Clause 2
Energy Bill
9:15 am
Malcolm Wicks (Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform; Croydon North, Labour)
I recognise that in the absence of many amendments this morning—it is a great tribute to the drafters of the Bill that it is near perfect, although we will see whether Committee members agree with that—I will detain the Committee with a number of relatively short speeches on clause stand part. However, it is important to get certain points on the record and, of course, to enable Committee members to participate in debates about particular clauses. This will be one of the slightly longer speeches, because I want to set out the context that the hon. Member for Northavon was anxious to hear.
I have touched on this point already. The context is that we in the UK have been fortunate for some time in being able to rely on natural resources for much of our energy consumption. As I have noted, however, gas production from the UK continental shelf—the UKCS—and particularly from the North sea is in decline. The story of the North sea is in two parts, both of which are important. One is that the UKCS remains a very important business in the United Kingdom. There is still a great deal of energy there. Indeed, I am reliably informed that two thirds of our energy need and demand in Britain is still met by the UKCS, so it is still very significant, but it is in decline at probably the rate of about 8 per cent. at the moment. The decline is therefore significant. Both things are true: it remains important, but it is in decline. That is part of the context for our discussion.
We started to import gas relatively recently because of the decline that I have mentioned. We are perhaps importing 20 per cent. or so of our gas requirement at the moment, but by 2020 that could be up to 80 per cent. A more cautious estimate would be between 50 and 80 per cent., but the Committee will see that the change is significant and relatively rapid. That greater reliance on imports poses some risk to the United Kingdom from overseas disruptions to energy supplies, as supply routes become longer and as they cross ever more countries to enter the UK’s energy system.
To minimise the risk of disruption or of soaring prices at times of high demand, we need to ensure that we have sufficient levels of gas importation and enough storage facilities. Some will remember that only two winters ago the spot price for gas rose on some days to a considerable height. We have less storage capacity than our continental neighbours, but as I said earlier that is because our store is the UKCS itself. However, it is worth noting that things are now changing.
The clauses in chapter 2 seek to address the problem by creating a regulatory framework to encourage investment in infrastructure that will allow the storage of gas offshore and enable liquefied natural gas imported into the UK to be unloaded to offshore installations or pipelines in order to be piped ashore. The Committee will know that LNG will become a significantly important part of global gas supplies. Almost certainly, it will become an increasingly important part of supply to the United Kingdom, not least with the Qatari LNG about to come on stream.
We know that there is potentially some £10 billion of private sector investment to be made in such projects, but investors have told us that they need a regulatory regime for such investment that will offer clarity and certainty. This part of the Bill will provide for such a regime through the establishment of gas unloading and storage licences. The Bill provides the powers to create a bespoke regulatory regime for the unloading of LNG and natural gas storage projects under the sea bed. Clauses 2 to 6 cover the licensing arrangements for such unloading and storage projects, and clauses 7 to 14 cover the enforcement of those licences.
Clause 2 underpins the new regime by prohibiting gas storage or unloading without a licence, gas being defined in terms of the combustible gases such as methane used for energy production. That prohibition also covers the recovery of the gas stored, the conversion of natural features such as salt domes for use as storage space and related exploration activities, as well as the establishment and maintenance of installations for those purposes. The prohibition applies in any place within the limits of the territorial sea adjacent to the UK or within a gas importation and storage zone designated under clause 1, which could extend up to 188 miles beyond the seaward boundaries of the territorial sea.
On a point of clarification, I should add that clause 2 applies to operators that carry on storage activities, but the provisions do not apply to the shipper or owner of the gas. Those persons that provide the gas to the operators of the storage facilities will therefore not require a gas unloading and storage licence. Anyone undertaking such activities without a licence will be subject to the criminal sanctions set out in clause 7.
Establishing an offence for non-compliance will help to ensure that developers seek the necessary licence before undertaking any such activity. That will enable us to keep track of all projects and to ensure that appropriate safeguards, such as environmental protections, are in place and adhered to.