§ Order for Second Reading read.8.33 pm
§ The Secretary of State for Energy (Mr. David Howell)
I beg to move, That the Bill be now read a Second time.
I begin by warning the House that this will not be the most exciting speech that I shall make on energy issues. To judge by the state of the Opposition Benches on this great day of action, there will not be a large audience to listen to it, anyway.
Although it is true that gas supply will play an increasing role in energy supply in the coming years and although some of the major and most dramatic developments in energy supply lie in this area, the Bill is a limited measure that applies to an immediate gas supply problem. Although the Bill is short it is of some complexity.
As I am sure hon. Members are aware, there has been an unprecedented increase in the demand for gas during the past year as a result of the enormous oil price increases and the great and continuing uncertainties over the oil supply.
The British Gas Corporation, before the dramatic events in world oil markets last year and this year, had already planned to increase supplies of gas steadily over the next five years, but the sharp increase in demand has far exceeded that planned expansion. As a result, the corporation has been obliged to limit its acceptance of new business for fear that it could not maintain an adequate level of security of supplies during a severe winter.
I emphasise that it is the difficulty of matching supply and demand on peak winter days that poses the problem with which we are dealing rather than any general shortage of supplies on an overall annual basis. Failure to meet peak demand could mean rationing or cutting off whole areas and industries at very short notice. That, for the gas industry, could also raise safety problems and be highly undesirable.
The corporation has already announced plans for bringing forward several capital 1597 investment projects to increase peak supplies further in the face of the situation that I have described. It has recently acquired the partially depleted Rough gas field in the southern basin which it plans to use as a seasonal store. Other storage will be provided by the construction of salt cavities. The construction of the fourth onshore pipeline from St. Fergus in Scotland will be advanced to relieve bottlenecks in the supply system bringing gas from the northern North Sea southwards. The corporation is planning to obtain supplies from new sources which exist in both the southern basin of the North Sea and its own Morecambe field in the Irish Sea. All these projects are in being, but, inevitably, they have long lead times and involve major complexities. The problem is that peak supplies cannot be increased substantially overnight.
The corporation has, therefore, had to limit its new supplies, except in most exceptional circumstances, to those whom it has a statutory obligation to supply. That means, with few exceptions, only those premises within 25 yards of a gas main and requiring fewer than 25,000 therms a year. However, the statutory obligation to supply also extends to those premises which consumed more than 25,000 therms a year prior to 30 November 1976. That is under existing legislation. Such premises are entitled to receive up to the maximum amount supplied in any year prior to that date regardless of whether they are consuming gas now or even whether the premises are still owned by the same person or company. They are also able to take that supply on tariff at any time if they so wish. In other words, British Gas is in no position to control large offtakes of gas in this area.
The Government have, therefore, decided to seek powers to relieve British Gas of its statutory obligation to supply anyone with more than 25,000 therms a year and to allow it to do what at present it does not have the power to do, namely, to enter into special agreements—contracts where the price is negotiated between supplier and customer—for supplies above that level. Therefore, in future, instead of a statutory entitlement, any premises consuming more than 25,000 therms per annum would, under the powers in the Bill, have to rely on a freely negotiated 1598 contract, as would be the case in other instances—for example oil supplies.
§ Mr. T. H. H. Skeet (Bedford)
My right hon. Friend talked about a freely negotiated contract. How can one have a freely negotiated contract with a monopoly?
§ Mr. Howell
Because the gas is supplied in relation to the nearest competitive fuel, which is oil. Firms are now turning in great numbers from very high-priced oil to gas, so there is a competitive element there. That is the limitation on the monopoly. I agree that, with oil prices going through the roof, as they have done, the pressure to take gas instead at prices very much higher than before rather than to pay the still higher prices for oil is bound to be present.
Currently, British Gas offers supplies on special agreement to anyone consuming more than 100,000 therms a year. These agreements provide better control over supplies than is the case with supplies on tariff which are not subject to off-take restrictions, but under the provisions of the Gas Act 1972, British Gas is permitted to do this only where a supply on tariff would be inappropriate owing to special circumstances—in other words, very large volume requirements.
As I have mentioned, in practice British Gas has entered into special agreements only where the customer's demand would exceed 100,000 therms a year. Given the intention under this Bill to restrict its obligation to supply to 25,000 therms a year in all cases in future, the Government have decided to seek to give British Gas powers which will enable it to offer special agreements to any premises consuming more than 25,000 therms a year and to do so on an unequivocal basis. This will both avoid doubt about its position and place the right to supply on the basis of negotiated contracts, as in the case with negotiated contracts for those now receiving gas and consuming it at a rate of over 100,000 therms a year. That is the limited purpose of this small Bill.
I turn to the specific provisions in the Bill. As I have said, it is short. The two substantive provisions are contained in clause 1. These amend and modify the application of certain provisions contained in the Gas Act 1972. Subsection (1) of clause I amends the corporation's 1599 general obligation under paragraph 2 of schedule 4 to the Gas Act, so that it shall not be obliged to supply any premises with more than 25,000 therms a year. Section 13 of the Energy Act 1976 relieved the corporation of the obligation to supply more than 25,000 therms a year to new customers. It provided, however, that where existing customers have been receiving higher annual amounts prior to November 1976, they should continue with the right to receive supplies up to those higher figures.
In other words, the Energy Act 1976 created, in effect, a sort of preferred class of customers, to whom I have already referred, who were able to continue to take gas on non-domestic tariff in this way. Such customers could have been receiving their supplies either on non-domestic tariff or under firm or, indeed, under interruptible contracts. But whatever the method of supply, it is plainly unsatisfactory that, because of the fact that they were not covered by the 1976 Act, they should be guaranteed higher supplies indefinitely and whenever they care to seek them, in preference to new and developing industries—and many of us know of many examples—which might well, at a time of pressure on supplies, have a more deserving case and would be prepared to pay for any gas that they could get.
The effect of subsection (1) coupled with subsection (3) of clause 1 is, therefore, to revoke the statutory right of the pre-1976 customers to an annual supply exceeding 25,000 therms.
§ Mr. Dick Douglas (Dunfermline)
Will the Secretary of State explain the length of the contracts in existence? Are they annual contracts or do they exceed a year's duration? If they are annual, it is understandable, but if the Gas Corporation has entered into contracts for longer than a year, for, say two years, he is in extreme difficulty with the Bill.
§ Mr. Howell
Firm contracts are largely annual. I would not like to say that all contracts are fixed to one year. Some are certainly longer. But the firm contracts about which we are talking are usually annual.
In that context, I emphasise—I am glad that the hon. Gentleman raised the point about the nature of contracts— 1600 that nothing in the Bill affects any contractual obligations of the corporation to give a supply of gas. In other words, customers already receiving their supplies on contract will be able to continue to rely on their contract. Commercial arrangements are, obviously, a matter falling within the responsibility of the corporation's management, but it would not be its intention to use the power in the Bill to make reductions in the amounts currently being supplied over 25,000 therms a year to industrial and commercial tariff customers. I should also make clear that they, and British Gas existing contract customers will, on negotiation or renewal of their contracts, have to expect to pay what those currently without access to a gas supply would be prepared to pay.
Once a customer's consumption exceeds 25,000 therms, BGC will supply gas in excess of 25,000 therms—in the absence of a special agreement—at an appropriate and published tariff rate. Under section 25(5) of the Gas Act 1972, BGC is prohibited from exercising " undue discrimination " against any person, or class of person, when fixing tariffs. In order to ensure that existing customers who consume more than 25,000 therms a year can continue to be supplied at an appropriate tariff rate until they have negotiated a contract, the Government propose an amendment to the Bill. We seek to ensure that the undue discrimination provisions of section 25(5) will not apply to any person consuming more than 25,000 therms per year.
§ Clause 1(2) relates to cases where the BGC supplies a customer with more than 25,000 therms a year—that is, more than would be the customer's statutory right under the Bill. It provides that the proviso in section 25(6) of the Gas Act, which restricts the BGC's power to enter into a special agreement in cases where the tariffs in force are not appropriate owing to special circumstances, will cease to apply to a special agreement covering an annual supply of more than 25,000 therms.
§ Mr. Arthur Palmer (Bristol, North-East)
Perhaps the Minister will explain how it will be possible to avoid undue discrimination if there are no standard rates, and if each case is negotiated individually.
§ Mr. Howell
That is precisely the point of the amendment. It removes the undue discrimination provision and allows the BGC to propose new tariffs for an offtake of more than 25,000 therms a year. Those tariffs will be published shortly.
At present, the corporation has set 100,000 therms a year as the threshold at which it offers a supply on contract. The effect of subsection (2), is that customers who take between 25,000 and 100,000 therms a year, and who are now supplied on the non-domestic tariff, will be invited to take supplies on contract.
Clause 2 makes clear that the Bill does not extend to Northern Ireland, and that is consistent with the Gas Act.
This is an important, but limited measure, which addresses itself to the immediate problem of the vast surge in demand that followed the enormous increase in oil prices, which has been experienced both this year and last year. I know that many hon. Members—including myself—have received letters from industries in their constituencies complaining about the difficulty of getting a gas supply. That is an unsatisfactory state of affairs when work could be done, wealth could be created and jobs could be generated if gas supplies were laid on. Through extending the range of the contract market—where flexibility is an important factor in matching supply and demand—the BGC will be able to make the best use of available supplies in the short term, pending plans for extending those supplies in coming years to meet the new problems.
The provision should help to ensure that those who are anxious to get a gas supply will have a better chance of bidding for what they need instead of depending on some form of arbitrary rationing by the BGC, or simply not getting the gas at all.
The pattern of gas supplied to industry is very far from satisfactory. Preparing for the much heavier demand on the gas supply system—a feature of the 1980s— is bound to take time. It will also involve difficult decisions. The Bill is one small step towards the further arrangements required. I commend it to the House.
§ Dr. David Owen (Plymouth, Devonport)
We do not oppose the Bill, and 1602 we welcome the Minister's amendment as a helpful clarification. However, we regret the need for the Bill and are concerned about the consequences for some industries, particularly those with an absolute requirement for gas. It should be made clear from the outset that in its difficult decisions over contracts we expect British Gas to show particular care about the way in which it deals with industries which must use gas— those with preferential or highly technical reasons for relying on gas.
The Secretary of State has explained the Bill, and I do not complain that he has confined his remarks to a limited description of the measure. However, the problems will be with us through the 1980s and 1990s. Gas is showing every sign of becoming an important new energy resource. Its use is expanding rapidly and the manner in which we use it is crucially important.
It is also important that we know what is being done to increase the supply of gas over and above the short time scale with which we are dealing in terms of the projects that are already virtually committed. We welcome the Morecambe Bay project and the exploitation of southern gas. We welcome the pipeline for northern gas, and we are in favour of looking at ways of building up reserves in various geological formation to give a reserve capacity.
We believe that the safety requirement is of such importance that it is necessary for British Gas to have this interruption capability. But it is much more important for us to be assured that the intended expansion of British Gas production from the present 5,000 million cubic feet a day to a projected 6,500 million cubic feet a day will be fully maintained. Indeed, we should look seriously at whether production should be expanded a good deal faster. The projected increase is about 30 per cent., and that is substantial.
Most hon. Members will be worried about the fact that there was no commitment in the Secretary of State's speech to future gas-gathering pipelines. The House has waited patiently for this for months. My main reason for intervening in the debate is that I do not believe it is satisfactory to continue with this delay.
I know that the Secretary of State is involved in difficult negotiations with 1603 Norway, and we wish him success. If it is possible to reach an agreement between the two countries, we would all wish to see it. But increasingly, over the past few years, the fundamental national interests of the United Kingdom and Norway have been diverging. Norway has a strong interest in seeing that gas prices are at the highest possible level and that they follow oil prices. I do not believe that it is in the United Kingdom's interests that gas prices should follow oil prices. I am increasingly concerned about some of the arguments from the Conservative Benches that we should encourage this trend.
We all realise that gas prices cannot be insulated from overall energy prices. There is bound to be a relationship to oil prices. However, OPEC does not have a stranglehold on gas prices at present. It controls only 18 per cent. of the overall supplies of internationally traded gas. Admittedly that percentage will increase substantially, and we can expect that by 1990 about 37 per cent. of all the gas internationally traded will be controlled by OPEC. That still does not give it a stranglehold on gas prices, although it gives it a powerful influence.
It is important to realise that the other major gas producers—the Netherlands, still a major factor, with 27 per cent.; the Soviet Union, which does not have an interest in pushing internationally traded gas prices up to full comparability with oil; Canada with 16 per cent. and Norway with 9 per cent.—are in a similar situation to the United Kingdom. They have an overriding interest to see that energy prices internationally are restrained as much as possible. That has been Britain's view under successive Governments. Despite the fact that we are oil rich and have substantial gas resources, we do not believe that it is in our interests to push up energy prices, but rather to act as a reasonably restraining influence. I wholly support that policy.
Those countries with substantial gas reserves owe it to the overall energy pricing situation, first, to try to restrain oil prices where they have an influence on them, and, secondly, to try to ensure that gas prices do not automatically follow.
§ Mr. Gordon Wilson (Dundee, East)
I am particularly interested in the right hon. Gentleman's argument about re- 1604 straining gas prices. Does he agree that tremendous new discoveries of gas are likely in the Norwegian sector and that the United Kingdom will have to bid in the market place with West Germany, France and other European countries, which will be desperate for energy resources?
§ Dr. Owen
We may have to bid. We have already purchased from Norway. I do not exclude the fact that we may have to purchase again from Norway and other countries. We already have a small liquid natural gas supply, but it may be necessary to bid.
I am asking for a policy which tries to restrain gas prices internationally, which as far as possible avoids having them pushed up by the OPEC cartel and which does its best to use the existing gas from the United Kingdom continental shelf in the United Kingdom. It has been the policy of successive Governments not to export gas. It is therefore of fundamental importance that we bring it to our own country as quickly as we can.
That means two policy decisions. First, we have to invest in a gas-gathering pipeline linking at least 11 fields. That may be possible if we get agreement with Norway. However, I believe that the oil price increase has been of such a size that we can justify going ahead with the United Kingdom gas-gathering pipeline without Norway.
It is becoming more and more clear that to avoid future delay, and because of quite legitimate divergent national interests between Norway and the United Kingdom, we should pursue the idea of a United Kingdom gas-gathering pipeline with the utmost speed.
§ Mr. Tim Eggar (Enfield, North)
Is the right hon. Gentleman aware that the Canadian Government recently announced their intention to seek parity for their gas prices into the United States with prices negotiated by the Mexican Government? Is he further aware that Frigg gas from the Norwegian sector is already linked to oil prices?
§ Dr. Owen
I am aware of those facts. The question is whether they are desirable. One factor that needs to be taken into account is that 77 per cent. of United Kingdom gas production is owned by foreign multinational companies, 52 1605 per cent. of which are United States companies. They all have a strong vested interest in the highest price possible. Only 17 per cent. of the production is directly State owned—10 per cent. through British Gas and 7 per cent. through BNOC.
Conservative Members should be arguing the case in perfect logic that if we can get gas at a lower price, it is in the national interest to do so. It would be helpful if the hon. Gentleman and his hon. Friends would argue the case that gas pricing does not necessarily have to follow international oil pricing. It does not have to be influenced and dominated by OPEC. There are already signs that OPEC is asking not only for comparability of price but for extra charges because of the high freight charges for carrying liquid natural gas. In addition, it wants a premium. If voices argue from this Chamber that it is perfectly normal and right for natural gas prices to be the same as oil prices, it will be harder for the Government and British Gas in their negotiations to resist that.
I understand why the Secretary of State thought it necessary to increase the price of gas, and in justifying the increase he paid great attention to international factors. However, Conservative Members cannot go on to argue from that that gas prices have to follow oil. Perhaps they have to be influenced strongly by the oil price, but they do not have to follow.
It is important to realise that the pressure for gas to follow oil is coming largely from international companies with a substantial stake in the United Kingdom's continental gas. We ought to offset that by arguing for a lower price where possible. That is why I believe that British Gas has been right to strike good bargains in the past. Of course, those days are over and British Gas will not be able to get gas so cheaply in future, but we and our industry have benefited considerably from those favourable contracts. British Gas should be strengthened in negotiating for a cheap price. Certainly nothing that we do should increase the price.
A decision on a gas pipeline is needed soon. It will reduce the amount of flaring, which is a serious problem. Until we have a pipeline, we shall continue to 1606 have considerable flaring. I hope that now that the international oil supply situation is easing—though it changes from month to month—the Secretary of State will continue with his tough flaring policy and will relax it only if we run into serious oil shortages.
We were driven to relax the policy in the immediate aftermath of the Iranian crisis, but the Minister of State subsequently tightened the requirements and I believe that there is a case for considering whether they should be tightened even further. As 14 million cubic metres of gas were flared daily in the first quarter of 1980, it is clear that the amount of flaring is still far too high.
I turn to the financing of a gas pipeline. We must question the Government's intentions behind the decision announced in a written answer—a strange way of introducing a new tax—to tax gas. The price increases announced by the Secretary of State were astronomical and were justified under the terms of the Gas Act by the Government's claim that the increases were in the long-term interest of gas consumers, because surpluses were being built up and invested in Government loan stock with a substantial return, which British Gas could justify as a sensible deployment of its resources and which also helped the public sector borrowing requirement and the Treasury.
I have no objection to that, but we are now told that the gas tax will substantially reduce the surplus. I do not believe that the power to raise prices in the autumn exists in the Gas Act, now that the Government have decided to syphon off part of the surplus in a gas tax. If they wish to raise prices in the autumn they will have to amend the Gas Act.
It is one thing to build up a surplus that is invested by British Gas, but another to build up a surplus on a price increase and channel it into a gas tax. When is the legislation for a gas tax to be brought forward? Is the tax intended to operate during the current fiscal year? We wish to know a great deal more about it.
My main worry is that if such a tax is introduced, the resources will go directly to the Treasury and we shall no longer have British Gas with a substantial surplus capable of generating funds 1607 to invest in a gas pipeline. That raises serious problems. If I am wrong, I hope that the Secretary of State will intervene. If we are to syphon off a gas tax from British Gas, its ability to finance its share, which I hope will be substantial, of a gas pipeline will be severely reduced. It will no longer be able to build up such substantial reserves as it plans to do.
We must have an assurance that British Gas, with Mobil, which did the original consultancy for the gas gathering pipeline, will be a major shareholder in any pipeline.
§ Dr. Owen
The hon. Gentleman asks " Why? ". I believe that over the last 15 years British Gas has demonstrated a good record in bringing gas ashore to its consumers, but it has run into a problem of a shortage of gas supplies, largely due to international factors that were hard to foresee, which has affected demand. It would be sheer animus against a successful nationalised industry if it were unable to have a major stake in any gas gathering pipeline.
If Ministers wish to have any form of bipartisanship over policy, the question of a partnership between private and public enterprise in the North Sea is extremely important. If there is to be a restriction of the monopoly of British Gas and a restriction of the investment of British Gas in its future, that will be strongly against the national interest. It will very much change the Opposition's attitude on a number of energy policies, particularly as they affect gas.
§ Mr. David Howell
We are wandering a good way from the contents of the Bill. I should, however, like to make it clear that there is no reason on earth why a levy on the costs of the British Gas Corporation arising from the PRT-exempt gas fields in the southern basin of the North Sea should affect or influence the investment decisions of the BGC, whether in joint ventures, or drawn from the public sector, or in any other way. The right hon. Gentleman asked me to correct him if he was wrong. I am correcting him. He is wrong.
§ Dr. Owen
It will very much change its financial situation. We do not know what rate will be levied. This industry, under a pricing policy largely forced up- 1608 on it by the right hon. Gentleman, was heading for substantial profits. One of the arguments was that these profits would be invested for the day when there would be higher investment in terms of pipelines and development of further fields to expand production. This is closely related to the issue that we face—the inability of British Gas to meet demand without taking a strong interventionist power to interrupt its supplies. These factors are closely related and are part of a seamless robe. The right hon. Gentleman should see that it is necessary to take a view now.
We have waited months for a decision on the gas pipeline. I am interested to know who will finance the pipeline and whether British Gas will have the freedom to invest and take the substantial stake in that pipeline which I believe is necessary if part of its profits are to be creamed off through a specific gas tax.
The energy pricing policy announced by the right hon. Gentleman a few months ago is increasingly being undermined. The Opposition are not wedded to market principles in energy pricing. It is an illusion to believe that a genuine market exists in energy prices. The OPEC cartel, in the first place, is the dominant force. We are in favour of an interventionist policy on pricing. We do not necessarily object to it. I believe that there was a case for increasing, preferentially, the price of gas over and above electricity, which was one of the effects of the right hon. Gentleman's previous statement. That will now be changed by the decision to allow the increase in electricity prices to be brought forward.
I hope that the Secretary of State understands that the Opposition, in supporting the Bill, support basically the principle that this area of energy—gas, electricity, oil or coal—cannot be left to totally free market forces. There is a strong case for intervention and for recognising that we operate in a situation in which there is an overwhelming interest in protecting the United Kingdom industry and the United Kingdom consumer.
My view, on looking at our gas pricing policy, is that we should take into account very much all the views of our industry. Serious concern is felt by some industries dependent on gas about the way in which they can suddenly find themselves facing substantial price increases. There is also 1609 the whole qustion of interruptible supplies.
We believe that it is necessary to take these powers at present, but we should like to see a far closer integration and greater coherence in the overall energy policy pursued by the Government as between gas, electricity, oil and coal. That is the main yardstick by which we shall judge the Government's intervention. We recognise the need for intervention and will welcome it, but we grow more and more anxious about the rhetoric of Ministers' speeches about market forces and market pricing. There is no such thing in energy matters. The sooner that is realised on both sides of the House, the sooner we shall have a rational energy policy.
§ Mr. T. H. H. Skeet (Bedford)
The right hon. Member for Plymouth, Devonport (Dr. Owen) lives in a dream world. He said that it was not in the United Kingdom's interests that gas prices should follow oil prices. He was aware of it, but is it desirable? Most of the world has accepted that these matters are related. The current chairman of the British Gas Corporation has indicated that it is his desire to relate gas prices to gas oil prices, for firm contracts, and fuel oil prices for interruptable supplies.
I said the other night that British Petroleum in the development of the Ula field in Norway would ultimately deliver gas to Gelsenberg at an oil-related price. Mexican and Canadian prices have been mentioned. All these prices are moving up in general alignment.
We cannot escape the fact that in Iran, covering the Igat pipeline, the Iranians, before their severe problems, were intent on increasing considerably the price that the Russians would be forced to pay. Moreover, OPEC controls over 75 per cent. of the liquefied natural gas market, an international market that affects these matters.
Therefore, the right hon. Gentleman may desire certain things—we all desire to have low prices—but unfortunately they do not happen like that in the real world. We experienced exactly the same with the oil prices. We had hoped to have remarkably cheap oil for the benefit of our industry, but 1610 OPEC forced up the price and is continuing to use its muscle. We must face reality. It is no good the right hon. Gentleman's hoping that he will persuade the Government to accept some of his suggestions.
My right hon. Friend the Secretary of State talked about freely-negotiated contracts. But such contracts with a monopoly are not practicable. I remember when the British Gas Corporation was making its arrangement with the oil companies over the southern gas fields. The low price imposed on them—1.87 old pence per therm—was not freely negotiated. It was because prices were forced to such a depth that very little exploration has been carried out for gas in the northern fields.
However, I must return to the Bill. It may be useful if I ask my right hon. Friend or my hon. Friend the Under-Secretary a number of questions. My right hon. Friend has presented a Bill in which he deprives certain customers of their rights. How many customers fall within the category of taking 25,000 therms to 100,000 therms a year? I have an idea that there are probably about 11,500 affected. That is not a small number. They are being deprived of a right. We shall find out exactly what they receive in return.
Secondly, will my right hon. Friend describe the type of customers affected? Are they not small industrialists and commercial operators? What representations has he received from those affected? How much gas is involved and is available for switching to the large industrial and commercial customers? If a small amount is involved, why bring in this Bill? If it is a large amount, I am surprised that the Secretary of State did not mention it
We must have an answer as to what will be the quid pro quo for this group which has lost its rights to assured supplies of gas and is obliged to pay higher contractual rates. We will see when we reach the amendments that a contractual rate and no longer a tariff rate or a published rate is maintained. It is a rate established on contractual terms. What the monopoly buyer can get out of the consumer cannot be compared with any other rates paid by other consumers, because the rates are not published.
1611 The Secretary of State said that the provisions were in the Bill because of inadequate supplies available in the United Kingdom. I accede to that point, but would not one of the short-term answers be to import more LNG into the United Kingdom to cover peak requirements? Many projects are being developed and the British Gas Corporation has plans with a capital cost of £5 billion. As these projects will take some years to secure, surely the answer is intensification of exploration.
However, there are four golden rules that must be observed, and I wonder whether the Government are observing them. There should be less regulation on crucial matters. There should be reasonable and stable taxation. There should be recognition of the inability of the British Gas Corporation to make the effort both in exploration and marketing. Monopolies should pay reasonable market prices for raw gas. If those rules were observed, exploration could be intensified and more supplies made available to meet insatiable demand.
There is a need for an early start on the construction of the required infrastructure and the pipeline to bring North Sea gas ashore. I agree with the right hon. Member for Devonport about that.
Parliament has still to be advised and to take a decision on this matter. It is quite absurd that companies are already planning policies on acceptance of the joint report, yet apparently this House has no knowledge of it. I assume that die Minister has read the report, but perhaps he is deferring his statement on it for some time.
In order to increase supplies, we should do everything we can to top up indigenous supplies by imports from Norway and elsewhere by permitting private initiatives in selected areas in the industrial sector.
§ Mr. Skeet
I will come to that in a moment. I will give the hon. Member for Bassetlaw (Mr. Ashton) the answer if he is patient enough.
I think that the Secretary of State has missed a great opportunity to bring in a comprehensive Bill to deal with the gas industry. There are one or two other things that my right hon. Friend has also 1612 overlooked that might have appeared in the Bill. One is die establishment of a common carrier pipeline system for the North Sea gas transmission lines and a tariff regulatory authority to ensure fair transit charges for delivery to the monopoly buyer, the British Gas Corporation. I assume that the right hon. Member for Devonport, is listening to this, because I am certain that he would find acceptable a regulatory authority that would set fair tariffs.
There should be a windfall profits tax and the British Gas Corporation monopoly should be curtailed. That could be affected by the establishment of free transmission and distribution rights in enterprise zones or specific industrial areas in modification of the Gas Act 1972 and the Energy Act 1976.
We could provide for and clarify any desirable diversification of the British Gas Corporation which has not been provided for in the earlier Acts, particularly in section 2 of the Gas Act 1972. We might also dispose of, or assign, British Gas Corporation's oil interests as being outside its primary function as a marketer and distributor of gas.
It has been reported in the national press that the British Gas Corporation is to apply for planning permission to build an ethylene plant at Nig Bay, in Ross and Cromarty, on land owned by Dow Chemicals. Whether the British Gas Corporation has authority to manufacture petrochemicals would doubtless be determined by an interpretation of section 2(2)(f) of the Gas Act 1972. However, the Act should be amended to provide that this right is exercised only upon the express consent of the Secretary of State.
Section 9 of the Coal Industry Act 1977 gave the National Coal Board the right to move into this sector. Clarification should now be given on whether the Government are prepared to endorse that line of approach.
The Government should modify section 2(2)(b) of the Gas Act 1972 to provide that, where the British Gas Corporation has discovered oil with only marginal supplies of natural gas which are not commercially exploitable, it should sell or assign its interests in such fields as being outside its primary function as developer and marketer of gas. The following oil fields would fall into that 1613 category: Montrose, with a 30 per cent. holding, Beryl, with a 10 per cent. holding, Fulmar, which is under development, with a 3.9 per cent. holding and North West Hutton, with 25.7 per cent.
§ Mr. Douglas
Does the hon. Gentleman concede that all the oil companies operating with the British Gas Corporation are extremely pleased with the relationship? To destroy that relationship would not be beneficial to British interests in relation to a United Kingdom public share of oil and gas resources.
§ Mr. Skeet
I do not agree with that argument. Such a relationship could be conveniently operated by the BNOC, if it were kept, because it is an oil establishment. It could be successfully operated by British Petroleum, which is approximately half owned by the Government. It could be operated by the market, which would provide the money, so that it would not have to come out of the coffers of BGC. There is every argument for doing that. The BGC, being a monopoly buyer, would be in a position to receive the product from the mouth of the pipeline.
I turn to the question of the windfall profits tax. The right hon. Member for Devonport said that he would like clarification. So should I. About three or four weeks ago I asked a question of the Chancellor of the Exchequer. The Secretary of State replied. He said that legislation was required and that it would be introduced as soon as possible. Why does he not introduce it in the Bill? Will we be told that it will be included in the Finance (No. 2) Bill?
It is worth tracing back a little. Section 16 of the Gas Act 1972 provides for payments of excess revenues to the Secretary of State. It has only a limited application to the exploration and winning of natural gas and petroleum and does not apply to the marketing and distribution of gas.
The next device deployed by the Secretary of State, correctly, was to invite the BGC to lend to the National Loans Fund. The difficulty was that the funds were never alienated. They were simply lent by the corporation to the NLF and the corporation was paid interest over the term. At the expiry of the loan it was to be returned to the corporation. 1614 The corporation would thus wax stronger and fatter in the course of time.
One must bear in mind the comparability. Even though the oil companies have to go ahead with vast exploration programmes in the United Kingdom and abroad, they pay petroleum revenue tax and other taxes. Why is it not possible for the BGC to do the same? After all, it would involve only a modification of section 10 of the Oil Taxation Act 1975, which applies to contracts made after 30 June 1975 which are subject to PRT.
The Secretary of State should consider that now and bear in mind that such measures are required in the interests of the country. I hope that he can relieve my mind of anxieties. I read in a recent edition of Euroforum about the possibility of an EEC energy tax. That could have serious repercussions for the United Kingdom. The article stated:The main possibilities here are to tax energy consumption, either in all its forms or just on oil or specific oil products; to tax production of energy in general or oil in particular; to impose a duty or levy on all imported energy sources, or again just on imported oil.Will we have accumulation upon accumulation of taxes all along the line? If that is to happen, we will certainly not increase supplies to meet insatiable demands.
I shall conclude by making one or two observations about modifying the gas monopoly. One of the best ways to increase supplies to the United Kingdom is by increasing the number of people who are searching for it and distributing it and not letting the job be done solely by the British Gas Corporation.
I could make to the Government one or two suggestions about the way in which that could be operated. The encouragement of private initiative is observable in the electricity industry, where private companies contribute to their power requirements. In the chemical and allied industries, the contribution is as high as 29 per cent., and in the non-ferrous metals industry it is 33 per cent. Why is it not possible to allow outside interests to contribute to their supplies of natural gas, and to sell marginal supplies to others? That would mean more people bringing it in, and more people making it available. We should then through greater effort be able to meet demand.
1615 I wish to raise two other points. Where there is non-standard gas, which must go through a different pipeline system from that which is used by the British Gas Corporation, why could it not be relegated to some authority other than the British Gas Corporation? To encourage the National Coal Board, the distribution of methane from collieries and coke ovens supplied by the National Coal Board to outside industries should constitute a separate and independent venture. The Michelin tyre works at Stoke-on-Trent is scheduled to receive methane from five Staffordshire collieries. What has that to do with the British Gas Corporation? I am sure that an agreement could be reached between them, but use should be entirely independent of the gas monopoly.
The Government should encourage the establishment of free imports of methane to meet the inadequate supply position, and authorise distribution of products within selected zones, namely, enterprise zones. Perhaps gas should now be defined in the Gas Acts to confine the British Gas Corporation to methane, and to exclude the heavier gases, such as ethane, propane and butane, and the pentanes, which could be dealt with and distributed by other companies.
§ Mr. Arthur Palmer (Bristol, North-East)
I will give this to the hon. Member for Bedford (Mr. Skeet)—he impartially knocks, as the mood takes him, both Front Benches. He does not show much discrimination in the matter. I hope that he will forgive me if I do not follow him and instead move back a little in the history of gas legislation to the Gas Act 1972.
I was in the House at that time and took quite an interest in that piece of legislation. I served on the Standing Committee, as did the hon. Member for Bedford. It was legislation introduced by the Conservative Government of the right hon. Member for Sidcup (Mr. Heath). The activities of that Government still result in much embarrassment for the present Government.
This is yet another embarrassing piece of legislation for the present Conservative Front Bench, among the measures introduced by the 1970 Conservative Government. The 1972 Gas Act broke down the regionalisation of the gas industry, 1616 and substituted the nationalisation of the industry under a Gas Corporation. That change coincided with the introduction of natural gas and the departure from town gas and allowed the gas industry to escape from its previous dependence on the coal industry.
I cannot help pointing out, however, that the electricity supply industry has, by circumstances, been tied even more strongly to the coal industry now that oil firing is so expensive and nuclear fission develops only slowly.
The 1972 Act did something else which I thought was wrong at the time, and I still regard it as wrong in principle. Here was a new national energy resource, which in its creation owed nothing to the gas industry as it stood at the time. I suppose that it owed much to nature and to God.
It is true that natural gas had to be brought ashore, but many agencies besides the Gas Corporation—once it was established—helped in that regard. The 1972 Act handed over to one publicly-owned industry, engaged in the competitive retailing of energy on a nation-wide scale, the monopoly control of the wholesale side. That, coupled with the licence then given to the Gas Corporation to pick and choose its customers on profitability from its own point of view, has in my judgment brought about a distortion of the British fuel economy and, among other consequences, has led to this Bill.
An electricity board, which is engaged in active retail competition with the gas industry, must by law supply any would-be consumer, profitable or otherwise, up to 50 yards from a main. However, the regional organisation of the Gas Corporation can refuse the supply if the potential customer is beyond 25 yards of a main.
The Secretary of State for Energy has told us tonight that the provision which normally exists in public utility Acts, to prevent undue discrimination, is now to go for gas. Again, that introduces something which is new for a utility; the electricity supply industry remains tied to the undue discrimination handicap.
I urged at the time when the 1972 legislation was introduced that, instead of control of natural gas sales, both wholesale and retail, being handed over 1617 to a centralised Gas Corporation, a publicly-owned agency should be established—a gas sales agency—which would hold the balance fairly in both price and availability between all would-be takers, including gas retailing, large and small industrial consumers and even the electricity supply industry itself. Although I am not advocating the burning of natural gas under power station boilers, I should point out that a power station can be a gas industrial consumer like any other.
I regard the present Bill as quite inadequate. I do not suppose that Ministers would claim that it was other than inadequate—I hope not—but it is unable to deal with the complex problems which the organisation and practices of the gas industry present to our fuel economy. The fact is that the ill-thought-out legislation of 1972 has given the Gas Corporation under the energetic and able leadership of Sir Denis Rooke—I pay a full tribute to him—the opportunity to make large cash surpluses, at times almost by near dumping of gas supplies. That has gone on for more than 10 years, and very little has been done by successive Administrations about it.
I do not aquit the previous Labour Administration in this regard. As my right hon. Friends know, I have urged for quite a period that there should always be proper relative pricing in energy matters. It is the business of any Government to lay down the outline of such a pricing policy; only a Government can do it. The effect of that on our fuel economy— the way in which gas supplies have been introduced so indiscriminately—has been serious. I shall take a moment or two of the time of the House to quote some evidence that was given to the Select Committee on Energy on the effect of these abundant and cheap gas supplies, as they were in the past, at any rate, on our fuel economy. The Department stated:Perhaps the most striking feature of the domestic sector is the continued rapid penetration of gas which is forecast to increase its market share from 44 per cent. in 1977 to about 66 per cent. by the end of the century. This substantial share will have important implications for the provision of substitute fuels as, in the longer term, natural gas supplies begin to decline.In its evidence the Department observed that 1618Electricity has lost ground in the domestic space and water heating markets, and by the end of the century between two-thirds and three-quarters of its domestic sales are likely to be in lighting appliances and other electricity specific uses; from the turn of the century it could begin to regain some of its lost ground in the domestic heating market through sales of off-peak supplies.It will need to, as the supply of natural gas runs out.
I recognise that depletion policy is extremely complicated. There is not time to advance any arguments about it one way or the other tonight. As I say we are now facing the consequences of the mistakes that have been made in the past 10 years in the careless and wasteful use of natural gas supplies. It has resulted in a recent sudden and most unfair price rise for the ordinary domestic consumer. Natural gas was so cheap that many households invested in it. They have spent their capital on it, and it is not easy for them now to change again even if there were anywhere for them to go.
There has been a substantial price rise. The domestic consumer has been faced with an increase in price of about 29 per cent. That could have been avoided if there had been from the beginning a much more sensible pricing policy.
§ Mr. Palmer
That may be so. I am not making any point about the size of the price increases. In a sense, the increases have been inevitable. However, it would have been much better for the fuel economy generally if gas prices had been put right earlier. There would have been a much better and more economical use of our gas supplies if that had been done.
The careless depletion policy that has been followed has led to a steep and abrupt rise in price for the domestic gas consumer. That has often involved a great deal of hardship. As I have said, once a householder has invested in these appliances he cannot easily escape from them. From a national point of view, it has led to an inability at peak times to achieve a proper supply for industrial consumers. There are interruptible supplies under contract. As time passes the interruptions become more and more frequent. 1619 The chemical industry has protested about this matter, and the hon. Member for Bedford quoted evidence from another source.
The electricity supply industry, with which I have connections—I am trying to be as objective as possible—has investment in capacity which is under-used and is to some extent eating its head off in interest charges.
This is a puny Bill, and we have been promised further legislation.
My right hon. Friend the Member for Plymouth, Devonport (Dr. Owen) referred to the prospect of a gas tax—a kind of levy would be the polite title for it— being imposed on the gas industry so that the surplus profits, which need not have come about, can now be taken into the Treasury. I think that is a shocking attitude and a bad policy altogether from the national point of view. It would be doing again what used to be done by the worst old municipal gas and electricity undertakings. If they were bad undertakings, they creamed off the profits to reduce the local government rates. This is the same principle: the profits are to be creamed off to reduce taxes. I understand the reason. It will help the political objectives of the Government.
My right hon. Friend pointed out that there was much still to be done by the gas industry in development. Those spare moneys could be properly left with the gas industry. Alternatively, they could be used for other good uses in the energy context. The revenue from the tax could be used to improve energy conservation, for instance. That would be an excellent use for it.
But these are deep and complex questions that we cannot fully develop tonight. I suppose that we must accept this poor Bill, but I urge the Government to look at the gas industry as a whole and to relate it to the general energy economy of the country. It would be as well to have a new and comprehensive Gas Act that would deal with a number of outstanding questions. Even at this stage, I think that there is much to be said for establishing a statutory gas purchasing and sales agency and relieving the Gas Corporation of its present ambiguous role of being both wholesaler and retailer.
§ Mr. Gordon Wilson (Dundee, East)
I take serious objection to the Bill because, like the hon. Member for Bristol, North-East (Mr. Palmer), I regard it as insubstantial and unable to deal with the problems of the gas industry.
More to the point, the Secretary of State made no attempt to justify the reasons for the Bill. He bluntly stated that we had to cater for problems that might occur at peak periods on cold winter days. He did not give any figures relating to this situation or when it was likely to arise, yet he indicated that the legislation was necessary.
I think that some reference should have been made to the Department of Energy's statistical bulletin Energy Trends of March 1980. In the paragraph relating to gas it states:In the three month period December 1979 to February 1980there wasa fall of 2 per cent. from the same period a year ago. This is the first decrease over a three month period for 15 months and reflects the milder winter experienced throughout this period but especially during the month of February when supply fell by nearly 8 per cent. compared with 1979.The interesting thing is that during that period indigenous supplies were lower by 7.6 per cent., while supplies of gas rose by 27.6 per cent. Presumably that last reference relates to the gas purchased from the Norwegians through the Frigg gas field and transported in. Nevertheless, it looks as though the problems that were experienced last winter were not experienced this winter, yet the Secretary of State seems to have skipped over that subject.
The Bill ignores most of the main problems facing the industry, particularly the question of supply in the middle term and the long term. We have heard that there are vast deposits of gas which are to be developed. We know that the gas pipeline is on the verge of being announced by the Government. It was apparently correct for the Minister of State to make statements in Houston and in Dallas about the likelihood of this gas pipeline, yet we do not seem to have been given any information by the Government in the House of Commons. The Secretary of State is to be blamed for not having dealt with the gas pipeline and announced 1621 on the eve of this debate whether it was to go ahead.
I ought also to draw to the attention of the House the fact that in the current edition of The Oilman of 10 May there is a statement that a row is developing between the Treasury and the Department of Energy over the role to be played by the British Gas Corporation and what kind of stake it should have in the pipeline, and it is said that this might delay the gas pipeline plans. I make it clear to the Under-Secretary of State that the last thing that we want is for a row to develop between two Government Departments when we seem to be running short of gas and when this pipeline is reputed to be viable in its own right.
§ Mr. R. B. Cant (Stoke-on-Trent, Central)
Am I right in believing that this terrific row that has broken out between these two great Departments of State is concerned purely with the effect of the nationalised undertaking increasing the public sector borrowing requirement? If private enterprise does it, it will not affect the PSBR. If the nationalised industry does it, it will knock the PSBR out.
§ Mr. Wilson
The ways of the Treasury and the Department of Energy behind the scenes are sometimes beyond me, but I think it is reckoned that the cost to the British Gas Corporation, or to the Government, will be as much as £1,000 million or so. That would certainly have an effect, although again it should be stated that pipelines of this sort tend to be profitable and that there would be a return to the State from that money, so this is more an equity investment than a subsidy or an outlay of Government funds without due reason. But whatever the purpose, it should not delay going ahead with the pipeline itself.
The problem that I see coming from the Bill and from the lack of certain conditions that should have been in it is that it attempts to deal with the availability of gas in relation to certain arrangements and obligations contained in the 1972 Act, but does not seek to tackle the problem of the availability of supply that is now appearing in Scotland. I give the House some cases in point. In the 1950s and 1960s, Scotland was at the end of 1622 the gas grid. It was the last to get the benefit of cheap natural gas. Indeed, the conversion to natural gas in Dundee took place only three or four years ago. Even today Scotland is still in the highest price bracket for gas, although it shares this unenviable distinction with a number of other areas.
What has emerged as a result of that time lag since the discovery of gas in the southern basin of the North Sea is, apparently, that Scotland has a smaller proportion of consumers of gas for industrial purposes, and even in the domestic market, than the United Kingdom as a whole. Apparently about 4.8 per cent. of United Kingdom industrial users are to be found in Scotland. That amounts to about 4,000 industrial users out of 75,000 in the United Kingdom as a whole.
I took up that matter with the Department of Energy. Instead of being an importer of gas, Scotland has become an exporter. Vast supplies of gas go through the country, yet Scotland is unable to get access to it. It has been unable to correct the unfair distribution and economic opportunities that have been given to other parts of the United Kingdom.
I asked the Minister a specific question about Aliens industrial estate. That estate was to have been built near Aberdeen, and the factories on it were to have been supplied with natural gas. I believe that the Post Office was interested in putting money from its staff superannuation fund into that project. It was a condition of investment that the estate should receive natural gas. When the British Gas Corporation refused that supply, through its subsidiary, Scottish Gas, that investment did not take place.
On 14 January I wrote to the Minister. The reply that I received was marked with the stamp of the Department of Energy requesting that a reply be given by 25 January 1980. I thought that that would have been a swift reply. However, I did not receive the reply until 10 March —I do not know what happened during the interim period—and the Under-Secretary of State, the hon. Member for Kingston upon Thames (Mr. Lamont), said that British Gas hadassured me that in implementing this policy they will take account of prior commitments or special circumstances such as industrial processes for which other fuels are not suitable.1623 The hon. Gentleman gave no indication that the British Gas[...] or the Department of Energy was prepared to make available additional gas supplies to Scotland. We receive a low share of the gas supply. If gas is the coming fuel and if an industrial estate would have provided more jobs, any available gas should have been supplied.
The pattern of supply has changed. Three gas pipelines are now in full flow from St. Fergus, another pipeline is being built, and a fifth is planned. Those pipelines will carry gas from Frigg and Brent. Frigg already supplies about 30 per cent. of the United Kingdom's gas requirement. Although about 60 per cent. of the gas from Frigg is Norwegian, the rest would more than meet the anticipated increase in Scottish demand.
I tried today to get some information about the amount of gas that will flow through the Brent pipeline, but I was unable to do so. However, we know that there is a 36-in diameter pipe. The western flank connection with Brent is to have a 16-in diameter pipe. A considerable amount of gas will come through Scotland. Why has the Department of Energy not interceded with the BGC to insist that that quantity of vital resources should be made available to Scotland for industrial purposes? I should like a specific reply. Many hon. Members regret that the Scottish Gas Board was abolished in 1972. If that body had been in existence, it would have acted as an intermediary or buffer. It might have pocketed Scottish interests against the central administration of the gas industry.
I ask the Minister whether he is prepared to issue guidelines to the British Gas Corporation pressing it to emphasise supply in areas of high unemployment which have a lower proportion of gas than other parts of the country. Secondly, does he have any plan to export gas to the Continent, and what is the intended use of the Brent supply when it comes fully on stream? In relation to the buildup on Brent, will the Minister comment on the statistical bulletins which show that indigenous supplies have fallen? Does this mean that the gas from the southern gas field is declining at a faster rate than has been suggested so far? Will the Bill in any way affect the proposed developments at Moss Morran in Fife, or 1624 the developments in Ross and Cromarty?
§ Mr. Wilson
The Minister has said " No ", and I am glad to hear it. It was essential to get that on the record.
I wish to raise the question of sheltered housing. Scottish Gas has indicated that under its new policy it might not be able to supply new sheltered housing developments with adequate gas. I received a letter on 19 December from the director of sales, Scottish region, who said:There are a substantial number of new sheltered housing projects going on in Scotland at the present time, and we are aware that the housing associations are planning more. Because of prior commitment we are making gas supplies available to many of these and, of course, we shall continue to do so to new projects where they fall within the gas industry's statutory obligations to supply. This obligation, as you know, relates to projects which lie within 25 yards of an existing gas supply and where the consumption of gas will not exceed 25,000 therms per annum for an individual load. The industry's policy in respect of sheltered housing is being reviewed to see if we can assist housing associations, as we are fully aware of the difficulties and ramifications caused by this change of policy.I would be extremely grateful if the Minister could tell us what changes in policy have taken place since Scottish Gas wrote to me on this matter.
If I do not receive satisfactory assurances, particularly on the supply of natural gas to Scotland, and because of the complete inadequacy of the Bill in dealing with the supply problem and the failure of the Secretary of State to justify this measure, I shall divide the House against it.
§ Mr. Tim Eggar (Enfield, North)
It gives me particular pleasure to take part in this debate. I found the comments of the hon. Member for Dundee, East (Mr. Wilson) particularly ill informed in certain respects, particularly those relating to the Moss Morran and Ross and Cromarty developments, with which this Bill has no connection whatever. However, I share the hon. Member's concern about the way in which major announcements on energy are being slipped in as written answers to questions. I do not believe that this is the way in which important policy matters should be disclosed to the House.
1625 While I fully understand the logic of the Bill, I find it extremely unfortunate that the first legislative act of this Government connected with the gas industry should involve the restriction and change in terms of the supply of gas to industry. British industry is already charged higher prices than those prevailing on the Continent, and is less able to get firm supply contracts. We have significant reserves of North Sea gas, and therefore that position is not welcome.
I regret that the British Gas Corporation has used interruptible supplies to British industry as a means of avoiding investment in storage capability to meet peak capacity.
§ It being Ten o'clock, the debate stood adjourned.