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House of Lords Hansard
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Energy: Winter Gas Supplies
09 October 2006
Volume 685

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asked Her Majesty’s Government:

Whether they consider that there will be adequate supplies of gas this winter.

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My Lords, the supply of gas is likely to be tight this winter and we remain concerned about high prices. National Grid’s Winter 2006/07 Consultation Report, published by Ofgem on 21 September, indicates, however, that under all reasonable weather-related scenarios supply should be able to meet daily demand. There is now greater certainty about new import infrastructure being on line for winter. The Langeled pipeline from Norway is already flowing gas; other major projects are on schedule; and the Rough storage facility is full.

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My Lords, I thank the Minister for his comprehensive and generally encouraging response. While it is satisfactory to note that we shall have extra pipeline capacity this winter, I am sure the noble Lord will agree that the essential issue is the amount of gas that will actually flow through those pipelines, bearing in mind our experience last winter and bearing in mind that we shall have to import about 30 per cent of our requirements this winter, according to estimates published by Ofgem. Does he further agree that, pending long-term measures to reduce our growing dependence on imported gas from increasingly uncertain sources, it is essential in the short term to increase our storage capacity which, even after the repair of the Rough facility, is still way below continental levels? Will he agree that the recent experience with the over-supply of gas during tests on the new Langeled pipeline emphasises the need for the UK urgently to increase its gas storage capacity?

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My Lords, the noble Lord is quite right in two respects. First, of course the position will depend critically on how much gas flows through the new interconnectors. We have been working on that issue for some time with the EU Commission to make certain that as much flows through as we want.

The second issue is the amount of storage. Because the Rough storage will be fully available this year, we hope—unlike last year, when it went out of action in February—and we will also have Humberley Grove available for the whole year, compared to only half of last year, we will have better storage. However, long term, we need to increase the amount of storage.

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My Lords, can my noble friend tell us how many reserve days we have left in the country, or will have, in comparison with our European colleagues?

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My Lords, I cannot give the exact figure. Such comparisons tend not to be very helpful because there is a wide difference between countries which have their own gas supply, which tend to have virtually no storage, and countries which have no gas supply, which have substantial storage. In the UK, we are going from one situation, where we have had virtually no gas storage because we have had our own North Sea gas supply, to another, where by 2020 we will be importing 80 per cent. So, at the moment, such comparisons are not very useful.

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My Lords, does the Minister know that at a recent conference convened by Ofgem, its chairman was asked how long it is likely to take before continental supplies are as liberalised as they are in this country? Is it not clear that what happened last year was due to all sorts of restrictions by continental suppliers, so that gas did not reflect differential prices? Is the Minister aware that the answer we were given was that it would take at least 10 years before the continental systems were liberalised? Is that not rather disturbing?

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My Lords, if it were to take 10 years, that would indeed be disappointing, but the Commission has taken very strong action on this. It is also important not to confuse forward buying plans of particular countries with monopolistic practices. Those are two different things and the current situation is a combination of them.

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My Lords, does my noble friend agree that the short-term position is very encouraging, given last year's difficulties, but that, in the medium term, we will become increasingly dependent on Russia? At present, Gazprom has about 95 per cent of the gas export capability in Russia and we in Europe are dependent on Russia for 25 per cent of our supplies. Given the stickiness and lack of investment on the scale that our increasing demands will require—that is, in the European Union—we need to be keeping a close watch on what is happening in Russia.

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My Lords, I agree that, although the short-term situation is much better, we need constantly to monitor the extent to which we get our supplies of gas from one particular country. The strategy is to make certain that they are well spread across the world, so that we have secure supplies from different parts of it. That must also be reflected in the overall policy, which is to spread the risk widely across different energy sources.

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My Lords, last winter, gas was available to flow through the interconnectors, but it was not pumped to this country because of the cost forced on us by the unliberalised market within Europe. Has the DTI worked out the figure for what that unliberalised market cost British gas suppliers and, ultimately, consumers?

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My Lords, I think one has to be very careful. People are supplying gas. The question is the basis on which they are doing so. If other countries have long-term gas contracts and we are taking the spot-price market, it is not a monopolistic practice that we do not get our gas. This is a question both of the forward buy-in practices of the companies involved and of unliberalised markets. We need to keep that in mind.