I am pleased to have an opportunity to outline to the House the very significant progress that is taking place in the development of the natural gas network. Over the course of the next couple of years, Bord Gáis Éireann (BGE) is planning to spend more than £650 million (€825 million) on new gas infrastructure. Of this, £450 million (€570 million) will be spent on the Dublin-Galway-Limerick ringmain and the Mayo-Galway pipeline incorporating an investment of £200 million (€250 million) in the BMW region. In addition, the Government recently decided to move forward with the next stage in extending gas to the north-west.
In order to place the developments now under way in context, it is worth reflecting back on the Kinsale discovery in the 1970s, because it acted as a catalyst for the development of the gas network as we know it today. The first gas came to Cork in 1978 and to Dublin four years later upon completion of the Cork/Dublin pipeline. Subsequent extensions were to Limerick and Waterford in 1986 and to the north east in 1988. This incremental growth reflects the usual development pattern of gas networks. By the early 1990s projected gas demand exceeded Kinsale's projected supply capacity and an interconnector with Scotland was completed in 1993, allowing for imports of North Sea gas.
The dramatic expansion of the network now under way is a positive endorsement of the Government's view that improved infrastructure is one of the key elements in ensuring a solid foundation for the economy into the years ahead. The scale of development of the network should not be under-estimated. Between the second interconnector, the ringmain and the Corrib pipeline, over 750 kilometres of new pipeline will be added to our gas network.
As the Kinsale field depletes, an increasing amount of our gas is coming through the interconnector. BGE estimates that 80% of our gas this year will be imported through the interconnector. With Corrib not due to begin supplying gas until 2003, the Government decided that the Bord Gáis proposal for a second interconnector from Scotland was the only supply project capable of ensuring that projected gas demand in the winter of 2002 could be met. This project is going through the statutory approval process and is on schedule to be completed before the end of 2002. I have kept under review the need to proceed with the second interconnector with Scotland in the light of revised economic forecasts and supply-side developments and I am satisfied that the case for proceeding in the envisaged timeframe remains valid.
The fact that we are now relying so much on imported gas is a prime example of the critical importance of the network in connecting consumers with the sources of gas. This reliance on imported gas will lessen when Corrib comes on stream, but the network will remain critical. It will allow consumers to have a choice of supply, which will exert downward pressure on price, thus improving competitiveness, and it will enhance security of supply, thus improving investor confidence.
Much of the onshore network development currently being undertaken by Bord Gáis is in the BMW region. In 1996 Bord Gáis began examining the possibility of extending the network to the west. Following extensive research and analysis it concluded that the optimum development and enhancement of the network would be to build a pipeline between Dublin, Galway and Limerick, thus completing a ring main. This project will strengthen the network and enhance security of supply, open up new markets in areas of the country previously without a gas supply and enhance their attractiveness as investment locations.
The gas network here has grown progressively since the first gas came to Cork in 1978. The current period of development is a different proposition. The network is being expanded dramatically to encompass increased security of supply through the new interconnector, and the ring main and Corrib pipelines will see both the midlands and a corridor from Limerick to north Mayo connected to the gas network for the first time. These developments signal a very significant change in the focus and pace of development of the gas network. In all, it is estimated that the number of households with access to gas will increase from 500,000 to more than 750,000 by 2010. In addition, countless small businesses, shops, pubs and so forth not currently connected will have access to gas.
I would like to give the House a brief update on the status of the development of the two onshore pipelines. An environmental impact statement for the Dublin-Galway-Limerick ringmain has been submitted to me by BGE. This has been appraised by independent consultants who have confirmed that it meets all statutory requirements and will not have significant environmental effects in the long-term. I convened an oral hearing on 24 September last to inquire into BGE's application to construct this pipeline and its associated applications for acquisition orders. This hearing has concluded and I am considering the independent inspectors' report and recommendations. BGE has a scheduled completion date of October 2002 for this pipeline.
Independent consultants have also concluded an evaluation of the environmental impact assessment for the Mayo-Galway pipeline, which will bring Corrib gas to the network. The consultants have indicated that it also meets all statutory requirements and will have no significant effect on the environment in the long-term.
The public consultation process on this pipeline, which is separate from the planning process, concluded on 29 October last. Seventeen objections were received during this process and I have decided to convene an oral hearing to inquire into this application on 11 December 2001 in Castlebar, County Mayo. BGE has a scheduled completion date of August 2003 for this pipeline. It has signalled that Castlebar, Claremorris, Tuam and Athenry are likely to be connected in the first instance.
I would like to turn to the extension of the gas network to the north-west. Earlier this year the Government decided, in principle, to extend the natural gas network to the north-west. Having considered the issue, the Government has now decided to move ahead with the next step in this project. The first phase of extending the pipeline network to the north-west has begun. BGE was asked to conduct a detailed planning exercise on the extension of the network to Sligo via Ballina from the proposed Mayo-Galway pipeline and to Letterkenny via a cross-Border pipeline from Derry, which is to be served by a pipeline from Belfast, planned by the Northern Ireland authorities. I will return to pipeline developments in Northern Ireland.
Preliminary analysis carried out for BGE has confirmed that these extensions would not be viable on the basis of anticipated gas demand and that considerable grant aid would be required. The level of grant aid depends on the balance between the capital and operating costs of the extension and the estimated gas demand in the new area being served.
The Government has taken a broad view of these projects. Clearly it would not be commer cially sustainable or financially feasible to extend the network to all towns in the north-west or in any other area of the country for that matter. However, given the wider regional and socio-economic benefits of extending the network to Sligo and Letterkenny, the Government has taken a positive view of the project and has decided to proceed with the next stage of it. Detailed engineering and planning for the project will define the pipeline extensions in greater detail and identify the level of funding which would be required. The accurate carrying out of that exercise is crucial. I understand this phase of the project will take between six and nine months to complete. I emphasise this will give an accurate picture of the level of grant aid which would be necessary to proceed with the project.
At the same time as the detailed engineering is being carried out, my Department is preparing a State aid case, which will be submitted to the EU Commission for approval. This is an infrastructure project which, when constructed, will be available to all gas suppliers. It will be capable of supplying indigenous and imported gas and will enlarge the total customer base for the liberalised gas market. Once the detailed engineering phase has been completed, the issue of grant aid will be considered again by Government, provided the necessary clearance has been obtained from the European Commission.
In regard to proposed developments in the Northern Ireland network, BGE and Questar, an American pipeline company, have applied to the Northern Ireland regulator to build two pipelines, one linking Belfast to Derry that would supply the planned new Coolkeeragh power station and the city of Derry and the other comprising a South-North interconnector from Gormanston, County Meath, to Antrim to tie into the proposed Belfast to Derry line. Having regard to the wider benefits of cross-Border links, the Government supports these pipeline proposals and has decided to make a £10 million grant available towards the development of the Northern Ireland gas network. This contribution recognises the benefits such developments will have for energy supplies in the north-west and for the development of an all-island energy market which is a shared aspiration, North and South.
Last week I announced the outcome of my review of gas transmission tariffs following widespread consultation with interested parties. Under the new arrangements the current single overall transmission charge will be divided into separate charges for onshore pipelines and for entry points to the Irish network such as Corrib gas in the west and the interconnectors from Scotland. This was necessary to ensure a level playing field in the gas market and to underpin the largescale expansion of gas pipeline infrastructure, including the ring main and the second interconnector from Scotland. The new arrangements are in line with the recommendations in the report by the Brattle Group on Third Party Access Tariffs. We now have a gas transmission tariff model that accommodates multiple entry points, a development that reflects the growing maturity of the Irish natural gas transmission system.
In reviewing the tariffs, I decided to reduce the rate of return Bord Gáis would be allowed to earn on its transmission assets from 7.5% to 6.5%. This reduction in the rate of return will limit the increase in tariffs needed to finance the new pipeline investment. The return of 7.5% at present allowed to Bord Gáis was high given the cost of debt in the euro zone and by reference to the rate of return allowed to other utilities, including electricity networks.
The review of transmission tariffs will result in increases which would be spread over two years, this year and next. This will see a rise in gas costs of about 1.7% for power stations and about 2% for large industrial consumers in each of the two years. Because An Bord Gáis has a price freeze in place for domestic consumers up to 2003 the new tariff arrangements will mean no change in the price of gas to these customers. An Bord Gáis confirmed that this would not result in cross-subsidisation of charges to domestic customers by other categories of customers.
The tariff directives place a transparency obligation on An Bord Gáis to publish underlying data in order that interested parties can understand how the tariffs are derived. The directives are available on my Department's website. An Bord Gáis has also placed the new tariffs on its website and has announced that it will be holding an information seminar in the near future.
Let me refer briefly to the Gas (Interim) (Regulation) Bill which passed all stages in this House recently. The Bill will establish independent regulation of the gas sector and speed up the opening of the market to competition. The contributions of Senators during the passage of the Bill through the House were very constructive and I would like, once again, to express my thanks.
The infrastructure and regulatory changes now under way in the natural gas sector will be seen as an investment in the future. The creation of a mature and robust gas network will serve as an important element in Ireland's infrastructure that will help to underpin the economy for many years to come.
Some Senators mentioned the pace of what is happening. I emphasise that the pace has been incremental over the past 23 years. Indigenous gas was first brought ashore at Kinsale. Only two weeks ago I launched the new gas infrastructure in my constituency in County Wicklow. It took 23 years to get there. The neighbouring County Wexford, as Senator Walsh has reminded me many times, is devoid of any gas infrastructure. He and his colleagues and other public representatives in the constituency have been beavering away to secure that most important infrastructure for their county. I met them and their county manager some months ago and suggested how they might go about achieving their very meritorious aspiration. The pace at which matters are moving now cannot be compared with the pace of the past – the current pace is dramatic.
I emphasise that the Government is resolved – the Taoiseach has taken a particular interest – to bring this necessary infrastructure to the west and north-west. Its decision to extend the gas network to the north-west was taken in the full knowledge that it would not meet the commercial criteria to which Senator Caffrey and others referred, and that an input of funding would be required. Consolation, comfort and confidence should be taken from this fact. There is a resolve. The decision has been taken by Government to bring the natural gas infrastructure to the north-west, and the necessary work is going on apace. What BGE is required to do is being done and what needs to be done with regard to preparing applications for State aid is being done within my Department. There is a resolve and I am quite satisfied that it will be met.