Clause
73
Third
party access to
infrastructure
John
Robertson:
I beg to move amendment No. 28, in
clause 73, page 62, line 26, leave
out from ‘all’ to end of line 27 and insert
‘existing apparatus, works and
associated services necessary for the existing and future operation of
such pipe-line or network of a similar nature with a third
party.”’.
The
Chairman:
With this it will be convenient to discuss the
following amendments: No. 30, in
clause 73, page 62, leave out lines 31 and
32 and insert—
‘(d)
separating, purifying, blending, odorising or compressing upstream gas
for the purpose
of—’.
No.
29, in
clause 73, page 63, line 6, leave
out from ‘all’ to ‘and’ in line 7 and
insert
‘existing
apparatus, works and associated services necessary for the existing and
future operation of such pipe-line or network of a similar nature with
a third
party”,’.
John
Robertson:
Amendments Nos. 28 and 29 are probing and
intended to gain clarification. They are, like my new clause 19,
technical amendments. You were fortunate to miss my previous
contribution, Mr. Amess; let me assure you and other Members
that this one will be a lot shorter.
The
amendments relate to third-party access to infrastructure and concerns
raised by the industry about how the new wording will broaden the scope
in which the legislation can be applied. The industry agrees with the
intention to remove so-called ransom strips so that the Secretary of
State can meaningfully determine third-party access, but in order to
achieve that the new wording unduly broadens the scope with which he
can apply the legislation. In particular, the meaning of
“pipeline” has been extended from “any apparatus
and works” to a wider definition. There is no test of
reasonableness, which would require the Secretary of State to act
appropriately and proportionately and to ensure that infrastructure
owners were not commercially burdened. The definition now
includes
“all apparatus,
works and services associated with the
operation”
of the system.
It would be preferable if that were limited to “services
necessary” for such an operation and to third-party services
comparable to the existing business or services.
I am informed that there is
further concern about upstream gas and oil-processing facilities now
being included in subsections (2) and (4). That could extend the
Secretary of State’s powers beyond normal upstream activities
into downstream activities, given the inadequately defined distinction
between upstream and downstream, and would exclude refineries, gas
conversion plants and the like. I hope that the Minister will support
the amendments, which would bring clarity to the Bill in terms of the
scope within which it can be applied and the distinction between
upstream and
downstream.
Martin
Horwood:
The hon. Gentleman’s amendments are
technical, and I may be out of my depth. He said that they would bring
clarity to the provisions. Amendments Nos. 28 and 29 would do that, but
amendment No. 30 would limit them in that it takes a definition of a
gas-processing operation and applies it only to upstream activities.
Surely that would be a substantive change, or do I misunderstand
him?
John
Robertson:
Probably. I am pointing out what needs further
clarification from the Minister. In all honesty, amendment No. 30 is
sufficiently clear. If definitions are too broad, they are
all-encompassing, whereas the amendment would help to define exactly
what is required. When I receive the Minister’s answer about
upstream and downstream activities, I hope that matters will be even
clearer.
Dr.
Brian Iddon (Bolton, South-East) (Lab): I seek
clarification, Mr. Amess. I am not speaking for or against
the amendments, but I have a different point to make. Should I do so
now or when we discuss clause stand
part?
The
Chairman:
It would be appropriate if the hon. Member made
his point when we debate clause stand
part.
Malcolm
Wicks:
Before I cover the specific issues raised by the
amendments, it might be helpful if I remind members of the Committee of
the rationale behind the clause that my hon. Friend the Member for
Glasgow, North-West wants to amend. We already have a legislative
regime that allows the Secretary of State to intervene, if requested,
in disputes over third-party access to most upstream petroleum
infrastructure. If he were asked to intervene, the outcome of a
disputes resolution might be that he sets the terms for access, such as
the tariffs to be paid for transportation and processing. In practice,
he has not been called to use such powers to date. We believe that that
is because the potential deterrent effects of their use have done well
in encouraging successful negotiation. They certainly add an additional
incentive towards effective and timely commercial negotiations.
However, some gaps in the scope of the current regime mean that, while
he can require and determine the terms for access to some
infrastructure, owners could lawfully charge exorbitant amounts for the
use of, or refuse access to, other facilities or services. The
existence of such ransom strips, as they are known in the industry,
effectively undermines the Secretary of State’s powers to
deliver reasonable access to the third party. We believe that a more
comprehensive
and consistent coverage of upstream petroleum infrastructure will make
the threat of the use of the Secretary of State’s powers more
effective. The third-party access clause therefore closes the gaps that
we have identified in the existing legislative regime. I wish to state
for the record that we intend the clause to capture only the upstream
petroleum infrastructure, not downstream facilities. I hope that I have
put to rest the concerns of my hon. Friend that resulted in his tabling
the amendment.
Clause
73 modifies the Pipe-lines Act 1962, the Gas Act 1995 and the Petroleum
Act 1998 by expanding the relevant definitions of “gas
processing operation” and “pipeline”. The expanded
definition of “gas processing operation” covers
converting gas into a form that is acceptable to sellers or loading it
into a pipeline or tanker to be transported elsewhere. That means that
upstream gas processing facilities such as Mossmorran and Braefoot Bay
will now be covered by the third-party access legislation. The expanded
definition of “pipeline” covers
“all apparatus, works and services
associated with the operation
of”
a pipeline. Without
that expansion, an infrastructure owner could lawfully comply with the
Secretary of State’s directions over access to the pipeline in
question but refuse access to related services.
Amendments
Nos. 28 and 29 would restrict the proposed extension of the scope of
the Bill to cover only the existing services necessary for the
operation of such pipelines. However, that would run contrary to the
intended effect of extending its scope through clause 73 to cover the
whole upstream petroleum infrastructure chain. For example, if a
particular dispute related to the first time that a third party had
requested access to a pipeline, then the infrastructure owners would be
unlikely to have in place metering or allocation services, because
those services would not be necessary for the operation of the
pipeline. The owners’ petroleum would flow through the pipeline
very well without them, and the amount of flow would be measured when
it entered a terminal or joined another hydrocarbon stream. However, if
a third party is to be able to use the pipeline in addition to the
owner, then metering or allocation services will be needed.
Such services are not necessary
for the operation of the pipeline but are necessary to enable
third-party access. Thus they would not be caught by the
“necessary for” test proposed in the amendment but would
be caught by the “associated with” test. Furthermore,
such metering and allocation services would count as new services not
offered by the owner before, so they would also fail the
“existing” test. The amendments would prevent the
Secretary of State from including in a notice a requirement for an
owner to provide allocation or metering services, if those did not
already exist. The infrastructure owner could comply with the notice
for third-party access issued by the Secretary of State, but charge any
price for, or even refuse to offer, the associated services of
allocation or metering, thereby undermining the Secretary of
State’s intervention. That is just one example of the possible
unintended consequences of the amendments.
My hon. Friend the Member for
Glasgow, North-West asked me about a test of reasonableness. As with
any decision taken by the Secretary of State, there will be the usual
public law duty on him to act reasonably.
Although the scope of his powers to determine third-party access
disputes is extended by the Bill, the exercise of those powers will
remain subject to that duty. Furthermore, the existing legislation
already requires him to take certain factors into account in so far as
they are relevant in considering an application for third-party access.
Some of those already refer to the concept of reasonableness. For
example, he must consider the owner’s reasonable needs for the
transport and processing of petroleum. In relation to upstream
petroleum pipelines, sections 17F(8) of the Petroleum Act 1998 and
10E(8) of the Pipelines Act 1962 provide those checks and balances.
Moreover, the Bill provides that the Secretary of State may serve a
notice for third-party access only if he is satisfied that the pipeline
could be operated in accordance with that notice and without
prejudicing the efficient use of that pipeline by the
owner. I thank my hon.
Friend for allowing me to clarify these issues, but I hope that my
response to his amendment and the explanation of how we would aim to
use the powers in clause 73 give him some confidence that we are taking
an appropriate approach. I therefore ask him to consider withdrawing
the
amendment.
John
Robertson:
I thank the Minister for his excellent answer.
He excelled himself in his clarification, and the people who have
advised me will obviously take note of everything he has said. I beg to
ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn.
Question
proposed, That the clause stand part of the
Bill.
Dr.
Iddon:
This clause is about third-party access to
infrastructure. I want to raise the issue of access to gas
infrastructure by biogas producers. All over Germany, they collect
biodegradable waste from farms, from the food industry and from civic
collections. That biodegradable waste is transferred to large
digesters, which are across the country, not site-specific. They
produce biogas—largely methane—along with a solid fuel
that can be burned and a liquid fertiliser that can go back to the
farms. That process is extremely efficient. We do it on a limited scale
in the United Kingdom, but I want to point out to the Minister the
difference between the German and British systems of biogas production.
The difference is simple. In Britain, biogas production is
site-specific, in that the biogas is used largely for heat production,
or sometimes goes into a combined heat and power generation process.
That is normally incentivised by an industry that requires that heat,
or heat and power. In Germany, biogas producers are incentivised by the
fact that they have a feed-in tariff to the gas main infrastructure,
which lies across Germany. That means that in Germany the digesters can
be anywhere, provided that they have immediate access to the gas
pipeline.
2.15
pm
Charles
Hendry:
In addition to a feed-in tariff, does the hon.
Gentleman also see the benefit of a renewable heat obligation? That
sort of thing could encourage the development and use of
biogas.
Dr.
Iddon:
I omitted to say that, and I am grateful to the
hon. Gentleman for pointing that out. That is an important factor in
the debate. Has the Minister considered introducing the German feed-in
tariff to incentivise biogas generators in this country? At the very
least, would he agree to meet a delegation led by people who have
studied the German process? That would probably be led by the chairman
of the all-party warm homes group, the hon. Member for Nottingham,
South (Alan
Simpson).
Malcolm
Wicks:
My colleague, the hon. Member for Cheltenham, is
the master of the specific words in the Bill and the schedule, but I do
not think that everything that my hon. Friend the Member for Bolton,
South-East raised would be found there. Nevertheless, he used that as a
peg to raise an interesting issue. The clauses that I have been
discussing are about the UK CS, oil and gas, and
access.
However,
it might help my hon. Friend if I say that we will have a debate
later—hopefully much later, next week—on the renewable
heat obligation, under new clause 10. On access to the grid by biogas
producers, I am advised that it is not currently possible to inject
biomethane into the gas network, due to practical constraints such as
nitrogen content and pressure issues. There are some practical
difficulties, but nevertheless it is a potentially important resource.
I will, of course, be happy—once the Bill has passed through the
Committee—to meet a delegation, if he will lead
it.
Question put
and agreed
to.
Clause 73
ordered to stand part of the
Bill.
Clause
74
Modification
of
pipelines
Question
proposed,
That the clause stand part of the
Bill.
Malcolm
Wicks:
The clause focuses on pipeline modifications.
Without the ability to require modifications of upstream petroleum
pipelines at the third party user’s expense, the owner of the
existing structure might legitimately follow the Secretary of
State’s decision to grant access to his pipeline but refuse to
modify it, or charge an excessive amount to modify it. The clause
therefore allows the Secretary of State to intervene, if requested to
do so, in such disputes over modifications to onshore upstream
petroleum
pipelines.
That
intervention would be a pipeline modification notice—an exciting
document, I am sure—which must set out, among other things, the
modifications that the Secretary of State thinks should be made and the
amount to be paid, or how that amount may be determined, by the
applicant to the owner for the purpose of carrying out such
modifications. There is a requirement on the applicant to make
appropriate arrangements, in a specified time, for the sums to be
transferred to the owner if the modifications are carried out, or if
the Secretary of State is satisfied that they will be carried out.
There is also a requirement on the owner to carry out modifications if
the applicant makes appropriate arrangements for payment within the
specified period.
I should add
that similar powers and sanctions are already available to the
Secretary of State, under the Petroleum Act 1998, over controlled
petroleum pipelines offshore. The clause applies an equivalent regime,
in effect, for modifications to upstream petroleum pipelines onshore
under the Pipe-lines Act 1962.
Mr.
Binley:
I seek clarification. If I am out of order, I am
sure that you will quickly tell me, Mr. Amess. The Minister
has already said that the infrastructure in the North sea is valuable,
particularly the pipeline infrastructure. That value seems even greater
with the prospect of carbon capture and storage, and the ability to
extract more oil from existing oilfields by using carbon capture and
storage, as I explained before. However, that process is very long
term, so how much do these powers relate to that long-term
scenario?
I assume
that pipelines will go out of use for periods of time over the next 20,
30 or 40 years because wells that they serve will have closed down. The
pipelines might be capable of being opened up, hence the value of the
infrastructure. I want to know how long we expect a pipeline’s
operator to maintain and to modify it, while recognising its potential
value in the future. Also, to what extent is it right and proper that
the maintenance would be carried out at the operator’s cost when
a pipeline is not in use? When its value is, we hope, general to the
nation over a long period, what part of that cost should the nation
pay, while recognising its value as infrastructure? Perhaps that does
not come under the clause; there may be other clauses where I have not
noticed maintenance coming in specifically, as well as modification. I
am sure that the Minister will point that
out.
Malcolm
Wicks:
I should tell the hon. Gentleman, tedious though it
may be, that carbon dioxide is not covered by these provisions on
third-party access. They deal only with upstream petroleum
infrastructure, and not, therefore, with carbon dioxide. I am struck
and, indeed, pleased by his interest shown in carbon capture and
storage and its future implications. However, he is a little ahead of
the rest of us in raising rather serious issues that we cannot
reasonably answer now.
For example, it would not be
reasonable to say that every pipeline has to be maintained in the
hopeful expectation that there might be a lot of CO2 flowing
through it in 20 years’ time. I am not a scientist, an engineer
or a technologist, but merely the Energy Minister, so I do not even
know whether the existing pipeline would be fit for purpose for
CO2. Others will have an idea about that. I hope, however,
that I have reassured the hon. Gentleman, given a scenario where the UK
CS would be alive and well, as it were, for four or five decades to
come—it might be more—that the time scale for developing
CCS and the time scale of the UK CS are not totally out of synch with
one another.
Mr.
Binley:
I understand the point about gas going through
pipelines and that those pipelines might not be able to be used for
that, although modifications could be made, but my question is partly
about the extra petroleum or oil that we hope to get out through those
pipelines. That might mean a long delay between the last time that the
pipeline is used and its reuse in 20 or 25 years’ time. I assume
that a pipeline will last that
long and I assume that the facility will be good
enough to carry the extra oil that we are going to shove out if
properly maintained, if carbon capture and storage works in this
respect. Who is going to maintain it and where will the costs fall in
the longer
term?
I
understand what the Minister tells me about the time scale and that no
one knows these answers. I want to tag it, as it were, so that thought
is given to it. It is an important area. To have the infrastructure now
and not to look after it to the point at which it would be useful would
be rather sad, and it would be an expensive exercise to do it over
again. That is my
thought.
Malcolm
Wicks:
They are all good thoughts. I shall give some added
reassurance. Although, rather humbly, I am suggesting that many of
these issues need to be sorted out at a technical level in the years to
come, depending, of course, on how successful CCS turns out to be. We
all wish it great success because it is the only show in town for
tackling CO 2 emissions from fossil fuels. It is not just
another technology; it is absolutely critical, hence the demonstration
project.
I
can reassure the hon. Gentleman by saying that the possible future use
of pipelines is considered before they are decommissioned and also that
we will bear carbon storage in mind when considering any
decommissioning notices. It is already part of the Department’s
mindset to ask those questions and to start to tease out the
answers.
Question
put and agreed
to.
Clause 74
ordered
to
stand part of the
Bill.
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