HL Deb 11 November 1976 vol 377 cc787-95

[Nos.16 to 19.]

After Clause 7 insert the following new clause:—

Supply of offshore natural gas.

.—(1) No person other than the British Gas Corporation shall, except with the consent of the British Gas Corporation, supply offshore natural gas through pipes to premises in Great Britain for non-industrial purposes.

(2) The Secretary of State's consent is required for offshore natural gas to be supplied through pipes to premises in Great Britain for industrial purposes, except—

  1. (a) supply by or to the British Gas Corporation or
  2. (b) supply provided by one company to another, where they are associated companies in the same group.

(3) Consent is not to be given under subsection (2) to any supply of gas for industrial fuel purposes unless the Secretary of State is satisfied that the British Gas Corporation have been given an opportunity of purchasing the gas at a reasonable price or have made known, in writing, that they do not require such an opportunity.

(4) In section 29 of the Gas Act 1972 (restrictions on supply of gas otherwise than by the British Gas Corporation, etc.), at the end of subsection (11) there shall be added the following words— except gas derived from offshore crude otherwise than as a by-product of crude stabilisation ". In this subsection—

  1. (a) "offshore crude" means crude liquid petroleum got in pursuance of a licence under the Petroleum (Production) Act 1934 as applied by section 1(3) of the Continental Shelf Act 1964; and
  2. (b) "crude stabilisation" means the treating of offshore crude to enable it to be safely stored or transported."

After Clause 7, insert the following new clause:—

Use and liquefaction of offshore natural gas.

.—(1) The Secretary of State's consent is required for offshore natural gas to be used in Great Britain, except—

  1. (a) use by, or of a supply provided by, the British Gas Corporation; or
  2. (b) use of a supply provided by any other person, so long as there is consent to the supply under section (Supply of offshore natural gas) above; or
  3. (c) use of a supply provided otherwise than through pipes; or
  4. (d) use to provide heat or energy in connection with the purification, fractionation or movement (by pipe-line or otherwise) of offshore natural gas.

(2) The Secretary of State shall give his consent under subsection (1) to use by the licensees or a company associated with them in the same group for industrial purposes which are not industrial fuel purposes and which do not include the use of the gas for a process of crude stabilisation or in connection with the movement of offshore crude by pipe-line or otherwise.

(3) Consent under subsection (1) is not to be given to any use of gas for industrial fuel purposes, except use by the licensees or a company associated with them in the same group, unless the Secretary of State is satisfied that the British Gas Corporation have been given an opportunity of purchasing the gas at a a reasonable price or have made known, in writing, that they do not require such an opportunity.

(4) The provisions of subsections (2) and (3) as to the use of gas by the licensees or a company associated with them in the same group do not apply—

  1. (a) to gas acquired by the licensees in pursuance of an agreement for the sale of the gas under which the price is payable after the gas is won and saved; or
  2. (b) to gas acquired by an associated company otherwise than from the licensees either directly or in circumstances such that all the intermediaries were other companies associated in the same group.

(5) The Secretary of State's consent is required for offshore natural gas to be subjected in Great Britain to any process of liquefaction which results in the production of liquid methane or ethane except such small quantities of liquid methane or ethane as may be produced in the course of providing supply to the British Gas Corporation or, with consent under section (Supply of Offshore natural gas) above, to any other person.

After Clause 7, insert the following new clause:—

Supplementary provisions as to consents.

.—(1) The Secretary of State's consent under section (Supply of offshore natural gas) or section (Use and liquefaction of offshore natural gas) may be given either with reference to particular cases or by means of orders of general application.

2 A specific consent given to any person under either of those sections (that is to say, a consent given to him otherwise than by an order of general application) is irrevocable and may be given for a specified period or indefinitely.

(3) Where consent under those sections has been given by an order of general application, any person who proposes to undertake a supply, use or process of liquefaction which is covered by that general consent may notify the Secretary of State of his proposal (in the manner specified by the order), whereupon sub-section (2) above applies as if specific consent either unlimited in duration or, if the order so provides, for the period there specified had been given to him for that supply use or process of liquefaction.

(4) The Secretary of State's consent when given under section (Use and liquefaction of offshore natural gas)(2) may in any case be made subject to the following conditions only, that is to say—

  1. (a) such conditions as appear to him necessary for securing the continued availability for industrial or agricultural purposes of supplies of any products which the gas is used to produce;
  2. (b) conditions requiring the provision of information as to the origin and use of the gas.

(5) Otherwise, the consent of the Secretary of State or of the British Gas Corporation under section (Supply of offshore natural gas) or section (Use and liquefaction of offshore natural gas) may in any case be made subject to conditions which may, in particular, be framed by reference to the description or origin of the gas, or the quantities to be supplied, used or disposed of, or the manner of supply or use.

(6) References in section (Use and liquefaction of offshore natural gas)(1) and (5) to consent under section (Supply of offshore natural gas) include compliance with any conditions subject to which that consent was given.

After Clause 7, insert the following new clause:—

Interpretation of foregoing provisions

.—(1) In sections (Supply of offshore natural gas) (Use and liquefaction of offshore natural gas) and (Supplementary provisions as to consents) and this section—

  1. (a) "offshore natural gas" means natural gas won under the authority of licences under the Petroleum (Production) Act 1934, as applied by section 1(3) of the Continental Shelf Act 1964, but does not include gas derived from offshore crude otherwise than as a by-product of crude stabilisation;
  2. (b) in relation to offshore natural gas, "the licensees" are those who won it under such authority;
  3. (c) "offshore crude" means crude liquid petroleum won under such authority; and
  4. (d) "crude stabilisation" means the treating of offshore crude to enable it to be safely stored or transported.

(2) In sections (Supply of offshore natural gas), (Use and liquefaction of offshore natural gas) and (Supplementary provisions as to consents) above and this section references to supply or use for industrial purposes are to supply or use for the purposes of any of the activities described in any of the minimum list headings in Orders II to XIX (inclusive) and XXI of the standard Industrial Classification.

(3) Industrial fuel purposes are industrial purposes which consist of or include the use of gas as a fuel; and for the purpose of determining whether any industrial purposes are industrial fuel purposes the use of any gas or liquid derived otherwise than as a by-product from the gas in question shall be treated as the use of that gas.

(4) The use of gas to provide heat or energy is not use for industrial fuel purposes if it is—

  1. (a) for a process in which the gas is used otherwise than as a fuel;
  2. (b) where such a process is one of a series, for any further process in the same series other than a process in which a bulk product is converted into manufactured articles;
  3. (c) for a process of crude stabilisation;
  4. (d) for a process of purification or fractionation of offshore natural gas;
  5. (e) in connection with the movement of offshore crude or offshore natural gas by pipe-line or otherwise, and supply for any such use shall not be treated as supply for industrial fuel purposes.

(5) Any question whether the purposes for which gas is to be supplied or used are industrial purposes or industrial fuel purposes, shall be determined by the Secretary of State.

(6) For the purposes of sections (Supply of offshore natural gas), (Use and liquefaction of offshore natural gas) and (Supplementary provisions as to consents) companies are associated together in the same group if one is a subsidiary of the other or both are subsidiaries of a third ("subsidiary" having the same meaning as in the Companies Act 1948).

Lord STRABOLG1

My Lords, with the leave of the House, I beg to move that this House doth agree with the Commons in their Amendments Nos. 16 to 19 inclusive. Noble Lords will have observed that the gas provisions of the Bill have now been considerably modified. This was considered necessary as a result of cogent criticisms made by noble Lords and later in another place. Amendments were clearly needed: one to give effect to a pledge made by the Government to noble Lords; another to introduce a non-controversial rationalisation concerning supplies of gas for non-industrial purposes; and some representing agreed compromises between the provisions of the Bill as originally introduced and the changes made by this House in the very useful debates that we had. So the clause was split to deal with the four main topics in turn.

Starting with subsection (1) of the new clause in Amendment No. 16, hitherto, under the Continental Shelf Act, no one other than British Gas has been allowed to supply natural gas for non-industrial purposes. Supplies of propane and butane refined from oil are made now with the consent of British Gas under the Gas Act. In future those gases may be obtained straight from the North Sea and are therefore subject to this Bill. It seems sensible, therefore, to avoid discrimination by providing that, with the British Gas Corporation's consent, natural gas also can be supplied through pipes in Great Britain for non-industrial purposes. Amendment No. 18 permits the Corporation to attach conditions to such supplies, just as it can under the Gas Act. To remove doubt as to what arc non-industrial purposes, we found it best to define the converse by making use, in Amendment No. 19, of the Standard Industrial Classification with which industry is familiar. If in particular cases doubt still remains, the Secretary of State is to determine it.

Amendment No. 17 deals with the use of gas and it contains the most important compromise change in the gas clauses.

The Bill had originally sought to make discretionary consents both for the supply and use of gas for non-fuel purposes. The Bill was amended here on Third Reading to make both kinds of consent mandatory. There was a conflict. On the one hand, the Government require powers to ensure that gas can be steered into those uses where it gives greatest value to the nation. On the other hand, there is a need to provide assurance to those who commit very large investments to the production and use of gas. After discussions with the oil and petrochemical industries and the Opposition in another place, the Government considered that there was a particular need to protect those whose main objective in venturing into our Continental Shelf was to secure safe sources for their petrochemical feedstock. This, together with the assurances already given in this place, provided the basis for a compromise. Consents are to be mandatory for non-fuel use by licensees of the gas which they themselves have won. Others wanting to use offshore gas for petrochemical purposes have the assurances given here and in another place that consents will be given for at least 10 years in the case of methane, and for at least 20 years for ethane, propane and butane.

Providing security of investment is also the main motivation behind subsections (2) and (3) of Amendment 18. The Bill provides that consents will be specific to any person, or of general application. Changed circumstances, unforeseeable when a general consent is given, may require it to be revoked, but this could adversely affect companies who have already committed investment on the strength of the consent. Subsection (3) of Amendment 18 provides that those notifying the Secretary of State that they propose operating under a general consent will be regarded as having a specific consent if that general consent is revoked. This provision honours a pledge made by my noble friend Lord Shepherd to this House.

The final substantial change concerns the control over liquefaction. As originally drafted, the Bill sought to require the Secretary of State's consent to the liquefaction of all kinds of offshore gas. As it came out of this House, consent was required for the liquefaction of methane only. Liquefaction uses energy, as your Lordships are aware, but the heavier gas was normally sold in liquid form, and may become liquid almost by accident. I hope noble Lords will agree that the proper dividing line here is between ethane and methane, which require a considerable use of energy to liquefy, and propane and butane which require little or none.

My Lords, I submit that the changes brought about by the four new clauses in Amendments 16 to 19 are not controversial and should be accepted. I hope your Lordships will agree that they go a good way to meeting the very reasonable and useful suggestions which were made by your Lordships during the earlier stages of this Bill. I beg to move that this House doth agree with the Commons in their Amendments.

Moved, That this House doth agree with the Commons in the said Amendment.—(Lord Strabolgi.)

9.47 p.m.

Lord SANDYS

My Lords, in the absence of my noble friend Lord Long, who is regrettably detained by an unavoidable engagement, I should like to address myself to Commons Amendments Nos. 16 to 19. I regret that my remarks will overlap Amendment No. 26, but perhaps some of my arguments apply.

We began the mammoth exercise in this House of almost entirely re-writing what have generally become known as the gas clauses. Looking at the list of Amendments which have come to us from the Commons it might appear as though all the changes have been made there, but this is not the case. Many of the improvements made in this House have been accepted and further concessions were made by the Government in the Commons. Fortunately, the Government came to the conclusion that the clauses ought to be redrafted. The original Clause 8 is to be replaced by the four new clauses on the Amendment list. Clause 9 has been substantially amended and you will recall that the original Clause 10 was shown to be so unworkable that the Government withdrew it entirely on Third Reading in this House. These clauses will replace Section 9 of the Continental Shelf Act 1964 and modify Schedule 6 to the Gas Act 1972. The Government's contention was that these existing powers were inadequate for them to control the use of gas and in particular to prevent its wasteful use or its export, thereby depriving the United Kingdom of its full potential value as a premium fuel or feedstock.

Opposition and industry, while agreeing that the objective of preventing wasteful use or uncontrolled export is proper, maintained that the extension of discretionary controls over the use of gas is unnecessary and likely to be counterproductive rather than provide the incentive or the means for industry to use the gas where its value can be fully realised. Some of the proposed constraints were almost impossible to implement in practice and would have resulted in great inconvenience to industry and added costs without providing compensating benefits to Government or the nation.

My Lords, throughout the many debates on these clauses in both Houses, the Opposition have sought to be practical and constructive in their approach, and I hope we have been. We have tried to remove, and largely succeeded in removing from the Bill, the measures which would have imposed additional burdens on industry without any compensating benefits. At this stage, it is right to acknowledge that the Government have been most cooperative and met the Opposition's attempts to improve the legislation by equally practical measures. Here I join with my noble friend Lord Strathcona and Mount Royal in paying sincere tribute to the efforts of all Government Ministers involved and to the permanent officials of the Department of Energy who have worked hard to find practical solutions which are now embodied in the Commons Amendments. This has been a very substantial task.

In particular it is gratifying that the liquefaction of propane and butane will not need consent, that at least the concept of mandatory consent for non-fuel own use is accepted (both in Amendment No. 17) and that satisfactory assurances have been given over the supply and use of ethane, propane and butane for petrochemical purposes, all key issues which were suggested in the debates in this House and on which Amendments were carried.

However, there remain a number of serious reservations about the overall effects of this part of the Bill. In the first place, it is highly undesirable for Government to take sweeping powers to control the supply and use of gas, in particular to remove the right of industry to use off-shore gas for non-fuel use. It is welcome that the Government have conceded that anyone discovering and producing gas should have automatic consent to use the gas for his own non-fuel purposes, but it would have been more so (accepting the powers Government will now have to prevent "wasteful use") to have retained the automatic right for a manufacturer to use any gas for these value-adding activities. Never was the need greater to encourage such uses which create wealth and provide jobs in the United Kingdom.

Secondly, the Opposition questions the measures in the Bill which extend the powers of the British Gas Corporation and increase even further its favoured purchasing position. British Gas should compete on equal terms for supplies of gas. The extension of its buying powers can only deflect supplies from premium uses in industry and delay the recovery of industry on which, all sides agree, the future prosperity of the United Kingdom depends.

Finally, the point of specific detail where Opposition and industry retain an immediate concern is the provision in the Bill in one of the clauses (Amendment 18(5)) whereby the Secretary of State or the British Gas Corporation can impose virtually any conditions they think fit to the consent procedure, other than use of own gas for own non-fuel purposes. This matter was raised during Report in the Commons last week, when the Minister assured the House that only "relevant" conditions would be imposed. The assurance was welcome, but the precise meaning and implication of the word "relevant" remain somewhat obscure.

With these reservations made, it would be churlish of me not to end my remarks on these clauses by acknowledging again that the Government have listened carefully to all the arguments put forward against their original proposals and responded so constructively to most of them, with the result that a largely satisfactory compromise has been achieved over this part of the Bill. My Lords, I regret that this statement has been somewhat lengthy, but your Lordships have been extremely patient with me.