Gas Supply

– in the House of Lords at 3:01 pm on 30 November 2005.

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Photo of Lord Ezra Lord Ezra Liberal Democrat 3:01, 30 November 2005

asked Her Majesty's Government:

Whether the United Kingdom-continental gas interconnector is being used to the full to help meet the current demands for gas in Great Britain.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, since the additional import capacity on the Belgium-UK gas interconnector was commissioned on 8 November, the interconnector has been importing in response to price signals. However, it has not been importing at its full capacity. It has typically been operating at between 53 and 63 per cent of capacity, with a maximum of 72 per cent on 17 November. The reason for that under-utilisation is not clear. Both the Government and Ofgem are pursuing this at the European level.

Photo of Lord Ezra Lord Ezra Liberal Democrat

My Lords, is it not disturbing that the interconnector should not have been operating at full capacity, bearing in mind that the spot prices for gas in the UK are substantially higher than on the Continent? Does that not suggest that our link with the European gas network is insecure, and that in the future, although the interconnector capacity might increase, we could still be vulnerable at times of peak demand? Is that not a serious situation, in view of our increased requirements for imports of gas?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, it is a serious situation, which is why the Minister for Energy—my honourable friend in the other place—intends to raise this issue when he chairs the Energy Council tomorrow. It is also why the chairman of Ofgem has written to the European Commission indicating why the situation is utterly unsatisfactory. It is also why key figures in the European Commission have indicated that the imperfections in the market are not tolerable.

Photo of Lord Crickhowell Lord Crickhowell Conservative

My Lords, is the noble Lord aware of the considerable concern among heavy fuel users at the lack of transparency in the present arrangements and the scope that there may be for suppliers to manage them to the disadvantage of this country? That fear is reinforced by the granting of licences for LNG terminals that exclude third-party use and which seem guaranteed to ensure that Britain pays the highest price in the market or has its supplies diverted elsewhere. Is he leaving this matter entirely to the Commission, or are the Government prepared to take action about the matters that are under their control?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, the methods we are pursuing at the European Commission are the appropriate channels for effective action, and we have made it absolutely clear that we expect action to be taken. The noble Lord is right that there are anxieties for the very big consumers of gas in view of the shortages. We expected the interconnector to bring more gas into the UK than has proven to be the case. The noble Lord is right that the price being offered is high enough and competitive. Therefore, there are imperfections in the market which alone explain why this gas is not available.

It is important to the Government that there has been substantial private investment in terminals for LNG because we will be dependent on additional storage facilities, and we are pleased to record the fact that several major terminals will come on stream in the very near future.

Photo of Lord O'Neill of Clackmannan Lord O'Neill of Clackmannan Labour

My Lords, does my noble friend agree that two inquiries previously conducted by the European Commission have been unable to discern anything other than the illiberalisation of the German grid system as the simple and obvious reason why we cannot get adequate supplies of gas through Europe from the Caspian and other areas? Is it not up to the Commission to take proper action against the German authorities, who wish to introduce neither proper liberalisation nor effective regulation of the throughput of gas through their grid system?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, my noble friend has vast experience in this area which I cannot begin to match, and could I express things as trenchantly and accurately as he has done.

Photo of Lord Redesdale Lord Redesdale Spokesperson in the Lords (Energy), Environment, Food & Rural Affairs, Spokesperson in the Lords (Energy), Trade & Industry

My Lords, will the construction of the interconnector from the Norwegian gas fields to the north-east affect the spot price of gas supplies in the UK?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

In due course, my Lords, but the noble Lord will recognise that there are no short cuts in these matters. We had expected a better performance from the interconnector in Belgium and that is why we are taking this up as an issue of real urgency. It highlights the issue that my noble friend Lord O'Neill referred to; namely, that there are weaknesses in the market that Europe needs to tackle.

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, if, as the Prime Minister said in the other place, some companies that depend on gas may be affected by the shortage of supply, why has one of his ministerial colleagues said that this country is "awash with gas"? Who is right?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, our gas supplies are certainly sufficient to guarantee that domestic consumers will have all their needs met throughout this winter, as will the vast majority of industry. However, certain sectors that are high consumers of gas frequently reduce their demand for it when gas prices reach a certain level, because it is in their economic interests to do so. We think that that process may happen over this winter.