The
Committee consisted of the following
Members:
Chairman:
Mr.
Gary
Streeter
Campbell,
Mr. Ronnie
(Blyth Valley)
(Lab)
Cawsey,
Mr. Ian
(Brigg and Goole)
(Lab)
Dorries,
Nadine
(Mid-Bedfordshire)
(Con)
Hands,
Mr. Greg
(Hammersmith and Fulham)
(Con)
Hendry,
Charles
(Wealden)
(Con)
Hopkins,
Kelvin
(Luton, North)
(Lab)
Hughes,
Simon
(North Southwark and Bermondsey)
(LD)
Ingram,
Mr. Adam
(East Kilbride, Strathaven and Lesmahagow)
(Lab)
Ruddock,
Joan
(Minister of State, Department of Energy and Climate
Change)
Slaughter,
Mr. Andy
(Ealing, Acton and Shepherd's Bush)
(Lab)
Smith,
Sir Robert
(West Aberdeenshire and Kincardine)
(LD)
Spellar,
Mr. John
(Comptroller of Her Majesty's
Household)
Wiggin,
Bill
(Leominster)
(Con)
Mr. C. Stanton ,
Committee Clerk
attended
the Committee
European
Committee A
Tuesday 9
June
2009
[Mr.
Gary Streeter in the
Chair]
EU
Document No. 15910/08 and Addenda 1 and 2 Relating to Minimum Stocks of
Crude Oil and/or Petroleum
Products
10.30
am
The
Chairman: First, I call a member of the European Scrutiny
Committee to make a brief explanatory statement about the decision to
refer these documents to this
Committee.
Mr.
Greg Hands (Hammersmith and Fulham) (Con): First, I
welcome you to the Chair, Mr. Streeter. It might be helpful
if I take a couple of minutes to explain the background to this
document, and why the European Scrutiny Committee recommended it for
debate in the
Committee.
In
2002, a Commission communication noted that the Communitys
undue reliance on imports made it vulnerable, and that the rules for
the maintenance of stocks of crude oil and petroleum products laid down
by both the International Energy Agency and the Community were no
longer suited to present circumstances. It was accompanied by an
earlier proposal addressing oil stocks, but that was not adopted.
Consequently, the Commission introduced document 15910/08 in November
2008, requiring member states to establish minimum emergency stocks, to
maintain a minimum level of dedicated stocks, and to set up a
non-profit-making, central stockholding entity to acquire, maintain and
sell oil stocks. Member states would also have to take measures to
release some or all of their stocks in the event of a major supply
disruption, and they would be obliged both to impose restrictions on
consumption and to have contingency plans in
place.
The
Government recognise the need for Community level co-ordination in this
area, but are concerned about various aspects of what was proposed,
including the relationship between the Commission and member states.
The European Scrutiny Committee decided on 21 January to ask for more
information, notably on the distinction between emergency and dedicated
stocks, the relationship between what is proposed and the arrangements
under the IEA, the extent to which the proposal is more acceptable than
that proposed in 2003, and the changes that make that so. That
information was subsequently provided, but as a number of concerns
remained, the European Scrutiny Committee decided on 18 March to
recommend the proposal for debate in this
Committee.
The
European Scrutiny Committee has since received a letter from the
Government indicating that political agreement may be reached in the
Energy Council on 12 June, and providing further information
on some of the outstanding issues. That does not affect the debate
recommendation, but the Committee decided in its report of 3 June to
bring that to the attention of the House in advance of today's
debate.
The
Chairman: Thank you, Mr. Hands. I now call on
the Minister to make an opening
statement.
10.33
am
The
Minister of State, Department of Energy and Climate Change (Joan
Ruddock): Thank you, Mr. Streeter. It is a
pleasure to serve under your chairmanship this morning.
As the hon.
Member for Hammersmith and Fulham explained, the European Commission
published its draft directive on revising the EU oil stocking directive
last November as part of the second strategic energy review with its
focus on energy security. EU oil stocking obligations are not new. The
original directive was implemented in 1968, and has been revised and
updated periodically since. The current directive from 2006 codified
its predecessors into a single document, which requires member states
to hold emergency oil stocks for use in the event of an oil supply
disruption. Currently, the UK must hold oil stocks equivalent to 67 and
a half days consumption, or about 11 million tonnes. The stocks
may be held as crude oil or petroleum products.
Most EU
countries also belong to the International Energy Agency, which has its
own emergency oil stocking obligation to alleviate global oil supply
disruptions. The same stocks may be used to meet both the IEA and EU
obligations, although the obligations for holding stocks are calculated
differently. The EU obligation is based on consumption and the IEA
obligation is based on net imports. There is a significant difference
between the UKs EU obligation of 11 million tonnes and our IEA
obligation of just 500,000 tonnes. Our indigenous crude oil production
means that our net imports are substantially smaller than our
consumption.
The
UK Government have welcomed the overarching aim of the
Commissions proposals to align the EU and the IEA processes and
procedures, as the two organisations should complement each other.
However, we shared with the Committee in our explanatory memorandum
concerns about some of the more detailed proposals with the text draft,
and my officials have worked to address those. The UK
Governments main concern has been the compulsion in the draft
directive for member states to create a central stocking entity. Our
existing industry-based oil-stocking obligations work well, and the UK
has always held sufficient stocks to comply with those stocking
obligations.
The
UKs IEA obligation will of course increase as our domestic oil
and gas production in the North sea decreases. We will then become more
dependent on imports. We currently estimate that the UKs IEA
obligation, dependent on those imports, will pass our EU obligation
around 2016. We use powers in the Energy Act 1976 to issue directions
to companies to hold oil stocks in proportion to the amount of oil that
they have supplied to the UK market. Our industry-based mechanisms have
been proven to work in a crisis. We made additional oil available to
the market during the collective action in response to Hurricane
Katrina in 2005. But we are not complacent and recently modified the UK
regime to ensure that we continue to meet our obligations in the long
term, and also to ensure that we hold sufficient diesel and aviation
fuel stocks.
Our key
negotiation objective has been to allow the UK, and indeed other member
states, to retain the flexibility to design and operate an emergency
stocking system best suited to domestic national conditions in line
with the subsidiarity principle rather than being imposed centrally.
Working with the Czech presidency and other member states, we met this
objective by creating more flexible arrangements, tying the mandate for
a central stocking entity to the level of restrictions placed on
industry delegating their obligations to other
parties.
Since
the UK does not restrict the right of industry to delegate its
obligations, there is no mandate for the UK to create a central
stocking entity. I am therefore pleased to be able to tell the
Committee today that our key negotiation objective and a key concern of
the Committee have been met.
The Committee
also expressed concern about the potential obligation to hold so-called
specific stocks. The original text of the draft directive stated that
the decision to hold specific stocks would be voluntary for member
states. But the review clause implied a minimum level of specific
stocks would be imposed in the future. We therefore worked again with
other member states to remove the reference to specific stocks in the
review clause from the text, so that there is now no obligation to hold
specific stocks now or in the future.
I am aware
that the previous Minister of State wrote to the Committee on a number
of issues on which I will not elaborate at this point. In a later
letter, he highlighted a potential concern on extending the
Commissions external competence with regard to international
matters. This stemmed from the Commission wanting to require member
states to release stocks during an IEA-coordinated action. We were
concerned at the potential for the Commission effectively to enforce
the IEA action and therefore extend its wider legal competence. Other
member states shared that concern and the text has subsequently been
changed from require to recommend, thus
allaying our fears. Consequently, we are now able to accept the
text.
Against
a difficult background, we have worked with the Czech presidency to get
the oil stocking directive in a position to reach political agreement
at the Energy Council taking place this Friday. In the
Governments view, the revised text addresses all the
UKs concerns and maintains our flexibility to design and
operate a system best suited to our national
needs.
The
Chairman: We now have until half-past 11 to question the
Minister. I remind members that questions should be brief. I am happy
to take two or three questions grouped together if that would
facilitate the proceedings of the Committee, although I will intervene
if they are going on too long. We now move to question
time.
Charles
Hendry (Wealden) (Con): Thank you, Mr.
Streeter, and I welcome you to the chair. I also congratulate the
Minister on her promotion in yesterdays reshuffle.
Will the
Minister clarify how the matter under discussion ties in with the
Lisbon treaty? The Lisbon treaty includes provisions, which, in times
of crisis, would allow transfer of energy stocks, particularly gas,
between countries
that have abundant supplies and countries that are short of them. Does
that affect oil as well, or is this an entirely separate measure that
will need to be addressed in a different
way?
Joan
Ruddock: I will ask for some assistance if I may have the
indulgence of the Committee. I took on this brief last night so I have
not been fully briefed, and I think my officials may not have a great
deal to say other than that this is a separate measure. That is all the
light we can throw on it. If there is anything more on this point or
any other, Mr. Streeter, I will write to members of the
Committee. I apologise for any lack of information on my
part.
Sir
Robert Smith (West Aberdeenshire and Kincardine) (LD):
Thank you, Mr. Streeter, and I think this is the first time
I have served under your chairmanship. I would also like to
congratulate the Minister and ask her to clarify who has taken on which
responsibilities in the Department. Is this brief a permanent
responsibility for her, or is she standing in while they find a new
Minister?
Mr.
Adam Ingram (East Kilbride, Strathaven and Lesmahagow)
(Lab): She is not the Prime
Minister.
Sir
Robert Smith: No, but apparently it is up to the
Department, not the Prime Minister, to allocate responsibilities within
it. I should also declare some interests: my shareholding in Shell and
my involvement in the offshore oil and gas industry through the
all-party group.
The
European Scrutiny Committee highlighted the point that an assessment of
the impact of this directive on the UK was missing. I do not know
whether the Government have managed to do it
yet.
Joan
Ruddock: I certainly have been briefed on the impact
assessment, but first I thank the hon. Gentleman and the hon. Member
for Wealden for their congratulations. With regard to responsibilities
within the Department, I am here today because the previous Minister of
State who covered this portfolio has taken up another position in the
Government. As a consequence, I was the only person able to cover
todays debate. It has not yet been decided how we will allocate
responsibilities, but I expect that I will continue to cover climate
change, which was already part of my
portfolio.
On
the impact assessment, our view initially was that too many areas in
the draft text needed clarification before any meaningful impact
assessment could be produced. My hon. Friend the previous Minister of
State explained that in his 5 March letter. The revised text will now
require negligible changes in the UKs current oil-stocking
system, as I shall endeavour to explain. As a consequence, we do not
now believe that an impact assessment is
required.
Mr.
Hands: The Minister referred to her predecessors
letter of 5 March, which outlined the potential impact on
Britains public finances. I was not sure from her explanation
of how she thinks the entity has changed what impact that might have on
the public finances. The figure quoted in the 5 March letter is
€2 billion or £1.6 billion at October 2008
prices. Could she give us a quick update on what that figure might now
be?
Joan
Ruddock: No, I cannot give the hon. Gentleman a quick
update for the reason that we are now not obliged to have a central
stocking entity. We still have options and are prepared to consider, as
the industry constantly challenges us to do, whether we should move to
a central stocking entity rather than continue the current
arrangements. If we wished to move to such an entity, there would have
to be a proper discussion about the cost; more importantly, there would
need to be a discussion about how the cost would be met. There is no
necessity to assume in any such circumstances that the cost would be
met by the public purse. The issue would be dealt with if we chose to
move away from the current arrangements, which, as I have said, we
regard as perfectly adequate. However, we are alive to the fact that
things could change over time, especially when we have greater imports,
and I also readily acknowledge that the industry wants us to keep such
matters under
consideration.