HL Deb 05 December 1974 vol 355 cc390-8

8.2 p.m.

Lord BALOGH rose to move, That the Fuel and Electricity (Control) Act 1973 (Continuation) Order 1974, laid before the House on 20th November, be approved. The noble Lord said: My Lords, before I move my Motion may I apologise for having unwittingly crossed before the Mace, because it had disappeared from my view. I do apologise, and I hope your Lordships will forgive me.

I am sure that noble Lords on both sides of the House will agree that this Order represents a cautious and therefore wise precaution, and will support it in that spirit. During the debates on the Bill last year, both Parties recognised that it contained powers that would be useful in dealing with the longer term situation. Powers were taken in the first instance for a year; and, to quote the noble Lord, Lord Drumalbyn (whom, to my loss, I do not see here at the moment) in the Second Reading debate almost exactly a year ago, he said: I am sure your Lordships will agree that they are sensible weapons to have in our armoury now and in the future, to deal with temporary energy difficulties.

The rest is history and I will spare the House yet another of my not very well received analyses of the then position which is vividly etched in all our minds. Rather, I think it would be more helpful to the House for me to review developments since 1974 in the energy sector and to indicate future prospects. It has been a period of great activity. A number of important decisions have been taken, but there can be no question of resting on our laurels, if any. The major aims of the Government's strategy so far have been, first, developing our indigenous resources; secondly, turning the country's attention to energy use as well as supply; thirdly, giving proper weight to scientific research and development; and, fourthly, pursuing international cooperation, by making sure that our sovereignty over our resources is not impugned.

I will now go through the various sectors of the energy situation. We have had the interim and final reports of the coal industry examination. We are setting out to reverse the decline in the last 15 years, which is a formidable task. We have endorsed the plan for coal which should enable the NCB to stabilise deep-mined output at around 120 million tons. This may not be attained this year. Short-term fluctuation in oil prices will not influence our investment decisions on coal, but coal must remain competitive in the light of long-term trends. There is an unparalleled opportunity for the industry with its future now virtually assured. It is up to all concerned in the industry to ensure that this opportunity is not lost and that the plan for coal is really realised.

My Lords, I now turn to nuclear power. We have taken the long awaited decision on reactor choice and published our White Paper in July. The issues were difficult, but we believe the decision we took was the right one. The SCHWR has substantial advantages. It should provide power reliably and give particular scope for British technology while meeting the test of public acceptability. It is essential that public confidence in nuclear power should be maintained. It is obviously sensible to start with a relatively modest initial programme, not more than 4,000 mw over the next four years. So far as North Sea gas is concerned, this is very much a success story, as the House will know. The facts speak for themselves. Eleven million out of 13 million gas consumers are now using natural gas directly. There are proved and probable reserves of about 35 million million cubic feet, worth at today's oil prices about £30,000 million, and sufficient to support a production of 5,000 million cubic feet a day towards the end of the decade, and production might increase to 6,000 million cubic feet a day. That is twice the amount we had in 1972 if the Norwegian Frigg gas is included. A great deal has been achieved and the future looks good.

My Lords, we now come to North Sea oil. The picture here is constantly changing—five new discoveries have been made since the Brown Book was issued and twelve fields are now considered commercial. Proved and probable reserves from these fields are now increased to 1,160 million tons—at today's prices worth around £40,000 million. A great deal more exploration will take place and we are confident that huge quantities will still be discovered. Oil production in 1980, allowing for future discoveries could be between 100 and 140 million tons. There is a good chance that in 1980 we shall be producing all the oil we need. Such a miracle would have seemed unthinkable even a few years ago. With regard to the White Paper on the North Sea, noble Lords will be familiar with our proposals, so I do not need to go over them again. The necessary legislation will come forward this Session. I would stress that we regard it as an entirely reasonable, comprehensive package, which will establish a firm base on which oil companies can plan their future investment in the knowledge that we shall be providing a fair deal for them as well as for the nation, which will leave them with ample material incentive.

I am able, therefore, to report substantial progress in the energy sector. But there is still a great deal to do. We believe that we now have the country's energy strategy on the right lines. But we have to remember that we are only at the beginning of a period of change and that many of the risks still remain.

Let me consider those risks. I shall consider the present outlook briefly. First there is the coal industry. As my right honourable friend the Secretary of State for Energy said on 25th November in another place: I want to be frank with the House. I think that it will be extremely difficult for the NUM and the NCB, even now, to get 120 million tons, but I still think that coal stocks and our electricity system are secure this winter. Assuming that even without any productivity scheme, normal supplies come through this winter, our electricity system will be secure". I would remind the House that the National Union of Mineworkers have fully pledged their determination to achieve the best possible performance and we still think that coal stocks and our electricity system are secure this winter, given normal levels of working in the industries.

The current international oil situation appears to be satisfactory from the supply point of view, though, as we all know from last winter, there can never be complete certainty as long as we are dependent on foreign oil. As noble Lords will appreciate, the main problem is that of oil prices. The Chancellor of the Exchequer and the Chancellor of the Duchy of Lancaster are busy dealing with the consequential difficult financial problems. Of the other fuels, nuclear power provides a further measure of diversification, and thus security, to our supplies: but the amount we can have available is of course limited until the policies put in hand by the Government come to fruition —and the time-scales for this are inevitably long. Gas continues to provide a valuable and secure source of energy, though it could not of course totally replace any of the other fuels if their supply were for some reason to be interrupted. To sum up, we cannot afford to be complacent and it would be foolish to assume that difficulties cannot arise but, as I have said, we believe that with normal supplies our energy demands will be secure this winter.

I now return to the Order before the House, which seeks continuation of the Fuel and Electricity (Control) Act of 1973. The Act contains flexible and wide ranging powers. These powers have been used both for crisis management—by the last Government in the winter of 1973–74 —and for specific measures concerned with the continuing management of our energy resources. It is this latter use of the Act that is the immediate occasion for bringing forward the Order now, so that the powers in the Act can continue to be used instead of lapsing, as they otherwise would have done, on 30th November. The Order extends for a period of one year, to 30th November 1975, the powers contained in Sections 1 to 8 of the Act. These powers enable control to be exercised over petroleum and its products, over any other substances used as fuel, and over electricity. Thus the powers extend to coal and gas as well as to electricity and oil.

The powers in the Act are currently being used to relieve the British Gas Corporation from its statutory obligations under the 1972 Gas Act to meet demands for large new or additional supplies. The need to provide this relief arises from the change in the world energy situation in the last year or so. The attractiveness of gas has greatly increased—particularly for commercial and industrial use. It became obvious early this year that if the Corporation had to meet in full every request for large new and additional gas supplies which fell within the terms of their statutory obligations this would endanger the continuing security of supply to other users in the winters preceding the arrival of the Frigg gas and afterwards of Brent. Authority under Section 4 of the Fuel and Electricity (Control) Act to disregard this statutory obligation as respects new or additional supplies exceeding 25,000 therms per annum was therefore given to the Corporation on 25th March 1974. With this relief, the gas supply position in the coming winters should be secure. Without it, the continued pressure of demand could place the supply in jeopardy; and no other powers are at present available to maintain the relief from the statutory obligation of the Gas Board.

The Act includes powers to regulate oil product prices. It is clearly essential that these powers are continued in the face of the continuing uncertainty over security of world supplies from the Middle East and the increasing frequency of demands by oil producers for higher prices of crude oil. At present, the powers are only exercised over the maximum retail prices of petrol, derv and paraffin. These controls were introduced during the difficult supply situation last December, and we are, of course, keeping them under continuing review so that we do not maintain them longer than is necessary.

It is further intended to use the powers of the 1973 Act to give directions to oil companies restricting disposal of oil stocks in order to implement our international obligations to hold minimum stock levels. The United Kingdom is obliged under the International Energy Programme and an EEC Directive to hold certain minimum stocks of oil. Because of the continuing uncertainty in the Middle East, such stocks are an essential part of our security of supply. With the huge increases in the price of oil, we can no longer rely on companies voluntarily holding high stocks. Therefore, in order to ensure that the United Kingdom has sufficient security this winter, directions will need to be given very soon to each supplying company ordering it to hold minimum stocks of oil. At present, the only powers under which companies can be directed to hold stocks are those in Section 2 of the Fuel and Electricity (Control) Act which, but for this Order, would now expire. Indeed, my Lords, no other suitable powers exist at the present time under which we can continue with any of the three measures I have described. This is accordingly the first reason for continuing the operative provisions of the Act in force. Consideration is, however, being given by the Government to taking alternative powers under other legislation which would enable us in due course to dispense with the use of the 1973 Act for these particular purposes. Continuing the Act in force will of course also provide powers to introduce any emergency measures that might be necessary should the normal flow of energy supplies be interrupted during the coming 12 months. But that is not the Government's prime purpose in laying this Order. If it were, we could simply have left the Act in abeyance. I therefore hasten to reassure noble Lords that there is, on the part of the Government, no present expectation of difficulties. Should such a need arise, I expect that my right honourable friend would seek to make a Statement to Parliament before the powers in the Act were so used or, if the need were immediate, at the very earliest possible opportunity afterwards. My Lords, I commend this Order to you, as I said at the beginning, as a cautious and therefor wise precaution, and I ask for your support in that spirit.

Moved, That the Fuel and Electricity (Control) Act 1973 (Continuation) Order 1974, laid before the House on 20th November, be approved.—(Lord Balogh.)

Lord LYELL

My Lords, I believe that we on this side of the House should thank the noble Lord, the Minister, for his very full explanation of the energy situation as it stands at this point, and I think in general we would seek to assure him that he can count on our support in continuing this Order. Nevertheless, there are three or four brief points we seek to bring to his attention. The first point on which I would ask for clarification refers to coal stocks. From information we have gleaned of the overall situation, it appears that coal stocks, not merely at the pit head but at various National Coal Board storage depots, as well as in private industrial stores and at power stations, are considerably below the figures for last year—in some cases by as much as 30 per cent. We also noted with a tinge of regret the Statement in another place that the National Coal Board is not likely to achieve its targeted output of 120 million tons during the year 1974–75. Be that as it may, we can only hope that the coming winter will not be too severe and that the existing stocks will see us through.

One more small question hangs over the problem of petroleum supplies. As a result of the Budget last month, there was a very steep increase in the value-added tax applied to petroleum. I understand this tax has to be paid on delivery by both wholesalers and retail garages. This additional tax represents the cost of the sale and thus the retailer has had to meet considerably increased costs. For this reason he will require an increased margin but, as your Lordships will be aware, the margins are fixed on a cash basis and are not allowed to rise as a percentage. This has led to serious liquidity problems and to difficulties in remote, outlying areas all over the country. Perhaps the noble Lord would be kind enough to clear up these points. Also in the Budget Statement was a promise that we might look forward to a very definite Statement on energy conservation from the Department of Energy. I understand that had been promised by the end of November. We are five days beyond that now, but I hope that we can look forward to this Statement before rising for the Recess.

Finally, North Sea gas, as the noble Lord pointed out, is in very considerable demand and we would seek clarification from the noble Lord that this Order does not relieve the Gas Corporation from the obligation which I understand they had until November, 1973, of attempting to meet the demand and being virtually obliged to supply gas to any consumer seeking to use it. We would hope that this Order will not be used to damp down the supply of gas and reduce demand too much. In conclusion, we would seek to add our support to the measures to conserve energy at this somewhat critical period.

Lord WYNNE-JONES

My Lords, I should like to ask my noble friend the Minister whether I understood him correctly when lie referred to, I think, the EEC Directive with regard to keeping stocks in this country. I had understood that this Directive was at the moment a draft Directive. I wonder whether there is another Directive which has become operative? Because it would seem to be a serious matter if we were already being governed by a Directive which, as I understand it, is still in the draft stage.

8.26 p.m.

Lord BALOGH

My Lords, may I thank the noble Lord opposite for his helpful and kind remarks and constructive questions. I should also like to congratulate him on speaking for the first time from the Front Bench. So far as coal is concerned, the undistributed coal stocks held by the National Coal Board-currently amounting to just over 6 million tons—are, roughly speaking, half of what they were a year ago; but they are low because the Board have been endeavouring since the Strike to get all available supplies into the hands of consumers. They have been successful in rebuilding distributed stocks to normal levels. Stocks at power stations—now about 13½ million tons—represent some eight weeks' normal winter demand and correspond to the early winter stock-holding in normal years. Preceding the three crisis winters of the previous Administration, abnormally high stocks were built up in readiness for industrial conflict in the energy industries, with the results which we have seen.

So far as the value-added tax is concerned, I have noted the noble Lord's question. It is not entirely within my field and perhaps he will allow me to communicate with him on this matter in writing. So far as energy conservation is concerned, I understand it has been announced in another place that at an early date a Statement will be made in both Houses. I hope the noble Lord will bear with patience until that time.

The gas situation is an extraordinarily complicated and interesting one. It originates in our very great success in obtaining North Sea gas at very low prices, so that the price of gas as a result, relative to other prime costs, was rather low. As recent Governments from both Parties have used these prices to stabilise and diminish inflationary pressure for the moment, the relative price of gas is still very low. As a result of that, there has been a concentration of rather large-scale demand on the gas industry. If the Order were not adopted we might face the danger of the Gas Corporation being sued by large-scale consumers throughout the country, thereby causing great difficulties and probably a failure of gas for those already on the grid. We must hope, of course, that this will not be continued indefinitely; and although there has been some delay in the Frigg plans I think that when Frigg ends and other gas fields in the North Sea come in, we shall have a unique situation in which we shall have a relatively plentiful supply.