To ask the Secretary of State for Energy whether he will make a statement on the Government's decision to authorise further imports of natural gas.
It has been the Government's object to create the market conditions within which competition can work for the benefit of all participants, suppliers, transporters and consumers. Important progress has been made in Britain. The Oil and Gas (Enterprise) Act 1982 and the Gas Act 1986 opened pipelines to competition on the basis of what is now called third-party access and provided for appropriate regulation by the Office of Gas Supply. Under the regulatory regime established when British Gas was privatised, steps taken in response to identified market problems have led over recent years to a growing number of companies supplying gas to industrial customers in competition with British Gas. Additional measures now being discussed will contribute to this process.
The United Kingdom has large reserves of gas on its continental shelf, and liberalisation of the market has provided a spur to their development. The Government support the European Commission's efforts to bring the benefits of liberalisation to the wider market of the Community and to remove barriers to competition and obstacles to trade. A market in which gas moves freely across frontiers and competes its way freely to final consumers provides the best assurance for all, including the emerging market economies of eastern Europe, the continued development of which will bring the environmental attractions of gas within reach of the widest public.
Until now, the United Kingdom has lacked the necessary gas transport links with the European market. I am pleased to say that several companies have told my Department that they would be interested in building a gas interconnector between the United Kingdom and the continent to enable UKCS gas to reach continental markets in competition with other gas suppliers to continental Europe. Six companies—British Gas, BP, Conoco, Elf, Norsk Hydro and Statoil—have now come together to conduct the first stage of a feasibility study on a gas interconnector between the United Kingdom and Europe.
At the suggestion of the companies, it was decided that the group would benefit from having an independent chairman with experience of the oil and gas business. Mr. Geoffrey H. Chipperfield, CB, former permanent secretary at the Department of Energy and currently permanent secretary and chief executive of the Property Services Agency, has accepted an invitation to chair the study, which is now under way. The Government believe that other companies will wish to participate in the full feasibility study when it is launched, and opportunities for this will be opened later in the year.
At the same time, two proposals for the import of Norwegian gas have been put to my Department. National Power proposes to contract a supply equivalent to the consumption of a single power station. Statoil also proposes to negotiate a supply of gas to an independent power generation project in Britain.
In addition to these developments on exports and imports, BP, Statoil and Norsk Hydro propose to establish a joint venture United Kingdom gas marketing company, which will work for increased gas competition in both the industrial and the power generation markets in Britain. I welcome this move.
These developments will make a significant contribution to the opening up of competition and gas trade. We are confident that United Kingdom gas suppliers will benefit considerably from the liberalisation of gas trade throughout Europe.
This is another fine mess that the Government's shortsighted policies have got the country into. [Interruption.] I ask hon. Gentlemen who are moaning why Britain, of all countries, should have to import more natural gas. The Government have encouraged the dash for gas, which the privatised electricity companies want to burn in power stations. As a result, the demand for gas in this country now exceeds Britain's own natural gas supplies. Where there was abundance, the Government's policies have created shortage.
Will the Minister confirm that, on present plans by the electricity companies, the amount of gas to be burnt in power stations will be as great as that used in the whole of the rest of British industry, and that British industry will have to pay higher gas prices as a result?
Is it not true that gas prices for domestic customers have risen by no less than 14 per cent. in the past two years and will rise still further, because the power companies' demand is driving up the price of bulk supplies of gas and will continue to do so?
Will the Minister tell us how much these additional gas imports will add to the trade deficit? Is it not true that Britain already has a trade deficit in energy and that this decision will make that deficit worse? I hope that the Minister will not quote his Secretary of State's totally misleading statistics in his recent press release, pretending that we have an energy surplus.
Is it not true that, as a result of the Government's policies and the self-same privatised generating companies that want to import natural gas, coal imports last year hit record levels, and that the generating companies plan even more coal imports?
Will the Minister confirm that his Secretary of State recently advocated dependence in future on gas supplies not just from Norway but from the Gulf, the former Soviet Union and Algeria? If so, what price does he give for security of supply?
Finally, the Government keep knuckling under to the selfish demands of the privatised electricity companies. Is it not about time that the Government reminded the bosses of those companies that they should consider the long-term interests of the people of this country instead of just lining their own pockets? If this dying Tory Government will not tell them, the incoming Labour Government will.
I am surprised by that tirade from the hon. Member for Holborn and St. Pancras (Mr. Dobson), not least because the pipeline through which the gas will be imported is the Frigg line, which resulted from the Frigg treaty, negotiated by his right hon. Friend the Member for Chesterfield (Mr. Benn), who was then Secretary of State for Energy. Also, the production of the Frigg field—which the right hon. Member for Chesterfield signed for—increased from nothing to a plateau of nearly 10 billion cu m of Norwegian gas per year under the last Labour Government, without any concern for export potential. If one adds together all the gas that we are discussing, the imports could total less than half of the amount which resulted from the Labour Government's desire and drive for imported Norwegian gas. So the House should get that into perspective.
The important thing is that we are announcing opportunities for a highly competitive United Kingdom gas industry to export in markets which are sufficiently attractive to warrant great interest from a large number of companies, and key companies have come forward to undertake a feasibility study. They will be in a position to win long-term contracts when the export link—the interconnector—is built. The hon. Member for Holborn and St. Pancras was also wrong about the trade deficit in energy, as there is a surplus.
In conclusion, I have this answer to the hon. Gentleman's questions—our objective, if it is to be in the interests of consumers, must be to work towards trade in gas in a genuine free market throughout Europe. We are confident that United Kingdom suppliers will benefit considerably from the liberalisation of the gas trade throughout Europe. Ultimately and most importantly, not only suppliers will benefit, but consumers.
I remind the House that this is a private notice question and not a statement, although it sounded a little like one. I shall allow questions to continue until 3.55 pm; then we must move on to Business Questions.
Is my hon. Friend aware that many of my hon. Friends will welcome his statement because the importation of gas will allow more competition in the electricity supply industry and will be good for the environment, because gas produces less carbon dioxide than coal when burned for electricity generation?. Does he recall that, not so long ago, British Gas limited the amount of gas available by contract pricing so that that premium fuel could be conserved? Does he therefore accept that there is a danger in importing more gas—or, even worse, exporting more— that that valuable chemical may be frittered away in burning rather than being kept as the premium fuel that it truly is?
On my hon. Friend's first point, it is important to encourage competition in generation. Both the entry and prospect of independent entrants into the market is important to ensure the maximum downward pressure on generating prices. My hon. Friend's question about the environmental impact of gas and the greater use of gas-fired generation is important. The combined cycle gas turbine is a major step forward for the environment. The technology used by the industry is important not merely in terms of high thermal efficiencies but because there are important environmental advantages—the turbines emit no sulphur, have lower emissions of NOx and CO2 than coal-fired power stations and their introduction at the expense of old and inefficient plant will result in greater energy efficiency. It is important for the House to bear in mind the environmental impact of using gas for electricity generation, as well as the energy efficiency which I mentioned.
Does the Minister accept that we welcome the liberalisation of the gas market? We think that there should be rapid progress towards a European gas grid, and that we should allow access across frontiers, without hindrance, as soon as possible, including building the interconnector. I hope that he recognises the dangers. First, we must ensure that more access to gas does not mean more use of it, and we should therefore ensure that energy efficiency and conservation are Government priorities. Secondly, the new structure should be honestly and truly competitive and the protected position of British Gas should be broken up into a real competitive market and not defended. Thirdly, we should have a strategy for energy—of which this is a part—and no behind-the-door deals. With those assurances, we will be supportive.
I agree with all three points—and we need to break up monopolies on the continent as well.
In the wake of the announcement by my right hon. Friend the Secretary of State for Energy about setting up a new United Kingdom joint venture gas marketing company, will my hon. Friend confirm that, initially, that company will concentrate on bringing gas from the United Kingdom continental shelf to our home market?
That is correct.
Does the hon. Gentleman agree that today's announcement about the import of gas is bound to cause confusion as the country knows that we are more than self-sufficient in indigenous sources of energy? Does he agree that, as gas prices will increase by about 50 per cent. in the next five or six years, the deal is not a good one for consumers? The country knows that we import 20 million or 30 million tonnes of coal and we are making miners redundant. Gas-fired power stations will result in electricity employees in power stations being made redundant. Therefore, this is not good news. Is it not time that the Government thought out an energy strategy?
As I said in reply to the hon. Member for Southwark and Bermondsey (Mr. Hughes), I agree that an energy strategy is important. That is what we are proposing. What I have mentioned today is part and parcel of that strategy. The liberalisation programme of the European Commission, which we fully support, and the increased competition will benefit consumers in United Kingdom markets. The coal industry is well aware of the competition that it faces for a share of the electricity markets. That is why British Coal has made significant strides towards reducing costs and more than doubled productivity since the 1984–85 National Union of Mineworkers' strike.
Will my hon. Friend remind the Opposition that the first Government to import gas—liquefied petroleum gas propane, which was kept in Britain at the largest refrigerated storage in Europe—was the Labour Government in 1968? They encouraged those imports to take the place of coal, which resulted in miners within the Eastern gas board producing less. I am more interested in the importation of gas than its exportation in order that we may retain our reserves in the North sea and in Britain generally.
My hon. Friend makes an important point about the role of the Labour party in the past. That point was reinforced in relation to importation when the Frigg treaty was negotiated. When talking about proposed imports this afternoon, we are not talking about a new pipeline, but we are aware that we shall need to renegotiate the treaty and possibly amend it. I welcome the fact that my right hon. Friend the Secretary of State has today written to the Norwegian Petroleum and Energy Minister stating the Government's readiness to facilitate the imports and undertake negotiations. I believe that that will be done in a spirit of close co-operation with the Norwegian Government.
Will the Minister confirm that any export pipeline will qualify for relief against petroleum revenue tax in the same way as the central area transmission system that takes gas from Aberdeen to Teesside to generate cheap electricity? Will the Minister confirm that more than £100 million in tax relief is involved in the CATS scheme? Can he think of any other country in Europe, bar Scotland, that is paying international oil companies to take away its most valuable natural resource?
I shall respond to the hon. Gentleman's first point in writing so that I may answer it in detail. He asked about the fiscal regime as it applies to exports. There are details on that within the Finance Bill. The petroleum revenue tax is important, as is the gas levy. The gas levy is paid by British Gas in respect of fields contracted to it before 1975, which are not liable to petroleum revenue tax, and so will not affect the proposed export. As I said, I shall reply to the hon. Gentleman's specific points later.
While welcoming the Government's proposals, may I ask the Minister whether they will lead to the unlocking of many untapped gas wells in the North sea, both on our side and on the Norwegian side? Will there be a reduction in the high price of industrial gas in the United Kingdom?
Increased competition will have a beneficial effect on the pricing of gas for the United Kingdom industrial sector. There is no doubt that a liberalisation of the marketplace, with a larger marketplace, will be considered attractive by those making long-term investment decisions in the gas sector, particularly in the southern basin. Access to an interconnector with Europe will play an important part in future marketing strategies, so the thrust of my hon. Friend's remarks is correct.
Has the Minister conducted an exercise into the proposals using the principles of least cost planning? Rather than build pipelines to Norway and construct power stations that burn gas inefficiently, wasting half the energy value of gas, would it not be wiser to invest that money in energy-efficient ways such as insulating houses and replacing old domestic boilers with new and efficient condensing boilers?
There is no intention of building new pipelines to Norway.
Is the Minister aware that there are several coal-fired power stations in my constituency and that the cost of using domestic coal adds about £1 per week on average to every domestic bill for electricity in this country, according to House of Commons Library figures, compared with the cost of using coal at world prices? Has he any idea how much more money all of my constituents will save on their electricity bills when we begin the major switch from coal to gas?
My hon. Friend will be aware that the new contracts for coal will be at competitive prices. I believe that the coal industry is well positioned to negotiate effectively and on merit as a result of the substantial improvements in productivity that have occurred. Coal will continue to have an important share in the British power sector for many years to come, but it will do so on merit.
What is the justification for using scarce chemical feedstock in power stations?
The hon. Gentleman will know that there are plentiful supplies of gas for the United Kingdom —[Interruption.] We are finding more per annum than we are using. In the context of Norway, Algeria and the Soviet Union, there are ample supplies which will make an important contribution to power generation for many decades to come. There is no doubt that, when assessing it in competition with other fuel sources, the environmental benefits must be given serious consideration, and we have obviously done that.
Does the Minister accept that large energy users who have been handicapped by a monopoly supplier for far too long will welcome his important anouncement? Will he further accept that, if we do not liberalise the market and connect to the European grid, our competitor countries in Europe will, before long, benefit from substantially increased quantities of cheaper Russian gas to which we shall not have access?
I totally agree with my hon. Friend.
Is the Minister aware that while those countries with which he has been dealing and to which he has referred may be willing to trade with Britain, they will wonder how the Government could have engaged in massive additional import costs, having already created an almost obscene level of trade deficit over the last decade? Does he not appreciate that while Ministers repeatedly profess their concern and interest in the coal industry, his announcement will be seen as yet another blow to our coalfield areas and another cause of loss of jobs, with disastrous effects on communities who deserve more consideration than they have been shown by the Conservatives?
I totally disagree with what the hon. Gentleman says about the effect of coal. How can he talk about massive additional import costs when we are talking about two contracts which together represent well under 50 per cent. of what the last Labour Government negotiated in terms of imports? Indeed, at that time that Government did not even address the export opportunities which, in terms of trade, could be far more significant in the long run. It is rich for the hon. Gentleman and his hon. Friends not to face up to the facts of the matter, which I have described to the House.
While accepting that we should not have artificial restraints on any fuel and should not artificially support one fuel as against another, will the Minister bear in mind, following the question from the hon. Member for Wentworth (Mr. Hardy), that our coal industry is trading in the markets and that we should be careful before we give additional support to a fuel which will come in and compete with a fuel that we already have?
My hon. Friend would be the first to accept that the future size of the coal industry will depend on the amount of business that it manages to secure with the generators. That in turn will depend on the industry's ability to reduce unit costs and improve productivity. British Coal has already made considerable progress in productivity, which is more than double pre-strike levels. It is committed to securing further substantial improvement. That is the best way forward for coal.
Will the Minister confirm that, when he talks about the export pipeline, he is talking about a study? Many studies have been undertaken in the past; no pipeline has been connected to the European mainland before, because it would have been uneconomic. The Minister has simply attempted some window dressing to make today's announcement about imports appear more acceptable. It is much more likely that no such pipeline will ever be built.
What consideration has the Minister given to the position of our indigenous gas producers? What has he to say to the many thousands who work in the gas industry in such places as Lowestoft, Great Yarmouth, the north-west and Aberdeen, who will be thinking about the implications of today's announcement for coal industry jobs, and wondering what will happen to their own jobs now that the Government have opened the door to massive imports?
What has the Minister to say about the position of the 80 million gas consumers in this country? Today's decision will invitably lead to much higher gas prices.
I entirely reject the hon. Gentleman's view about the prospect for prices. Consumers will undoubtedly benefit from the liberalisation of the United Kingdom and European markets: they will warmly welcome the export opportunities, and, if the outlet comes to fruition—which I certainly hope will happen—it will doubtless have a significant impact on future investment and jobs in the oil and gas sector.
Companies came to us because they saw the commercial opportunities. Six companies expressed interest to the Department, and were keen to get the study under way. There will be opportunities for other companies to join in the study later. [Interruption.] The companies are concerned first and foremost with the feasibility study, not—as the hon. Member for Holborn and St. Pancras suggests from a sedentary position—for the sake of imports, but for the sake of export opportunities in a liberalised market.