Charles
Hendry: My hon. Friend makes an important additional point
which is the nature of some of the contracts. What we have seen in many
other countries is long-term contracts, significantly backed by
Government. If there is a major event of a contract between the German
Government and the Qatari Government, Chancellor Merkel is there in
Qatar to sign it. Here those tend to be signed off by the British high
commissioner or the ambassador without necessarily having the same
degree of top-level Government support for long-term contracts. That is
an important element that has to be addressed there
too. Mr.
Brian Binley (Northampton, South) (Con): I note the point
about climate. Does my hon. Friend agree with me about the suggestion
that for the next 30 years Britain will be cooler, not warmer?
My real point is about the ability to buy gas on longer-term
contractual arrangements. Is not that where the importance of storage
comes in as well in terms of purchasing price on the open
market?
Charles
Hendry: I absolutely agree with my hon. Friend on his
latter point, but after the Met Office promised a barbecue summer and a
mild winter I will not get involved in a discussion about where the
climate is going. If the Met Office can get the forecast quite so
wrong, my ability to project it for 20 years is perhaps without any
basis in fact. I agree with my hon. Friend about long-term contracts.
One of the advantages of gas storage which they have in Germany is that
they are able to replenish their gas supplies in the summer when prices
are cheaper and can maintain supply in the winter. When we are running
short of gas in the winter, we end up importing it and paying the spot
price which is massively higher. It has been calculated that it costs
consumers about £1 billion more than it needs to because of the
inability to buy sufficient quantities at the lower summer price to
sell during the
winter. 10.45
am
Joan
Ruddock: Has the hon. Gentleman factored in the cost of
building gas storage? It is phenomenally expensive, and it is therefore
no good just comparing the price of the gas that one might buy in the
summer with the situation today. For the record, we have the best of
relations with the Qatari Government, and if our Prime Minister has not
been there to sign a contract that does not mean that we do not feel
secure in the contracts we have with them. Finally, the hon. Gentleman
has posed frightening scenarios of how we might run out of everything
because everything is closing down, but what calculation has he made of
the contribution of
renewables?
Charles
Hendry: I totally understand the importance of a good
relationship with the Qatari Government, and I understand what is
happening
there. On
pricing, of course there is a price and I will come to that, but the
crucial issue is that there is a price for gas security but an even
greater price for insecurity. In the past few years, we have come close
to running out of gas and having to say on a more substantial scale
that people will have to switch off their businesses. At that point it
is not a question of back-up, but of simply saying that there is no gas
left. That did not happen this winter, but it nearly happened last
winter and three or four years ago. In those circumstances, had we gone
that bit further, we would have been in a situation in which companies
around the world looking to invest in Britain would have said,
“Look, this country pretends to be a first-world nation but
can’t even maintain the gas supplies to its businesses.”
Insecurity has a massive national economic cost, and that is why
additional investment is required, along with greater focus and
drive. I
am sure that the Minister, when she responds, will highlight some of
the plans in the National Grid’s statements to bring some of
that forward. Of the most imminent plans, two were supposed to be
confirmed for definite towards the end of last year but have not been
so far. A whole range of the plans have not even put in for planning
consent at this stage, and one of them has been turned down by the
Secretary of State but is still on the list as a potential plant. There
is, therefore, enormous doubt and questionability in the
system. On
the Minister’s final point about renewables, of course we would
factor in renewables, but what we have learned from the past week or so
is that there will be a greater need for back-up for renewables. During
the particularly cold spell a couple of weeks ago, the contribution of
renewables to our electricity generation was low, at one fifth of 1 per
cent., because the United Kingdom was in an area of sustained high
pressure and the wind was blowing almost nowhere. Therefore, as we
increase the extent of renewables in the mix—we share the
Minister’s commitment to that—there has to be either
battery power, pumped storage and hydrogen facilities to move the
wind-generated power from where it is generated to where it is needed,
or enormous back-up capability, which will still almost certainly be
hydrocarbons and gas. The growth of renewables may create a greater
requirement for gas—for a plant to be used not 24 hours a day
but at times when demand is greatest, such as on those cold January
days when the wind is not blowing and we have to keep the lights
on. Mr.
Mike Weir (Angus) (SNP): Has the hon. Gentleman factored
into his argument the difference between how the market works on the
European mainland and in the UK? When the Business and Enterprise
Committee, on which my friend the hon. Member for Northampton, South
also served, looked at that issue, we were concerned that because the
European market was not as liberalised as the UK one it was not
reacting to market signals, in that when gas was expensive in the UK,
gas was not
coming in from elsewhere in Europe. How will the hon. Gentleman’s
amendment deal with that problem, given that he has mentioned the
greater storage in continental
Europe?
Charles
Hendry: The hon. Gentleman brings us to an extremely
important and relevant point. In January last year, when we were
approaching our coldest winter for 18 years—as it was
then—and were about to face a dispute between Russia and Ukraine
and massive pressures on gas supplies elsewhere in Europe, particularly
in central Europe, we were exporting 25 million cubic metres of gas a
day though one of the interconnectors and importing 26 million cubic
metres through the adjacent one. It may be hard to imagine that amount;
it is the equivalent of 250 Albert halls’ worth of gas being
pumped out of the United Kingdom every day, at a time when we were
facing particular pressure. Because of the pricing structure in the
market, gas was being pumped into the United Kingdom from Norway or
through LNG facilities and then being pumped straight out again. The
gas was not coming to serve UK consumers, but was simply being
transited through.
One issue we
have to address is when to trigger a stop on exports, as happens in
France and other countries. When gas supplies fall below a certain
point, they ask whether a stop should be triggered. Last year, we were
down to three days’ gas supply in storage, yet that measure was
still not triggered in the United Kingdom. That issue is not addressed
in the amendment, but the hon. Gentleman is absolutely right that it
should be focused on. The market was working perfectly, the molecules
were following the money, but our gas security was put at risk. We do
not believe that Governments can be neutral in such
situations.
The purpose
of the amendment and the new clause is for Government to take a more
active role in how to secure more gas storage in Britain. They cannot
be neutral about it. Some welcome and important changes were made in
the last Energy Act, in 2008. We think that Government have to go a
stage beyond that and say to people, “If you are a gas user, in
terms of generation capacity, or a supplier of gas to domestic
consumers, you need to be able to satisfy Ministers that you have
access to sufficient storage during the winter. That could be that you
run your own storage facility, own it, put the gas in it and know it is
there for you. It could be that you contract somebody else to do that
work on your behalf but, again, you have a contractual arrangement. Or
it could be that there is a long-term contractual arrangement with a
supplier who is robust and where there is no doubt about the security
of those issues.” We think that sort of change is necessary to
ensure we have the security of supply and the storage that we need to
build.
There have
been some changes but Lord Hunt, the Minister who speaks in the Lords,
has said that, if all that is planned to be built in the next couple of
years comes through, it will lead to just five hours’ more gas
storage in the country. As we increasingly depend on imports, which
have to come from a wider range of countries around the world, our view
is that that is not adequate; more is required. We would like to use
the Bill as an opportunity to give the Government the powers to make
that happen.
Mr.
Ellwood: It is a pleasure to work under your tutelage
again, Mr. Bayley. I wish to echo some of the
points that have been made. One of the differences between the system in
the UK and that in France and Germany is the absence of legislation.
There is no legislation to ensure that we have the right levels of
capacity. As my hon. Friend pointed out, our storage was the North sea.
Since 2004, we have been a net importer of gas. An interesting fact
concerning the last cold spell is that coal overtook gas as the major
contributor of natural resources towards our power requirement.
Although we are working to clean up coal—and this part of the
Bill will get us there—we are a long way from ensuring that coal
can take its correct place as part of the required energy mix. Until
then, we rely on gas. I do not think the Minister should shy away from
the importance of gas storage.
The issues
about the cost of storage are relevant and how that is paid for is also
important. That is where a timetable would make sense: for us to plan
ahead to make sure that we have increasing storage capability,
eventually to match that of our French and German counterparts. We are
seeing changes in the gas scene and, with the development of the
Nabucco and Langeled pipelines, important new assets are coming on to
the market. The problem is that we are not able to buy gas when it is
cheap and then use it, rather than buy it when it is expensive. That is
the importance of energy security; to ensure that we are not again in
the situation of having to tell companies, “Your gas supply will
be turned off and you are going to have to use your back-up
systems.” That is not good for the economy.
To reduce the
risk, we cannot have an over-dependency on one area or resource, and we
need to be able to identify and react to potential shifts in global
energy requirements. That means recognising where the gas comes from
and what would happen if those taps were tweaked or turned off. We have
had illustrations of that in Russia and the consequent repercussions
right across Europe. It is all very well saying that we can get our gas
from Qatar, Norway or Russia, but if there is a sudden change in the
dynamics and a dearth of gas across Europe, all countries will be
looking after themselves and we are last in the queue—we are at
the end of the stream. Ensuring that we can weather a storm in which
there is a shortage of gas is therefore
critical. I
echo my hon. Friend’s opening remarks and ask the Minister
seriously to consider the amendments. We must change the amount of time
we have to provide gas to our customers, particularly as all the gas
stations will remain online until 2030 and all the other stations,
whether they be nuclear or coal, will have expired by then. Gas is very
much part of our energy mix. In fact, it is currently the senior part
and will remain so for many years to come. That is why the amendments
are
important.
Simon
Hughes: This is something of a reprise of a debate that we
had on the Floor of the House last week during the Conservative
Opposition’s Supply day. I am not going to go over all that
ground again, although it is important that we debate the issue in
Committee. I believe that new clause 20 has significantly more merit
than the amendments. The new clause proposes that there should be a
minimum requirement for an amount of gas to be secured for use both by
suppliers of gas to domestic and business customers and by gas-fired
generators. However, it begs the question: how does one
define “secured”? We can secure gas both by supply in this
country and by contract for supply from outside. Although the new
clause is entitled “Provision of gas storage facilities”,
I am not sure that it does exactly what it says on the
can. When
we table Opposition amendments the first time around, we usually do it
to see what the technical objections and substantive arguments are.
There is an argument for a new clause—I would be happy to work
with others before Report on this—that imposes an obligation on
the Secretary of State to require suppliers to either have or plan for
enough storage in the UK. The substantive argument that we could face
significant problems down the track is valid, because of the declining
natural supply of gas from the North sea. It will last a long time and
will not go away, and we are still going to use it and it is important,
but we have to take account of the fact that it is in
decline. I
want to make a substantive point about the way in which the amendments
would work. We will have the clause 16 stand part debate shortly. It is
not a significant clause, because the obligations that it puts on Ofgem
are more window-dressing than substance. Moreover, the amendments are
not significant either. They seek to add the words “gas
storage”, but clause 16 already proposes that Ofgem should have
a new duty and states: “Those
interests of existing and future consumers are their interests taken as
a whole, including— (a)
their interests in the reduction of gas-supply emissions of targeted
greenhouse gases;
and—” this
is the important one— “(b)
their interests in the security of the supply of gas to
them.” That
encompasses what the hon. Member for Wealden is arguing for without the
need for an amendment. We will hear what the Minister has to say, but I
anticipate that that will be her
response. 11
am My
second point follows from last Wednesday’s debate. I was quite
assertive, or aggressive, to the hon. Member for Tunbridge Wells (Greg
Clark) because I believe that the argument he made to the press on the
issue—a perfectly proper issue to raise in the press—was
phrased to suggest an imminent risk of people losing their supplier.
The Conservative press release was headed:
“Only
eight days worth of gas left in storage”.
In it, the hon. Member
for Tunbridge Wells
said: “When
will the Government understand we need more storage capacity and the
ability to get gas to consumers so nobody has to face the possibility
of going without gas during cold snaps like this
one?” The
intention must have been to cause concern or alarm and it certainly had
that effect, as I reported to the House last week. It was a bit
mischievous, to put it gently, to pray in aid the estimable Alistair
Buchanan—we will no doubt discuss him later, in the context of
other Ofgem responsibilities—because, as reported in the
Financial Times, his concern about the “cliff
edge”, and those were his words, was about 2015-16, not about
now. Nothing I have read from Ofgem this month about the cold spell and
our supplies in December and January has suggested that there is a
threat to our security—nothing.
Mr.
Ellwood: I am grateful to the hon. Gentleman for giving
way, although I think that he is making a bit of a meal of the issue
and digressing a bit from the Bill. Temperatures dropped hugely to
minus 22°. It was an unprecedented cold snap, which necessitated
an increase in gas requirements of more than 28 per cent. The first
step, the first port of call that gas companies have to take is to
limit the supply to those with interruptible contracts, which suggests
that we are heading towards running out of gas. Gas companies would not
do that if they did not think that they had to start taking
precautions. The precautions they took were enough to guarantee
domestic supply for those who obviously need it to weather the worst of
the weather. I urge the hon. Gentleman to proceed with caution, because
I think he is being a bit mischievous. The remarks were made simply to
underline the fact that we need more storage in this country, which I
think has now been accepted by the
Government.
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