This is a very short Bill, the purpose of which is to repeal section 37 of the Gas Act, 1976.
First, I will outline the background. In 1971 Marathon International Petroleum, Ireland Ltd. announced the discovery of deposits of naturas gas off Kinsale Head which, in 1973 were declared to be commercially exploitable. Following this first discovery of indigenous gas reserves, the Gas Act, 1976 was enaced to establish Bord Gáis Éireann — BGE — 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 it 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 — NET — 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 a conversion of an existing plant at Marina, both plants 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 with Marathon as to the price of the gas. When BGE was subsequently set up it took over responsibility for gas purchasing arrangements with Marathon, resulting in an agreement made in 1975 governing the arrangements and prices for the sale and supply of natural gas from KInsale Head.
In 1987, Marathon discovered further natural gas in the nearby Ballycotton field and that gas was the subject of a separate agreement with BGE. In 1995, a new Marathon-BGÉ 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-Ballycotton post-1996.
The ESB and NET are still the main natural gas consumers and they consume about 50 per cent and 20 per cent, respectively, of total gas sales. The Kinsale Head-Ballycotton reserves are now depleting and are expected to be exhausted for commercial purposes by the year 2003. The effect of this is that BGE now also purchases gas from other suppliers and is importing 50 per cent of its gas requirements through the interconnector pipeline with Scotland so that our indigenous reserves are playing a decreasing role.
As a result of the continuing high growth in gas demand, I recently launched a major study into future gas needs to the year 2025 to ensure that any necessary infrastructural development is identified and put in place in good time. The study is a joint project between my Department and Bord Gáis Éireann. 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 of the potential solutions considered in relation to gas supply issues for 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 Gáis Éireann and Phoenix Natural Gas Limited. participated in the study. The findings of the report are now being considered as part of the gas demand study.
Section 37 of the Gas Act, 1976, 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 BGE 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. There are three subsections to section 37 and I will deal with them later. The protection afforded by section 37 in favour of a newly discovered energy resource was a prudent measure taken at the time in the national interest by ensuring that all the gas for consumption in Ireland should be offered for sale to BGÉ on reasonable terms.
This Bill is brought before the House following advice 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 must ensure that 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.
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 in 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, to 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 now signed the treaty and 33 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 three, including Ireland, have ratified the treaty so far. 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 enthusiastically support the aims of the treaty and I am anxious that we should 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 purchase of natural gas, whether discovered within the jurisdiction or otherwise, and to continue to transmit, distribute and sell the 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.
At this point, I wish to give the House a brief account of the current state of the natural gas industry and the general direction of its future development. BGE has a de facto but not a statutory monopoly in the purchase, transmission, distribution and sale of natural gas. In the relatively short period since its establishment in 1976, BGE has achieved significant progress in the development of the industry. It now supplies natural gas to 280,000 residential consumers and 10,000 commercial and industrial consumers. By the end of 1998, BGE hopes to be serving 297,000 residential and 10,500 industrial and commercial customers. Natural gas now meets 20 per cent of our total primary energy requirements. Gas demand grew at a rate of 5 per cent in 1997 and this year is expected to grow by 4.5 per cent. BGE operates in a highly competitive market and has to fight for market share against other fuels, such as oil and electricity.
One of the key priorities for the energy sector in the Programme for Government "An Action Plan for the Millennium" is to extend natural gas as far as practicable to major towns and cities. BGE is currently arranging gas supplies to the towns of Fermoy, Carrick-on-Suir, Cobh, Annacotty, Ashbourne, Bettystown, Clane, Kildare, Dunshaughlin and Ratoath and extending supplies in Mitchelstown and Mallow where natural gas has been available for some time.
In addition, a proposal for a major extension of the gas network to the midlands and west to provide gas to Trim, Mullingar, Athlone, Ballinasloe, Galway, Ennis and Shannon with the support of Exchequer funding is under consideration. The necessary notification to the EU Commission's competition directorate in relation to the State aids aspect is still being examined by the Commission and my Department has provided additional information, as requested by the Commission.
The following towns, which currently do not have a natural gas service, are included in BGE's present study for the extension of natural gas supply — Kinsale, Bandon, Navan, Portlaoise, Athy, Ballina-Killaloe and, in north County Wicklow, Kilcoole-Newtownmountkennedy. Surveys of the load potential for the residential and commercial markets in these towns are ongoing and, should sufficient loads be identified for each extension to be economically viable, the project will be included in the BGE programme. Some other towns may be included in the programme should the extensions to them be identified as economically viable.
The natural gas market is one of the energy sectors being opened up to further competition. In December last, the EU Council of Energy Ministers reached political agreement on the terms of a directive which will introduce competition into the natural gas industry in the form of third party access to gas networks throughout the European Union. The draft directive is now being considered by the European Parliament under the codecision procedure of the EU Treaties. This process will take some months to complete.
Ireland has already provided for this form of competition and the necessary detailed operating rules are being developed. Our domestic legislation — the Energy (Miscellaneous Provisions) Act, 1995 — which provides for a legal framework for third party access by large consumers to the BGE gas network, is broadly in line with the draft EU directive. This facility enables eligible gas consumers, such as the ESB and NET, to purchase their supplies direct from gas producers and to have the gas transmitted through the BGE network on commercial terms. The threshold in the 1995 Act is 25 million standard cubic metres of gas per annum. On the basis of that figure, 75 per cent of BGE's market is potentially opened up to this new form of competition, but the number of eligible customers is less than ten.
The Act also provides for the giving of ministerial general directives to BGE relating to transmission and pricing aspects of third party access. I have prepared draft directives and published them for comments. The comments received are now being examined. In addition, BGE is busily engaged in the preparation of the technical and operational rules in a code of operations document.
Hydrocarbons play a significant role in Ireland's energy mix and, therefore, it is of considerable importance that we continue the efforts being made to establish further Irish production. The economic benefits — royalties, tax, jobs, support services and so on — resulting directly from the natural gas produced from the Kinsale Head and Ballycotton fields illustrate the importance of indigenous energy supplies. However, as I have already stated, that supply of natural gas is depleting, resulting in an increasing dependency on imports. That is sufficient reason for us to continue to make every effort to promote the search for additional indigenous supplies and, whenever possible, to get discoveries developed.
I understand from my colleague, the Minister for the Marine and Natural Resources, Deputy Woods, that we now have a high number of exploration licences in place. This is the result of the new licensing terms introduced in 1992, the consequent licensing rounds in 1994 and 1995 and, the most successful of all, the Rockall Trough Licensing Round last year, which gave rise to 11 new licences. At present, 28 exploration licences are held and each carries a specific work programme involving a high level of exploration activity.
The licensees include many of the major exploration companies, several of which returned to Ireland in 1997 after periods away, while others reaffirmed their commitment to Ireland by taking on further licences and building on their existing positions. The number and quality of exploration companies now involved in offshore Ireland inspires confidence that the present level of exploration activity will be maintained in the coming years.
In 1996, Enterprise Oil discovered gas in their second well in the Slyne Trough but despite their best efforts they were unable to test this discovery because of mechanical problems. I understand that during 1997 Enterprise Oil acquired new seismic data in the area of the discovery and that they propose to drill an appraisal well in the prospect shortly. During 1997 two exploration wells were drilled in the Porcupine Basin by Total and Marathon and another exploration well was drilled by Enterprise Oil in the Kish Bank Basin off Dublin. In addition, 1997 was, I believe, the busiest year for acquisition of new seismic data since records began with the acquisition of in excess of 28,000 kilometres of seismic data.
Ireland has a vast Continental Shelf and much of it remains underexplored. My colleague, Deputy Woods, considers it important that we see an exploration presence in areas in our offshore not currently subject to authorisations. One such area is the 156 blocks in the South Porcupine Basin which is now the subject of a licensing round, the closing date for which is 15 December 1998. Speculative data acquired there in 1997 — 17,000 kilometres of seismic data, a high resolution aeromagnetic survey and a seep detection survey — shows it to have considerable interest for explorationists.
I will now return to the purpose of this Bill, that is, to repeal section 37 of the Gas Act, 1976. Section 37(1) provides that all natural gas landed in the State, or got within the jurisdiction of the State, for consumption therein, by the holder of an exploration licence or the holder of a petroleum lease shall be offered for sale to Bord Gáis Éireann on reasonable terms. It also provides that any gas which is so offered to and purchased by the board shall, unless a consent is given by the Minister for Public Enterprise under section 8(7) of the Act to export the gas, be disposed of by the board for consumption in the State. In fact, all natural gas produced to date from our indigenous reserves has been consumed in the State and no consents under section 8(7) have been sought or given.
Section 37(2) provides for an exception to the foregoing. That subsection provides that the requirement to offer gas for sale to BGE shall not apply in cases where the Minister, in approving a plan for the development or exploitation of a deposit of natural gas, requires that the gas be offered for sale to a person other than BGE for a specific industrial purpose. In fact, that provision has never been used. In any event, I would have reservations about its compatibility with competition rules.
Subsection (3) provides for a dispute resolution mechanism for dealing with disputes regarding the reasonableness of terms on which natural gas is offered for sale to BGE. It is clear that section 37 is anti-competitive and incompatible with the competition requirements of the Energy Charter Treaty and also in conflict with EU competition rules.
I commend the Bill to the House.