Good afternoon, and welcome to the Grand Committee. I should remind the committee that if there is a Division in the Chamber while the committee is sitting it will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Clause 203: “Core fuel sector activity” and other key concepts
My Lords, I must start with an apology. My train was delayed for 45 minutes and many others were cancelled, so I am just about here on time. I thank my noble friend Lord Ravensdale for stepping in just as we started.
I am delighted to be here to speak to the amendments in this group which relate to the part of the Bill that seeks to take further powers to ensure that we have fuel resilience in our country. Amendments 213 to 219 seek to extend the scope of the Government’s proposals so that we have a more inclusive definition of fuel resilience beyond oil and liquid biofuels that includes gas.
The measures in this clause are a set of broad powers to allow the Government to ensure that economic activity in the United Kingdom is not adversely affected by disruption to core fuel sector activities, reducing the risk of emergencies affecting fuel suppliers. They give powers to the Government to issue directions for the purposes of managing risk, reducing potential adverse impacts and facilitating recovery from disruptions to core fuel sector activities.
The powers given to the Government by the Bill are extremely wide and potentially concerning, but I will come on to that. In essence they allow the Secretary of State to direct any core fuel sector participant to do anything for these purposes. More reasonably, they also allow the Secretary of State to require information and that certain types of incidents be reported. Leaving aside the wide-ranging nature of the powers for now, we have tabled these amendments to inquire why the definition of fuels excludes gas from the resilience proposals. I am sure I will be told that a draft version of the Bill was shared with the BEIS Select Committee, that no reference was made to gas as a core fuel and no complaints were made at that point. However comments from the committee in November 2021 were informed by the fuel shortages of autumn 2021 and since then we have seen a sharp spike in gas prices and some constraints on the supply of gas, which were exacerbated by the invasion of Ukraine. I should note that in 2021 the UK imported around 60% of its gas for use in all sectors. Although we have North Sea gas, we are by no means self-sufficient, so interruptions to fuel supplies raise problems. Gas is the sector where we remain very exposed—but that is certainly not true of biofuels. If we compare the two, the volumes are completely different and it seems odd to include biofuels but exclude gas.
My Lords, we on these Benches are generally supportive of the amendments in the name of the noble Baroness, Lady Worthington, but I would like to ask the Minister about some specifics.
Three key powers are taken under the Bill: the direction-making power, the information power and the financial assistance power. I am particularly interested in the information power. The government fact sheet states:
“The information required from industry will be limited to what is necessary and Government will work with industry to minimise any administrative burden incurred.”
What practical protections will be in place to ensure that this information is limited in this way, and what, in practice, is meant by:
“Government will work with industry to minimise any administrative burden incurred”?
I would welcome a response to those questions. If the Minister cannot answer today, writing will do.
I thank the noble Baroness, Lady Worthington, for her amendments. I start by reminding noble Lords that this part of the Bill was published in draft and scrutinised by the BEIS Select Committee.
Amendments 213 to 219 seek to include gas under the definitions of core fuels and core fuel sector activity. These measures broadly seek to address threats to the security of fuel supply by introducing powers to ensure fuel supply resilience for the core fuel sector. They capture companies involved in oil-based products, which include heating oil, liquefied petroleum gas and gas oil, also known as red diesel.
I understand the reasoning for gas to be included in these definitions, given that it is utilised for heating and cooking in homes as well as fuelling power stations that provide electricity and contribute to overall energy security. Some forms of gas are, however, already included in this measure, such as liquefied petroleum gases—propane and butane.
I believe that my noble friend the Minister has previously written to the noble Baroness to highlight that the way gas is transported, handled and stored is different from oil, which operates under a separate regulatory regime. For the benefit of your Lordships’ House: gas is transported and handled across the country through a network of pressurised pipelines that connect gas terminals to the distribution network, and this infrastructure is owned by the national grid. I also highlight that the measures in the Bill are limited to the resilience and continued operation of the core fuel sector, which we traditionally refer to as the downstream oil sector.
The inclusion of gas generally would significantly widen the scope of this part and bring a wide range of stakeholders who are already heavily regulated into the scope of the Bill. The level of regulation and resilience in place for the gas industry is significantly higher than that of the oil sector and I caution against adding further regulation to the sector of the kind outlined by these amendments.
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As with the other measures in this part of the Bill, the main purpose of this power is to improve and maintain resilience as well as maintaining continuity of core fuel supplies. It is usually the responsibility of the sector to maintain fuel supply resilience and meet normal industry good practice standards; therefore, it is usually expected that reasonable costs will be borne by it. Financial assistance will not be used frequently and only if it is deemed necessary and offers the best value for money.
Grants as a form of financial assistance are important, given the purpose of this power and the need to maintain resilience. They are relatively simple to administer and are in line with the forms of financial assistance that the Government provide through other existing legislation such as the Housing and Regeneration Act 2008, which sets out the same forms of financial assistance. The same also applies to incurring expenditure for the benefit of the person assisted, which is a form of assistance also listed in the Housing and Regeneration Act 2008.
Any package of financial support given will include appropriate safeguards to ensure that the funds are used only for the intended purposes and minimise any negative effects on competition. The forms of financial support listed in this clause are not exhaustive or a closed list of options. As such, removing those specific items would not necessarily prevent them being given in any case, in the infrequent circumstances that financial support might be needed. I should also say that financial assistance will likely need to comply with subsidy control requirements and information about a subsidy may need to be recorded on the transparency database pursuant to the requirements of the Subsidy Control Act 2022. Therefore, a stand-alone requirement to report to Parliament will not be necessary.
Given what I have set out I ask the noble Baroness not to press these amendments.
I thank the noble Baroness for her response. I will indeed study her reply in detail; I am grateful for the information provided.
In the recently published net-zero review by Chris Skidmore, there was a statement that we would review the regulatory regime to make sure that it is fit for a net-zero transition. I wonder if some of the points made about how we traditionally define core fuels need perhaps to be thought about in the light of the transition that we are about to go through. It is clear that rising electrification and reducing demand for chemical fuels could cause unexpected consequences and shortages in the future. In fact, if we had had a different set of circumstances this winter, with less wind, more cold snaps and greater demand for gas across the continent—where it has been unusually warm—we could have found ourselves in a situation where we may well have had a very efficient gas transportation network owned by National Grid, but would have been reliant on access to a sufficient source of fuel to be transported through the network.
That is where storage comes in, which is why the focus has been on that rough storage site and what would now appear to be the rather reckless commercial decision not to keep that as part of our infrastructure. That is what I am trying to get at: are we seeing resilience as a holistic system-wide measure? It is clear that these things all interrelate. We cannot take the traditional view that there is a downstream fuel sector that relates just to oil and transportation needs and not consider chemical fuels being used for other vital sources of security and health—heating our homes, keeping ourselves safe and well through the winter months and other needs throughout the year.
I thank the noble Baroness for her response, but I would like to reconsider. Of course, at this stage I will not press those amendments.
Amendment 213 withdrawn.
Amendments 214 to 219 not moved.
Clause 203 agreed.
Clauses 204 to 219 agreed.
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Helen Thomas wrote last week in the Financial Times:
“The Rough offshore gas storage facility, partially reopened … by Centrica”
last year after having been closed for five years,
“has been steadily withdrawing gas … At about 54 per cent full … it is far from the 80 per cent-plus levels on the continent. And European storage capacity … is about 25 per cent of annual consumption compared with less than 1 per cent for the UK”.
That is equivalent to only three days, so we can see how tight some of these margins might be if there are disruptions. That could have left the country very short, especially had this winter’s weather been harsher than it has been.
Rough is not being refilled because the facility is being operated on a merchant basis rather than the strategic one which the Government might perhaps prefer. Whereas Governments in Europe can mandate storage, here, we are relying on Centrica to find a place where future prices make sense to it commercially to take storage into Rough, and it is of course looking for a decent return rather than strategic fuel resilience. The journalist added that no one thinks that storage operated on this basis will provide security of supply, and I tend to agree. I would be interested in the Minister’s thoughts on this question and on what more the Government could and should be doing to include gas in their fuel resilience strategy and indeed in this legislation.
It seems sensible that we would want the same powers, should we need them, to issue directions and to require reporting of incidents and the provision of information. Had we experienced a more severe winter, we could have come seriously unstuck, and I would like to understand how the Government would have intervened to ensure that critical businesses and households were prioritised. That is obviously an issue of some concern to the Government, given that these powers are being taken. Do the Government already have the necessary powers? If so, where are they and how would they work? I would be interested to hear more about that.
I have tabled Amendments 220 and 221 because I am seeking clarification and expressing concern about the wide-ranging nature of the types of financial assistance the Bill will allow. Certain types may be required, but why does the Secretary of State need powers to make grants, effectively, to firms involved in refining, transporting and storing fuels that are commercially very lucrative? We have all seen the headlines about how much money these companies are making, and it seems odd to take such a broad power, which could mean that public money was being spent with no requirement to pay it back to the public purse. It seems unnecessarily broad, providing the equivalent of a grant, and I would like to understand the justification for it. When looking ahead to the transition to net zero, we have described how we need to provide more public money, but it is right to say that investors in the current fossil-fuel-based energy system should have enough resources to ensure that they can meet regulations set by government without the need for further public money. That is a point that needs answering.
This is also arguably a sector that we would expect to go into managed decline as we look to electrify most of the demand being met by the current provision of these fuels, so it may be appropriate for assistance to be given. Transition loans, guarantees or even the Government taking a stake could be required to make the transition happen swiftly and in an orderly fashion, but simply giving out public money with no strings attached seems rather reckless. I would like to understand the specific circumstances and conditions under which a grant would be appropriate. If that cannot be dealt with in detail here, I would be happy to receive a letter outlining a case study that could justify this use of public money, given the economic climate we find ourselves in.
Finally, Amendment 222 is a modest proposal relating to the reporting of such financial assistance to Parliament. I could not see any reference in the Bill to the notification of Parliament in relation to these financial forms of assistance—only in relation to the scrutiny of statutory instruments or guidance. Is it really the Minister’s intention that this assistance would not be made public until BEIS’s accounts are published, which would obviously be after the horse has bolted and we would have to comb through the footnotes to understand what forms of financial assistance had been given under Clause 222? I feel quite strongly that, if it is important enough to have its own separate regime, it should be important enough to brief Parliament and there should be a protocol for notifying us of the intention to use these powers.
I have drafted an amendment that I hope the Minister will accept. If not, I look forward to assurances from the Dispatch Box about how and when Parliament will be notified before the expenditure is committed. With those remarks, I beg to move.
I assure the noble Baroness that the gas system is resilient and we have a highly diverse source of gas supply in Great Britain to rely on. It includes pipelines from the UK and Norwegian continental shelves, interconnection with the European continent and three liquefied natural gas—LNG—terminals, providing Great Britain with one of the largest LNG import infrastructures in Europe. I am sure the noble Baroness is aware that last summer the UK was responsible for providing a significant amount of natural gas to mainland Europe through this land bridge.
National Grid Gas has robust, long-standing emergency procedures in place for the extremely unlikely event of an emergency on the gas network. The Government continue to work closely with Ofgem, National Grid Gas and other key industry organisations to monitor the gas supply horizon and prepare for the winter. The overarching aim is that fuel supply is maintained as we transition to a net-zero economy, and I assure noble Lords that the department is also exploring the longer-term options for gas storage and other clean energy, such as hydrogen.
I turn now to Amendments 220, 221 and 222, which relate to the financial assistance measures under Clause 222. It is important to highlight that the Government currently have no dedicated powers to enable spending for the purpose of core fuel resilience. I must emphasise that existing spending powers are limited in terms of their application. Current powers do not apply to providing financial assistance for the purpose of improving or maintaining the resilience of the core fuel sector.
On the question of public money, I am somewhat reassured that there “may” be a requirement to make it public that this sort of assistance is being granted, through transparency rules. I will look at them to interpret that “may”, because it is a rather weak word. It would be good if it was a requirement. These are potentially untrivial amounts of money going to a sector which, as has been described, is not short of resources to meet its needs. We need to be very careful in taking these broad powers.
If anything, the noble Baroness has worried me slightly further in saying that this is a non-exhaustive list and that it could happen anyway without these powers. I will give that further consideration and definitely look at the examples of housing and regeneration, but we are talking about a unique sector that is tied to our health, prosperity and security. We need to take a systems approach to resilience—the interconnectedness between all the different fuels and the electricity that will be a growing part of our energy system as it replaces these fuels over time. With thanks again for the response of the noble Baroness, I beg leave to withdraw the amendment.