Energy Bill

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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.
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.
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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’ĂȘtre 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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