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Security of Supply

I was thinking of my London School of Economics tutor’s more generous comment on my first essay—““A good start to a difficult subject.”” I thought that that caught the ambiguity rather well. We have heard how North sea supplies are declining, but I emphasise—I agree with the Liberal Democrat spokesman on this matter—that we should not exaggerate that point. There is still a great deal of oil and gas in the North sea and other seas around our shores, and it is a vital British industry. Nevertheless, Britain’s transition towards becoming a net gas importer is under way. Concerns about tight energy supplies during that transition period, together with other factors such as high fossil fuel prices and high global demand, have collectively led to very high industrial gas prices. I will not debate the issue of prices now, but I think that it is a genuinely more complicated issue than some have claimed. Heavy users of gas are suffering price-wise, particularly when they buy in the short term, which is a commercial judgement for them. Many businesses and domestic suppliers have enjoyed relatively lower prices than in France, Germany and elsewhere on the continent, however. Those are the facts, but I understand why various colleagues do not want the facts to get in the way of a good argument. Of course we recognise that the recent price spike has created those tough operating conditions. I have met representatives from many industries, such as the chemicals, metals, glass and ceramics industries, and we understand their current difficulty and pain. We are leaving no stone unturned and are working closely with representatives of those industries to mitigate the situation and reduce its impact wherever possible. Long before this winter—in early spring, before I held my present post, and in the summer—we were meeting key stakeholders to discuss issues relating to supply and demand. We met representatives of the North sea oil and gas industry, and emphasised that we needed to be in the best possible position in regard to repairs, spares, and partnership between companies so that we could achieve maximum output this summer. I have met supply companies, the Confederation of British Industry, the Energy Intensive Users Group and many others to ensure that we are as well prepared as possible during a difficult transition period. As we have been reminded, however, this is not just about industry and business. Rising prices have an impact on vulnerable domestic householders, especially the elderly, who are physiologically less able than many others to cope with cold conditions. My right hon. Friend the Member for Newcastle upon Tyne, East and Wallsend (Mr. Brown) made some important points about that. I believe that our record in government is good: more than 4 million households have been lifted out of fuel poverty since 1997, and the Warm Front scheme has helped more than 1 million vulnerable households to heat their homes more affordably. That is why the Chancellor increased funding for the scheme in his pre-Budget report. A scheme that has helped more than 1 million households is an important scheme. In the pre-Budget report, we also heard about the extension of the winter fuel payments scheme during the lifetime of the current Parliament. That, too, is a popular and important scheme, which provides vital cheques just before Christmas. Those over 60 will receive £200, while others will receive £300. Measures such as pension credit—initiated by the Department for Work and Pensions, in which the Secretary of State and I used to serve—also concentrate resources on vulnerable people. We have heard a good deal about the new infrastructure. The Secretary of State mentioned it today. Increasing supply will be key to reducing both industrial and domestic prices. We have also heard about the new LNG terminal at the Isle of Grain. Liquefied natural gas will become more important in the future. We have heard about the doubling of the interconnector import capacity, and about new storage capacity at Humbly Grove. There are 10 potential new import projects in the pipeline—an unfortunate and not deliberate pun—which could expand the UK’s import capacity by more than 1 billion cu m per year by the end of the decade. That is roughly equivalent to the UK’s current total annual demand for gas. The Langeled pipeline from Norway could supply up to 16 per cent., and the new BBL interconnector could supply a further 10 per cent. of UK peak demand. Both those supplies would begin in December 2006. A further upgrading of the interconnector to treble its previous capacity could supply up to 15 per cent. of peak UK demand. Two major LNG import terminals are being constructed in Pembrokeshire, which could in due course provide for more than 20 per cent. of our annual consumption needs. Supply has increased and will increase. The new infrastructure announced to the House today by my right hon. Friend the Secretary of State will ensure that as we become a net importer of gas, we will have a robust regime in place to facilitate gas import unloading and storage in the UK. The slower pace of liberalisation in other EU states is clearly limiting those benefits, so the UK is pressing hard for full liberalisation. I take the partisan points that have been made, but I think the record will show that the European Commission is taking tough action to pursue liberalisation. During our presidency there was a meeting of EU Energy Ministers, and there were two significant reports from the Commission. I am proud of what has been done, and those who take a view on it would do well to read the record. Let me say something about the international dimension. As we make the transition towards becoming a net importer, external international factors—some were highlighted by the right hon. Member for Fylde (Mr. Jack)—become more important. We have heard about the impact of rising energy demand in India and China, and the line connecting hurricanes Katrina and Rita with what has happened in the UK reminds us that international events produce at least a ripple, and sometimes something more serious, on our shores. We need to continue to have a strongly diversified energy system in respect of the different parts of the world from which we import energy, and of the different energy sources that will power Britain long into the 21st century.