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Malcolm Wicks MP, Minister of State for Energy
London Hilton, 14 May 2008
Mr President, My Lords and Ladies , Ladies and Gentlemen. I am delighted and honoured to have been invited here today to deliver the Keynote Address at one of the major annual events of the British gas industry.
The abiding problem, when preparing a speech such as this, is deciding what to leave out. It is impossible to give a rounded account of one year in the life of the British gas industry in only 22 minutes, and I shall not attempt it.
But what I must do at the outset is to acknowledge the role that your two distinguished organisations – the Institution of Gas Engineers and Managers, and the SBGI – have played, for well over a century now , in promoting excellence in the British gas industry.
In a fast-changing environment, it is only too easy to focus on the here-and-now, and to take for granted the contributions of your two organisations, over many decades, in providing the solid bedrock of professionalism and expertise on which the rest of the industry can build.
That is something for which the country – and not merely the gas industry – owes you congratulations and thanks.
And it is this thought that provides me with my theme for the next 21 minutes – “promoting excellence in a world of change”.
An ever-changing background – increasing import-dependence, fossil fuel prices & supply, the environmental challenge
A moment ago I mentioned the fast-changing environment in which the British gas market operates. A major change remains the shift towards increasing import-dependence.
The British gas market has come a long way in the last couple of years. We all remember the tough winter of 2005/06 – record spot prices, and an unprecedented Gas Balancing Alert.
This last winter was nothing like that:
There is now much more stability, largely because of reduced dependence on continental Europe – vastly greater import capacity from Norway, together with improved connectivity across the Netherlands to the BBL pipe-line, and direct access to the global LNG market.
The Government can take some of the credit for these developments – for ensuring a market framework where commercial initiatives can thrive. But it is the companies, many here today, who have opened their cheque-books and provided the gas import infrastructure that has made the difference.
And it’s not just new import facilities. There are a host of new gas storage projects out there – some in the public realm, others not yet – preparing to target the opportunity provided by the decline of the swing capacity of the Southern North Sea.
These developments show that markets will deliver – provided the Government gets the framework right. Getting the framework right in a changing world is a continuing process. Here are some examples:
But the framework must cover a much wider area than gas wholesale markets. As last year’s Energy White Paper shows, it must also cover:
Fuel poverty is a particular concern. Programmes are already in place across Government, such as Warm Front and the Winter Fuel Payment. But we must do more, and fast. So I welcome the trebling in spend on social assistance agreed by energy companies at last month’s “fuel poverty summit”. The Government is now looking at the issue of data sharing, to enable the companies to get that help to where it is most needed.
In the longer term part of the response to the challenge of fuel poverty must be extending the networks – promoting gas connections to deprived communities.
My Department’s Design and Demonstration Unit, supported by National Grid’s Affordable Warmth team, has devised a successful model for providing such connections.
That model will, I hope, be used by the gas distribution networks to connect deprived communities under arrangements set out in the 2008-13 Gas Distribution Price Control. And I hope that Ofgem’s forthcoming guidance on the arrangements will encourage high levels of activity.
As we all know, safety is paramount. So it is good news indeed that the latest statistics on carbon monoxide fatalities linked to piped natural gas are the lowest ever – 7 in 2006/07, compared with 43 ten years ago.
This is a major success. I understand that it means that the Health and Safety Commission's target, of reducing avoidable gas-related CO fatalities by a minimum of 20% by 2010, has been achieved.
But 7 deaths are still too many. So I am pleased that the Energy Retailing Association, the Gas Industry Safety Group and National Grid – all represented here today – are continuing to work together, to ensure that the reduction in deaths is sustainable, and so far as possible to reduce the number of deaths still further.
The elephant in the room – which I can duck no longer – is prices. Today’s gas market is not a comfortable environment for consumers. The appropriate response to dark conspiracy theories is light. So I welcome the enquiry that the House of Commons Select Committee on Business, Enterprise and Regulatory Reform has undertaken, and I look forward to seeing their report.
It will be surprising if that report does not have a fair amount to say about the strong upward pressure on the commodity price for gas in international markets, as well as the global environmental factors which are also contributing to sustained upward cost pressures.
And it is to international gas markets that I now turn.
If the elephant in the room is prices, the bear in the room is Russia. Russia provides some 25% of the gas consumed within the EU (though there are no direct physical supply routes from Russia to GB).
It is undeniable that relations between the EU and Russia, and between the UK and Russia, have recently been difficult.
But a number of opportunities over the coming year – under the auspices of a new President – should enable us to put the energy relationship on a more stable footing for the future.
There are hopes that June's EU-Russia summit will see the beginning of negotiations on a new EU-Russia partnership agreement, with the energy relationship forming a major element of these discussions. Any new agreement should provide the stable and transparent foundation needed to enable a continuing energy partnership, based on reciprocal access to trade and investment opportunities.
And energy will no doubt be a major topic during John Hutton's forthcoming visit to Moscow, this autumn.
With the world’s largest proven gas reserves, Russia will inevitably remain a significant source of gas imports to Europe for the foreseeable future.
But as Europe’s gas import dependence increases, it needs to diversify its supply sources and supply routes – to complement, not to replace, Russian gas.
The Government is proactive in developing diverse new energy sources to supplement existing suppliers, supporting the EU policy of diversifying its energy supply sources and routes. This work also gives effect to the Energy White Paper commitment to take an international lead in promoting open and competitive energy markets; a commitment which, incidentally, is also reflected in the priorities of our Foreign & Commonwealth Office.
The challenges here concern, first, the resource base.
In the context of our work to develop the supply potential of Caspian countries, last September I signed a Protocol of Intentions with Turkmenistan, which provides for the sharing of relevant expertise to help develop their domestic energy sector. And last month I hosted a high-level delegation, led by Deputy Prime Minister Tagyev, the first Turkmen minister to visit the UK in 10 years. We discussed how Turkmenistan could benefit from diversifying its customer base by selling gas directly to Europe.
Accessing new sources of gas also brings with it a challenge concerning pipe-line routes. The Government is actively encouraging development of the proposed Southern Corridor, a gas pipeline route from the Caspian region through Turkey and into the EU.
A quick glance at a map is enough to confirm Turkey’s strategic location on the route for a number of potential sources of gas into the EU – and not just from the Caspian region and Central Asia; in the longer term, the Middle East and North Africa also have potential new sources of piped gas into the EU.
We are collaborating with Turkey to realise its potential to become a competitive energy hub. Indeed a high-level delegation from Turkey is in the UK this week to discuss our experience of the benefits of a market-based approach.
Meanwhile the fast-developing international LNG market is helping to spread risk around the global gas market, by providing diversity of supply. I look forward to welcoming, later this year, the first shipments of LNG into the two major import terminals at Milford Haven – including the first contractual shipments from Qatar.
Turning to trade promotion, I am delighted to see that UKTI is sponsoring the International Business Development Award this afternoon. Last week I was at OTC in Houston, where I saw the enormous effort that UKTI puts into supporting the UK oil & gas industry to develop its business overseas, and to promote the UK as an excellent venue for inward investment.
UKTI is also working with industry in the UK to develop the UK Energy Excellence. The UK Energy Marketing Strategy has been developed to market our energy business sector better, by increasing the international appetite for UK Energy Technology, so that it continues to provide products and services that are innovative and world beating.
But the inescapable fact is that these are tough times for consumers – not just British, but European consumers. For households, sharply increasing energy prices are a threat to their living standards; for industry, they are a threat to their competitiveness in the globalising economy.
Now, more than ever, with crude oil at over $100, and talk of more increases to come, with the inevitable impact that will have on gas prices, European consumers need the energy supply industries and services that will enable them to squeeze the last drop of value from their energy consumption.
Of the excellence of the British gas market there is no doubt – Oxera’s latest report confirms, yet again, that GB has the most competitive gas and electricity markets.
In short Government and industry together are “promoting excellence in a world of change”. Government, by setting the framework to enable; while it is you – the individuals and companies represented in this room today – who have responded to that opportunity, and who are delivering.
I conclude with these thoughts: When will the continental European gas markets establish the regulatory frameworks for liberalised and competitive markets to enable the pursuit of excellence there, too? And how long shall we have to wait for the first Annual EU Gas Industry Awards?
