Energy Bill

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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.
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 CO2 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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