I move: "That the Bill be now read a Second Time." The purpose of the Bill is to repeal section 37 of the Gas Act, 1976, which provides that all natural gas landed in the State or got within the jurisdiction of the State for consumption therein shall be offered for sale to Bord Gais Éireann on reasonable terms. The section also provides that any gas which is so offered to and purchased by BGE shall be disposed of by the board for consumption in the State unless the Minister for Public Enterprise gives consent for the export of the gas.
The need for the Bill arises from advice received from the Attorney General that section 37 of the Gas Act, 1976, is anti-competitive and in conflict with the competition provisions of the Energy Charter Treaty which Ireland signed in December 1994. In order to ratify this treaty, all contracting parties to it must ensure their domestic laws and regulations are compatible with its provisions. Section 37 would have to be repealed in any case to bring the Act into line with national and EU competition rules.
At this point I will outline the background. In 1971 Marathon International Petroleum Ireland Limited announced the discovery of deposits of natural gas off Kinsale Head which in 1973 were declared to be commercially exploitable. Following this first discovery of indigenous natural gas reserves, the Gas Act, 1976, was enacted to establish Bord Gais Éireann as the statutory body with responsibility to purchase, transmit, distribute, sell and supply natural gas.
When the Kinsale Head gas field was discovered by Marathon it was a time of great volatility in the energy market. The advent of natural gas to our energy mix was very timely and helped to reduce our exposure to the uncertainties of that market, particularly for oil supplies. At the time, however, there did not exist an established natural gas industry with the potential to absorb the flow of gas from the Kinsale Head field in sufficient quantity to remunerate the huge capital investment involved.
In 1974 the Government decided to allocate a significant amount of the gas for a new plant to be built by Nitrigin Éireann Teoranta at Marina Point in Cork for the production of ammonia and urea for the fertiliser industry and for additional ESB generating capacity in a new power station at Aghada and the conversion of an existing plant at Marina, both plants being located in Cork. In addition, an allocation of gas was made available to Cork Gas Company to meet the requirements of their consumers. It was decided also that NET and the ESB should jointly negotiate the price of the gas with Marathon. When BGE was subsequently set up it took over responsibility for gas purchasing arrangements with Marathon, resulting in an agreement governing the arrangements and prices for the sale and supply of natural gas from Kinsale Head.
Marathon discovered further natural gas in the nearby Ballycotton field in 1987 which was the subject of a separate agreement with BGE. In 1995 a new Marathon/BGE agreement was signed to replace the earlier agreements which would have expired in 1999 and to deal with the sale and purchase of gas produced at Kinsale Head/ allycotton post-1996.
The ESB and NET are still the main natural gas consumers, consuming about 50 per cent and 20 per cent, respectively, of total gas sales. The Kinsale Head/Ballycotton reserves are in decline and are expected to be exhausted for commercial purposes by about 2003. As a consequence BGE now also purchases gas from other suppliers and is importing 50 per cent of its gas requirements through the interconnector pipeline with Scotland resulting in indigenous reserves playing a decreasing role.
There is an increasing demand for gas, reflecting the accelerated growth in the economy. Because of the high growth in demand I recently launched a major study into future gas needs to the year 2025 to ensure that any necessary infrastructural enhancements are identified and put in place in good time. The study is a joint project between my Department and BGE and should be completed by the autumn.
A joint North/South study of the feasibility of providing a natural gas interconnector between Dublin and Belfast was completed last year. The study report concluded that such an interconnector is technically possible and represents the most cost effective potential solution considered in relation to gas supply issues on both sides of the Border. The report is a valuable contribution towards policy making in relation to gas infrastructure requirements. It represents an excellent example of cross-Border co-operation in the energy sector in that officials from my Department, the Northern Ireland Department of Economic Development, Bord Gais Éireann and Phoenix Natural Gas Limited participated in the study. The findings of the report are now being considered as part of the 2025 gas demand study.
The provisions of the Energy Charter Treaty require that all contracting parties work to alleviate market distortions and barriers to competition in the energy sector. The main objective of the treaty is to stimulate investment by the West in the energy sector in eastern Europe and the states of the former Soviet Union in an effort to aid their transition to market economies. It is expected also to provide for long-term co-operation between western and eastern Europe in the energy field and by so doing improve security of supply, maximise the efficiency of production, conversion, transport, distribution and use of energy, enhance safety and minimise environmental problems for their mutual benefit.
Over 50 countries have signed the treaty and 34 have ratified it to date. The treaty entered into force on 16 April this year and from that date became a binding instrument of international law. All member states of the European Union have signed the treaty and all but two, including Ireland, have ratified it to date. While the idea for the energy charter, which eventually led to the negotiation of the treaty, was first mooted in the European Union, other countries of western and eastern Europe, the states of the former Soviet Union and many of the non-European members of the Organisation for Economic Co-operation and Development supported the idea and entered into the negotiations. Ireland has participated in the negotiations on the treaty at EU level and in the wider negotiations. We have always enthusiastically supported the aims of the treaty and I am anxious that we ratify it as soon as possible.
The repeal of section 37 of the 1976 Act will not cause a problem for the purchase of natural gas supplies by BGE. The board will still be able to bid for the purchase of natural gas whether discovered within the jurisdiction or otherwise and continue to transmit, distribute and sell gas for industrial, commercial and residential purposes. In the event of an energy crisis affecting the State and where there would be a need to control the use of energy sources, there is provision in the Fuels (Control of Supplies) Acts to enable the making of orders governing the acquisition, supply, distribution and marketing of natural gas.