20Security of gas supply
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Committee’s assessment |
Politically important |
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Cleared from scrutiny (decision reported on 22/03/2017); drawn to the attention of the Business, Energy and Industrial Strategy Committee |
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Document details |
Proposal for a Regulation to safeguard the security of gas supply and to repeal Regulation (EU) No. 994/2010 |
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Legal base |
Article 194 TFEU; Ordinary Legislative Procedure; QMV |
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Department |
Business, Energy and Industrial Strategy |
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Document Number |
(37531), 6225/16 + ADDS 1–3, COM(16) 52 |
Summary and Committee’s conclusions
20.1The Commission proposed new EU security of supply rules in February 2016 to reduce risks to gas supply, particularly as a result of tensions between Russian and Ukraine. The main elements were: mandatory regional co-operation, involving better cooperation and coordination; ensuring the availability of the necessary infrastructure, improved risk assessment and risk prevention; increased supervision of the supply obligation for protected consumers; and the incorporation of a new solidarity principle.
20.2In our predecessor Committee’s last Report (22 March 2017), we released the proposal from scrutiny, but raised a further query about gas price and gas security after the UK has withdrawn from the European Union.
20.3The then Minister for Industry and Energy (Jesse Norman) replied on 31 May 2017, setting out the terms of the final agreement on the key issues of solidarity between Member States, regional co-operation and the transparency of long-term supply contracts. The Minister supported the new Regulation and noted that it should help ensure liquidity and price responsiveness to market conditions in the North West trading region. This would be important post-Brexit, he said, whatever trading arrangements are made between the EU and the UK.
20.4The Minister expressed confidence about future UK gas security. He noted that the UK still has significant production of gas and that the remainder is met from a diversity of sources, including Norway, Liquid Natural Gas and storage. The impact of the UK’s withdrawal from the EU on gas prices was less certain, but the Minister emphasised the Government’s recognition of the importance of having access to an affordable, secure and sustainable supply of energy for business and domestic use.
20.5We note the Minister’s satisfaction with the agreement and his confidence that the Regulation should create favourable regional trading conditions post-Brexit regardless of the specific trading arrangements made between the EU and the UK. We welcome his analysis of future gas security and acknowledge the understandable uncertainty about future gas prices.
20.6The proposal has already been released from scrutiny. As the negotiation is now complete, we require no further information. We draw this chapter to the attention of the Business, Energy and Industrial Strategy Committee.
Full details of the documents
Proposal for a Regulation to safeguard the security of gas supply and to repeal Regulation (EU) No. 994/2010: (37531), 6225/16 + ADDS 1–3, COM(16) 52.
Background
20.7Details on the current rules in place (Regulation (EU) No. 994/2010) were set out in our predecessors’ Reports of 13 April and 11 May 2016. Despite the application of those rules, the Commission observed that the security of gas supply remains a highly topical issue, given the continuing tensions between Russia and Ukraine and that there are continuing supply vulnerabilities. It therefore tabled proposals for new rules, where the main focus would be on mandatory regional co-operation. Further information on the proposal is also set out in our earlier Reports.
20.8Few significant points of concern for the UK have arisen in the course of negotiations, but—following the UK’s decision to leave the EU—our predecessors raised a number of Brexit-related questions, in response to which the Minister:
- recognised the importance of having access to an affordable, secure and sustainable supply of energy for business and domestic use;
- confirmed that the UK had approached the negotiation of this Regulation from the perspective of a possible third country;
- recognised that the UK may have to implement some technical regulations in order to continue to trade with the EU;
- indicated that no impact was expected on supply arrangements with Ireland and that close work would continue with Ireland on resilience measures; and
- said that it would not be right to speculate on the implications of different scenarios or options, including both possible membership of the Energy Community277 and any assessment of the impact on price and security if the UK did not reach an agreement with the EU.
20.9Our predecessors were surprised at the Minister’s reluctance to reassure the Committee that the Government was assessing the possible impact of any failure to reach a deal. Far from asking the Minister to speculate, the Committee had simply asked him to set out what assessment had been undertaken. The Committee sought confirmation that an analysis of the impact on UK gas price and gas security in failing to reach an agreement on energy cooperation with the EU post-Brexit either had been prepared or was under preparation in order that the Department was able to mitigate the impact of any such outcome.
Minister’s letter of 31 May 2017
20.10The Minister explained that negotiations between the European Parliament and the Council had concluded on 26 April, with no substantive changes to the details previously set out to the Committee. Once the text has been formally adopted by both institutions, it is expected to enter into force later in the year.
20.11As to the substance of the outcome, the Minister explained:
“Overall, as indicated previously, I regard the revised regulation as beneficial to UK interests. A fundamental principle that underpins the new regulation is the clear requirement on Member States not to take measures that impact negatively on another Member State, nor prematurely to take non-market measures even at times of tight supply. This will help ensure liquidity and price responsiveness to market conditions in the North West trading region and will be important, post Brexit, whatever trading arrangements are made between the EU and the UK.”
20.12On regional co-operation, the Minister wrote:
“Member States have obligations to co-operate regionally and in emergencies. This has been further clarified by giving the Commission a facilitative role to help secure such co-operation if necessary and in certain defined circumstances. Joint risk assessments within so called “risk-based groups” (of Member States) must be carried out with a view to ensuring that assumptions on gas flows and capacity availability are consistent within the group and across regions to help prepare for a disruption in gas supply from whatever source. ENTSO-G,278 the European transmission network organisation, has been tasked to develop various scenarios to be used in those joint risk assessments. Member States will also carry out their own risk assessments, as before, as well as national preventive and emergency plans (but with regional chapters incorporated).”
20.13As regards the measures to be taken in an emergency situation, the Minister wrote:
“Flexible definitions of protected customers as under the existing regulation remain. They only become more restrictive in an emergency ‘solidarity’ situation if a Member State can no longer supply its households and essential services and asks for help from another, directly interconnected, Member State. As indicated in earlier correspondence, this emergency obligation has some flexibility built into it as to the way it might operate in practice. It remains the case that Member States will agree the detail of their own financial, operational and technical arrangements with a directly interconnected neighbour, though the Commission is tasked to produce (voluntary) guidelines of best practice. In the very liquid North West region, it is highly unlikely that ‘solidarity’ would ever be invoked unless there was a global crisis. The provisions will have limited effect on the UK because of the physical constraints imposed by the capacity and directional flow of our interconnectors.”
20.14On information exchange, the Minister indicated:
“The transparency obligations on gas undertakings for notification of certain security of supply related data in contracts will, in general, be anonymised by the regulator before being to be sent to the Commission. Only where a long term supply contract with one supplier or its affiliates is cumulatively equivalent to 28% or more of a Member State’s consumption does the contract itself (excluding price information) have to be notified also to the Commission.
“The transparency provisions are aimed mainly at Russian (Gazprom) long term contracts where market abuse and uncompetitive and restrictive practices have long meant that a number of Member States remain vulnerable to disruptions in supply and have had limited opportunities to open up their markets and diversify their supply. The extent of those vulnerabilities has been very difficult for Member States to assess without sight of the contracts themselves. I regard that as a proportionate measure.”
20.15Finally, the Minister addressed the Committee’s query as to the possible impact on UK gas price and gas security of any failure to reach an agreement on energy cooperation with the EU post-Brexit:
“Our assessment as to what this might mean for gas prices, is that it is uncertain. It will depend on the nature of the UK’s future relationship with Europe; price movements in global markets can also be expected to play their part. We recognise the importance of having access to an affordable, secure and sustainable supply of energy for business and domestic use.
“Turning to the possible impact on gas security, the UK market is very diverse and liquid. It responds to market and global hub pricing on a daily basis and reflects demand, weather and general availability of supplies. We would expect a robust gas supply picture to continue in the future and there to be no major changes to that. The UK still has significant production of its own which meets 58% of consumption on an annual basis. The remainder of UK gas consumption is met through imports and gas storage. 61% of our total imported gas comes from Norway; 31% from LNG sources (mainly Qatar); and the remaining 8% from Belgium and Netherlands via the interconnectors. We also export gas to the Republic of Ireland and, at times, to Belgium via the bi-directional pipeline. Interconnectors provide an important source of flexibility during periods of high demand and play an important role in keeping consumer bills low. Storage provides a balancing function between the winter and summer seasonal demands.
“National Grid undertakes regular assessments of gas security. The most recent one (Winter outlook 2016) demonstrated that there is a wide range of other infrastructure available (LNG, Norway) to bring in gas in excess of the highest demand we would expect to see in 20 years. “
Previous Committee Reports
Thirty sixth Report HC 71–xxxiv (2016–17), chapter 3 (22 March 2017); Thirty-first Report HC 71–xxix (2016–17), chapter 3 (8 February 2017); Thirty-third Report HC 342–xxxii (2015–16), chapter 5 (11 May 2016); Twenty-eighth Report HC 342–xxvii (2015–16), chapter 8 (13 April 2016).
277 The Energy Community is an international organisation which brings together the European Union and its neighbours to create an integrated pan-European energy market. The organisation was founded by the Treaty establishing the Energy Community signed in October 2005. It has nine members: the European Union and eight Contracting Parties—Albania, Bosnia and Herzegovina, Kosovo, former Yugoslav Republic of Macedonia, Moldova, Montenegro, Serbia and Ukraine. In addition, Georgia, Armenia, Norway and Turkey participate as Observers.
278 European Network of Gas Transmission System Operators.
1 December 2017