Energy: Gas Prices

My Lords, I join other noble Lords in congratulating my noble friend—in every sense of that word—Lady O’Cathain on having initiated this timely debate so comprehensively at a time when the whole long-term energy supply situation is back on the agenda. The Prime Minister has pre-empted the Government’s long-drawn-out energy review by acknowledging that nuclear energy is indeed a necessary ingredient in the nation’s energy mix. My party’s energy review is still proceeding, and I cannot comment on its possible conclusions. Before I speak about gas, which is the main topic, I must say that the excellent debate initiated by my noble friend prompted the noble Lord, Lord Owen, to speak extremely well and comprehensively on this subject—without, I noticed, even a single note. He will have heard many people say how many times we have had a debate of this kind, so I hope he will not think it presumptuous of me to say that I hope he will speak again and again when these debates come up. To return to the beginning of the debate, the Government have embraced gas so enthusiastically that their recent policy has been to put practically all our energy requirements into the gas basket. Another important thing that we have tried to prompt them to do is to deal with clean coal technology, which the noble Lord, Lord Ezra, would mention if he were here; he has done so many times before. I was most impressed by what my noble friend Lord Jenkin said about the Hatfield project; I think that he called it a ““power fuel”” project. I hope he will forgive me if I do not comment any further on it, because I think we need to read Hansard in depth and in detail, and many times, to get the full flavour of what he was saying. It is planned that 60 per cent of our energy mix will rely on gas and, as the DTI admits, 90 per cent of that will be imported. By ignoring supplies from other viable sources and making ourselves almost entirely dependent on imported gas, we can be sure that suppliers will take advantage of our possible commercial weaknesses. In 1972-73, OPEC used its monopoly powers to cause worldwide economic chaos by imposing an arbitrary and swingeing increase in oil prices in support of its geopolitical policies. President Chavez of Venezuela is currently rattling the doubled-edged sword of nationalisation and diversion of supplies as part, I suppose, of his anti-USA policy. It is perhaps trite to remind your Lordships that those who do not learn from history are doomed to repeat it. The fact is that the vast proportion of our fuel supplies in the form of both oil and natural gas will be coming from these regimes, some of which are far from stable. Those sources may not be our enemies, but they may not be our friends, either—or, if they are, the events that I have just described make it clear that they are our friends not through thick and thin, but only until it suits them better. We receive our gas largely along pipelines that are prone to terrorist attack, as my honourable friend the shadow Foreign Secretary reminded us in his thoughtful article in this week’s Sunday Telegraph. As my noble friend Lord Patten said again today, it is ironic that the green lobby often raises the scare of nuclear plants being prone to terrorist attack—this, of course, has never happened—when pipelines, especially in Iraq, are attacked almost daily. Apart from the danger of terrorism, large quantities of gas will reach us along pipelines and an interconnector that can be manipulated by operators in Europe, who have already demonstrated a failure to ensure that the UK receives fair access to supplies. Indeed, many noble Lords have made exactly the same point. Russia’s monopolistic gas producer has threatened to divert its supplies if its attempt to establish a hold on gas distribution—and hence possibly on prices—in the EU and in the UK in particular is thwarted. Centrica has warned the European Commission that the proposed merger of Gaz de France and Suez threatens gas supplies to Britain and is almost certain to drive up prices, as it would be an end to effective competition in the UK gas market. The noble Lord, Lord Redesdale, made that point, and my noble friend Lady O’Cathain pointed out that the noble Lord, Lord Davies of Oldham, had made several statements to the noble Lord, Lord Ezra, about the Chancellor of the Exchequer and the Secretary of State for Trade and Industry writing to the European Commission on this very point. The proportion of our energy needs that will be met by gas depends totally on how quickly other sources are developed and expanded. In the mean time, the United Kingdom is woefully short of storage facilities. The noble Lord, Lord Owen, was one of the first, in his excellent speech, to mention the storage problem. Under the stewardship of the present Government, our natural gas supplies have been gobbled up, perhaps to the delight of the Treasury, which enjoys more revenue from gas than do the producers. Yet, as the Government have just admitted in a written ministerial Statement, the failure to help to facilitate the gas supply infrastructure, especially the storage facilities, will immediately, or over time, create difficulties in balancing supply and demand, thus reducing the reliability of our energy supply arrangements. The UK currently depends for its imported gas supplies on the ““just-in-time”” delivery system, exposing us to shortages in availability from abroad. Instead of planning ahead, and encouraging the industry to do the same, the Government have complacently opted to do nothing, until finally waking up to the problem at five past midnight. In contrast with many European countries, whose markets depend on imports of gas and which have constructed strategic storage facilities of up to 80 days, we in the UK have just one week’s supply, and all that the Government can offer is the hope that,"““current projects have the potential to make a real difference . . . by 2010””." That is truly, ““Jam tomorrow””. But at least the Government are offering to try to facilitate the construction of urgently needed storage facilities by,"““a review of the onshore consents regimes . . . and streamlining of procedures””." Although we welcome this initiative, it is, I suspect, easier said than done, as other noble Lords have said. In the mean time, the DTI acknowledges that domestic gas prices have risen by 60 per cent in the past three years. As my noble friend said, that is 30 per cent higher than in the rest of Europe. More than that, industrial gas and electricity prices have tripled in the UK in the same period and are now the most expensive in Europe. The DTI has also admitted that the climate change levy has increased the average price of gas by 3.5 per cent. Because of the high proportion of overheads contained in fuel costs, the price increases on industry, coupled with the threat of unreliability of supplies, last winter caused the loss of 6,000 jobs in the glass industry, some of which will be permanent, an 80 per cent reduction in brick-making capacity, and a permanent reduction in the production of chlorine and ammonia-based fertilisers. Those are just a few examples. In other words, the vastly increased cost of gas in the UK compared with that paid by our overseas competitors is having a dire effect on both industry and employment. The effect on the entire economy and the balance of payments will be disastrous when the vast preponderance of our energy has to be imported to meet our needs. We have all repeated this warning in several debates, but have not had much response from the Government. That, in a way, is because it is totally unanswerable. More than that, the lack of adequate strategic storage facilities puts us at the mercy of the daily fluctuations of the market—oil has now reached $67 a barrel—and the vagaries of the weather. We are also at the mercy of speculators, saboteurs and industrial accidents such as the fire at the Rough storage facility in the North Sea. We could also be at the mercy of malign overseas regimes. It is to be hoped that the Government’s much delayed energy review will provide much needed answers to our problems. I trust that the completed review will be followed by the swift action that is needed, and will not again be kicked into touch by further consultations and the dithering that has been a feature of Government policy since their last White Paper was published. As my noble friend Lord De Mauley said, it is no good continuing to have consultation after consultation. At some stage, a decision has to be taken so that industry has the confidence to invest in many of these technologies. The Government have made it quite clear that they are not waiting to invest money, particularly in nuclear energy, but are expecting investors to do that. Investors need certainty before they take those decisions.