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29 Oct 2009 : Column 173WH—continued
4.38 pm
Mr. Kidney: With the leave of the House, I should like briefly to respond to the points made by hon. Members, several of whom mentioned the dispute between Russia and Ukraine. Although we rely on Russia for 2 per cent. of our gas annually and were relying on it for none at the time of the dispute, we were hugely affected by the diversion of our gas to other European countries who had been caught up in the dispute themselves. That tells me that there is a need to press on with the liberalisation of markets in the European Union. Certainly, we should have the kind of co-operation that the hon. Member for North Southwark and Bermondsey (Simon Hughes) talked about, if not the full-blown EU energy policy that he called for today.
Charles Hendry: I am sorry to intervene so early in the Minister's speech having just had the opportunity to speak, but at the time of that dispute, we were pumping out 25 million cubic metres of gas a day through one of the interconnectors. Through the interconnector next door, we were pumping in 26 million cubic metres of gas a day. The market was working perfectly-the molecules were following the money-but we were down to two or three days of gas storage. Our national security was therefore jeopardised because of how the system worked. Other countries say that, once gas storage is below a certain level, there should be restrictions on exports. Is the Minister exploring that issue and does he think it could be a way of ensuring our energy security?
Mr. Kidney: I disagree with one part of the hon. Gentleman's analysis: the market was not working perfectly, because artificial arrangements in some European Union countries attracted gas that was destined for this country at a fair price before it was diverted. That brings me to the point that he made in his speech about gas storage. Historically, and even today, storage has not been a major issue for this country, because the giant supply of gas on our doorstep has meant that we could simply turn the tap if we needed more. As the gas supply from our home sources declines, we will need to give more attention to storage and alternative resources. The Aldbrough storage facility in east Yorkshire has recently opened, and there are 19 other projects currently in play. This month, I attended an official dinner with the Qatari Energy Minister to celebrate the start of the flow of liquefied natural gas into this country through south Wales. On that night, he talked about how his country could supply us with liquefied natural gas for the next 100 years. We are taking serious steps to address this issue, but the liberalisation of the market in the European Union is still a key policy aim for this country.
Sir Robert Smith: On our indigenous gas supply, it is important for the Minister to recognise that, as the North sea changes, a lot of the gas that we get now comes not from pure gas fields but from gas associated with oil. We no longer have the ability simply to turn the tap off and on, even from much of our own supply, because it comes at the speed at which oil production will allow it to come.
Mr. Kidney: I am grateful to the hon. Gentleman, and I accept that point.
Most Members have mentioned carbon capture and storage. I remind hon. Members that, in the Energy Act 2008, we set out the legal framework for carbon capture and storage in this country, including on long-term liability, which was a very important issue for those who were considering developing policies and investing in future projects. We then established our policy on no consents for old coal in this country. In future, there must be carbon capture demonstration from the outset and an ability to retrofit 100 per cent. once the technology is proven. It is worth reminding ourselves that there is as yet no end-to-end commercial carbon capture and storage project in operation in the world. We also secured agreement in the European Union for access to 300 million emissions trading scheme credits from 2013 to support the development of the demonstration project across the EU. We have completed our consultation on the framework for clean coal.
Mr. Kidney: I have not yet finished my list, but I shall give way.
Paddy Tipping: What the Minister says is exactly right, but he must take the industry and the sector with him, whether that is BP, UK Coal or E.ON. Let me say to him very gently that there is real despair in the industry about the lack of progress. Unless the industry is confident that the Government are fully committed and will stick to the timetables that they have laid down, he will find that willing players will walk away to areas where their investment can pay higher dividends.
Mr. Kidney: I am in the middle of a list of the things that we are doing to ensure that we remain at the forefront of developments in carbon capture and storage. I stand by those things and continue the list, which includes the current consultation on the licensing structure for the future storage of carbon dioxide.
My hon. Friend asked about competition and where the finishing line is, but the next stage in the competition is the spending of the £90 million that my right hon. Friend the Secretary of State for Energy and Climate Change has announced for some of the bidders to design their projects. That is the so-called FEED-front-end engineering and design-stage of the development. Let us remember that they will be big-money projects. We have established the policy on how we intend to pay for them, and we hope to legislate soon-the Queen's Speech permitting-to make that scheme come about. This country is still at the forefront of such developments. Indeed, this year's Ernst and Young index has ranked the UK second, after the US, in its list of most attractive countries for near-term investment in coal capture and storage. In this instance, near term means that the index takes a view until 2015 on the attractiveness of investing in CCS demonstration projects.
Let me add a footnote to the debate on CCS. As a new Minister, in the summer, I walked around the Department to meet all the officials and to get to know who does what. In doing so, I came across the European Union team for our collaboration with China on its first CCS project, NZEC-the UK-China near-zero emissions coal project. So, I am proud to say that we have here in the UK, in my Department, the team that is developing
the first commercial scheme in China, and I have to say that China is no further forward with its scheme than we are here.
Many Members commented on taxation and finance, but at least they helpfully acknowledged that I am not a Treasury Minister and therefore will not be let off my lead to talk about those matters. At this stage, I simply want to thank the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) for his comment about the positive engagement that the field allowance has brought with the sector. Like others, he wants it to move further forward quickly, but the engagement is there, and I certainly want to encourage that on both the Government side and within the sector. He made a good point about why we want to tax that important resource-so that we get our fair share of the value of a UK national resource. That was a good point for him to make and for me to reinforce.
Simon Hughes: Before the Minister leaves that subject, let me ask him about his Department's response to the Select Committee report. The response points out that the new survey of companies' investment intentions, which is what this is all about, is due this autumn. Will he tell us whether he has received it yet, or if he knows when it is coming? Will he ensure that it is shared robustly with Treasury Ministers as soon as it appears?
Mr. Kidney: It is coming, but it has not arrived. I take the hon. Gentleman's point about sharing it robustly.
Let me say a little about the availability of finance for projects to go ahead. As I mentioned in my speech, there are still good projects and they are still attracting finance. For example, there was a recent announcement about a smaller company-Hurricane Exploration-and a new development by that company. If my comments on Government support have not been explicit enough, let me mention the enterprise finance guarantee scheme for smaller companies and the working capital scheme for larger companies. Those are the kinds of Government funds that are available for companies seeking investment.
We cannot get away from the issue at the heart of this matter-the price that can be got for oil and gas. Again, the hon. Member for West Aberdeenshire and Kincardine recognised that point in relation to the price of gas. The price of oil went to a high of $146 a barrel last year and then slumped to between $30 and $40 earlier this year. It currently stands at between $70 and $80. Given that the costs of delivering to the market oil from the North sea are between $40 and $50, which bank will look sympathetically at a project when the price of oil is below that amount? An important factor in making finance attractive for investment purposes is the idea that there will be a reasonable price for a product that has been won despite harsh and difficult circumstances. We have to bear that in mind as a practical issue.
I want to say something about the west of Shetland. First, my hon. Friend the Member for Sherwood asked about environmental studies and surveys, and I have said that there have been comprehensive surveys in the past. I am confident that we are in a reasonable position in that regard, but it is still the case that detailed and area-specific assessments would have to be made for any new development. That is usual practice.
Another point about the west of Shetland is that it brings into focus the issue of access to infrastructure. We are working with Total and its partners regarding
the Laggan and Tormore fields, which we believe will bring much needed gas infrastructure to the basin. We are working with the industry to improve its code of practice, and we are also working on our own guidelines. I have already made that point to the hon. Member for Angus (Mr. Weir), but I want to stress that there is a mechanism for any small or large company to seek a determination of access conditions, price and terms from the Secretary of State. It is important that that is used in any case where a company does not feel that it is getting fair and reasonable terms.
I was asked about discussions with neighbouring countries over their territories. I am aware of no ministerial discussions with the government of the Faroes but am assured that discussions on co-operation are ongoing at official level. If fields were found in the Faroes, we would certainly seek ways to co-operate to the benefit of both sides, but at present we have heard of no discoveries there.
While we are on the subject of hearing nothing, the hon. Member for West Aberdeenshire and Kincardine asked me about replies from the statutory environmental bodies, and I have been told, "None so far," so that is obviously a point for me to take away and investigate.
Several Members followed my lead, if I may say so, by praising the skills and innovation of the sector. What the industry is able to do is of global significance, and I agree that we all need to get behind it to maximise the jobs, investment and energy security we get from the
sector. The hon. Member for West Aberdeenshire and Kincardine asked me to speak up for the industry. We work well with the industry, as I hope the next meeting of PILOT in November will show. We speak up for the industry, and I do not think that those are warm words or the result of complacency.
At the beginning of the debate, I paid tribute to the industry and to the courage of those who risk their lives for it, and we were reminded of the dangers of the work by the reference that the hon. Member for Angus made to the tragic helicopter crash earlier this year and the many lives that were lost as a result. I spoke not from words drafted for me by a civil servant, but from my heart, expressing my appreciation of the industry, which we should be proud of, and the work that it does on behalf of this country. Hon. Members will judge me not by my words today, but by my performance and that of the Department and the Government. I welcome that scrutiny and reiterate that I am determined that we will perform to get the best out of the industry for our national interest.
Sir Nicholas Winterton (in the Chair): I congratulate all Members who have participated in this important debate on their positive and informed contributions and the Minister on his durability in opening and finishing.
4.52 pm
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