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Lord Hamilton of Epsom: My Lords—
Gas Supply
5.44 pm
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I should like to repeat a Statement made this afternoon by my right honourable friend the Secretary of State for Trade and Industry in the other place.
"Early yesterday, National Grid issued a gas-balancing alert as a prudent signal to the market to further increase gas supplies. This was a planned measure and not an emergency response. National Grid took this action in response to an increase in gas demand due to the cold weather and problems on the supply side, with the Rough storage facility being out of operation and low delivery through the interconnector at the weekend. This resulted in a significant call on short-range gas storage and the resulting spike in the gas price.
"As of today, the demand/supply situation has eased compared with yesterday. Demand has fallen to near seasonal normal demand. Supply has increased, with increased flow through the interconnector. We are also seeing deliveries through the Isle of Grain, and a further shipment of LNG is due to dock tomorrow. Deliveries from the North Sea are performing strongly. National Grid expects supply and demand to balance today, and does not anticipate the system to be out of balance in the coming days. But of course National Grid, Ofgem and my department continue to monitor the situation very carefully in case of any change in the anticipated demand/supply picture.
"There is no doubt that Rough being closed is making things more difficult. Rough accounts for about 80 per cent of our total storage capacity. It can supply 10 per cent of average daily winter demand. If it was in operation, we would not be experiencing any problems this week. Members may recall that an accidental fire a few weeks ago shut the main pumping station. The damage caused is still being repaired. We are in close contact with Centrica, which owns the facility, and I understand that it will not be back in action until we are through the winter.
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"It is of course normal for storage to be used during the course of the winter. We would expect the market to be drawing on short and medium-term storage in current circumstances. Indeed, that is no surprise, particularly at this late stage of the winter. We have had a spell of colder weather later in the winter, and the UK's long-range storage facility has been shut for a month. The gas system and market has responded to these circumstances.
"Let me reiterate that, on present information, we do not expect a formal gas supply emergency. Although it is clear that we must not be relaxed about the current situation, it is equally important that we do not cause unnecessary panic. The present situation does not threaten domestic supply or the vast majority of commercial and industrial supply. Even in the event of an emergency situation, National Grid will be able to maintain supplies to domestic and other key gas consumers.
"Of course, this situation has had a major impact on prices. The spot gas price has increased significantly since the weekend. I know that it is not easy for some heavy industry to make alternative arrangements, and the high prices will have an impact. The market is responding to a tight demand/supply situation, as you would expect. At these prices, gas suppliers have every incentive to maximise supply from all possible sources, and we are in close contact with the operators of the interconnector to ensure that it flows as much as possible.
"Market liberalisation in mainland Europe is a key factor in reducing energy costs for British consumers. That is why we have been encouraging the European Commission to take action, and warmly welcome the hard-hitting report it published on 16 February. We will continue to press for market reforms.
"Looking forward, a very significant new import infrastructure—new pipelines, LNG import terminals and increased storage—is being delivered by the private sector in the coming years. This represents some £10 billion of investment. This will increase the security of the gas supply in the UK, and should reduce the upward pressure on UK prices.
"In short, we are in an exceptional circumstance in which our largest storage facility is out of action and we are experiencing an unseasonally cold spell of weather. None the less, supply is meeting demand and the market mechanisms are working, albeit at a relatively high spot price. National Grid, Ofgem and my department will continue to monitor the situation carefully".
My Lords, that concludes the Statement.
5.48 pm
Lord Howell of Guildford: My Lords, I am grateful to the Minister for repeating the Statement. This situation is very serious, and there is certainly no room for complacency where energy supplies are concerned. Second only to water and fresh air, the lifeblood of our
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modern society now depends almost totally on secure and reliable energy supplies. Furthermore, we now face hugely increased reliance on gas for both domestic, feedstock and daily electricity supplies to millions of homes.
The Statement seeks to reassure us, but will the Minister say whether it is true that we have stored only nine days' gas supply for the nation? Will he also explain why the situation has been allowed to develop in this way? Why have both No. 10 and the energy Minister in another place, who frankly seems out of his depth, repeatedly told us that there would be no threat to gas supplies when there now obviously is one?
The Statement speaks of not expecting a formal emergency "on present information". Unfortunately, "present information" is not enough for energy planning. As, I think, my noble friend Lady Thatcher once remarked, the unexpected always happens. It is no good pleading exceptional circumstances, as in the Statement, because circumstances always turn out to be exceptional.
In the present situation, a whole string of things have gone wrong, many of which were utterly foreseeable. The big Norwegian fields have temporarily closed, including Ekofisk; the Langeled pipeline from the Ormen Lange field and other great new gas fields is not ready; the Rough storage field has gone down, as the Minister has acknowledged; not all the LNG frozen gas has arrived; the new terminals for LNG are, anyway, not completed; the French have gone on strike and taken control of some of their LNG terminals; and the French and German power monopolies have nicked our gas before it gets to us from the continental grid, in the way that the Minister described. In addition, our North Sea gas supplies have run down sooner than expected, as the Minister now lamely admits, which is a deplorable admission; the weather has been unpleasantly cold, about which I do not know why we should be surprised; and there is a rush to gas as oil prices have soared.
Those sorts of things happen regularly. Good energy policy should anticipate them and be prepared for breakdowns on the very coldest day of the coldest year of the decade, and of the century. The new infrastructure, to which the Statement hopefully "looks forward", should already be in place. The truth is that national secure energy requires market competition for its efficient delivery, but it also requires the highest degree of strategic planning. It is time that Ministers woke up to that fact, although it is getting very late in the day.
5.51 pm
Lord Redesdale: My Lords, I do not think that I will put all the blame on the French nicking our gas. That is an excellent expression, which I did not expect to hear in this House. The question was presented in another place purely and simply because gas hit 255p per therm on the spot markets. The Minister has said that market mechanisms will take their course. The gas price has dropped to 150p per therm, but market
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mechanisms are not working in the European gas market, because throughout this winter, every gas consumer in this country has paid a significantly higher price than their European cousins have paid for their gas.
The Statement states that the cold weather was to blame—it is forecast for only a few more days—and that the interconnector was underused. That is very strange because at a spot price of well above the European average, the interconnector should have been fully operational. The fire at Rough is given as a prime reason for the jump to the spot price of 255p, but the problem with that is that the fire at Rough took place a month ago and gas supplies have met demands since then. One problem that we face is the expectation that we will run out of gas because we have produced a lack of storage and supply due to the unforeseen decline in the North Sea gas fields. But that is a real issue.
I have only a few questions for the Minister. What is the Government's view on making market mechanisms work in Europe? With the consolidation of the gas giants in Germany and France, it seems that we will face added, rather than fewer, problems. I especially question the merger between Suez and Gaz de France. What support is the Minister giving Neelie Kroes, the EU Competition Commissioner, in questioning that merger? It would seem very strange if that merger took place and then the EU Competition Commissioner decided that there should be a breakdown. That would cause quite a few problems. What provision is being made for next winter? It is no good crying over the position now. But, notwithstanding the gas interconnector that will come from the Norwegian fields at Easington, is the Minister concerned about the difficulties in providing added storage capacity, especially the problems with planning? Finally, what steps are the Government taking to monitor fuel poverty over this period? Many older people around the country are affected by the ramping up of gas prices from all the companies. I hope that the Minister will look at ways not just to monitor this but also to alleviate that problem.
5.55 pm
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