"I move that the Bill be now read a Second Time."
Deputies will be aware that Bord Gáis Éireann is now undertaking a project, approved by Government in December 1991, to interconnect the Irish natural gas grid with the high pressure network in the UK by way of a subsea pipeline from north County Dublin to Brighouse Bay in south west Scotland. This project is being undertaken in the interests of the future development of the natural gas industry in Ireland, in order to provide for secure long term supplies of gas and to afford additional supply security during the remaining life of our two existing indigenous gas fields.
The interconnector project is a major undertaking which will cost almost £290 million. Progress to date has been very impressive. Expenditure on the project up to the end of 1992 was approximately £85 million. While the cost of the project may appear huge, it pales into insignificance when one considers that, over the lifetime of the pipeline, the value of the gas shipped through it will be many times that figure.
The project consists of four main elements. These are; a 30-inch pipeline which will run from Moffat in Scotland for 79 kilometres to Brighouse Bay on the Scottish coast; a compressor station to be located on the Scottish coast which will compress the gas for onward transmission to Ireland; a 24-inch subsea pipeline, 200 kilometres in length, which will run from the Scottish coast, across the Irish Sea to the landfall at Loughshinny, near Skerries in County Dublin; and a shore station which will be constructed at Loughshinny from where a 30-inch pipeline will run to Ballough on the Dublin-Dundalk pipeline to connect with the existing Irish grid.
A number of possible routes were examined at the feasibility study stage and sea surveys were carried out during 1990 and 1991. The criteria for route selection were technical and economic feasibility. The route from Loughshinny to Moffat proved to be the best option on both these criteria.
The compressor can deliver sufficient gas for our needs after Kinsale Head and Ballycotton are depleted. It is expected that our import requirements will have risen to about 5 billion cubic metres over the next 20 years, if market projections are realised, and through additions to compression, the pipeline will have capacity to meet these requirements. The current market for gas is about 2 billion cubic metres per year. The main growth sector we anticipate will be electricity generation. Gas is an ideal fuel for electricity generation and, with new combined cycle technologies, conversion efficiencies of over 50 per cent are possible.
Extensive planning and preparatory work has been necessary in advance of the construction phase of the pipeline project which is now ready to commence. All the work of surveying and engineering design has been carried out. Included in this work, going back to 1990, were feasibility studies in relation to both the technical and economic aspects of the project. There were negotiations with the local and central authorities involved on both sides of the Irish Sea. This work was co-ordinated by a small task force comprising officials of my Department together with people from BGE and its project management office.
Contracts have been awarded for the manufacture and coating of the pipe, for the laying of the subsea-section and for the onshore Scotland section. Contracts are about to be awarded for the construction of the compressor station and the onshore Ireland leg.
An agreement with the UK Government on the delimitation of the Continental Shelf in the area through which the pipeline will pass was concluded in 1992, extending further northwards the existing delimitation line, agreed in 1988 between the two jurisdictions. The necessary designation orders will be made shortly. This delimitation was a necessary first step to the conclusion of a more detailed pipeline treaty with the UK Government concerning all aspects of the laying and operation of the pipeline between the two countries. This agreement was negotiated by officials of my Department during 1992. I hope to obtain Government approval for the text in the near future. It will then be laid before the Dáil for its approval. The agreement deals with the routing of the line through Irish and UK waters, including the Isle of Man, construction standards, the issue of authorisations to the operators, joint inspections, safety and pollution control, emergencies, abandonment procedures and consultations between the two Governments. There will be a commission comprising representatives of each Government to oversee the smooth operation of the pipeline. The agreement also deals with the status of the Isle of Man, through whose territorial waters the line passes.
The on-shore leg of the pipeline in Scotland has been designed following consultation with the Northern Ireland authorities to cater for the transmission of gas from the British high pressure system to the offtake for the proposed Northern Ireland pipeline from Scotland to Islandmagee in County Antrim.
I should mention that Bord Gáis Éireann has been careful to comply fully with EC rules on public procurements by advertising contracts Community-wide. Deputies will understand that in many instances no Irish firm would have been in a position to tender. This is because of the highly specialised nature of the work which is carried on worldwide by a small number of firms. A good example would be the pipelaying offshore which requires very large pipelaying vessels. Nevertheless, a number of Irish firms have been successful in tendering for the less specialised areas and it is expected that in the region of £20 million will be spent in 1993 on Irish goods and services. The project is on target to meet its completion deadline of October this year and is within budget.
This Bill is necessary to ensure that the interconnector pipeline is completed on schedule. The pipeline must be financed, constructed, operated and maintained in a manner that helps to sustain and develop the role of natural gas in Ireland and the provisions of this Bill will ensure that this can be done. Accordingly, it provides for Bord Gáis Éireann's borrowing requirement and for the application of conditions to be laid down by me relating to the construction and operation of the pipeline during its lifetime. It is essential that these provisions are put in place as soon as possible.
The discovery of natural gas in the Kinsale Head field in the early 1970s, at a time of great volatility in the energy market, was very timely for Ireland as it helped to reduce our exposure to the uncertainties of that market. From the moment gas came on stream in 1978, successive Governments have striven to ensure that the best use has been made of this indigenous resources.
Thanks to the efforts of Bord Gáis Éireann we now have a safe, efficient and profitable transmission system, which has made gas available to domestic consumers in many of the urban population centres, to industrial and commercial customers from Cork to Cavan and, of course, to the ESB for electricity generation. The 1992 annual report and accounts of the board are not yet available but I understand that it has been another profitable and successful year. In 1991, the board declared a profit of £54.9 million on a turnover of £165.6 million and surrendered £31 million in dividends to the Exchequer. Sixteen million pounds of Bord Gáis Éireann's turnover in 1991 was accounted for by sales to NET, and while concern has been expressed at the use of indigenous gas for fertiliser production, notably in the Culliton report, a major consideration in any decision on the future of such sales must be whether there is a better alternative. When the recommendations of the task force on the implementation of the Culliton report have been fully considered, the Government will decide on the issue. It should be noted that sales to NET are the subject of commercial contracts dating from 1976 to 1987. Apart from the cost of voiding these contracts, there is a question of employment in the fertiliser industry.
The level of development of the transmission and distribution infrastructure achieved by Bord Gáis Éireann in such a relatively short time is no mean achievement. Bord Gáis has managed to build up a sizeable customer base. There are now over 195,000 gas customers, and natural gas currently represents about 17 per cent of our primary energy demand. Natural gas is the dominant fuel for industry within the gas supply area. In the domestic sector, gas central heating is the first choice for new housing within reach of the network. Volume sales in that sector increased by some 16 per cent in 1992 and almost 22,500 new central heating customers were connected in that year. In addition, Bord Gáis Éireann is now well into its major programme to connect non-gas housing estates to the grid, where this is economically viable.
It is clear, therefore, that natural gas has greatly expanded its role since the days when the only customers were NET and the ESB. The reasons for this are clear. It has proved to be a clean, versatile and competitive fuel, transported by pipeline, available on tap and requiring no storage arrangements. Modern gas-fired plant is very efficient and technology is improving all the time in gas turbine-powered electricity generation and combined heat and power units in industry.
Government policy is to ensure that we are not overly dependent on any one energy source or on any one fuel. An even balance of fuels achieves this and enables us to respond better in times of emergency and crisis. Most countries have about five primary energy sources— oil, coal, gas, hydro and nuclear. We, of course, do not have nuclear but we do have peat. We import about two thirds of our energy supplies and in turn about two thirds of the imports are oil, either as crude or product. Because of our development of gas use, our dependence on oil has been greatly reduced, but it still supplies nearly half of our energy needs. Naturally we wish to use these fuels as efficiently as possible—hence the emphasis in the Programme for Government on energy efficiency, and also of course on alternatives and renewables. Our indigenous fuels, gas and peat, are produced in about equal amounts. The bulk of both of these fuels is used for electricity generation. We have taken great care over the last number of years to have as wide a range of fuels as possible for this purpose.
The use of natural gas has resulted in savings to date of over £2 billion in our bill for imported fuels. Those who do not benefit directly from availability of natural gas have indirectly shared in the economic rent represented by dividends paid by Bord Gáis Éireann to the Exchequer. To date Bord Gáis Éireann has contributed over £300 million in this way. Therefore, gas has become a vital part of our energy and industrial policy and the Government is determined that it will continue as such.
The environmental benefits of gas are well known. As the cleanest fossil fuel, increased use of natural gas figures prominently in Ireland's startegy to minimise emissions of harmful gases such as sulphur dioxide and carbon dioxide in line with our international commitments in that regard. Gas use in urban areas has also contributed significantly to improved air quality. It is hoped that over the next 20 years, natural gas will have increased its share of primary energy demand to about 30 per cent.
It was against the background of a growing natural gas industry, international environmental commitments, yet finite indigenous resources, that the decision to build the Ireland-UK gas interconnector was taken. This does not imply that the Kinsale Head and Ballycotton gas fields are all that the Irish offshore has to offer in terms of gas supply. We are still hopeful of further commercial finds. Indeed, much has been and continues to be done to encourage further exploration for oil and gas in the Irish offshore area.
In 1991 my predecessor signed an agreement with Marathon Petroleum under which that company agreed to drill seven exploration wells over a five-year period commencing last year. While the first of those wells was disappointing, I am hopeful of positive results from the rest of the drilling programme.
At the same time Bord Gáis entered into an agreement with Marathon under which the latter company has installed additional compression on the production platforms which will enable the parties to recover and bring forward in time an additional four billion cubic metres of gas. This gas, which might not otherwise have been recovered and is equivalent to two years' supply under the existing Kinsale Head contract, will be used in the period to end 1996. One result of this has been that Bord Gáis will not now require imports of large quantities of gas before 1996.
The 1992 Finance Act included provisions for the enactment of special petroleum taxation legislation which, for the first time, clarified the tax "take" from a field development and set it at a level designed to attract exploration investment to Ireland, while ensuring that Ireland would share in the benefits which would arise in the event of another find.
Another necessary condition to encourage further exploration is the application of modern and progressive licensing terms for exploration and production activities. A review of the existing licensing terms, first drawn up in 1975 and amended from time to time, was undertaken by my Department last year. The result of that review was that new licensing terms appropriate for the conditions of today and of the coming years were drawn up and recently launched. This package of measures is designed to bring about further activity in the Irish offshore by making Ireland a worthwhile location for international exploration investment. I am hopeful that an increased level of exploration activity, as a result of this package, will lead to further commercial finds.
Nevertheless, we must be realistic. We cannot assume that further indigenous reserves will be identified and brought on stream in time to cater for increased demand and to replace our current supplies as they begin to taper off. An alternative source is needed to assure supplies long into the future.
In the event of reserves of gas in excess of our needs being discovered, gas could be exported via the interconnector. This possibility should encourage further exploration and development in our offshore as it opens up a large market to potential developers.
The existence of the interconnector will see the end of Ireland's isolation as a stand-alone grid, dependent on a single supply pipeline and a single source. Irish participation in the UK and European gas markets will enable us to enjoy the benefits of greater competition and greater security of supply which the Community's single energy market offers. The pipeline will earn its keep from day one by providing security against any interruption of supply. An agreement, completed last year between BGE and National Power in the UK, will give BGE access to supplies at short notice in the event of any interruption in our indigenous supplies. The agreement is for a five-year period from November this year, by which time it is intended that a longer term supply agreement should have been finalised. Bord Gáis has already started work in this area.
The ESB will require additional volumes of gas during the remainder of the decade. As things stand, these volumes will have to be imported, and the ESB will need access to the pipeline for that purpose.
The interconnector project is not only of significance to Ireland but also to the European Community, which sees it as a vital link in the completion of the internal market in energy. As a result, the European Commission has agreed to grant aid the project at a rate of 35 per cent of approved cost from its REGEN initiative. Among the key objectives for the completion of the internal market in gas were the introduction of a price transparency, rights of transit for large utility companies, and third party access.
Directives relating to the first two of these are now in place. Proposals for third party access were not as successful, but it would be my intention that, subject to security of supply, access to available capacity should be afforded to large users such as the ESB and to producers.
It was open to the ESB to take an equity share in the pipeline. In the event, however, BGE and the ESB were unable to agree terms for such participation and Bord Gáis is now undertaking the financing of the project itself. There is, of course, nothing to prevent such a third party from becoming a partner. For the moment, however, the rest of the cost must be found by BGE and, in the absence of a suitable equity partner, this means from its own resources and from borrowing. No Exchequer funding is involved. This brings us to the matter in hand, the Gas (Amendment) Bill, 1993.
The statutory limit on BGE's borrowing for capital purposes was last amended in the Gas (Amendment) Act, 1987, when it was increased to £170 million. Expenditure in 1993 on the interconnector project, when added to the board's existing debt and the cost of capital expenditure which it must undertake in the course of its other activities, means that the limit must be raised substantially. I propose to increase it to £350 million.
The Gas (Amendment) Act, 1982, increased the limit on State guarantees on the borrowings of the board to £80 million. At the end of 1992, £55 million of BGE's borrowings were guaranteed. One element of the financial package which BGE has developed for the project involves borrowings from the European Investment Bank. These borrowings will require a State guarantee. In order to cater for this, I propose in this Bill to increase the limit on the amount of the Board's borrowings, which may be guaranteed by the State to £190 million.
In addition to the borrowing requirements, the question of BGE's statutory power is addressed in the Bill. Under section 8(7) of the Gas Act, 1976, as amended, the Minister for Transport, Energy and Communications has the power, with the concurrence of the Minister for Finance, to give or withhold consent to the construction of pipelines by BGE, and to attach conditions to any consent. These conditions may relate, among other things, to ownership, operation and inspection. Doubts have been expressed that section 8(7) of the Act as it stands applies outside the State. The proposed amendment to section 8 of the Gas Act, 1976, contained in section 2 of this Bill, will remove that doubt, thus ensuring that BGE will have the statutory authority to proceed with the interconnector pipeline. It will also introduce the power to revoke a consent given under section 8.
References to the Minister for Industry and Commerce in section 8 of the Gas Act, 1976, are being deleted from this Bill. This is a technical amendment to tidy up the text of the Act, as the powers which were vested in the Minister for Industry and Commerce under the 1976 Act were transferred to the Minister with responsibility for Energy in 1980 by means of a transfer of powers order which was approved at the time. These functions now reside in me as Minister for Transport, Energy and Communications.
The design life of the interconnector pipeline is fifty years. The possibility exists that during the lifetime of the pipeline, interests in all or part of the pipeline could pass to other parties. Due to the vital nature of this pipeline, in its role as an energy link to Ireland, the Government will wish to retain control over its operation. I propose in this Bill to amend section 8(8) of the Gas Act, 1976, to allow me to impose a condition on Bord Gáis that any transfer of an interest in this or any other pipeline would be subject to my approval, and that any conditions which have been laid down for BGE in regard to construction, operation, maintenance and transfer of an interest in a pipeline would also apply to the transferee and to any subsequent transferee.
I commend the Bill to the House.
