Gas (Supply and Demand)

Part of the debate – in the House of Commons at 3:51 pm on 14th March 2006.

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Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry) 3:51 pm, 14th March 2006

On 16 February, I asked the Minister to explain the Government's policy for establishing onshore strategic energy stocks that stand a chance of lasting for more than a few days. The answer, in effect, was that we have very little storage and will not do so for some time. That largely explains why Britain is so acutely vulnerable to the sort of extreme price spike that we are facing today. British business lives in fear that its fuel costs will rocket to ever more punishing levels, and that it might even be cut off altogether. Yesterday National Grid, for the first time under the new warning system, issued a gas balancing alert. If there is one positive point to be drawn from this situation, it is that at least we know that the warning system is working.

For the next year at least, the UK will remain perilously sensitive to short-term gas price volatility. We have a free market in energy; the rest of Europe does not. Even when our prices are high, they still do not sell to us. This Government singularly failed to address this issue during their presidency of the European Union last year. Our gas production is falling, which is made worse by the Chancellor's tax regime, and during the winter we are now forced to import a growing percentage of our gas requirements. The gas comes mostly through only one pipeline, our shipped liquefied natural gas imports are not at the volumes we need, our storage capacity is puny and now our strategic vulnerability has been exacerbated by a cold snap across Europe, a fire at the Rough storage facility in the North sea, a drop in supplies from Norway and a strike by French gas workers. It is all happening at once.

Yesterday the price of gas for immediate delivery shot up from about 60p per therm to a peak of 255p—an increase of 400 per cent. Today it is trading at about 225p to 250p for delivery within the next week or so, but for delivery in April the market is much lower at about 65p. This is the ultimate short-term market squeeze. To put it bluntly, is it not the case that there is simply nothing we can do in the immediate future, and that the excruciating exposure that Britain and its companies face will not be remedied for at least another year? Is it not the case that additional capacity to import by pipeline or ship and our capacity to store larger quantities will not come on-stream for another year? Is it not also the case that British companies that will have to endure another winter of impossible uncertainty and soaring fuel bills will not thank this Government for their culpable lack of foresight?