great Britain at a rate of more than 60 million cu m a day, close to its full capacity of 70 million cu m. Given our total usage of about 340 million cu m, we can see that Norway is making an important contribution to our energy needs. That welcome addition to the United Kingdom’s security of supply comes from a long-standing, stable and reliable source. That is critical given that, over the next few years, we will become a major importer of gas.
The pipeline is now an integral part of the Norwegian offshore gas pipeline network, under which commercial gas shippers are subject to a regulated access regime with published tariffs and terms. That differs from the UK’s offshore system, in which the access terms are a matter for negotiation between individual shippers and the pipeline owners. When we negotiated the 2005 UK-Norway framework agreement on cross-boundary petroleum co-operation, it was agreed that the Norwegian regulated access system would apply to the whole of the Langeled South pipeline, thereby avoiding the complexity of different access systems at various points along the pipeline.
Safeguards in the agreement allow a measure of joint agreement between the Norwegian and UK authorities in setting offshore entry terms, when UK companies wish to connect with the Langeled South pipeline. Should circumstances arise in which a UK company claims that the terms of the Norwegian regulatory system are not being fully and properly complied with, the framework agreement provides for joint determination of the dispute by both the UK and Norwegian authorities.
The purpose of the order is therefore to amend the Petroleum Act 1998 to ensure that our law is consistent with the provisions of the 2005 framework agreement. The need for amendment was sign-posted in the explanatory memorandum that accompanied the 2005 framework agreement when it was laid before both Houses in May this year. Once the amendments are enacted, the Government will be in a position to notify the Norwegian Government that all our internal procedures are complete and that the framework agreement can formally enter into force.
I shall take the Committee through the key technical points, albeit fairly briefly. First, the order amends the Petroleum Act 1998 so as to remove pipelines from the scope of section 17F of that Act that are to be subject to the Norwegian regulatory access system under the terms of the framework agreement. That category includes Langeled South. In the absence of such amendment, Langeled South would have remained a controlled pipeline under section 17F, which makes provision for application to the Secretary of State for the right to access pipelines on the UK continental shelf following failure to agree between the persons seeking access and the owner of the pipeline.
Secondly, the order establishes new sections 17GA and 17GB to the 1998 Act, under which the Secretary of State can act jointly with the Norwegian authorities to resolve problems—for instance, if access to Langeled South has already been awarded to a third party under Norwegian regulatory rules but that third party subsequently claims that the owner or operator of Langeled South has not complied with the terms and conditions under which access was awarded.
The 2005 framework agreement provides a streamlined framework to facilitate trans-boundary oil and gas projects. For most projects, that means that no longer will it be necessary to spend time negotiating separate project-specific agreements. Detailed provisions made in the framework agreement in respect of the Langeled pipeline were also part of the innovative approach adopted by both Governments. I am happy to commend the order to the Committee.
4.35 pm
Charles Hendry (Wealden) (Con): It is a pleasure to serve under your chairmanship, Mr. Williams. Opposition Members welcome the changes being made by the order, as it follows on from the opening of the Langeled pipeline in October. We very much welcomed that. It was an incredible engineering feat—one of the greatest engineering feats in the energy sector—and it will make a very significant contribution to our energy security. It is very encouraging to hear the Minister talking about the levels of flow that are coming through already. I understood that that level of flow was not expected until next year, so it is positive news and we are delighted to hear that the pipeline is operating so well.
I was also pleased to have the chance to meet some of those who had been involved in the project when I went to the offshore northern seas conference in Stavanger in August. Clearly, our Norwegian counterparts in the project saw it as one of the most important projects of British-Norwegian co-operation, and they were right to do so.
The Langeled South pipeline is the world’s longest underwater gas pipeline, and it is estimated that it will supply about one fifth or up to a quarter of the UK gas market. It is therefore essential for the UK gas market and economy that the correct regulatory framework is put in place for access to the pipeline.
Aspects of the framework agreement require consent from both the UK and the Norwegian Governments. Can the Minister tell us what the consequences would be if the two Governments failed to reach consensus? Would the supply of gas to the UK be threatened in such circumstances?
One of the main objectives in respect of energy security is that we should not be over-reliant on energy from any one source. As I have suggested, the pipeline will provide between one fifth and one quarter of our gas supply. Although there could be no better example of a reliable trading partner than Norway, could the Minister set out the other steps that the Government are taking to ensure that we do not become over-reliant on gas from any one source?
More generally, does the Minister share my concern that UK electricity generation is over-reliant on gas and, if so, what steps does he plan to take to address that? In some scenarios, it is expected that in 20 years’ time 80 per cent. of our electricity will come from gas-fired power stations and 60 per cent. of that gas will be imported. That would mean that half our electricity generation depended on imported gas, and many of us have anxieties that that would be too high a reliance on imported gas.
The Minister will have seen the reports today that Shell, along with two Japanese companies, has had to cede majority control of the Sakhalin-2 project to Gazprom. That is particularly relevant in view of the reliance that we could have in the longer term on Russia and Russian gas. Shell has reduced its stake from 55 to 25 per cent. and the Japanese companies have reduced their stakes from 25 and 20 per cent. to 15 and 10 per cent. respectively. Shell’s part in this would be bought by Gazprom for about $2.4 billion, although Gazprom is likely to cede everyday operation to Shell, as it has no experience of liquefied natural gas projects.
Sakhalin-2 is the most advantageous agreement secured by foreign companies. It was agreed in the mid-1990s and was the only project in Russia without Russian equity participation. The forced sale comes after threats by Russian Government agencies to revoke licences and initiate criminal proceedings for violation of environmental rules. However, it has also happened at a time of increased tension between the Russian and British Governments, following the murder of Alexander Litvinenko, so can the Minister assure us that there were no other, political motivations behind the Russian Government’s actions? I realise that that issue is not in the precise nature of the order, but in view of the importance of the order to gas security I hope that the Minister will be prepared to answer those points as well.
Let me return to the precise issues of the order. What representations have the Government had from the UK gas industry on the framework agreement between the UK and Norway? Can the Minister explain the difference between the Norwegian regulated access system and the existing UK framework for gas pipeline access?
It is reasonable to allow the Secretary of State to act jointly with the Norwegian Government for resolving disputes over the Langeled South pipeline, but how will the order affect any other existing or future gas pipelines? Will the order have any effect on companies that may wish to use the Langeled South pipeline to export gas from the UK in the future?
When the Langeled South pipeline opened in November, wholesale gas prices for immediate delivery turned negative. After trading at an average of 26p a therm through September, the spot price for gas delivered immediately fell to minus 5p during the course of a day, and traders were paying to get rid of it. However, as Britain's storage capacity was 96 per cent. full and domestic gas bills are based on longer-term contracts, consumers did not benefit from that free gas. Do the Government agree that additional gas storage facilities would help to address this issue and provide greater price stability? Can the Minister tell us what steps the Government or individual companies are taking to increase UK gas storage capacity, and what steps he is taking to address some of the planning issues that delay new capacity coming on stream?
The order is quite narrow, although its implications are broad in terms of gas security, so I hope that the Minister will be able to answer my questions. However, as I said at the outset, we generally welcome the order.
4.41 pm
Lorely Burt (Solihull) (LD): I welcome you to the Chair this afternoon, Mr. Williams. I want to speak briefly to welcome the order. As previous speakers have said, the security of gas supplies for this country is vital. It is a matter of regret that we have not put the political will into creating sufficient renewable energy to ensure that we do not need to be so reliant on other countries, whichever they are, for the supply of gas.
I look forward to the Minister’s comments on what steps the Government are taking to ensure that the security of energy supply in this country is more a matter of self-reliance in the UK, which it can be. Can he also ensure that global warming, which is a problem that is increasingly being recognised, is minimised?
4.42 pm
Mr. Peter Bone (Wellingborough) (Con): I want to make two points. First, who ultimately makes the decision if there is a dispute? If I were in business and buying from the USA, the contract would say whether, at the end of the day, US law or UK applied. There must be an ultimate decision on that and perhaps the Minister would say whether a dispute would ultimately go to a UK court or a Norwegian court.
Secondly, the Minister is exceptionally keen on having a liberalised energy market in Europe. One problem that we have come across is that Norway does not have a liberalised energy market. Will he comment on that?
4.43 pm
Malcolm Wicks: This has been a brief, but important debate. My bet with my private office that we would be finished within half an hour is reasonably secure. However, I shall not keep going for 16 minutes to win that bet unless I feel that it is absolutely necessary and I receive important notes that I can read at the same time as speaking, which I do not think I can.
I was asked by the Conservative Front-Bench spokesman, the hon. Member for Wealden, about dispute resolution, which is obviously an important point. I mentioned some of the answer in my speech, but the framework forum has been set up to solve such disputes. The 2005 framework agreement provides for dispute resolution by a conciliation board made up of members from both countries. When it comes to something as important as the Langeled pipeline, it is important that we have agreed to have one system to govern it. It would have been unmanageable to try to mesh, in a messy way, British regulations with Norwegian regulations.
I mentioned in my speech that the Norwegian approach is very much subject to a regulated access regime, with published tariffs and terms, whereas in the United Kingdom the approach is—I had better be careful, I suppose—not so rational, meaning “rational” in one sense of the word, and I hope a polite sense. In the United Kingdom’s offshore system, access terms are a matter for negotiation between individual shippers and the pipeline owner. It is to the credit of those negotiating the terms that we now have a more standard system.
I should add that, apart from the formal dispute resolution procedures, which are important, we have excellent relations with Norway. Until four weeks ago, when I was Minister for Energy, I had a good relationship with the Norwegian Minister, Odd Roger Enoksen. Our countries are now collaborating on a related issue, to do with carbon capture and storage, under which we have a working party, given our joint interests in the North sea.
I am tempted along the path that the hon. Gentleman understandably raised in relation to wider energy considerations, although I must resist the temptation—not simply because I am watching the clock and my predictions to my private office, but because this is not the occasion for that. I seem to remember, from my time as Minister for Energy, that we undertook an energy review, under pretty fine ministerial leadership as I recall. The review examined supply and demand for energy, and talked about the importance of renewables, which the hon. Member for Solihull urged me to discuss, whereby we have an ambition to increase the proportion of our electricity that comes from renewables from 4 to 20 per cent. by 2020, which is a fivefold increase. We are committed to renewables and energy efficiency. We also think that there should be a place for civil nuclear power in the future, although I do not want to tempt the Liberal Democrats on that one. I shall not say too much about that, but issues concerning energy supply and the future of our energy as it relates to climate change and global warming are crucial.
We are here to do a bit of legalese, but also to confirm and almost to celebrate the fact that gas from Norway is already arriving in abundance through the Langeled pipeline. That gas is welcome, but it is important that we should tidy up procedures and agreements so that should disputes arise, they can be settled amicably.
Question put and agreed to.
That the Committee has considered the draft Petroleum Act 1998 (Third Party Access) Order 2007.
Committee rose at eleven minutes to Five o’clock.

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2006
Prepared 13 December 2006