House of Commons Trade and Industry Committee UK dependence on gas and coal imports Oral and written evidence Ordered by The House of Commons to be printed 16 May, 13, 20 and 27 June, 3 and 18 July, and 10 October 2006 HC 1123 i-vii and HC 1316-i, Session 2005-06 Published on 7 November 2007 by authority of the House of Commons London: The Stationery Office Limited £0.00 The Trade and Industry Committee The Trade and Industry Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Trade and Industry. Current membership Peter Luff MP (Conservative, Mid Worcestershire) (Chairman) Roger Berry MP (Labour, Kingswood) Mr Brian Binley MP (Conservative, Northampton South) Mr Peter Bone MP (Conservative, Wellingborough) Mr Michael Clapham MP (Labour, Barnsley West and Penistone) Mrs Claire Curtis-Thomas MP (Labour, Crosby) Mr Lindsay Hoyle MP (Labour, Chorley) Mr Mark Hunter MP (Liberal Democrat, Cheadle) Miss Julie Kirkbride MP (Conservative, Bromsgrove) Judy Mallaber MP (Labour, Amber Valley) Rob Marris MP (Labour, Wolverhampton South West) Anne Moffat MP (Labour, East Lothian) Mr Mike Weir MP (Scottish National Party, Angus) Mr Anthony Wright MP (Labour, Great Yarmouth) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.publications.parliament.uk/pa/cm/cmstords.htm Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at http://www.parliament.uk/parliamentary_committees/trade_and_industry.cfm. Committee staff The current staff of the Committee are Elizabeth Flood (Clerk), David Slater (Second Clerk), Robert Cope (Committee Specialist), Ian Townsend (Inquiry Manager), Anita Fuki (Committee Assistant), Jim Hudson (Senior Office Clerk) and Cassandra Byrne (Committee Secretary). Contacts All correspondence should be addressed to the Clerks of the Trade and Industry Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected]. (This will be [email protected] as of 6.11.07) List of witnesses Tuesday 16 May 2006 Page Professor Jonathan Stern, Director of Gas Research, Oxford Institute for Energy Studies, Honorary Professor, Centre for Energy Mineral Law and Policy, University of Dundee Ev 1 Tuesday 13 June 2006 Roberta Luxbacher, Director of Gas and Power Marketing for Europe, and Nick Thomas, Director of Corporate Affairs, ExxonMobil Ev 11 Tuesday 20 June 2006 Chris Murray, Network Operations Director, and Simon Cocks, Commercial Director, National Grid Ev 20 Mark Clare, Managing Director, British Gas, and Jake Ulrich, Managing Director, Centrica Energy, Centrica Plc Ev 28 Tuesday 27 June 2006 Professor John Gittus Ev 37 Monday 3 July 2006 Alan Robinson, Director, UK Markets RWE Trading, and David Mannering, Director of Economic Regulation, RWEnpower Ev 48 Tuesday 18 July 2006 Vitaly Vasiliev, Chief Executive Officer, and Keith Martin, Head of Training Division, Gazprom Marketing and Trading Ev 61 Tuesday 10 October 2006 Malcolm Wicks MP, Minister of State for Energy, and Paul McIntyre, Head of the Energy Review Team, Department of Trade and Industry Ev 69 Tuesday 20 June 2006 Gerry Spindler, Chief Executive Officer, and Chris Mawe, Finance Director, UK Coal Ev 90 List of written evidence 1 Correspondence between the Committee and Energy Companies over retail prices Ev 97 2 Department of Trade and Industry Ev 106 3 Department of Trade and Industry Ev 107 4 Gazprom Ev 112 5 Ofgem Ev 113 3544871001 Page Type [SO] 01-11-07 22:58:31 Pag Table: COENEW PPSysB Unit: PAG1 Trade and Industry Committee: Evidence Ev 1 Oral evidence Taken before the Trade and Industry Committee on Tuesday 16 May 2006 Members present: Peter LuV, in the Chair Roger Berry Judy Mallaber Mr Brian Binley Mr Mike Weir Witness: Professor Jonathan Stern, Director of Gas Research, Oxford Institute for Energy Studies, Honorary Professor, Centre for Energy Mineral Law and Policy, University of Dundee, gave evidence. Q1 Chairman: Professor Stern, welcome to this first of the gas security incidents which have been very evidence session we are having on the UK serious and deprived customers of gas for long dependency on gas imports. I am really grateful to periods of time, have been caused by technical you for the trouble to which you have gone both in problems of a very boring nature, usually to coming and accepting the short delay caused by the pipelines or processing plants, in other words, some reading of a Statement in the House which a number facility like a processing plant that you cannot fix of us are interested in and some of us were successful very quickly. My view of the UK gas security, and I and some of us were not, but thank you for that. should just say that the UK is just one of the Thank you particularly for what I found a countries which I study, I deal with gas all over the fascinating paper you prepared for the Committee world, and so I am not particularly centred on the on the Security of supply consequences of growing UK UK. But when I came to look again at the UK after gas import dependence which I have read with many years of looking further afield, what is very interest. Perhaps I can just ask you to explain for the interesting is that as the infrastructure is getting record who you are? older we are seeing increased incidence of facility Professor Stern: I am Jonathan Stern, I am Director failure. You do not want to be too dramatic about of Gas Research at the Oxford Institute for Energy this, it is mostly only the odd pipeline, a field, a sub- Studies and Professor of the Centre for Energy terminal, and it is usually only for a day or even a few Mineral Law and Policy at the University of hours within a day. But what I think we are seeing is Dundee. the consequence of an ageing infrastructure and so my principal concern about UK gas security is because of the facilities getting older we have a less Q2 Chairman: I wonder if I could just begin by reliable infrastructure and we are going to get asking you to explain something about risk in the increased security incidents as a result of that. context of this discussion this afternoon. I was struck by your comment in the memorandum, specifically headed “Security and Import Dependence: some empirical observations”, where you talk about the nature of gas security incidents since 1980 three times: source, transit and facility Q3 Chairman: You, for example, in your paper, and perhaps you could explain the nature of the risk drew the Committee’s attention to the great attaching to these three diVerent sources of importance of the Rough storage facility fire. which instability and what concern this Committee should had almost no exposure from the media whatsoever have on each of them and indeed the country? while you were worried about Gazprom, “we always Professor Stern: Yes. Let me just explain that the get our priorities right” is what you are saying? work that I did arose from a question I was asked by Professor Stern: This had a big impact on my life and the International Energy Agency back in 2001 to I spent the first four days of this year during the explore types of actual security incidents which had Russian Ukraine crisis almost solidly in TV and taken place in the world and so I created three radio studios being asked: “what are the categories: source risk, transit risk and facility risk. consequences of this incident for the UK”, to which Source risk being the likelihood of political or other my answer was, “well nothing very much”. I think instability which actually cut oV gas at the source; that since Rough happened in February I have transit risk being problems within transit countries probably had about two phone calls. There is which cut oV gas; and facility risk being technical something magic about unreliable and nasty problems or accidents which prevented gas being foreigners that catches the journalists’ imaginations physically delivered. What was very interesting was and they can then see Hollywood film scripts in their that the main general concern about gas security, mind about nasty people turning oV gas and holding which is source risk of what I call the “nasty and Europe to ransom. Fires on platforms due to unreliable foreigners” problem is actually unreliable chillers are just not that interesting for responsible for very few gas security incidents. Most most of the world. 3544871001 Page Type [E] 01-11-07 22:58:31 Pag Table: COENEW PPSysB Unit: PAG1 Ev 2 Trade and Industry Committee: Evidence 16 May 2006 Professor Jonathan Stern Q4 Chairman: Can I just ask: those unreliable and Soviet Republics running through aged nasty foreigners of whom you speak are also infrastructure, is investment going into renewing scrambling for energy supplies around the globe at that infrastructure to supply western Europe? present, so should we be more concerned than we Professor Stern: It is a diYcult question to make a were, forgetting the details and the issues, about our brash generalisation about. If I could put it to you dependence on imports in that new rather more like this: if I had to generalise I would say that I am competitive world? not clear that investment is enough to maintain Professor Stern: My feeling about imports is that reliability of an infrastructure which is getting very they have great advantages, they come through old very quickly.