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Dáil Éireann debate -
Thursday, 6 Nov 1986

Vol. 369 No. 7

Adjournment Debate. - Extension of Gas Supply.

I should like to thank the Chair for giving me permission to raise this matter. On 22 October I tabled a number of questions to the Minister for Energy asking when work would commence on the extension of the natural gas pipeline and his reply was:

The prospects for an extension of the gas supply network to centres in the Border region are very much dependent on the economic viability of such projects, taking into account the availability of European regional development funding under EC Regulation 3627/85. Until the necessary evaluation and planning work is completed, I am not in a position to comment on a supply to particular centres or on the timescale for such projects.

I am seriously concerned about the delay in getting this project under way. We have been trying to ensure that the evaluation was carried out quickly. All local organisations are prepared to give the assistance necessary to An Bord Gáis in the carrying out of that evaluation.

We have been involved in that work since Mr. Rickard H. Deasy, head of the financial service of the Economic and Social Committee of the EC presented a paper at a conference of the Gas Association of Ireland in Dublin on 9 October 1983. On that occasion he said the EC had a particular interest in the improvement of the economic and social situation of the Irish Border areas. In 1980 it adopted, according to him, a regional development measure — 2619/80 — providing support for investment mainly in the tourist sector. He said that the "Irish Border Areas Report" was adopted in December 1983 and published in early 1984. That report recommended broadening EC support to cover communications, industry, small business, tourism, agriculture and the improvement of rural towns. It also supported the concept of a North-South gas link, specifically recommending a distribution network which would take in Dundalk, Newry and other towns in the region.

Mr. Deasy produced a map at that conference showing the possible natural gas routes. One route was to Northern Ireland but that proposal fell by the wayside. There was to be a spur from Dundalk to Monaghan and a separate one from south Monaghan to Cavan, on to Ballinamore and to Sligo.

Following that conference I tabled a question asking the Minister for Energy, in view of the statement at the conference regarding grant-aid to extend natural gas to Border counties, if he would expedite commencement of work on the project. His reply to that question, on 23 October 1985, was to the effect that the possibility of securing special EC funding for the supply of natural gas to the north-east, including areas in County Louth and in other Border counties, had been under discussion for some time. The Minister said that the viability of gas projects in those areas was a primary consideration and the availability of such funding would be an important factor. He said that the EC aid proposal for a north-east gas programme was being considered as one element of a community regional aid package. While he was hopeful of a successful outcome, the overall package had yet to be approved by the EC Council of Ministers. Accordingly, it would be premature for him to comment further.

The EC Council regulation, No. 3637/85, was made on 17 December 1985. It states:

The specific measure shall apply to the following Border areas:

(a) Ireland: the counties of Donegal, Leitrim, Cavan, Monaghan, Louth and Sligo;

(b) Northern Ireland, with the exception of the Belfast urban area.

The regulation stated:

Whereas the natural gas supply and consumption in some of these areas located in Ireland could, while enabling the economic development base of these areas to be reinforced, contribute to the realisation of Community energy policy objectives by reducing dependence on oil by increasing security of energy supply through diversification of energy resources, and by improving the balance of trade of the member state concerned.

The regulation stated that money would be available for consultancy and technical assistance and added:

... making available to industrial and service activities, with a view to facilitating adaptation to natural gas and encouraging exploitation of new products and process possibilities, technical assistance and services in the following fields:

(a) assessment of the technical implications and benefits and costs of conversion to natural gas;

(b) identification of new products and processes dependent on natural gas;

(c) analysis of market potential for existing and new products linked to the use of natural gas;

(d) identification, acquisition and transfer of technology aiming at new high performance of natural gas.

It appeared from that that the way was clear for an investigation and assessment of the area. There was a lot of goodwill for the project and it appeared that assistance would be made available. We were concerned that the project should proceed. That supply should be made available to Monaghan and Cavan and other areas here and we should not allow the reneging by the British Government on a commitment to ruin the project. A decision by the Government to proceed with the gas main would amount to a vote of confidence by them in the Border areas.

Early in 1986 Bord Gáis Éireann inserted a number of advertisements in newspapers identifying the towns scheduled to receive a gas supply. In the early advertisements Dundalk was mentioned but later it was withdrawn. Many groups in our area are anxious for the extension of the gas supply to the region, including the regional development organisation that caters for Louth, Cavan and Monaghan. That organisation asked the marketing manager of BGE, Mr. Lincoln, to address a meeting of the board on the background to the proposal to extend the natural gas network to the north-east region and Border counties.

He explained the role of BGE in the supply and distribution of natural gas. He confirmed that market research and technical studies were undertaken by BGE in the region and that these formed an important part of the submission he proposed to make to the Department of Energy for consideration and inclusion in the overall project programme. Mr. Lincoln explained that, if the project was to proceed and be funded in 1987, it was important that a decision was reached quickly. He contended that if it was not submitted by October or November this year there was a poor chance of its being funded. The assessment and examination were carried out during 1986 and at the September meeting the director of NERDO stated that it was a matter of urgency that the date should be met.

In a telephone conversation the director had with NERDO it was confirmed that the examination was ongoing and that the project had not been cleared for submission to the EC in accordance with Regulation 3637 of 1985. The members expressed surprise that the project had not been forwarded to the EC and were concerned at the delay in the Department. At the following meeting on 7 October, two months later, they were given the same story. They were told it had not been completely evaluated and that there would have to be a further examination carried out.

Will we lose out as a result? We were told the preliminary studies had been carried out and it was reported in the newspaper that Dundalk Gas were very interested in BGE supplying them with gas. They spoke in terms of having in excess of 30 miles of mains in Dundalk which could be adapted for natural gas at a low cost. There are many potential consumers in the area. For example, there are a number of processing plants involved with poultry, beef and pigs and it is also an intensive mushroom growing area. Intensive heat is essential for this industry. Many industries in Dundalk would avail of this. It is very hard to understand the reason for the delay. I suggested 12 months ago at county council meetings that people from the youth employment scheme could carry out an evaluation and get the opinions of different firms. No evaluation has yet been carried out.

The amount of money which has been approved of under the EC Regulation is £23 million. That has to be matched pound for pound. It is great value for money. We had expected the project to be submitted to the EC in the autumn of this year so that it could be put in train in 1987. A lot of lip service is paid to this area. The Department would be well advised to avail of the EC funding while it is available. Much employment could be generated through this project. If gas at a reasonable price was available to people in the area it might act as an incentive for them to set up different projects.

The subject of import substitution in regard to fruit and vegetables was discussed at ACOT meetings. On the east coast and in north County Dublin glass-houses were closed because growers were unable to compete with the Dutch growers who are heavily subsidised. They receive a subsidy for oil, thermal screens and so on. They have taken over the tomato market. ACOT drew up a plan for 1986-1990 and recommended that 40 additional acres be used for growing tomatoes under glass. ACOT drew up that corporate plan with a selective crop expansion. They zoned the country and planned for the production to be in Leinster and Munster. They forgot about the northern and western counties.

One objective in the plan was planning and zoning production; another was maximising technical efficiency and upgrading product quality. They recommended 40 acres for tomatoes, nursery stock, cauliflowers and so on. I greatly resented this and made it clear at many meetings. People in this area have shown great initiative in starting up mushroom growing and so on without any great energy resource. Is there any real commitment for the project?

It is proposed that Nitrigin Éireann would have a stake in ICI. Under the proposed terms Nitrigin Éireann would have a 51 per cent stake in the new company and continue to buy natural gas from the State at favourable rates.

We have an international company coming into this country setting up with an Irish company which unfortunately had not the luck or success which many of us hoped it would have in the early years and is only now coming into profitability since 1976. An international company enjoins us to avail of the natural gas from the State at favourable rates. I hope the Minister will make provision even at this late stage, before 1987, so that this extension can be availed of.

I am replying on behalf of the Minister for Energy. In December 1985 the EC Council of Ministers approved a regulation providing for a Community regional aid instrument aimed at improving the economic and social situation of the Border counties of Ireland and Northern Ireland. This provided for development measures for tourism, industry and natural gas infrastructure. Altogether about £23 million is available for implemtenting the measures in Ireland. Of this £18 million is earmarked for infrastructural development. The scope of the regulation, as is known, extends to Counties Louth, Monaghan, Cavan, Leitrim, Sligo and Donegal.

The regulation supplements a previous 1980 regulation under the Non-Quota Section of the EC Regional Fund, which was designed to strengthen the economic base in Border areas. Funds, as we recall, from the 1980 scheme were used here to promote tourism in Border counties.

The inclusion in the EC Regulation of the provisions relating to natural gas infrastructure recognised that the economic development of the region could be reinforced by a supply of natural gas and that this would contribute to the realisation of Community energy policy objectives by reducing dependence on oil and by increasing security of supply through diversification of energy resources.

At no time, however, was it ever intended that a gas project would be initiated unless it could achieve an adequate economic return and this is clearly stated in the EC Regulation. It would not be sensible to invest heavily in pipelines and other hardware unless the projects were viable, taking account of the EC funds. The availability of EC funding improves the economics of projects, but does not automatically make them viable. It must be remembered that the EC contribution must be at least matched by our contribution. It makes no sense for us to spend scarce resources simply to attract EC money. The projects, as I have said, must be justified in their own right.

Since the proposals were first mooted, the world energy scene has changed quite dramatically. The decline in crude oil prices and in the price of oil products within the last year had a major impact on world economies. I do not think anyone would argue that the overall impact of the fall in oil prices on Ireland's economy has been anything but positive. Nevertheless there is a down-side for countries which have an indigenous source of energy and we have Irish natural gas. This competes directly with oil. The price to be got for natural gas is related to oil prices and has followed the downward oil price trend. Energy price movements since the EC Regulation was adopted have had an adverse effect on the economics of the gas project which was originally envisaged.

I should point out that gas selling prices are related to oil by a formula. While selling prices have come down, costs have not decreased commensurately, if at all. The margin between revenues and costs has decreased accordingly and this is at the heart of the difficulty raised by the Department of Energy in analysing the project proposals. Further consideration of the issues is currently under way. I can assure the Deputy of that.

It is our intention to maximise the gas element of the programme. I should point out that the regulation covers tourism and industry, as well as natural gas subject to viability. As a first step, BGE were requested to prepare a draft programme to see what was possible on the gas infrastructure side. Their proposals were received by the Department of Energy some time ago and have been the subject of ongoing clarification and evaluation since then.

It has always been recognised that the economics of the project were marginal and this has been exacerbated due to the fall in oil pices. Since the original BGE proposal, there has been another change in that the recent Supreme Court decision has limited the annual quantity of gas which is available to BGE. We have to recognise now that allocating gas to any new customer, in effect, means reducing the allocation to some existing customers.

It must be recognised at this stage that it might not be viable to bring gas to all the Border county areas. An attempt is being made, however, to balance the distribution of the programme benefits by relying more on the non-gas elements of the programme. There are ongoing discussions between the Department of Energy, the Department of Finance and the EC Commission for this purpose. Other Departments and State-sponsored bodies will be involved as appropriate.

As regards the Northern Ireland Companion Regulation, the option of gas infrastructure development is, of course, not available there. I understand that, for their part, the Northern Ireland authorities intend submitting a programme comprised of industrial development aids.

I must point out that the internal procedures of the Commission require that the restrictive programmes are approved by the Regional Fund Committee. This committee meet three times a year and the earliest meeting at which an Irish programme could be approved is next March. This does not mean that any of the EC funds are at risk. When the issue of project viability has been resolved, the Government can approve the programme and initiate work in advance of formal Regional Fund Committee approval. The programme has a five-year life and retrospective approval can be given for work carried out since last December.

In his original question to the Minister, Deputy Leonard sought an assurance "that the sale of natural gas at exceptionally low rates of charge to NET will not put at risk the extension of the gas main to Dundalk and the Border areas". Let me say, first, that I do not accept the terminology used by the Deputy when he refers to exceptionally low rates of charge. He seems to imply that the price to NET is unfair or unjustified in some way. That is simply not so.

I said favourable terms.

I do not wish to dwell on this particular aspect of the question since the gas is supplied on the basis of a confidential commercial contract agreed between BGE and NET in 1976. The price which NET pay is calculated on the basis of a pricing formula provided for in that contract. The contract was negotiated at a time when the principal users identified in the market were the ESB and NET. This reflects the historical reality that the Kinsale Head gas field could not be developed without an established market. At the time the ESB and NET provided that market.

I wish to assure the Deputy that it is Government policy to consider all proposals for extension of the natural gas system on their own merits. The terms of supply to existing customers have no direct bearing on this evaluation. The supply of natural gas is justified only where it is economically viable, taking account of the capital cost to be incurred in supplying gas and the likely volume of sales and prices achievable.

I must add that it cannot be assumed that the extension of gas supply to the Border regions is more economic than meeting the needs of BGE's existing customers, taking account of the capital costs involved.

In conclusion, I wish to state that the analysis of the gas projects within the Department of Energy is now nearing completion and I understand that the Minister for Energy hopes to be in a position to take the proposals direct to the Government in the very near future.

The Dáil adjourned at 5.30 p.m. until 2.30 p.m. on Tuesday, 11 November 1986.

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