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Mr. Kidney: This is the decade in which production of natural gas from the North sea peaked, so now we are on a gentle decline. This is the decade in which we need to plan for the future, when we will not be able to rely on indigenous supplies to meet our needs in this country. So, in this decade, we must maximise the recovery from the North sea, as the right hon. Gentleman said in an earlier question. There were measures in the Budgets of 2008 and 2009 that I hope will help with that.
This is the decade in which we have changed the planning system both offshore and onshore to facilitate speedier decisions about planning for vital infrastructure, such as the storage of gas, and this is the decade in which we have encouraged new investment in gas storage for the United Kingdom. I would be more bullish than the right hon. Gentleman about the pace of investment and development of that storage. At present, we have sufficient storage for 4.34 billion cubic metres of gas in this country, which equates to about 16 days’ storage. We have storage under development at Aldbrough, Holford, Caythorpe and Stublach. The first of the Aldbrough caverns is now in commercial operation.
We have storage proposals with planning permission at Aldbrough II, Portland, White Hill Farm, Gateway Storage, Holehouse Farm and Bains. We have storage awaiting planning permission at Saltfleetby, King Street, and Fleetwood. We have a number of other proposals for which planning permission applications have not yet been made, including Albury, Albury II, Hewett, Hatfield West, Gateway II and Centrica’s Baird, which, when completed, will be the second largest gas storage unit for the United Kingdom.
Therefore, as we lose reliance on supplies from the North sea, we plan to make up for that from other sources. I should put that in the context of a UK low-carbon transition plan in which we hope to diversify away from fossil fuels, rely less on gas and ensure that gas makes up a lower proportion of our energy consumption in this country.
The right hon. Gentleman specifically asked me about LNG. We have recently been developing import facilities for LNG at the Isle of Grain in south Milford. Those facilities are now commercially operative. When I was at a dinner with the Qatari Minister of Energy celebrating the commercialisation of South Hook, he said that his country could supply this country with enough LNG to meet our annual need for 100 years. So we are going in the right direction on LNG, too.
Malcolm Bruce: I am grateful for that. I do not want to detain the Committee, but can I follow that one up? Eastern Europe depends on Russian supplies, there is under-investment in Russia, which may be a problem, and Russian supplies have been unreliable. Does the Minister not accept that if we are too dependent on short-term contracts or short-term delivery, rather than having sufficient reserves of storage capacity, we could become vulnerable to a crisis or disruption in eastern Europe in which supplies that were to come to the UK could be diverted there? My point is that we need to ensure that we have enough storage capacity in the country to weather a crisis and we should not rely on the high seas, from where gas could be redirected.
Mr. Kidney: Yes, of course, but the list that I gave to the right hon. Gentleman, which should be in place by the middle of the next decade, is a fivefold increase on what we are talking about today. It is important to say that our policy also includes sourcing our supplies of natural gas and LNG from a diverse range of sources, and by a diverse range of routes. It would be unusual if all of them were unavailable at the same time.
I have given Qatar as an example of a source of LNG, but there are also the Caribbean, Libya and Egypt. As for gas, there are the Caspian states as well as Russia, and there is our interest in the southern corridor so that we have a diverse source of routes in the future, in addition to going through Russia and Ukraine. We are pressing ahead on every front to ensure supply in the future, as the right hon. Gentleman urges me to do.
Charles Hendry: The Minister reads out an impressive-sounding list of potential gas storage sites. Will he confirm the comment in another place of Lord Hunt, Minister at the Department of Energy and Climate Change, that if all the storage planned to be built by 2012 is built, it will increase our gas storage by just five hours? We are not talking about days, but just a few extra hours. Was Lord Hunt correct?
Mr. Kidney: I have heard the hon. Gentleman say that before and do not know where he gets it from. He will have to give me the source of the comment. I have just given him a list. Today, our storage is 4.35 billion cubic metres. The sites under development offer another 1 billion cubic metres, the sites with planning permission offer 4 billion, those awaiting planning permission offer 2 billion and the ones for which planning permission applications have not yet been made offer a further 8 billion. All that does not represent a few minutes, but a fivefold increase in the number of days.
The Chairman: If no more colleagues wish to ask questions, we will proceed to debate the motion.
Motion made, and Question proposed,
That the Committee takes note of European Union Document No. 11892/09, draft Regulation concerning measures to safeguard security of gas supply; notes the Government’s position on this proposal and agrees the broad aim of the Regulation that seeks enhanced EU resilience to supply shocks through robust preventative and emergency planning and strong emphasis on the role of a well-functioning internal gas market as the best insurance for security of gas supply; and further notes the need to ensure that the powers of the Commission in this Regulation satisfy the principles of subsidiarity and proportionality and supports the Government’s aim of securing this. [29th Report of Session 2008-09, HC 19-xxvii, Chapter 1.]—(Mr. Kidney.)
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Charles Hendry: There is much in the regulation that we find sensible and constructive. Our concern is that it has taken the European Union to come forward with these issues when we have a significant domestic crisis in this area. We have seen serious gas shortages twice in the last four years. In early 2006, we were within a few days of running out of gas, just after the then Energy Minister, the right hon. Member for Croydon, North (Malcolm Wicks), had said that the country was awash with gas. Early this year, we were down to just four days of gas. Those margins are far too close for comfort.
There is clearly a need for greater attention in this area. It is important to address these challenges on an international level as they often come from international sources. There is also much more that should be done at a domestic level. There has been a great sense of shock that a gas-rich country such as the United Kingdom found itself vulnerable to interruptions of supply. We have been threatened not only by interruptions, but by price spikes. Commercial users of gas saw large price increases when the gas shortages became apparent.
An accurate assessment of how much gas will be needed will be key in how this debate moves forward. We need to make such an assessment nationally, as every EU country must for its resources. The Government have significantly underestimated the likely involvement of gas in the electricity generation mix. That will impinge on our gas security in the coming years. Currently, gas accounts for about 40 per cent. of electricity generation in this country—a significant proportion. The Government’s low-carbon transition plan suggests that by 2020, that will drop to 29 per cent. Not a single organisation in the country that is involved in the gas sector or energy more generally attaches any credence to that figure. Most people believe that the use of gas in the electricity mix will go up over the next decade, perhaps to as high as 60 per cent. We are now net importers of gas, so that makes a fundamental difference to the role of imported gas in the mix. If the Government are right, imported gas will make up 40 to 45 per cent. of the total amount used by 2020. If the others are right, it will be as much as 80 per cent.
In turn, that means that there is a massive storage issue to be addressed. We must look at what has happened elsewhere in Europe. France has 128 days of gas storage, Germany has 100 days and we have 15 or 16 days. We are critically short of gas storage. One of the biggest facilities on the list that the Minister read out has been turned down personally by the Secretary of State, yet it still appears on the list of potential sites for development.
I recognise that additional sources of supply have been coming on stream. The pipelines have been important. The Langeled pipeline has been of huge importance to our gas storage and security, but much of the gas that is coming in from Norway is not coming to the UK: it is transiting through the UK and is here for a short period before being pumped out to the ultimate buyer elsewhere in the European continent.
We have heard from the Minister about the important, impressive development of LNG facilities in this country, but just because they are built does not mean that they will be used. Indeed, for some months after their construction and completion we saw very little gas coming into them, partly because of the massive demand for LNG in the United States and Japan and because of the way that we buy gas in this country, which the right hon. Member for Gordon touched on. Whereas other countries have long-term contracts and their Governments are actively engaged in securing those at the highest level—it would not be unusual to see Chancellor Merkel or President Sarkozy signing an agreement with Qatar or other countries to secure a long-term contract—we are much more dependent on short-term contracts and therefore more vulnerable in terms of the supply that might be coming through.
We are also concerned about the inability, under the regulation, to restrict exports. The regulation says that there would have to be a crisis affecting 10 per cent. of the gas supply across the European Union before countries would be able to stop exporting their gas supplies. In January, it was clear that gas was being shipped out of the UK to enable the Germans, in particular, to maintain their gas storage at 100 per cent. or 95 per cent. capacity, even though at the same time they were shipping enormous amounts of gas to help Romania and Bulgaria, which were critically affected by the Russia-Ukraine dispute. The Germans were able to buy gas through the UK because we imposed no restrictions on exports at a time when we faced shortages ourselves.
We encourage the Minister to say that there should also be national trigger points, because until we have a much broader network of gas pipelines across Europe there will always be points where individual nations could be critically affected by gas shortages, even if those do not affect the EU as a whole. I hope that, as he continues to discuss and negotiate this regulation, the Minister will take serious account of the national interest in this regard as well.
My greatest concern about this regulation is that it is titled “Measures to safeguard security of gas supply” and talks mostly about the market as it operates at the moment, but it does not look at the structural changes, reforms and infrastructure that are needed to provide a long-term solution. We are not going to address this issue properly until the dispute between Russia and Ukraine has been resolved. There has to be a normalisation of gas supplies to Ukraine. In other words, there has to be a point where it pays the full economic international price for its gas from Russia, rather than having it at a heavily subsidised rate, because this time there was a blurring of the distinction between the gas that was exported from Russia to Ukraine for its own domestic use and gas being transmitted through Ukraine to the European market. When the supply was cut off finally, the western European market suffered most heavily as a result. We need to work to help resolve those issues.
It is encouraging to note the extent to which the EU and the European Commission has been directly involved with the Russian Energy Minister, Mr. Shmatko, in trying to resolve these issues. We have to ensure that, over time, that matter is addressed. That also means discussing the role of additional pipelines. We are not going to resolve this issue until there are more pipelines to Europe that do not go through Ukraine. Nord Stream will have a role to play, as will South Stream, and Nabucco, which is bringing gas from other parts of Asia to Europe, will also have an important role to play.
It is a challenging time. Development of some of the biggest gas fields in the world is currently being delayed. Shtokman, one of the largest potential gas fields in Russia, has just been delayed by two years from 2013 to 2015, and Bovanenkovo has been delayed by a year. The critical issue of gas being available for export to Europe is one of the most challenging international energy issues that we face at this time.
We also take serious note of what the International Energy Agency has said, which is that it appears that the volume of gas that we had anticipated coming from Turkmenistan by 2020 will be perhaps 10 or 15 per cent. of what had been expected. There are massive structural issues that need to be addressed, and the EU has a direct role in trying to address them. The additional pipelines need to be constructed, but the EU also has a crucial role in trying to reassure some of those Baltic states that are nervous about being bypassed that their gas security concerns will be addressed.
The documentation contains some useful proposals which will certainly address in a more structured way some of the challenges that we face in terms of gas security in Europe, but we are incredibly disappointed that the Government have not done more to realise that there is a fundamental difference that has to be addressed. They are massively underestimating the reliance of Britain on gas by 2020 and therefore completely underestimate the extent to which we will be importing gas by 2020. Without a realistic assessment of what those figures are likely to be, we cannot put the right policies in place to address the issue.
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Malcolm Bruce: According to Oil and Gas UK, I represent the constituency in the United Kingdom that has by far and away the largest number of oil and gas-related jobs of any constituency. In fact, the number of jobs that are based on such activities in my constituency is nearly as large as the entire population of the constituency. I hope that the hon. Member for Wealden enjoyed his visit last week to Aberdeen and the BP headquarters in my constituency. Genuinely, it is welcome that he is taking the time and the trouble to familiarise himself with the latest situation. I know that he has been there before.
I do not want to stray beyond the essential issues of gas supply and security. I want to spell out two or three things that seem to be relevant to the new arrangement that is being proposed for Europe. The Minister made it clear that this is subject to qualified majority voting. The reality is that at the end of the day it will happen. Indeed, it is right that it should because we have had a crisis and there could be more, and we need a mechanism for a collective response.
Nevertheless, it is reasonable to talk about the impact on our constituents of the proposals. The hon. Member for Morley and Rothwell intervened with a question about that. Clearly, the people of the United Kingdom would not be comfortable if there were a crisis in Europe and gas were being diverted from the UK to the extent that it affected our security. I am trying to impress on the Government the need to be able to plan for that, in the sense that if we need to be able to help our colleagues when they have a problem, storage is part and parcel of the flexibility that we need to build in. That was the point of my earlier questions.
I slightly echo the hon. Member for Wealden. The list of possible storage developments is obviously substantial, but there is some genuine concern about them. It would be helpful if the Minister, if he responds briefly to the debate, would give us an update on the situation. Earlier in the year, Star Energy said that the Esmond Gordon project was proving difficult to finance in the present circumstances, and that project would have provided 4 billion cubic metres of storage capacity, which is as much as our entire existing capacity. Clearly, if it does not go ahead or is unduly delayed, it would be a significant cause for concern.
I believe the Minister will forgive me if I say that possible applications for future planning permission do not significantly enter the picture. We have to look at what is there, what is planned and what is seriously up for development, and, in the end, the Government have to make a judgment as to where development will settle, and whether they need to intervene if it does not settle in the right area. I do not expect the Minister to be able to answer all those questions today, but I hope he will at least acknowledge that the Government ultimately have to have a position about them if we are talking about national security, which is what the context is.
We have determined that Russia is not a trustworthy source of supply in its present condition. Oil and Gas UK and others will say that Russia needs the income as much as we need the gas. That is true, but Russia has problems. First, it has alienated foreign investors very seriously and there has been major underinvestment within its gas industry, as a result of which Russia may not be physically capable of sustaining the levels of supply that Europe is looking for. Indeed, the dilemma for us and, it seems to me, for the Kremlin too is, if Russia does not have the capacity to invest and the west is unwilling to invest, how will that investment gap be bridged? An inside-Russia watcher said a couple of weeks ago at a meeting in the House that the Kremlin’s view is, “When the need is there, the money will arise”. Well, maybe the money will arise, maybe it will not arise and maybe it will not arise in time. It is not very encouraging that that is the official line from the Kremlin about how this matter will be resolved.
The point I am making is that we in the United Kingdom may not be very dependent directly on Russia but Europe is, and if Europe does not secure the supplies from Russia, the knock-on effects for the UK, particularly with the new regime in place, will be significant. That brings me back to why we need to get the storage capacity up to a level that would enable us to have the flexibility to provide a greater degree of security.
Is the Minister in a position to tell us a little more about what competent authority will operate and how? What is the thinking in that regard? Finally, we are concerned that the single market that is supposed to exist in gas has actually not functioned very well and it has certainly not functioned in the UK’s interest. We have been deprived of gas supplies or been charged more for gas when it has been diverted elsewhere and we have received rather inadequate excuses as to why that happened—excuses about long-term contracts or the link between oil and gas supplies—rather than a reason based on the real cost of producing the gas.
Therefore, the Minister would have my support in his argument about subsidiarity if he put the basic argument on the table. That basic argument is that we, the United Kingdom, will play our part in ensuring that we are fulfilling our responsibilities in providing security of supply for gas to the EU, provided that the European Commission plays its part in ensuring that the market works genuinely, fluidly and fairly to ensure that we have not only security of supply but fairness in the pricing of that supply for UK consumers, which has certainly not been the case in the past few years. If he gets that balance right—it seems to me that that argument is a legitimate one within the context of QMV—I would suggest that he will have obtained a good deal, whereby we accept our responsibility to provide security and the secure storage facilities that are necessary in return for the Commission ensuring that there is a genuinely functioning market in gas that meets the needs of British producers and consumers in this very important sector.
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