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Session 2008 - 09
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European Standing Committee Debates

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 Community’s 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 UK’s 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 Commission’s 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 Government’s 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 UK’s 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 UK’s 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 Commission’s 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 Government’s view, the revised text addresses all the UK’s 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 yesterday’s 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 today’s 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 UK’s 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 predecessor’s letter of 5 March, which outlined the potential impact on Britain’s 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.
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