Energy Bill [HL]

Lord Hannay of Chiswick Excerpts

Monday 31st January 2011 Grand Committee

I take that as just one simple example of the likelihood of an increase in demand for gas, a likelihood which may not be capable of being economically addressed by the option that the Government are currently favouring in exclusion to the other. I would ask that the PSO be included as an additional option in the Bill. It will give the industries the opportunity of some certainty, and we will then have the likelihood of investment in what is an expensive, although not such a technically difficult or lengthy, process. If we were to indicate that a PSO option was there, it is quite likely that the planning applications will be exercised. Some of the applications that have been granted will be taken up and used; at the moment they are not being acted upon. Enhancing our storage facilities is therefore a very prudent approach to our energy supplies. We should do so because we may well find in future, when we are in danger of running short of gas, that market conditions are extremely unfavourable and supplies are very expensive. It is probably better to give the nod to the spending of some money now rather than waiting for a solution which could well be far more expensive in the future. For these reasons I am happy to support the amendment of the noble Lord, Lord Jenkin.

[Lord Hannay of Chiswick]

I too would like to say a few words in support of the amendment, which is designed to strengthen the powers of the authority with regard to public service obligations on gas suppliers, like the obligations that already exist on oil suppliers. The debate has so far shown that UK gas storage capacity is too low in terms of the crucial insurance policy that it represents for this country either against a direct cut-off of gas supplies; or against sharply rising prices of such supplies, perhaps due to a cut-off somewhere else when we find ourselves at the end of the supply line. It would be helpful if the Minister could confirm that UK gas storage capacity is much lower than that of other EU member states—not just the ones cited, but quite a few more. Is our vulnerability really also not lower than theirs? Now that North Sea gas is running down, I believe that our vulnerability is every bit as high as theirs.

Gas storage has to be an important element of both our and the European Union’s long-term energy security policy, along with other elements such as the diversification of supplies, the diversification of pipelines, more interconnectors between member states and more competition in the single market. The right honourable gentleman the Prime Minister is going to Brussels at the end of this week to discuss all those issues, because that is the topic of the European Council this week. I hope that it will make progress on all those issues. We need to put ourselves in a better position than we are now, so far as gas storage capacity is concerned. As the noble Lord, Lord Jenkin, said, the simple way to achieve that is through the PSO. That is the thrust of the amendment and why I support it.

I ask the Committee’s forgiveness for straying slightly outside this piece of legislation when I ask the Government whether they are considering a minimum requirement for gas storage in the European Union on each member state. That is highly desirable, as it has proved for oil. If it were to be introduced, it would likely be helpful for this country. There was a great deal of opposition from the suppliers when the oil requirement was introduced in the 1970s, but you do not hear anything about it now. It is taken as the most natural thing in the world that we and every European Union country hold—I think—40 days’ supply of oil. Working now for an EU minimum that would apply to all member states would be worth while. If we were to move down that road, the amendment would put us in a position to meet any obligations. It would therefore make our position in the negotiations for a minimum requirement in the EU much stronger. We would be showing other member states that we were serious about working for this, even though we were merely introducing a potential power to do it.

I see no particularly good arguments for resisting the amendment. After all, it does not impose an actual obligation on anyone; it merely makes it possible to do so without further legislation if it can be shown objectively to be both necessary and desirable. I therefore hope that the Minister will give serious consideration to it in his reply.

[Lord Oxburgh]

My Lords, I briefly add my support to this amendment. The noble Lord, Lord O’Neill, is right that our dependence on gas will undoubtedly increase over the coming decades; as renewables and other sources of low-carbon energy come in, gas will be very important. It is equally true that the amount of storage that we could get away with when we had the North Sea producing at full rate could be relatively small, but it is also clear that the storage that we have today is inadequate. I will not go into the details, but something like 10 to 20 days’ supply is what we should be thinking of today. This will not happen without regulation of some kind. The supply companies have no incentive to do it, and what both industry and the consumer need is gas, not compensation.

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[Lord Hannay of Chiswick]

Could I just follow up the Minister’s point about the work that Ofgem is doing? I thought I understood him to say—perhaps he did not—that if it came to the conclusion that the UK needed more gas storage as part of its studies, action would be taken. Does that mean to say that its findings could come in time to make an amendment to the Bill? That could be important. My second question about the Ofgem inquiry is: is he willing to make sure that Ofgem is brought quickly up to date with this debate, so that it can take it into account in its study?

[Lord Marland]

The noble Lord makes a point. Of course Ofgem will be brought up to speed with what we are doing. I do not think that its review will have drawn the conclusions that we want by the time we have finished the Bill. There is some presupposing that people are sitting in knowledge. I have heard many different suggestions in this Room already today about how much we have or do not have in storage, and about what we should or should not have. It is up to the Government to look carefully at the facts and accelerate procedures where we think that should be done, as we have already done by 25 per cent—and we have been in government for only nine months; maybe a bit longer now. We have a level of comfort that is correct—not just in our own judgment; a whole range of sources tell us that we have it correct. The previous Government felt that it was the correct figure. If the information that results from the review shows us that we need to enact, we will. Ofgem itself has existing powers to modify licences and introduce new licence requirements, and may well do it itself. Of course this is very much a subject for debate, evaluation and continuing process, and I hope that satisfies the noble Lord.