Clause 14

Energy Bill – in a Public Bill Committee at 2:45 pm on 21 February 2008.

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Interaction with the petroleum licensing requirements

Question proposed, That the clause stand part of the Bill.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

Where a gas storage development intends to use a geological feature that contains hydrocarbons, in addition to a gas unloading and storage licence, a developer will also need to obtain rights under a petroleum production licence. That is due to the inevitable production of indigenous hydrocarbons, which will be mingled with the stored gas when it is recovered. Where the intention is not to use a geological feature containing hydrocarbons, such as a salt feature, no rights would need to be obtained under a petroleum production licence.

However, in some cases, a developer with a gas unloading and storage licence may discover trace amounts of hydrocarbons that could not in any way be considered as suitable concentration for their production. In such cases, the gas storage licence holder can seek a direction for the avoidance of legal doubt, stating that a petroleum production licence is not required. The clause empowers the Secretary of State to make such a direction where he is persuaded that the concentration of hydrocarbons is insignificant.

Photo of Brian Iddon Brian Iddon Labour, Bolton South East

I am a little concerned about subsection (4):

“A direction may be given only if the Secretary of State is satisfied that the amount of petroleum which exists in its natural condition in the relevant stratum is so small that it ought to be disregarded for the purposes of that Part.”

My question is: how will the Secretary of State know? Will the evidence come from the company that has previously been extracting petroleum oil from the reservoir, or will independent soundings be taken—that will obviously be more difficult?

When the Science and Technology Committee carried out an investigation into carbon caption storage and published a report in February 2006, we discovered that enhanced oil recovery is the only way of clearing out considerable oil reserves that are in the interstitial cavities of the rocks. That is the only way to ensure that the oil is completely evaporated, or that it is as evacuated as possible of petroleum oil. If enhanced oil recovery has not been carried out, there will be substantial petroleum oil reservoirs down in those cavities.

During the evidence-taking session I had a conversation with Mike Tholen, the Director of Economics at Oil & Gas UK—that is at columns 105-6 of the transcripts for 19 February 2008. He gave the impression that enhanced oil recovery is very common these days, and that most of the reservoirs that would be used for the storage of gas, and later carbon dioxide, would be empty of petroleum oil. However, the evidence that we took in this report suggests otherwise. It is important that whoever polices subsection (4), is aware of those facts.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

I hesitate to follow the hon. Gentleman, who clearly speaks from a very expert and knowledgeable perspective. However, I too, was intrigued to know how on earth this could literally be done. We have talked about the powers of the Secretary of State being very wide, but the power to give a direction in respect of a “relevant stratum” of a geological storage area, seems an extraordinarily technical power to give to a Secretary of State. I would be interested to know in respect of subsection (3)—I am not sure that the Minister quite explained this and I am not familiar with the Petroleum Act—[Interruption.] perhaps my researcher is not familiar with it. What exactly is the significance of being regarded or not being regarded as

“ resulting in the boring for or getting of petroleum” for these purposes? What is the practical relevance of that? If the extraction of oil from a geological area of this type constituted boring for petroleum, what would that mean in practical terms for the operation of this facility?

That reflects an underlying worry that this is an example of gold-plating—that there is a rather extreme level of detail in the provision that might be better dealt with in more flexible regulation. The worry is that we run the risk that if, for instance, enhanced oil recovery becomes viable unexpectedly in the course of the operation of one of these facilities, the Secretary of State will have almost boxed themselves into a situation in which a particular regime applies to that and there is not sufficient flexibility to allow it to take place on a viable or commercial basis. I would therefore welcome clarification if possible of exactly what the implications are of this near overlap with the petroleum licensing requirements.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

My hon. Friend the Member for Bolton, South-East has introduced an important discussion. However, as he knows, we have a great deal of expertise in this type of territory. I recognise that in relation to carbon capture and storage—we shall move on to that aspect of the Bill shortly—it is relatively new territory. However, I am advised that the companies themselves will be required, under the terms and conditions of their licence, to provide the information that he seeks. Tests and drilling information will provide the company with the relevant information.

Earlier, I said that certain powers would not come into effect where the Secretary of State was persuaded that the concentration of hydrocarbons was insignificant. It might be helpful if I say that if circumstances change and the amounts of hydrocarbons increase substantially, the Secretary of State must issue a notice to the licence holder revoking the direction. Again, this comes down to the proper and appropriate management and inspection of what is happening over what is often a very long period. The prime function is for the companies themselves, but I reiterate the importance of the inspectorate that we are putting in place.

Question put and agreed to.

Clause 14 ordered to stand part of the Bill.

Clause 15 ordered to stand part of the Bill.