Clause
2
Prohibition
on unlicensed
activities
Question
proposed, That the clause stand part of the
Bill.
Malcolm
Wicks:
I recognise that in the absence of many amendments
this morning—it is a great tribute to the drafters of the Bill
that it is near perfect, although we will see whether Committee members
agree with that—I will detain the Committee with a number of
relatively short speeches on clause stand part. However, it is
important to get certain points on
the record and, of course, to enable Committee members to participate in
debates about particular clauses. This will be one of the slightly
longer speeches, because I want to set out the context that the hon.
Member for Northavon was anxious to
hear.
I have touched
on this point already. The context is that we in the UK have been
fortunate for some time in being able to rely on natural resources for
much of our energy consumption. As I have noted, however, gas
production from the UK continental shelf—the UKCS—and
particularly from the North sea is in decline. The story of the North
sea is in two parts, both of which are important. One is that the UKCS
remains a very important business in the United Kingdom. There is still
a great deal of energy there. Indeed, I am reliably informed that two
thirds of our energy need and demand in Britain is still met by the
UKCS, so it is still very significant, but it is in decline at probably
the rate of about 8 per cent. at the moment. The decline is therefore
significant. Both things are true: it remains important, but it is in
decline. That is part of the context for our
discussion.
We
started to import gas relatively recently because of the decline that I
have mentioned. We are perhaps importing 20 per cent. or so of our gas
requirement at the moment, but by 2020 that could be up to 80 per cent.
A more cautious estimate would be between 50 and 80 per cent.,
but the Committee will see that the change is significant and
relatively rapid. That greater reliance on imports poses some risk to
the United Kingdom from overseas disruptions to energy supplies, as
supply routes become longer and as they cross ever more countries to
enter the UK’s energy system.
To minimise the risk of
disruption or of soaring prices at times of high demand, we need to
ensure that we have sufficient levels of gas importation and enough
storage facilities. Some will remember that only two winters ago the
spot price for gas rose on some days to a considerable height. We have
less storage capacity than our continental neighbours, but as I said
earlier that is because our store is the UKCS itself. However, it is
worth noting that things are now changing.
The clauses in chapter 2 seek
to address the problem by creating a regulatory framework to encourage
investment in infrastructure that will allow the storage of gas
offshore and enable liquefied natural gas imported into the UK to be
unloaded to offshore installations or pipelines in order to be piped
ashore. The Committee will know that LNG will become a significantly
important part of global gas supplies. Almost certainly, it will become
an increasingly important part of supply to the United Kingdom, not
least with the Qatari LNG about to come on
stream.
We know that
there is potentially some £10 billion of private sector
investment to be made in such projects, but investors have told us that
they need a regulatory regime for such investment that will offer
clarity and certainty. This part of the Bill will provide for such a
regime through the establishment of gas unloading and storage licences.
The Bill provides the powers to create a bespoke regulatory regime for
the unloading of LNG and natural gas storage projects under the sea
bed. Clauses 2 to 6 cover the licensing arrangements for such unloading
and storage projects, and clauses 7 to 14 cover the enforcement of
those licences.
Clause
2 underpins the new regime by prohibiting gas storage or unloading
without a licence, gas being defined in terms of the combustible gases
such as methane used for energy production. That prohibition also
covers the recovery of the gas stored, the conversion of natural
features such as salt domes for use as storage space and related
exploration activities, as well as the establishment and maintenance of
installations for those purposes. The prohibition applies in any place
within the limits of the territorial sea adjacent to the UK or within a
gas importation and storage zone designated under clause 1, which could
extend up to 188 miles beyond the seaward boundaries of the territorial
sea.
On a point of
clarification, I should add that clause 2 applies to operators that
carry on storage activities, but the provisions do not apply to the
shipper or owner of the gas. Those persons that provide the gas to the
operators of the storage facilities will therefore not require a gas
unloading and storage licence. Anyone undertaking such activities
without a licence will be subject to the criminal sanctions set out in
clause 7.
Establishing
an offence for non-compliance will help to ensure that developers seek
the necessary licence before undertaking any such activity. That will
enable us to keep track of all projects and to ensure that appropriate
safeguards, such as environmental protections, are in place and adhered
to.
Mr.
Swire:
On that point about environmental protection, I
want to tease out from the Minister what discussions he has had with
the marine environmental lobby. For instance, my part of the world is
an area of outstanding natural beauty and a world heritage site, where
the marine environment is extremely sensitive. What consideration will
be given to
that?
Malcolm
Wicks:
Again, I thank the hon. Gentleman for notice of
that question. We are fully aware of the environmental considerations,
and I may say a little more about the subject later. However, just as
in existing regimes for the exploration of oil and gas, environmental
considerations are paramount. We are confident that through these
provisions we can satisfy the hon. Gentleman. I am bound to say that
all our constituencies are areas of outstanding natural beauty, and
that is certainly true of Croydon, North.
Albert
Owen (Ynys Môn) (Lab): Will the Minister assure the
Committee that these provisions will not impact on the role of the
local planning committees with regard to their environmental impact
studies?
Malcolm
Wicks:
The short answer to that is no, but there will be
an opportunity during the course of this debate to give a more specific
answer to my hon. Friend
.
Dr.
Stephen Ladyman (South Thanet) (Lab): I give the Minister
advance notice of my question now so that he can answer it later. How
does this measure interact with the habitats directive? Will the
licences be issued irrespective of one’s responsibilities to the
habitats directive, with those responsibilities being met later? Or
will the person applying for the licence have to fulfil the obligations
of the habitats directive before applying for the licence? As I say, I
am quite happy if the Minister answers that question
later.
Malcolm
Wicks:
If I may, I will answer that question in full
later. The short answer is that we are fully joined up. Let us give an
example of how we intend to tackle this. Concerns exist, for example,
about the situation for whales and dolphins. Before awarding any
licence or consent, the Department for Business, Enterprise and
Regulatory Reform will conduct an appropriate assessment of the site,
in line with the requirements of the habitats and wild birds
directives. Should a licence or consent be deemed to have a negative
impact on a protected habitat, such as the one for whales and dolphins,
the licence or consent will not be awarded. For example, we have not
issued licences for oil and gas exploration in Cardigan bay recently
because we were concerned about the situation of the dolphins there. I
hope that that reassures my hon. Friend about our good intentions and
our commitment to ensure that we have the appropriate legislation and
regulation.
Dr.
Ladyman:
I am very grateful to the Minister for that
reassuring answer. The one concern I have relates to his point of view
and that of his Department. He seems to be describing a process in
which officials in his Department have to be expert not just on energy
matters but on environmental matters in order to judge whether to issue
a licence. I wonder whether that is to expect too much of his
Department.
Malcolm
Wicks:
I do not want my hon. Friend to expect too much of
my Department, but he can expect a great deal. Obviously, this is a
situation in which we have to join up with relevant agencies, and with
the Department for Environment, Food and Rural Affairs in particular. I
note his concern, and I will say more about that in due
course.
My instincts
about local planning were correct. I am sure that during the course of
Committee procedures in the past, my instincts have been incorrect, but
I have always corrected myself later. I am being modest about this. In
terms of local planning, the answer is that this regime purely applies
offshore. I hope that that satisfies my hon.
Friend.
We
recognise that with the advent of the single electricity market across
Ireland, there are increasingly different considerations to take into
account in Northern Ireland to the proposals that might come forward in
the rest of the United Kingdom. To reflect those differences, I believe
that it will be prudent for my Department and the Department of
Enterprise, Trade and Investment in Northern Ireland to pursue a formal
memorandum of understanding, setting out how we would work with the
relevant authorities in Northern Ireland before granting any consents
for gas infrastructure projects in Northern Ireland territorial waters.
With those words, I move that this clause stand part of the
Bill.
Charles
Hendry:
I am grateful to the Minister for pointing out
with such clarity the stark picture that is facing us on these issues.
Some of us will have felt that his judgment was slightly impaired when
he referred to Croydon as an area of outstanding natural beauty. I
thought that most of us would assume that the nicest thing in Croydon
is the A22, which leads to my constituency. However, this may have to
be one of those areas of difference where we simply will not be able to
find common ground and
agree.
9.30
am
The Minister
is also right to say that we could be dependent on imports for 80 per
cent. of our gas by 2020. In the explanatory notes, it says that more
than half of our demand for gas may be met by imports by 2020. However,
the Minister is absolutely right to give a much starker assessment of
the situation. Looking at his Department’s figures, our current
consumption of gas is about 105 billion cu m a year. By 2010, that
figure is expected to rise to 110 billion cu m a year and by 2020 it is
expected to rise to 130 billion cu m a year. By 2010, half of our
demand will be met by imports and by 2020, 80 per cent. of our demand
will be met by imports.
So there is
a very significant challenge facing us. It is not just us who face it;
the issue of gas demand applies across the whole world. It is estimated
that in 20 years’ time, there will be a 300 GW energy gap in the
European Union alone. Just because people choose to build power
stations that are powered by gas, that does not mean that there will be
the gas available to power them.
The
Government are rightly now addressing the issue of gas storage. In the
past, I do not think that they have done enough in this regard. The
Minister will remember his words when he said, just about two years
ago, that we were “awash with gas”, which was about 24
hours before we nearly ran out of gas; I think that was the timing of
his comment. Of Mary I, it was said that if they opened her up they
would find “Calais” written on her heart; when the time
comes for the Minister to be opened up, which we obviously hope is a
long way off, we will find the words “awash with gas”
written on his heart. It is better than having “full of
wind” written there, but the phrase “awash with
gas” did not quite capture the spirit of the problem at that
time.
The fact is
that, at the moment, we have about 12 days of average winter
gas usage storage in this country. That compares with 80 days in
France, Spain and Germany, where they are required by law to have far
higher amounts of gas storage than we are required to have in this
country.
Gas storage
is an area in which we need to do much more. The Minister quite rightly
points out the improvements that are happening in LNG and the pipeline
connections that we have, which certainly add to our country’s
energy security. However, he is absolutely right to say that more needs
to be done to open up the potential for that £10 billion worth
of investment in gas storage facilities. The industry has said to us
that it wants a much clearer regulatory regime and, judging from its
reactions to the Bill, it seems that the proposals that are being put
forward are just about right.
We also need to be clear about
the security of our gas imports. People can very readily get worked up
about Russian gas imports, but I think that we must be sensible about
that issue. There is wonderful imagery of the Russians being able to
turn off a tap and just stop the gas flow coming through to countries
such as Britain. We have a duty to explain to people that that is not
the way that the system works. We must make it clear that, as a
company, Gazprom has honoured every trading contract that it has had.
Where the difficulties have arisen in Belarus and in Ukraine, those
difficulties have been caused by very different issues, where gas sold
cheaply for domestic consumption has been sold
on at a much higher market price. I hope that we can try to reassure
people that we do not face a threat from Russia on these issues.
However, it is still right to take these steps of improving gas
storage.
Mr.
Jamie Reed (Copeland) (Lab): I recently attended a
conference on energy and climate change in Ukraine, where
representatives of the Belarusian and Ukrainian political parties were
present, in addition to Gazprom. Among the Belarusians and the
Ukrainians, the fear is a very real one that the Russians will
arbitrarily turn off their gas at a
whim.
Charles
Hendry:
The hon. Gentleman is absolutely right that, in
those countries, there is that fear. However, it is very interesting to
see how the British press and the German press have interpreted this
story. Here, we have tended to say, “Look what Russia has done.
How scary! That could happen here.” The German press have
focused on the comments of the President of Ukraine, who says that
Ukraine must look at its contracts and see if it has paid its bills,
because that was the reason why Ukraine was disconnected. I think that,
in this country, there is a bit of hysteria about this issue.
Nevertheless, if we want to
reassure people, it is absolutely right that more gas storage will be
an integral part of any energy solution, because the more gas that is
stored on land or at sea here, the more we can increase the number of
days of provision that we have and that will make it easier for people
to feel secure in the long term.
I agree with the Minister that
the current system of consents is too complicated and that there is
great sense in simplifying it. What would happen if there was more than
one licence sort for the same patch of sea? It is possible that there
would be two potential storage areas, one beneath the other. About a
year ago, I went with a parliamentary group to Texas and we saw what BP
is doing in the gulf of Mexico. It is looking for and is able to
identify oil and gas reserves under 10,000 ft of water and 20,000 ft of
rock, and it can pinpoint those reserves with incredible accuracy. If
one is now looking for oil and gas at those depths, it is plausible
that one will find two potential reserves: one above the other. How
does the licence relate to depths as well as to geographic area? What
will the proposals mean for combined gas and wind projects? The
Minister may be aware of Eclipse Energy’s project off the
north-west coast; the intention is that when the wind is blowing, power
will be provided by wind turbines and when it is not, the project will
draw the gas from a largely depleted gas field. That seems to be a good
balance, because one uses the wind when one can but one ensures
security of supply as there is a gas back-up. In those circumstances,
is it conceivable that what was previously a gas field would be
designated as gas storage because of the way that it was being used?
What would be the implications for those sort of projects? In general,
we support the clause and, with those clarifications, we are happy to
take it forward.
Martin
Horwood (Cheltenham) (LD): Mrs. Humble, it is a
delight to be serving under your chairmanship again and I am looking
forward to a co-operative approach from the Committee, with a lot of
free exchange of ideas between both sides. However, to
sound a slightly partisan note to start with, my constituency really
does contain an area of outstanding natural beauty; the Cotswolds might
beat Croydon on a good day. We have already had an insight into the
psychology of Conservative Members on this subject; I had not realised
that when they were talking about withdrawing from Europe, they were
still talking about the loss of Calais. Perhaps that is an unfair
point.
Returning to
the subject of the clause, which is the licensing regime, clearly the
purpose, as the Minister said, is to provide a suitable basis on which
to have security of gas supply and to provide certainty and stability
to energy retailers. One hopes that that stability will translate into
stability of prices for consumers, which is a hot topic at the moment
because of the sharp rises in energy prices that consumers have been
suffering from. Instability and energy prices for the energy companies
can sometimes translate into very large profits, as we have seen in the
news today. Have the Government given any consideration to ways of
recovering perhaps some of the cost of this licensing regime? The
impact assessment puts the cost at a high level, but the licence price
suggested in the impact assessment is only about £3,000. Will
there be any scope for trying to recover, from the very high profits
that energy companies make from time to time, any of the
taxpayers’ costs? Recovered costs could then be directed at
measures to tackle fuel poverty and might offset some of the impact of
variable energy prices. Perhaps the Minister can address
that.
The impact
assessment also suggests two particular risks associated with a new
licensing regime. Paragraph 66 on page 58
says:
“There
is a risk that the time taken to bring the new licensing scheme into
effect will act as a disincentive to developers in the short
term.”
Are there any
steps that the Government can take to minimise that disincentive and to
make it clear to developers that they should not be discouraged at this
vital time in the development of the technology? There is also concern
in the impact assessment
that:
“The
licensing scheme will need to be sufficiently widely drafted so as to
capture the range of innovative new technologies which are being
developed in this
sector.”
Having looked
at the clauses, I cannot see anything that addresses the issue in the
legislation. Will the Minister tell us that there will be a conscious
effort to avoid closing off any particular technological avenues or
innovation, and that the licensing regime will not be implemented too
tightly?
Malcolm
Wicks:
This has been a useful debate on a number of quite
important issues. I suspect that from time to time, perhaps with your
support, Mrs. Humble, I have been a rather tedious member of
the Committee who sticks to the Bill. The contextual issues are very
interesting and the hon. Member for Wealden, helped us with the context
by emphasising the changing nature and growing importance of imports of
gas into the United Kingdom. Certainly those will be considerable in
the
future.
My
judgment is that, as the century unfolds, the geopolitical issues
relating to energy insecurities globally will become almost as
significant on immediate agendas as climate change. I do not feel
entirely relaxed about some of the questions in that regard, but we
must
pursue those issues on another occasion. It is certainly important that,
alongside the UK developing what I always refer to rather simply as
“home-grown energy”—energy that we can produce
ourselves, here and offshore—we are smart about pipelines and
regions and the importance of LNG. In terms of our national security,
that is very
important. I had
better not say too much about the phrase “awash with
gas”, but on the occasion referred to, a debate was going on
about whether the lights were going to go out. I cannot remember who
was the leading proponent of that idea at the time. Others of us said,
“No, the lights are going to stay on,” and on the
particular day when I said to the House of Commons that we were awash
with gas, that was the advice that I had received from national grid.
That turned out to be the case, but I hope that that rather inelegant
phrase will not be written across any part of me on any occasion,
either now or in the long-term
future.
Several
issues have been raised. In particular, it was asked whether more than
one licence would be sought in relation to the same patch of sea. I am
advised that the Crown Estate will consider the competition and
overlapping issues for any lease. Both the licence and the Crown Estate
lease will apply to a defined volume, so it can deal with the issue of
depth. I think that we are all right there, but no doubt when we need
to draft any regulations later, or when we are in discussion with the
Crown Estate, we will bring that issue to the attention of the relevant
authorities.
I
was asked about potential conflicts and I agree that the project that
has a wind turbine attached to it in the sea is quite intriguing. We
may see more of that in the future. At present, all consents required
will be given by the Secretary of State, taking into account other
activities in the sea environment, including other petroleum activities
and proposed wind farms. Likewise, the Bill includes an amendment to
the Petroleum Act 1998 to allow gas storage developments as well as
wind farms to be taken into account when consenting to petroleum
activities. Such provision is already made in relation to wind farms by
an amendment made by the Energy Act 2004. Those arrangements will allow
the Secretary of State to ensure that the respective industries have
liaised with each other with regard to a mutually agreed solution for
developments, and ensure that those industries co-exist in the
interests of
all.
My
hon. Friend the Member for South Thanet wondered whether BERR was
sufficiently environmentally expert. I reiterate that our long
experience as a Department in regulating offshore oil and gas means
that we have become expert on environmental issues. Indeed, the
Department already employs an offshore environment and decommissioning
unit, which regulates the offshore oil and gas and renewables industry,
in the context of sustainable development, with a raft of legislation
for the protection of the environment. I reiterate that we liaise
carefully with DEFRA and other appropriate
agencies.
9.45
am
We heard from
the hon. Member for Cheltenham—another very important and
beautiful part of our country. I will not rise to the challenge about
Croydon, North, except to say that Thornton Heath looks lovely at this
time of year, if hon. Members know what I
mean. I will not go on about Broadgreen, which is also particularly
beautiful—I am in enough trouble making those remarks. I will
not be tempted by the hon.
Gentleman. The usual
answer applies, perfectly appropriately: the use of revenues must be a
matter for the Chancellor of the Exchequer and not me, sadly. I think
that I have more or less covered that question, but the hon. Gentleman
asked another about new technologies. We are not in the business of
trying to close those off. The Bill contains enabling powers to
facilitate the new licensing regime to cover all types of innovative
investment in gas offshore. Later on, we will come to clauses on carbon
capture and storage. Part of the raison d’être of the
Bill is the introduction of a new regulatory regime for the kinds of
new challenges and technologies that we are now
seeing.
Question
put and agreed
to.
Clause 2
ordered to stand part of the
Bill.
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