HL Deb 16 June 1980 vol 410 cc910-23

7 p.m.

The MINISTER of STATE, DEPARTMENT of EMPLOYMENT (The Earl of Gowrie)

My Lords, I beg to move that this Bill be now read a second time. This is a very short Bill. Its provisions, although limited, are never- theless very important for the promotion and efficient use of this vital energy resource. There can be no doubt about the important part that natural gas now plays in the nation's economy. During the past 10 years, the consumption of gas in Great Britain has more than trebled and natural gas, or North Sea gas, although there are sources of natural gas in the Irish Sea, now accounts for 20 per cent. of our total primary energy consumption. Substantial developments already planned will enable gas to play an increasingly important role in our future energy scene. The British Gas Corporation are, however, faced with short-term supply difficulties; and it is to deal with these that the Government have introduced this Bill.

During the past year, as a result of the oil price increases and uncertainties over oil supplies, the corporation have been faced with a tremendous surge in the demand for gas in all the market sectors—industrial, commercial and domestic. They had, of course, already planned a programme to expand supplies over the next few years to cater for the predicted increase in consumption. However, the current unprecedented demand considerably exceeds those expansion plans and the corporation could not meet it without seriously putting at risk supplies to their existing customers during a time of peak winter demand.

I should like to stress that this is a question not of overall shortage of gas but of not having sufficient distribution and storage capacity to meet the potential demand in full during a severe winter. It would be easy enough for British Gas to take on extra customers during the summer, when demand for heating purposes is low, but what would happen during the winter when all their customers were demanding peak supplies? Failure to meet such demand could necessitate cutting off whole areas or industries at short notice. Apart from the obvious disruption for customers this would raise serious safety problems.

The British Gas Corporation have already announced plans to advance a number of capital investment projects in order to increase supplies, with particular emphasis on supplies at peak periods. They have recently acquired the partially- depleted Rough gas field in the Southern Basin for use as a seasonal store and they are constructing salt cavities to provide further storage. They are advancing the construction of the fourth onshore pipeline from St. Fergus in Scotland so as to relieve bottlenecks in the supply system bringing gas from the Northern North Sea southwards. And they are also planning to obtain supplies from new sources both in the Southern Basin and their own Morecambe field in Morecambe Bay. As your Lordships will appreciate, such projects cannot be brought to fruition overnight. British Gas are therefore at present, except in the most exceptional circumstances, having to limit new connections to those premises which they have a statutory obligation to supply; that is to say, premises within 25 yards of an existing gas main, subject to the maximum statutory entitlement of 25,000 therms a year. These figures are often rather confusing; 25,000 therms would, roughly, be what would be used by a council estate of, say, 50 average-sized houses, or a medium-sized light factory working at fairly high capacity.

Although Section 13 of the Energy Act 1976 limited the entitlement of new customers to 25,000 therms a year, it provided that the corporation must continue to supply premises which were receiving more than this amount before the Act came into force with the maximum annual amount they received before that date. This obligation applies even where the premises are now in different ownership or where the premises are not currently consuming gas at all. The fact that such supplies may be taken on tariff means that the corporation are not able to control the offtake of very considerable volumes of gas. The corporation's present practice is to negotiate special agreements—that is, contracts where the price is negotiated—in cases where customers require more than 100,000 therms a year. These agreements incorporate conditions as to the rate of offtake, thus giving the corporation control over peak demand. However, because of the restriction in Section 25(6), of the Gas Act 1972, they are only able to enter into such agreements where the tariffs in force are not appropriate.

This Bill therefore relieves the British Gas Corporation of their obligation to supply anyone with more than 25,000 therms a year, and gives the corporation powers which will enable them to enter into special agreements for supplies above that level. Thirdly, as a consequence of those provisions, the Bill frees the corporation from certain constraints on the fixing of tariffs for supplies above the maximum statutory entitlement. If I can give a simple analogy, with the usual warning that analogies pressed too far can be misleading, your Lordships may be aware that when you take a London taxi—if you can still afford to do so—up to six miles will be on the regular clock but over six miles you may have to negotiate the price with the taxi driver himself. A roughly analogous position comes into force with this Bill. The effect of these provisions is that any customers requiring more than 25,000 therms a year will have to rely on contractual arrangements for their gas supplies rather than on a statutory entitlement. I shall have a little more to say about this in a moment.

My Lords, I should now like to turn to the detailed provisions of the Bill. The three substantive proposals, which amend and modify the application of various provisions in the Gas Act 1972, are contained in Clause 1. As I have already explained, Clause 1 (1) amends the British Gas Corporation's statutory obligation to supply, as set out in paragraph 2 of Schedule 4 to the Gas Act, so that they 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 their obligation to supply more than this amount in so far as new customers were concerned, but premises which had been receiving supplies above that level prior to November 1976 were given the right to continued supplies at that higher level.

The Energy Act 1976, therefore, created, in effect, a preferred class of customer who enjoyed an indefinite right to large volumes of gas in preference to potential new customers, some of whom might have a more pressing need for supplies. It is certainly the case that there are new developing industries which need to use gas because of their special industrial processes and which would be prepared to pay a price reflecting their need. Furthermore, even though their pre-1976 supplies might have been taken under an interruptible or firm contract, such preferred customers could exercise the right, if they so chose, to take their continuing supplies on tariff; such supplies, as I have mentioned, are not subject to offtake restrictions. The effect of subsection (1), together with subsection (4), is therefore to revoke the right of pre-1976 customers to gas supplies above 25,000 therms a year.

I should like to make it clear that nothing in the Bill affects the British Gas Corporation's existing contractual obligations. Customers who already receive their gas supplies under contract will continue to receive their supplies under the terms of their contract. Commercial arrangements are, of course, a matter for British Gas, but I should like to take this opportunity of repeating an assurance that was given by my right honourable friend the Secretary of State for Energy in another place. This is that the corporation do not intend to use the powers in this Bill to make reductions in the amounts of gas currently being supplied to industrial and commercial tariff customers receiving over 25,000 therms a year. It has to be recognised, however, that both those tariff customers and customers already receiving their supplies on contract should be prepared to pay the same price that potential new customers would he prepared to pay.

My Lords, perhaps I might turn next to Clause 1(3), since subsection (2) is consequential on its provisions. This is designed to deal with cases where the BGC supplies premises with more than 25,000 therms a year—that is, more than the maximum statutory entitlement under the Bill—and in particular with those customers at present receiving their supplies on tariff.

Under Section 25(6) of the Gas Act 1972 the BGC may only enter into a special agreement where the tariffs in force are not appropriate owing to special circumstances and their current practice, as I said earlier, is to set the tariff/contract dividing line at 100,000 therms a year. It is essential that the corporation should have the power to negotiate special agreements in all cases where a supply above 25,000 therms a year is required, and subsection (3) of Clause 1 enables them to do this irrespective of whether or not the tariffs in force are appropriate. The BGC intend to offer special agreements to all their customers at present receiving tariff supplies of bet- ween 25,000 and 100,000 therms a year, thus bringing such supplies within the scope of contractual restrictions on offtake.

The purpose of Clause 1(2) is to allow the BGC to continue to charge for a supply of gas in excess of 25,000 therms a year at an appropriate published tariff rate during any period when a special agreement is not in force. Section 25, subsection (5) of the Gas Act prohibits the corporation from exercising undue discrimination against any persons, or class of persons, in fixing tariffs. Section 24(1), of the Act lays on the corporation a general duty to avoid undue preference in supply, although subsection (2) of that section excludes special agreements from this provision. These prohibitions will continue to apply to tariffs of up to 25,000 therms a year—that is, over the whole range of the corporation's statutory obligation to supply.

Although the intention is that all supplies over 25,000 therms a year will be governed by special agreement, there will inevitably be circumstances in which some supplies over that limit are taken when there is no special agreement in force. This might happen, for instance, while a contract is being negotiated or where a tariff customer either deliberately or inadvertently consumes more than his statutory 25,000 therms entitlement. In order to prevent the purpose of the Bill from being frustrated, the corporation must be able to set standby tariffs to deal with such cases without being restrained by comparisons with the level of other tariffs. The alternative would be to cut off supplies—a drastic step that they would of course prefer to avoid. Clause 2 make it clear that the Bill, in parallel with the Gas Act 1972, does not extend to Northern Ireland.

My Lords, I hope that I have clearly conveyed the objectives and effect of this Bill. Your Lordships will be aware of the problems facing certain sectors of industry at the present time because of the British Gas Corporation's inability to meet all the demands for gas arising out of the uncertainties over oil supplies. These proposals, by bringing a greater volume of gas supplies within contractual arrangements, will give the BGC greater control over peak demand and will thus enable them to distribute the supplies available in the most effective way pending our undoubted longer-term improvement in supplies to which we can look forward. I commend the Bill to your Lordships and beg to move that it he now read a second time.

Moved, That the Bill be now read 2ª.—(The Earl of Gowrie.)

7.15 p.m.

The Earl of LAUDERDALE

My Lords, to me it is always agreeable—it does not often happen—to have the opportunity of congratulating my Government on doing the right thing. I wish that I could say things of this kind more often. We have already heard in recent months of the critical decision by the Government to move gas prices towards reality so that what is paid by the consumers goes some way towards meeting the replacement costs of a finite resource. Although this is painful to domestic and industrial consumers alike, it is none the less long overdue and welcome on that account.

Here we have a relatively little measure designed to make sure that all industrial consumers are henceforth treated equally in that the Bill puts new and expanding industries on an equal footing with those which are long-standing clients of the British Gas Corporation. This is heading in the right direction. But there is one question that one ought to raise in passing. It has been mentioned in another place, but one gathers that the industrial interests concerned were not wholly satisfied with the replies given.

This is the position of priority assured to domestic consumers under Schedule 2 to the 1972 Act and Section 13 of the 1976 Act. We know that any domestic consumer within 25 yards of a main has been entitled to a fantastic volume of up to 25,000 therms. We want to be quite certain that industry will get at least equality of treatment with that position hitherto enjoyed by the domestic consumers. The matter was raised in another place in Committee, and no doubt will be raised again here. One hopes that when raised again the reply will be satisfactory to the industry.

Looking at this little Bill, one cannot but look also at the vast scale of possibilities that arise as a result of natural gas from the United Kingdom continental shelf. At present, as is widely known, there is a ban on the flaring of gas treated as a waste. If the gas cannot be flared of course that saves the gas meantime but causes a cut-back in oil production. This has been noticed in many quarters.

But now we are looking forward to creation of the gas gathering pipeline that has been widely canvassed so that what are now the waste gases shall be piped and put to good use. When we consider the enormous volume of gas reserves indentified in the Statfjord Field in the Norwegian sector, and further north above the 62nd Parallel also in the Norwegian sector recently discovered, we become aware of the tremendous potential for a relatively new and hitherto untapped energy source to be brought to our service.

The most obvious industrial end-use is the petrochemicals industry once the British Gas Corporation have taken off the methanes for use as domestic or industrial heating gas. There are the ethanes, propanes and butanes, commonly known as liquid petroleum gases (LPGs) which can be taken off and put to use. The availability of these enormous resources just off our coasts, or within tolerable reach of them—a few hundred miles only—means that the British petrochemical industry has a terrific opportunity coming to it in a few years' time.

The availability of cheaper feedstock to hand is something that must whet the appetite of everybody. Because of that, the widely canvassed proposal most recently studied by BGC and Mobil for a gas gathering pipeline is something the industry as whole—indeed the public at large—would like to know a good deal more about. One is aware that a study has been received—and one gathers favourably received—by the Government which was put together by BGC and Mobil proposing a T-shaped pipeline that would run about 400 or 500 miles north-south through the gas-producing zones and have a T-junction to bring it ashore to Scotland. That scheme has been widely canvassed but, on the whole, very little is known about it.

One is aware from the press, if from nowhere else, that a great tussle is going on between the producers, on the one hand, and the likely consumers, on the other, as to who, if either of them, shall dominate this pipe; whether either will be allowed to dominate it; and what measures the Government will take to make sure that neither side does dominate it; how the institutional investors are to be brought in and whether they are willing to be brought in. All these questions await answer from an anxious and interested industry, if not also from the public at large. Therefore, this is an opportunity to ask Her Majesty's Government, first, whether they are going to give the go-ahead to this project and, secondly, what, in their view, is a reasonable target date for completion.

I think everyone wants to know whether and, if so, when, the BGC/Mobil study will be published. Will it be published in its entirety or, as is widely feared, will it have been thoroughly edited beforehand? Will the route proposed in that study be the final route? After all, there are at least two pipelines leading to the United Kingdom from the gas fields of the Northern North Sea, and it is certain that one of them will no longer be working to capacity after about 1985. So there may be a case for considering the incorporation of existing pipelines into the scheme when it finally goes ahead.

We are led to believe that BP have put forward proposals of a more comprehensive kind than those set out, so it is said, in the BGC/Mobil study. Will there be ample time for discussion between the Government and interested producers and users to discuss the route of the line before final decisions are taken? All these are questions that clamour for an answer. Perhaps the most important question of all is just how the Government intend to conduct consultations with some 30 or 40 interested parties, how quickly these can be speeded up and, equally, how thorough can they be? These questions are asked having regard to the British national interest that this scheme should be pushed ahead as fast as possible; speed is necessary if only to provide a structure on the bed of the North Sea to which the sources of supply in the Norwegian sector may also adhere (if that is a convenient term) should they prefer to do so rather than to take a line across the Norwegian Trench to Germany and the Continent. These are all questions crying out for an answer. Time is not necessarily on our side but, equally, the danger of a wrong decision on the route is something which I trust the Government have very seriously in mind.

To return to the essence of this Bill, here is a Bill which seeks to bring more common sense into the consumption of a major national resource. It is one which has been squandered due to non-market pricing. For that reason alone, quite apart from the object of raising the questions I have raised, I give a warm welcome to my noble friend and his Bill.

7.24 p.m.

Lord WYNNE-JONES

My Lords, the noble Earl, in introducing this Bill, made it fairly clear that the Bill is the consequence of bad housekeeping. I am not blaming the present Government for this at all, because it is something for which all Governments must take the blame, and in particular I think the British Gas Corporation must take the blame, because we are told that the storage facilities and the whole method of dealing with the distribution of gas may not be adequate to cope with the demand from industry. The reason is that over the years, whatever the British Gas Corporation may say, the priority has been to take the cheap and easy way of getting rid of gas: that is, distributing it through the ordinary distribution system to the domestic consumer.

I hope I may be forgiven for saying this, because I called attention to that fact in 1967 when we had a debate in your Lordships' House on fuel and energy, which I introduced In my introduction to that debate, I called attention to the problem of natural gas because at that time we were only just beginning to benefit from natural gas and I had taken a little trouble to inquire from the chemical industry, with which I was in one way or another associated, as to what their demands would be for natural gas. They told me at the time that in their view the chemical industry could consume 860 million cubic feet of gas per day, which was more than half the total amount of gas being brought ashore from the North Sea. In my own remarks on that occasion (13th April 1967) I said this at column 1425: Here is a balance which must be struck between the possible use of natural gas industrially and the possible use of natural gas as a general domestic fuel". Such a balance has bever been struck except by relying on the accident of the market. We are being told today—in fact the noble Earl, Lord Lauderdale, has just told us—that he was glad the Government were coming round to a rational point of view. I see nothing rational about saying that you are going to let the market decide. That is not "rational"; it may be expedient and it may be a useful way of doing things, but I submit that to call it "rational" is a misuse of terms which I am surprised to find a Scotsman indulging in.

It is important for us to realise that if we are going to have a policy in regard to energy we have to look at these matters and consider them carefully. We have no policy for energy; Europe has no policy for energy; the world has no policy for energy. Why? Because it is generally accepted that we should rely upon the market to decide. If you have the market deciding, it is obviously the same thing as saying you do not have a policy. You just leave it. You do not have to do anything; you do not need to think about it. It is no use worrying about whether the gas is better used this way or that way. That is irrelevant, because the market will decide. That mysterious, blind goddess will decide for us. That may be acceptable, but do not let us imagine that it is a policy. It is the negation of a policy. I would submit that this trivial Bill is before us because we have not had a policy and because we have not tried to understand how gas should be used.

I do not blame the Government for producing the Bill; I do not blame the British Gas Corporation for asking for it, because they are in a jam. The Bill is the result of being in an awkward position, and, being in that position, one says, "Let us out of this position by saying that we will not have to supply gas to a certain number of people." Of course, that is an immediate negation of the market on this issue, but it is no doubt regarded as a temporary move.

What I should like to ask of the Government is a very simple question. When will they cease to produce trivia, and when will they come before the country and say "We have a policy"? The answer is that they will not, but, nevertheless, I ask them when they will do this, because it is of importance to the country. It is recognised by everyone who has looked at the energy situation in this country, and in the world, that the next 20 years will be crucial years. They will be years when grave decisions have to be reached.

If we say that we are going to leave everything to be decided by the market, all right. That is a method that can be adopted. But it is not a policy. It is the negation of a policy, and I predict that it will end not in disaster—things rarely do end in complete disaster—but in confusion and a lot of hardship in this country and elsewhere. Therefore, I implore the Government to begin to take seriously this problem of energy. I do not oppose this Bill. From this side, we will certainly support the Bill, because it is essential in the circumstances, but it is the product of bad housekeeping.

7.33 p.m.

The Earl of GOWRIE

My Lords, my noble friend Lord Lauderdale praised us for bringing forward this Bill and the noble Lord, Lord Wynne-Jones, did not blame us for bringing it forward. That is, I suppose, some modified comfort to me, as I am quite used in this House to being attacked on energy issues by the noble Lord opposite and by my noble friend from behind me. But this time both think that we have, perhaps, got it about right.

My noble friend asked me about the gas gathering pipeline study. My right honourable friend the Energy Secretary will be making an announcement on this very shortly, and I am sure my noble friend will understand that I cannot pre-empt that Statement. But if, as he hopes, he makes it, I will, of course—for the usual channels require me to—repeat it in this House. I understand that the British Gas Corporation and Mobil, who carried out the study, established contact with many licensees during the course of the study. I would say to my noble friend that a licensee who wishes to express views in the light of the published report will, of course, be free to speak to any organisation which may be set up to carry forward the design and construction of the pipeline. The BGC/Mobil study will be published at the time of my right honourable friend's Statement.

My noble friend asked me what a reasonable target date might be for the gas gathering pipeline. Our target date is 1984–85. Anything much later will increase the risk of substantial flaring, and, like my noble friend, I am dead against continued substantial flaring, as he knows. My noble friend asked me whether domestic customers will continue to receive preferential treatment. Neither the present legislation nor the proposals in the Bill give domestic customers preferential treatment. The 25-yard limit applies to all premises, whether domestic, commercial or industrial. This may, in practice, tend to favour domestic customers, since they are more likely to be not within 25 yards of a main and to consume more than 25,000 therms. But I do not accept this as an argument, either for altering the 25-yard limit or for restricting the obligation to supply so far as domestic customers are concerned.

In any event, British Gas are planning to increase their supplies to industry by over 1 billion therms over the next five years. By removing the statutory right of pre-1976 customers of British Gas, regardless of their particular circumstances, to large volumes of gas, the Bill puts both old and potential new customers on an equal footing. This is the point of the Bill which my noble friend recognised, and I am grateful to him for that.

I am also glad that he drew attention to the exciting scale of our resources in natural gas. The more one looks at the energy potential of this country, whether in oil, coal, gas or our present or potential nuclear capacity, the more optimistic one becomes about our chances in an energy-hungry world, always assuming that we conserve wisely and do not blow our inheritance; or perhaps I should say here do not flare our inheritance. That is why our policy is to sell gas to our large industrial and commercial customers at prices broadly related to those of competing oil products.

I would just say to the noble Lord, Lord Wynne-Jones, that that is not trivial. That certainly is a policy. It is a policy of having to face market issues, rather than leaving everything to be decided by them; because if you left everything to be decided by them you would have to take the blows of whatever buffets an uncertain energy supply in the world outside this country might give you. So I cannot agree that we do not have a policy there. I, of course, believe that the price mechanism is in the longer term the best overall method of achieving a balance between supply and demand, and we feel that this Bill is necessary to remove an impediment to British Gas implementing this policy.

Finally, the noble Lord, Lord Wynne-Jones, was a little hasty in blaming the British Gas Corporation. I sometimes have criticisms of the British Gas Corporation. I do not stand at this Box simply to go in to bat for it. Nevertheless, the low prices, which were not fundamentally the Gas Corporation's fault, inevitably meant an enormous surge in demand, and that surge in demand created imbalances and difficulties for it on the supply side which it could not easily correct, and which this Bill is therefore, logically, in terms of the rest of our energy pricing policy, designed to correct.

On Question, Bill read 2ª, and committed to a Committee of the Whole House.

Lord LYELL

My Lords, I beg to move that the House do adjourn during pleasure until eight o'clock.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 7.37 till 8 p.m.]