Clause 80 - Acquisition of rights to use upstream petroleum infrastructure

Energy Bill [Lords] – in a Public Bill Committee at 4:45 pm on 16th June 2011.

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Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change 4:45 pm, 16th June 2011

I beg to move amendment 53, in clause 80, page 62, line 10, after ‘have’, insert ‘piped’.

Photo of David Crausby David Crausby Labour, Bolton North East

With this it will be convenient to discuss Government amendments 55 to 58, 74 and 59 to 62.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

This group of amendments effects a number of adjustments and improvements to the provisions of chapter 3 of this part of the Bill, dealing with access to upstream petroleum infrastructure.

Amendments 53 and 55 to 60 are intended to clarify the scope of the chapter and refine it to make the powers provided more effective, both for the Secretary of State and industry. Amendments 53, 59 and 60 clarify that the provisions of this chapter are to apply to gas processing facilities only where they are upstream. It was pointed out to us by a company planning to build a liquefied petroleum gas import terminal that the previous definition of gas processing facility was sufficiently broad that it would catch its proposed facility and it would be possible in principle for someone to apply to the Secretary of State to determine access terms for that terminal. That is not our intention as this chapter has been framed specifically for the upstream petroleum sector.

Amendments 53, 59 and 60 therefore amend the definitions in this chapter so that it applies only to upstream gas processing facilities. The main feature of these amendments is that gas processing facilities now fall within the scope of this chapter only insofar as they are used for processing gas conveyed by pipelines from a production project. That is to say, they are not in scope with respect to gas delivered or arriving by tanker.

Amendment 55 extends the provision for access notices to provide for compensation where the access may reduce the value of the composite liquids passing through the system. Subsection (10) already provides for compensation where the access sought adversely affects the capacity available to other users of the system. This new subsection allows additionally for compensation in cases where the adverse effect in not on capacity, but on the quality or value of the commingled petroleum liquids.

We also wanted to make sure that the provision in subsection (12)(b), for access notices to be copied to all users of the system in question, took account of the commercial interests of the persons most affected by such notices, namely the owners of the facilities and those seeking access to them. We think it is right that other users of the system should be made aware of provisions in the notices that might affect their interests, particularly any provision for compensation under subsection (9). But the owners, or the applicants, might reasonably regard publication of other terms of the notices as being potentially damaging to their interests.

Amendment 56 therefore provides for the Secretary of State to hear any representations from the owners and applicants before copying the notice more widely; and if necessary, to redact the notices appropriately. By virtue of amendments 57 and 58, we have made similar provision in respect of modification notices issued under clause 82. Finally, amendments 61 and 62 remove carbon dioxide pipelines from the scope of this chapter: third-party access to these pipelines will be addressed through separate regulations implementing the third-party access requirements of the carbon capture and storage directive to be laid before Parliament in the near future. These are detailed technical amendments, and I hope that that has clarified their purpose to the Committee. I hope that they will be adopted.

Amendment 53 agreed to.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change 5:00 pm, 16th June 2011

I beg to move amendment 54, in clause 80, page 62, line 14, at end insert—

‘(1A) This section does not apply by virtue of subsection (1)(c) where a person makes an application to the owner of a gas processing facility for a right to have gas processed by the facility for a downstream purpose (as to which, see section 12 of the Gas Act 1995).’.

Photo of David Crausby David Crausby Labour, Bolton North East

With this it will be convenient to discuss the following: Government amendment 73.

Government new clause 11—Acquisition of rights to use gas processing facilities for downstream purposes.

Government amendment 76.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

The group is fairly straightforward and brief. New clause 11 will make a number of amendments to section 12 of the Gas Act 1995, which at present covers third-party access both upstream and downstream. We think that it will be desirable to have different regimes governing access to upstream and downstream gas facilities, and we propose to do so by amending section 12 so that the provision will apply only to downstream facilities, leaving the new regime set out in clauses 80 to 89 and schedule 2 to cover upstream petroleum infrastructure.

The new clause will effect the necessary changes to section 12 so that the section applies only to downstream gas processing facilities. The new clause will also amend a number of relevant definitions and remove the Secretary of State from any involvement in access applications to those facilities. They will instead be considered by the Gas and Electricity Markets Authority.

The new clause will also impose new requirements on owners of such facilities to publish a draft of new main commercial conditions or modifications to existing ones  and to take into account any representations made before publishing final versions. They reflect a new consultation requirement in the new European Union gas directive, which forms part of the EU third energy package of legislation. The new clause will also change the enforcement mechanism for a failure to comply with the requirements of section 12 to align it with other requirements that will stem from the EU third energy package. It is convenient to effect the changes here because the introduction of the new upstream regime will in any case require amendments to section 12. The rest of the transposition of the EU gas directive will be effected by regulations that will be laid before Parliament shortly.

The other amendments in the group are related to the new clause. Amendment 54 will amend chapter 3 for consistency with the new scope of section 12. Amendment 73 will remove the present provision in schedule 2 relating to section 12, which will be overtaken by the new provision set out in new clause 11. Amendment 76 will amend the long title to clarify that downstream gas processing facilities are covered by the Bill.

I hope that that has been a useful clarification of the issues involved, and that the Committee is satisfied with the explanation of the amendments and will be prepared to adopt them.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

May I ask about a point of information? Will there be a clause stand part debate in a moment? Do we have to go through the amendments first? I do not want to lose the opportunity to debate clause 80.

Photo of David Crausby David Crausby Labour, Bolton North East

Yes, we can have a clause stand part debate.

Amendment 54 agreed to.

Amendments made: 55, in clause 80, page 63, line 39, at end insert—

‘(10A) A notice under subsection (10) may also contain such provisions as the Secretary of State considers appropriate for the purpose of ensuring that no person suffers a loss by reason of the mixing together of—

(a) substances conveyed by the pipeline or processed by the facility on behalf of the applicant in exercise of a right secured by the notice; and

(b) substances conveyed by the pipeline or processed by the facility by or on behalf of any other person.’.

Amendment 56, in clause 80, page 63, line 48, leave out from ‘applicant’ to end of line 3 on page 64 and insert—

‘(12A) If a notice under subsection (10) contains provision of a sort mentioned in subsection (9) or (10A) the Secretary of State must give a copy of the notice to every person who has a right to have anything conveyed by the pipeline or processed by the facility.

(12B) Before giving a copy of a notice under subsection (12A) the Secretary of State must—

(a) remove from the copy any provision included in the notice by virtue of subsection (10)(d) or (11)(a); and

(b) after giving the owner and the applicant an opportunity to be heard, remove from the copy any other provision included in the notice which the Secretary of State considers may prejudice the commercial interests of the owner or the applicant if not removed.’.—(Charles Hendry.)

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

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I want to say a few words about the clause and the other clauses in the rest of the chapter. I am concerned that what they are driving at is a facilitation of the exploitation of the last hardest-to-reach oilfields in UK waters and of those with smaller, more marginal, reserves, neither of which are likely to be profitable without assistance. That assistance is found in the provisions that make it easier for third parties to access upstream oil and gas infrastructure such as pipelines to shore.

Further, exploitation of UK oil will obviously delay the point at which we can wean ourselves off unsustainable fuel. That in turn will reduce the pressure to maximise the potential of the energy efficiency and renewable energy industries, which, as we have been hearing throughout the Committee sittings, represent significant economic, environmental and social opportunities for the UK. Furthermore, hard-to-reach oilfields are by definition riskier propositions. If they required only straightforward operations, the areas that the clauses seek to open up would already have been exploited.

The exploitation of such areas is seen as a niche market. As such, the harder-to-reach fields are often exploited by niche operators. I believe there is a significant risk attached to making it easier for new, typically smaller companies to enter that particular market. I am also concerned about the setting up of legally insulated small subsidiaries of larger oil companies operating in this area. I understand that, despite operating in riskier circumstances, niche or subsidiary oil and gas companies often do not have the same level of liability cover as larger operators.

As the Deepwater Horizon and Macondo well disaster showed, when a mistake is made in such a hostile environment, it can be catastrophic and extremely difficult to correct. Some 200 million barrels of oil poured into the Gulf of Mexico. Billions of pounds have already been paid out in compensation and clean-up costs, and that is to say nothing of the impact on BP’s share price. It is unlikely that a smaller company or a legally insulated subsidiary of a larger company will be able to survive such a financial battering and it will simply fold, even with the Government and the taxpayer as insurers of last resort to foot the bill.

In addition to having fewer financial resources to respond to disaster, smaller companies may also lack the practical resources to react with the necessary speed. I oppose the clause because I want to see less oil drilling, not more, and because I want to ensure that the oil rig is extracted as safely as possible. The clause and the whole chapter generally move us in the wrong direction on both points.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

I am grateful to the hon. Lady, but I think she has misunderstood the nature of the clause. It is a relatively straightforward change to the way that we try to resolve disputes on infrastructure matters in the North sea. She talked about the need to wean ourselves off oil and gas. We agree with that, but at the moment we are dependent on oil and gas for approximately two thirds of our energy today. The reality is that for the foreseeable future, however much we try to change that—it will be a gradual change—we will either have to use our own resources or import them at a cost of billions of pounds to the British economy, but we will still be using virtually the same amount every year. We are going to use other measures to lead us in the direction of a low-carbon economy. It is not realistic to  suggest that we can do that at an incredible speed and will have come off oil and gas completely in the next few years. That is not going to happen and we therefore have a national interest in making sure that we continue to get the benefit of our own natural resources.

The hon. Lady said that the hard-to-reach fields are by definition riskier. That is not the case. Some of the riskiness, danger and difficulty depend more on things such as the temperature or pressure of the oil. Those may be in shallower rather than deeper waters. We are nevertheless seeing a change in the way in which the North sea is operated. I welcome the fact that we are seeing some smaller companies moving in. The huge international oil corporations are perhaps less interested in fields of the scale that we now find in the North sea and UK continental shelf and are looking elsewhere.

There is a real role for specialist niche operators that are still nominally multi-billion pound companies that can take part in the process. The issue at stake in the clause is that where they want to use access that is already in place—not their own infrastructure, but somebody else’s—it can sometimes be difficult to get agreement. Sometimes it is straightforward. Sometimes they cannot agree on the funding formula and the long-term arrangements and liability issues. At the moment, the legislation enables them to come to the Secretary of State for a determination, but that is a rarely used procedure. Only one application has been made. We are aware that companies are sometimes worried about approaching the Secretary of State for a determination, because of the importance of that trading relationship to them. They feel that if they come to us, it may be adverse to our long-term relationship. The simple change that we are making here gives the Secretary of State the power, where he believes there is a blockage, to intervene and say, “This is how I believe that access to the infrastructure should be covered”.

The change makes no difference to the long-term liability cover: there have to be assurances that those companies are in a position to decommission or reach an agreement on how the decommissioning should be funded, and the liabilities issues remain intact. It makes a very small change indeed to the process, in which the Secretary of State would now be able to instigate finding a solution rather than having to be asked to do so. On that basis, I hope that the hon. Lady will be prepared to accept that the clause should stand part of the Bill.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I am grateful that the Minister acknowledges that we need to wean ourselves off fossil fuels, but the word that we disagree about is “gradually”. Climate change cannot wait for us to gradually wean ourselves off fossil fuels. He said that it is not realistic to go faster, but I think it is not realistic to believe that the climate will wait until we finally garner the political will to deal with this differently. I strongly argue that were the political will there, we could certainly wean ourselves off fossil fuels much more quickly and go much more rigorously towards the alternative, be that distributed energy, renewable energy or energy efficiency. It is clear that I will not persuade him and he will not persuade me.

To my mind, the clause and the rest of the chapter are essentially about facilitating access to the remaining oil reserves, and that is incredibly dangerous. The scientists  are already telling us that we are very unlikely to be able to stay beneath the 2° so-called threshold, given the trajectories that we are all on. We also hear from scientists that the 2° threshold is not the distinction between acceptable climate change on one hand and dangerous climate change on the other, but between dangerous climate change and very dangerous climate change. I regret that I need to detain the Committee, because I am not sure that I will get much support from other Opposition Members, but to make my point I want to object to the clause and press it to a Division.

Question put and agreed to.

Clause 80, as amended, accordingly ordered to stand part of the Bill.

Clause 81 ordered to stand part of the Bill.