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There are other ways in which companies can enter into long-term contracts, including contracts for liquefied natural gas. Britain increasingly has contracts for LNG and we are building terminals to provide increased storage for it. I accept that the noble Lord, Lord Jenkin, is worried about aspects of planning as regards LNG. That is a very important reason why the Planning Bill has been drafted as it has. Although the noble Lord indicated that he is a little impatient with the Bill’s tardy progress through the other place and arrival here, we expect that it will eventually arrive here for consideration. He is absolutely right that the way in which we facilitate planning consent for energy needs is an important concept behind that Bill. However, I do not think it is for the Government to second-guess the best or most cost-effective approach to gas supplies.

Lest it be thought that the Government regard this issue with anything other than the most extreme seriousness, I reassure the Committee that we want to ensure the long-term supply of energy, including sufficient supplies of natural gas. The difference between the Government and the noble Baroness and her amendment is the strategy by which that should be pursued. The market is already responding to the UK’s need to import and to store gas. Some 1.2 billion cubic metres of gas storage capacity are under construction, and there are 8 billion cubic metres in various stages of the planning and development process. Some of this could come on stream within four years, doubling the existing gas storage capacity.

I do not underestimate the foresight of the noble Lord, Lord Jenkin, and other noble Lords in the Committee. Indeed, the noble Baroness herself is addressing the question of how we guarantee long-term provision. However, I emphasise that there is a market response to what is already clearly defined as necessary changes in the British supply.

Lord Jenkin of Roding: The Minister has given us interesting figures about the number of projects that are in the pipeline, as it were. Do the Government publish those figures anywhere?

Lord Davies of Oldham: I cannot give a direct answer, except to say that it would be surprising to make my contribution in the openness of this Committee if the Government had anything to hide with regard to

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these figures. I hope that I will be able to answer the noble Lord’s question. I am struggling with where the figures are published. It appears that they are published in Energy Markets Outlook, so the document to which I referred contains that information. I apologise to the noble Lord that I could not answer him as directly as I wanted to.

The key part of the Government’s role is to ensure that the regulatory framework is fair and fit for purpose so that projects do not face unnecessary obstacles and delays. That, as I indicated earlier, relates to the Planning Bill, which we will consider in this House in the not-too-distant future. In the Energy Bill, too, we have proposals for a new licensing regime that will enable offshore gas storage and importation projects to be built in the future. An important part of this Bill and its correlation with planning in those terms is to ensure that we increase storage and importation capacities.

The Bill does not deal directly with onshore gas storage, as the amendment seeks to do. I have it in mind that a number of the amendments seem to seek to add to the Bill rather than to amend it. In no way, shape or form am I expressing any reservation about that strategy; I am all too well aware of the fertile sources of ideas in both opposition parties and among Back-Benchers, but this is another amendment that seeks to add to the Bill rather than to amend it. The provisions for modernising and reforming the planning consents are already being catered for, as I have indicated. The Government and Ofgem have established a number of mechanisms that also help to ensure that the market is well prepared to meet the demand for gas.

Transparent, credible information is essential if markets are to function effectively, and energy suppliers need to be able to anticipate changes in energy needs sufficiently far in advance to provide the necessary supply capacity and delivery infrastructure. That is the purpose of Energy Markets Outlook. It is published by the department annually and therefore goes some way to meeting an aspect of the amendment that deals with the publication of information. It is certainly intended to provide information and analysis of future trends to help potential investors and others with an interest in the UK energy market to form a comprehensive overview of the likely development of the supply-demand balance in energy over the next decade or so.

In addition, shippers and suppliers that fail to provide enough gas to deliver their contracts on a daily basis must pay an imbalance charge or cash out price—in effect a high market price, exposing themselves to potentially high costs, such as in the winter of 2006 where the closing spot price rose to £1.65 per therm, which was 2.5 times the average closing price for that winter. The licensing conditions and network codes, implemented by Ofgem provide incentives on suppliers to ensure availability of supplies to domestic customers, even in the event of severe conditions.

Of course, I heard what the noble Lord, Lord Redesdale, had to say about the problems of physical supply and the fact that, obviously, storage will be necessary on greater levels than in the past, when we could call upon natural storage—namely, the ability to pipe gas from the North Sea, from its reservoirs there. We obviously have a massive change in perspective on

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our energy provision in those terms. However, Ofgem’s work is to guarantee that there are incentives to suppliers to provide adequate supplies of gas and to penalise where people fall short of contract.

Together, these measures from Ofgem provide a strong financial incentive for gas shippers to acquire a portfolio of contracts and assets, which will enable them to provide a sufficient, flexible and competitively priced source of gas when needed, even when demand is high—for example due to cold weather. The grid operates storage monitors, which are a tool to ensure that there is enough gas in storage, across all storage sites in the UK to underpin the safe operation of the gas transportation system in a severe winter. These monitors act to protect the gas supply of domestic customers and those whose gas supply cannot be safely interrupted.

I am aware that I have not answered all detailed questions at this stage and that there will be many opportunities as the Bill develops to flesh out a number of these arguments. This is a constructive amendment from the noble Baroness—it is a proposal designed to guarantee the increased security of supply. I hope that she will appreciate that the Government have a different strategy from that envisaged in the amendment, while at the same time sharing the broad objectives of two things that the amendment considers: first, security of supply and, secondly, the necessity of adequate information, so that there can be market responses that meet the nation’s needs.

I hope that within that framework my noble friend Lord Woolmer will also feel that I have answered his point on the Government’s broad strategy and that the noble Baroness will withdraw her amendment.

Lord Jenkin of Roding: Before my noble friend does that—and, after all, as we are in Grand Committee she cannot do anything very much else—will the Minister look at two other problems which would justify maybe not this amendment but some other form of building greater market transparency? That was what he was asking for, and we would all support that.

First, we will come to this later in the Bill, but all that I will say at is stage is that we will find that the storage facilities that exist, whether onshore or offshore, are in increasing demand for storing CO2. I do not know why the Minister looks so puzzled as there is a whole bit of the Bill about that. We have not come to it yet, but one question that I will certainly want to explore is how far there will be availability of storage and some form of good transfer for CO2 that is separated or sequestrated from fossil fuel operations.

On the second issue, the Minister rightly referred to the amendment relating to onshore storage. One thing that I am told about that is that it is becoming increasingly difficult; most of it happens in salt caverns, with a saline cap over the top. They are encountering environmental problems in some instances where it proves difficult to dispose of the waste salt created when washing out the salt cavern. That is pushing the industry to look more at offshore storage because it does not have that problem. It has other problems—it is a great deal more expensive—but it does not have the environmental problem of having to deal with the

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salt that is washed out of the caverns. In addition, the salt caverns tend to be a great deal smaller than the depleted gas fields. The comparison is obviously with the Rough field and, in future, with the Hewett field.

These problems need to be brought out into the open. Some kind of report—perhaps not exactly the one that my noble friend’s amendment, to which I put my name, suggests—would be helpful. Somebody, whether in the department or in Ofgem, should provide the market and Parliament with a regular appreciation of the situation on these issues, because if we are going to have more gas storage as a desideratum or an objective, these issues need to be addressed. The market and Parliament will need to know what the Government are going to do to achieve their objective of more gas storage. We will want to come back to this at some stage.

We have raised a number of issues, including the important issue raised by the noble Lord, Lord Redesdale. They indicate that something of this sort is going to be necessary if we are going to take this forward and increase the amount of storage. The problems need to be addressed. At the moment, I am not entirely happy that it is being done in a way that might achieve the objectives that the Government have set themselves.

2.45 pm

Lord Davies of Oldham: I am grateful to the noble Lord. My surprise at his reference to carbon storage did not arise because I was not aware that the Bill concerns itself with the issue. He rightly said that he has trailed points that we will have to discuss in considerable detail when we reach that part of the Bill. I was trying to think of the direct application of carbon storage to our critical storage facilities for gas at present. We have alternatives to thinking that there is direct competition for the Rough storage facility between gas and carbon storage, but we will discuss that in due course. The noble Lord is right that we have to provide for substantial carbon storage, and we will need to use space that otherwise might be used for gas storage. I hope I will be able to demonstrate by then that we have adequate provision.

On the question about the technical problems with salt caverns, I do not have an immediate answer. The noble Lord raised an interesting topic and we will need to think about that. I hope he does not raise the question too soon—that is, at the next Committee sitting—because I might not be able to answer it then either. I assure him that he has raised a point that we need to consider carefully, and we will provide answers to it in due course.

Baroness Wilcox: I thank the Minister for his carefully considered answer to our first question. I am enormously well served by having my noble friend Lord Jenkin of Roding with me on these Benches. I almost feel that there is not much I can add to what he said. We are all trying to face in the same direction on this and to come up with ideas that will put us in a better place than where we are now. The Government’s laissez-faire attitude to storage over the past 10 years has got us where we are today and has made us very nervous. The noble Lord, Lord Redesdale, referred to the difficult task we have with contract law in some European

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Union countries. We are not able to see what Norway sold to Germany, at what price or how. Germany had it, stored it, waited until the strike price came and found us in a difficult position. It is not a position that we want to find ourselves in again, which is the reason for the amendment. It might not be a perfect amendment, but it leads us to not finding ourselves in that position again.

I say to the noble Lord, Lord O’Neill, who opposed the amendment so vehemently, that I come with a little information behind me, having served for 10 years on the board of a company called Cadbury Schweppes, which makes rather a lot of chocolate. We really did have to work out how many beans we needed for the chocolate for that year, and we held our procurement officers to task on making a report to us for what we needed. It is not beyond our capability as a country to know what we need. If the noble Lord was a little more familiar with the private sector, he would understand that in that area you lose your job if you get it wrong, and so do an awful lot of shareholders.

Lord O'Neill of Clackmannan: If we are entrusting the work to British civil servants, given their record and the ability of politicians of all parties to interpret the information that is provided, experience suggests that they are singularly inept. Maybe it is better to employ other people when counting beans; but when it comes to counting cubic metres of gas, coal, or anything else, we do not have a very good record.

Baroness Wilcox: I would be very careful what I would ever say about our regulators; I think that the regulators that we have in this country are superb, and I am very proud of the independence that they have been able to maintain, with fights along the way at times. Our civil servants are as good as the instructions that they are given, and that has always been the case, whether it is my party, the noble Lord’s party, or anyone else’s in government.

I apologise for not having declared an interest in that I helped to establish and served for two years on the balancing and settlement code for electricity, so I know a bit about how much the price can go up when someone gets killed on “Coronation Street” and you move into strike prices. The noble Lord, Lord Woolmer, has come up with the idea of capacity payments. It is another idea and another way of looking at these things.

At this stage, although there is nothing else that I can do, I can at least say that I will be very keen to return to this on Report to see what the Government have come up with, having listened to the debates as we go forward. I thank all noble Lords who have given me more information to work on. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 [Licences]:

Lord Redesdale moved Amendment No. 2:



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The noble Lord said: Amendment No. 2 is grouped with Amendment No. 7, which is consequential. The purpose of the amendment is to question the Government on what progress they have made on making sure that the provisions in the Bill match up with the Draft Marine Bill. The Minister looked rather shocked when we brought in a copy of the Draft Marine Bill. I am overjoyed that I am not going to be dealing with that Bill; there are 497-odd pages and then a section on impact assessment at the back, which is another 100 pages.

The issue raised by the Marine Bill is that this is draft legislation. Some of the provisions in this Bill refer to future infrastructure, which might affect the Marine Bill. The Government will say that there is joined-up government on all those issues. However, there is a slight contextual issue in that a number of different departments are involved in this Bill, let alone with the organisations involved with the Marine Bill; that is, DBERR and Defra. Under which department will some of the provisions for carbon capture and storage fall?

When this amendment was raised in another place, the answer was that these provisions would all be protected under the habitats directive. Therefore, even if new and novel devices go through, the marine areas will be protected. However, the Marine Bill in draft form is now coming to this House. I notice that since it was drafted there has been a slight change on page 14 referring to coastal access. One of the provisions was the exclusion of gardens and parks, which we now hear are not going to be excluded. But that is a whole different area which many colleagues will deal with under the Marine Bill.

If Royal Assent is given to this Bill before the protected marine areas are designated by the Marine Bill, will any designation or licences that are given not be affected by the Marine Bill, as they would be retrospective? This amendment is to ensure that the Government can give us an assurance that all departments and/or their agencies will look carefully at that potential conflict. Structures on the seabed also fall under the Crown Estates and the operators. It would be interesting to know whether the Government have worked out precisely who will be responsible for dealing with any conflict of interest between areas designated for carbon capture and storage, and whether such areas would then be considered for protected marine status.

I could go further into it but this is just a questioning amendment rather than one to be pushed at a later stage. Are the Government happy that areas of carbon capture and storage will not change marine protected area designations? Of course, there might be a conflict of interest between the two groupings. Will this Bill, as it comes first, affect the protected area status? I beg to move.

Lord De Mauley: We support the principle of these amendments. Energy policy of course interacts with environmental policy in many ways. Plans to produce energy from new renewable sources and to store and import gas might, for example, conflict with the need to minimise the impact on the environment, particularly

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on marine life. It is sensible to ensure that all perspectives are consulted. I will be very interested in the details of the Government’s plans to balance these concerns, particularly what sort of measures will be put into place to ensure consultation takes place with all the relevant bodies and parties.

3 pm

Lord Bach: I was slightly shocked when I saw the noble Lord, Lord Teverson, come in with such a heavy collection of documents. I had no idea what it included—the Marine Bill or other Bills. I was simply worried for his good health because he seemed to be carrying such a collection. But I was not shocked that it included the Marine Bill.

I understand the spirit in which the noble Lord, Lord Redesdale, moves Amendment No. 2. He has raised an important point on the interaction—which has just been mentioned by the noble Lord, Lord De Mauley—with environmental bodies when granting licences for offshore gas storage and unloading, on the one hand, and carbon dioxide storage activities, on the other. Through the strict wording of the amendment, the noble Lord seeks a requirement in the Bill that, before issuing offshore gas unloading and storage or carbon dioxide storage licences, the Secretary of State shall consult with the relevant environmental bodies, particularly on marine plans, when granting licences.

As Members of the Committee know, Chapters 2 and 3 of Part 1 of the Bill establish the framework for offshore gas unloading and storage and carbon dioxide storage within which the detailed regulatory provisions can be made. A key consideration in determining licence applications and terms and conditions will of course be the protection of the environment. We will be consulting early next year on the detailed provisions that will be required but we will also ensure that the resulting regime builds on the foundation provided by existing environmental legislation.

As the Committee knows, the offshore UK oil and gas industry is currently subject to a comprehensive and even robust legislative regime that is administered by my department, ensuring that environmental protections are in place. The framework includes strategic environmental assessments, environmental impact assessments and habitats and birds assessments as and when appropriate. We have committed to ensuring that existing requirements applicable to offshore activities will extend equally to the offshore gas unloading and storage and carbon dioxide storage regimes. These requirements already require duties of consultation with the relevant environmental bodies, such as government departments and their agencies with particular responsibility for environmental issues.

I turn to the issues of marine spatial planning, which is a focus of the amendment. As many will be aware, oil and gas activities are not covered in the Marine Bill. A major part of the thinking behind that is the unique regulatory challenge posed by this large and complex industry, which is best addressed by tailored specific legislation administered by a specialist team expert in oil and gas issues. However, the expertise of the specialist team within the department is not just confined to oil and gas issues. The department has

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also built up considerable expertise in regulating and understanding issues unique to the offshore oil and gas sector in the context of sustainable development. It must also deal with marine spatial planning concerns, including the impact of oil and gas installations on shipping and navigation. That expertise must be used to understand and determine the impact on the environment from any future licence applications for new technologies, such as offshore LNG unloading.

My department consults Defra, other government departments and the devolved authorities, or their relevant agencies, as appropriate, and is in regular contact with the Marine and Fisheries Agency, which will be replaced—as the noble Lord knows, of course—by the new Marine Management Organisation. This arrangement works well and provides the flexibility to allow for the department to consult, for example, the new MMO and the Maritime and Coastguard Agency on matters in which they have an interest. We are keen to avoid imposing a requirement that would effectively mean that the department must always in every imaginable circumstance consult environmental bodies on a statutory basis.


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