Energy Supply (Winter 2006-07)

Trade and Industry written statement – made on 11th July 2006.

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Photo of Alistair Darling Alistair Darling Secretary of State for Trade and Industry

The National Grid Winter 2006-07 Consultation Update published by Ofgem today continues to indicate the possibility of a tight supply-demand balance for gas for winter 2006-07. This situation has led to concerns about high prices, and Government recognise the impact of high prices on domestic and industrial users. The Government are therefore keen to ensure that early action is taken to maximise supplies of gas to the UK for next winter.

Production of gas from the UK Continental Shelf, although lower than last winter, will continue to be by far the most important source of supply to the UK. The balance of demand will need to be met through imports and release of gas from storage.

The market is already responding by delivering further new import infrastructure that is due to be available for this winter. This includes the completion of the Langeled Pipeline from Norway and the further expansion of the Belgian interconnector. There are also plans for the Balgzand-Bacton pipeline from the Netherlands to be in place this winter, as well as the new Excelerate LNG ship import facility in Teesside.

The LNG import facility at the Isle of Grain will be available for the full duration of the winter, and the Humbly Grove storage facility is also available to start the winter at full capacity. The Rough storage facility has started injecting gas and should be refilled by the end of October, and should be available for storage withdrawal if needed at the beginning of October.

As reflected by the National Grid Update however, there is uncertainty around the overall position on supply-demand balance. This is partly a result of the risks associated with major infrastructure projects, and commercial uncertainties associated with the utilisation of the infrastructure.

The Government are monitoring closely the situation with regard to availability of import infrastructure, including progress of these new major infrastructure projects. The Government are also working to ensure that imports through the Interconnector and imports of LNG respond to demand from the UK. Interactions between the UK and other markets are growing, and Government are continuing their efforts with Ofgem and the European Commission to press for greater transparency and liberalisation in Continental European markets. The Government remain committed to the liberalised market as the means of delivering security of supply.

The Government are also seeking to encourage maximisation of UK production, and are meeting with key gas production companies, to emphasise the importance to the UK of maximising indigenous gas supply during the winter.

The Government are also working to ensure that the UK market can respond effectively to market conditions, through supply-side and demand-side response. The availability of electricity generation capacity is expected to be similar to last winter. We would expect that during periods of high gas demand, coal generation would again become significant as the base load generator, and some gas-fired generators would switch from gas to distillate as an alternative fuel.

Working within the environmental regulatory regime, the Government are keen to ensure that industry and the power generation sector have the necessary flexibility for fuel-switching and the use of alternative fuels. This recognises that at times of high gas demand last winter, demand-side response and baseload coal generation in the power generation sector was important.

As part of proper contingency and emergency planning, the Government are reviewing energy emergency arrangements, consulting industry and other interested parties. The Government will shortly be carrying out a consultation on gas priority user arrangements. The Government are also examining the role of the Network Emergency Co-ordinator, and reviewing energy emergency powers.

The Government are working to ensure that the best possible information on supply and demand forecasting is available to the industry, and is working closely with National Grid, Ofgem, the Met Office, and other key players.

The first meeting of the Business Energy Forum took place on 5 July. This is a high-level group jointly chaired by myself and Richard Lambert, Director General of the CBI. Its members include representatives from industry bodies including the Engineering Employers Federation, the Energy Intensive Users Group and the Chemical Industries Association, as well as representatives of gas producers and shippers, electricity generators and suppliers, and other user groups. The first meeting of the Group was successful in bringing together key players and focusing on key issues at a strategic level. It was agreed that Government and the business organisations would work together to ensure that efforts are co-ordinated and there is effective and regular communication in preparating for next winter.

Looking beyond next winter, the Government have also recognised the need for additional gas supply infrastructure, and a regulatory environment to allow such infrastructure to be delivered to the market in a timely fashion remains a priority for this Government. I therefore published in May, a Parliamentary Statement of Need for additional gas supply infrastructure, which set out the economic case for our growing need for more infrastructure, and clarified the Government policy context for planning and consent decisions on gas supply infrastructure projects.

The Government recognise that all participants in the market have a role to play, including the gas supply industry, which includes producers, transporters, and suppliers, users including industry, power generators and other energy intensive users, and regulatory bodies. The Government remain committed to ensuring that the UK's strong energy market has the opportunity to deliver to meet the UK's energy needs.