Energy: Gas Prices

My Lords, I am sure that we all congratulate the noble Baroness on her success in the ballot at a very appropriate time. I should first declare an interest as chairman of a company called Global Natural Energy plc, which has an investment in Corona Energy Ltd, a UK licensed gas distributor. The freeing up of the market in energy has been of tremendous help to this country: it has kept prices down, we have been highly competitive and it has been of tremendous help to industry generally over the past 10 years. It would be a great shame if, in panic, we lose sight of the advantages that we have had from that opening-up of market forces. Nevertheless, there are two lessons to learn from the very difficult experiences we went through in November and March. First, that there was insufficient storage capacity made available for us to be dependent on only one storage capacity at Rough was, quite frankly, dangerous. We should never be dependent on only one source and the sooner we start to look at that issue the better. Secondly, we were far too late in getting the Norwegian gas pipeline through. We should have seen the strategic interest. Here was a country, probably one of our closest friends and allies, that had been wanting to, and was ready to, supply gas to this country for well over a decade, and to take the length of time that we did in getting the gas pipeline was again extremely dangerous and rash. Fortunately, we have been able to catch up lost ground. The situation seems to be that, next winter, we will face a serious risk again unless we are lucky. After that, the situation improves substantially between 2007 and 2010, but we should be talking now about the danger of our inability to meet a really cold spell coming in 2013, 2014 or 2015. On present plans, looking at pipelines and storage facilities, we could face a serious problem in that sort of nine or 10-year timescale. I hope that we will anticipate that and that the Minister can give us some idea of what is happening. We should also clear our minds on one other issue. There is a belief that if we had somehow had more market forces operating in the European continent, gas would have flowed down the interconnector and made up much of our short supply. Frankly, that is not going to happen. Even if, as I strongly hope, we get a freer and more open market inside the European Union through its Commissioner for competition, the psychological attitude to energy supplies in Germany, France and Italy will not substantially change. If they will allow a free market in prices, we should not rely on them simply pushing more energy down the interconnector. The price incentive to do that through the interconnector in March was absolutely staggering, yet still it did not come. The answer is built into their attitude. Those countries are not prepared, at a time of cold spells, to let their gas supplies go to another country because they fear not having enough. That psychological attitude is already reflected in their having much larger storage capacity than ours, and that is not going to change completely. So, from the experience of watching this situation—with some concern over the last six months—I would urge your Lordships not to rely on a big change of attitude in the continent. I do not think that we will get the interconnector supply through. Can the Minister respond on one particularly interesting issue? I do not know enough about it, although other noble Lords might. There has been a recent announcement that Excelerate Energy—a rather good name for a company—has plans to import LNG at Teesside from December 2006, when we shall really need it, using on-board ship re-gasification technology. It will probably be only about 11 million cubic metres a day, but that might be very helpful. If that technology is available, should we not be encouraging some other companies? As I say, at present the prospects are that a cold 2006 will give us serious problems again. We should remember that, this time, we were able to reduce some of our gas supplies because some of the gas-fired power stations deliberately cut theirs. There was a good deal of sensible management to help those supplying factories or homes. Nevertheless, we were very tight in March and it could have been a lot worse. We could have had factories closed, layoffs in work and lost production. So the Government owe it to everybody to try and see if some short-term measures could be taken for next winter, and not just chance it out. I want to raise some aspects of the international situation. I suppose I should again declare an interest. In the past, I have had particularly long-standing interests in oil and gas in Russia. I hear again the voices—as in that rather stupid speech of Vice-President Cheney but, more than that, coming all the time—either trying to anticipate problems with our own energy policy, so as to rubbish gas and make people happier to have nuclear energy, which is a dangerous thing, or on the much more important overall attitude to Russia. We have heard a bit of that already, about Ukraine. First, before criticising the negotiations with Ukraine on gas, it would help to have an idea how long they had been going on and how difficult it had been for Gazprom to get the new Ukrainian Government to raise the ludicrously low price for gas. Russia is not a rich country. It has, at the moment, conducted its financial arrangements quite prudently; it has a substantial surplus of about $90 billion, which is about 10 per cent of its GDP, yet that indicates an extremely low GDP. There is a great danger, because it has done well out of energy and commodity prices, of seeing Russia as a rich country. It is not. It has serious poverty in many of its cities and it has a long way to go before it can build up its economy. Therefore it is wholly rational and reasonable that it will try and get full energy prices. We would all do exactly the same, and we should stop thinking there is something wrong in Russia trying to get more economic pricing. Politically, Russia handled Ukraine foolishly before the elections. I am very critical of all that. On the question of gas pricing I am less critical, however; we should look at it a little more realistically, particularly those of us who want market prices. There was a feeling that something about the situation was wholly political, but there is now ample evidence, from the way Russia is insisting on gas prices going up in Belarus, which is very close to it, to indicate that this is an overall policy. Russia is trying to maximise the return on its resources, and it is fully entitled to do so. We should be a little more cautious about that, and more understanding. Russia has gone through an immensely complex transition; what has happened through the 1990s since the fall of the Berlin Wall has been amazing. It has been a difficult but peaceful transition. I speak as a former chairman of Yukos International. I have lived through one of the most difficult issues, although I will not use the freedom of this House to talk about that. All I am saying is that I still have confidence in Russia, and still believe it can overcome some of these problems. It is seriously in our interest that it does so. The other day someone who ought to know better likened the new gas pipeline from St Petersburg to Germany to a rerun of the Molotov-Ribbentrop pact. The history is ludicrous, for a start, but this is the sort of hysteria we are starting to develop about Russia. It is in all our interests, wherever oil or gas is being taken out, to have multiple pipelines. It has been my view of the Caspian Sea that the more pipelines out, the better. It was unwise, to say the very least, for the European Union to be supplied only by two main gas pipelines coming over land. We may criticise Chancellor Schröder for too quickly going into business, although I personally do not. I think it is a thoroughly good thing. We all know he has an extremely good relationship with President Putin. The pipeline is an extremely important investment, largely financed out of German money. It needs to have as much clout behind it as possible to come out on time and at cost, and the sooner it comes through, the better. It is a strong British interest that the pipeline should be built. I hope we will not now have a ludicrous strategic argument that Russia is trying to do us all down by increasing its pipelines. It is thoroughly in our interest that that should happen. It is also in our interest that Russia develops more LNG exits for its gas, and that some of this will come out from the northern ports and go to the United States. We have heard about Algeria. If a cartel were to develop, it would be very worrying, but Russia is perfectly entitled, given the sort of pressures it is under, to act with other countries as the other oil-producing countries have been doing for decades. We just have to get used to the fact that Russia is now going to play its role in the world, and it has every right to do so. It must do so responsibly, however, and here I come to the question of the G8. The meeting being held is extremely important. We cannot lecture the Russians by saying they should not use the existence of these large gas fields as a political bargaining counter, when it is flagrantly obvious that the United States is using World Trade Organisation membership for Russia as exactly that. These are tough, proud, resilient people, and they will not go on being lectured to by Vice-President Cheney, or told by the Americans that they want such-and-such a demand in the energy field, only to find that they are being blocked from going into the WTO. I think there are only two countries at the moment stopping Russia entering the WTO, and the most important one is the USA. President Bush has had a mature view of how to handle Russia and has handled it extremely well. I wish the rest of his foreign policy had been conducted with the same degree of skill. Nevertheless, his role in the Petersburg summit becomes extremely important. I hope that we can see an opening up of these large gas fields in Russia to United States oil and gas companies which have substantial investment capacity behind them and, frankly, are much needed; that World Trade Organisation membership will be opened to Russia as soon as possible; and that Britain will play the role which we have done hitherto of treating Russia as a sensible partner in all these areas. That is not to say that there are not criticisms to be made: there are. From time to time where things have gone wrong, such as over Yukos, it is perfectly right that there should be strong criticism. Nevertheless, BP and TNK have a very good partnership. The tax liabilities on the oil and gas companies seem to have been sorted out in a way which should encourage future investment. There is no question or doubt: there is far more gas in Russia than has hitherto been stated. Because all the private oil companies do not want Gazprom to know that they have this gas they have been understating their gas supplies. It is perfectly reasonable that we treat Gazprom with respect, as a major world energy company. It was sensible for the Government to make it clear that there was not an automatic ban on any British gas distributor being open to offers in a world market by a Russian company. But, equally well, it gives us an entitlement to argue that there needs to be a more genuine open market within the European Union. If we achieve that, we shall be in a much better position to give lectures to Russia about its monopolies. I do not think that Russia will listen much to criticism over Gazprom while it sees that Gaz de France and Suez may, for example, be brought together in a very dangerous merger in terms of monopolies. I am glad that the European Commissioner is taking evidence on this and that Centrica has put in evidence against it. There are important lessons for our domestic supplies. First, we should act, if we can, even more imaginatively over the winter of 2006–07. We should be careful about, and anticipate now, the widening gap that is coming in 2013 and particularly 2014-15. We should do our utmost to get more out of the North Sea. The press talk as though we were not producing oil and gas. We are still producing a substantial amount of oil and gas out of the North Sea. The Chancellor should look again at his decision last November to raise the corporation tax on North Sea oil companies. If the price goes down, it will be a disincentive to getting it out. Over the next decade or 15 years, every extra amount of gas and oil from the North Sea is a bonus which we should try our utmost to get out. Finally, I hope that the Prime Minister will stop the nonsense where he seems to have to make a statement every day or week to grab headlines. He set up what was very necessary: what we thought was a serious study on energy policy. He pre-empts its findings in an absolutely ridiculous, juvenile way. We are fed up with this sort of government. If he wants to restore confidence in himself, he needs to relax, take it steadily, look at decisions over a longer term, and recognise that this energy review is crucial. All governments have usually got it wrong. We have got the nuclear question wrong, in particular the economics. There is no possibility of making sensible decisions on the nuclear issue without a realistic view of what the market will take and what it will finance. If they need a few extra months on the review, they should take the time—it is far more important to get it right—and not have any more pre-emption.