King Gas

David Howell

In contemporary Conservative demon-

ology Sir Denis Rooke, the redoubtable Chairman of the British Gas Corporation, has acquired a special place. A mere men- tion of his name seems enough in some Tory circles to drive rational thought out of the window and replace it with quivering indignation. Yet Sir Denis is hardly the darling of the Left. Labour Ministers were said to live in constant dread, when making nationalised industry appointments, of hav- ing to deal with 'another Rooke'. He is a vastly able engineer, respected throughout the world, and he certainly is the best qualified man for his job.

The question in Conservative minds is whether they really require this particular job to be done at all, or whether they would not prefer something quite different. The BGC is huge, it feels and looks to most of its customers like a monopoly, even though in practice it competes with other fuels. To those who supply it with gas its vast buying power makes it a virtual monopsony, despite the legislation now on the statute book which makes it possible for individual users to buy direct from the gas fields.

But if Ministers and policy-makers have not yet agreed on what they want in its place, Sir Denis has been sure all along what he wants. His clear task, unless Parliament wills it otherwise, is to find and procure gas from the depths of the North Sea (or elsewhere if necessary) and transmit it to the nation's kitchens, boilers and factories safely, cleanly and continuously. It is, in his favourite phrase, 'all one ball of wax'.

Which brings us to the question of the Sleipner gas field in the Norwegian sector of the North Sea.

At first glance the issue seems straight- forward enough. About a third of Britain's daily supplies of natural gas come at present from another Norwegian source, the Frigg field. Frigg is running down and a replace- ment source is needed from the early 1990s. The Sleipner field is to hand, ready to be developed to meet the timing t'

requirenten The BGC has completed a long negc)tiai tion with the Norwegians (all contracts 0 this kind take years to put together and int, volve commitments for years ahead by be buyer and seller) to take the gas and InPiri into the British grid at what is, by v101-1- wide standards nowadays, the attractiv,Y low reported price of 28 pence per from The first objection to all this corner the oil and natural gas producers in the the Sea who want to know when thei.' too, will be offered even this sort of Pre (most of them are getting less, and s°,111,0 very much less, under existing contracts) develop their known fields and find r1Wroe.• And if the BGC is not interested, whY not they be allowed to lay pipelines to the Continent and export their gas at ,)t (hitherto) higher prices prevailing The second objection comes app all from the Treasury, although it is not clear why they should have waited unti"ve complicated and costly negotiations hay been completed to stick an oar in. But they too, want to know why Sir Denis cannel delay until he has a better idea of how olutor gas really is available from the UK seethe there. oy and can be delivered when he needs it more the better for the Revenue.

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why In the meantime, , the tie negotiate to buy any extra he needs for Nineties from the Dutch, in smaller ctlead tities and for shorter periods all or (although the price is said to be highell'rid even hook into the main continental„ and join other European countries in draw" ing from the reputedly unlimited suPP tthheatswibiellribaen anvaatiularabllegafsropmipeRhuns:i?a through e Foreign

This last thought brings th reign

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Office springing into the act, questinnfor the wisdom of British dependencer

the energy supplies on the Soviet Union fo next 20 years, while vast reservoirs In t onle North Sea, whether ours °I-which Norwegians', remain untapped ---- seems a fair point to raise. The Norwegians would presumably turn their attentions awaY from gas if they could not sell at least Sleipner to Britain, and concentrate more on oil.

All this is material for a splendid Whitehall battle and emphasises the absur- dity of the belief that mammoths like BGC Can pursue their own narrower commercial and technical goals without stirring up Major national and international issues of PdlicY. But behind these questions lies an even deeper long-term political issue of industrial and energy policy which Ministers have to settle. How large a share of energy supplies do we want to see filled by gas over the next few decades? There can be no doubt that, left to get on with it, Sir Denis and the BGC could one way or another fill Britain's gas pipelines for years td come and could even expand gas's enor- mous share of the market. This could be done by pitching the selling Price of gas at levels which keep both oil and electricity continuously on the defen- kve, using BCC's massive buying power to :,13 the price paid by the Corporation to del suppliers tightly down, while still relivering a fat 'rent' to the Exchequer ront the difference — a continuation, in fact, of the policy followed' to a lesser or greater extent for several years past. Rut besides raising a legitimate, if realYptic, question as to what happens in or 40 years' time when natural gas sup- plies could be less plentiful, at least on our doorstep, and all those pipes have to be --inehow filled from elsewhere, there is the shorter term effect on electricity investment to be considered. „weaker electricity growth has major im- Pheations for the timing of the civil nuclear titrqrarnme, itself very much dependent on e outcome of Sizewell, on the size of the coal industry, now in turmoil, and on the Pace of development of other alternatives, 0,e'llding combined heat and power. The v`?norncs of all of these are hopelessly llinerable, over the next decade, to 'King now t s de , pending on what strategic view is aken. b do not belieUe that view can be reached tZ r,alling against Sir Denis or trying to stop ,Le BCC behaving like the BGC. As long as i;i10 vast Corporation is in place it will use its esition and power to seek the sort of deals as to Denis now wants to do on Sleipner, so inttd guarantee supplies as long as possible „:° the future, and to place the North Sea ttilioducers in a weaker bargaining position titheY, as rival titans, would care to be. th flat would happen if there were two or oiree or half a dozen gas utilities in BGC's ti:ce, all privately owned? In their respec- /h,!1°cal areas they would obviously still be h,;:oPoly gas suppliers since it is absurd to Plying two rival gas distribution systems sup- haY‘1,11g one residential area. And they would under the North Sea and around the coun- try. to so the 'competition' would be limited Pare "e oPPortunity for customers to Mll- e service levels and efficiency between

one area and another. A set of smaller utilities would each have less `monopsony' buying power and would therefore be paying higher prices to the pro- ducers, but they would have to be allowed to buy where they wanted, and to diversify. The Exchequer would be 'collecting less of its money from taxation on the UK pro- ducers' higher revenues, as with oil. That is a totally different order of things from what we now have. I suspect it would mean domestic gas consumers' prices rising rather faster to 'market' levels — i.e. those paid by their French and German counter- parts, over the next few years, but with con- sequent beneficial effects on the economics of nuclear power and piped waste heat for the longer term'— a nice choice, involving political handling which would make my own problems with gas prices in the early Eighties look minor. Nevertheless, I think that this is the route we should have begun to move along. The question now is whether, with the Sleipner deal looming up and in effect freezing the pattern of gas supply for years to come, it is now too late to start on these radical changes in the structure of the industry. Had the 'fourth feeder' gas gathering pipeline been nearing completion now, it could have brought ashore considerable quantities of otherwise flared gas and gas from smaller northern fields in the late Eighties (as well as stimulating many new enterprises and new jobs in the North-East and Scotland). The pressure for an early Sleipner decision would then have been much less and the room for the next stage in the privatisation and reform of the industry, without endangering gas supplies and risking actual cut-offs later on, that much greater.

But as it is, with that strategy dished, we have now reached the sharp point where Sir Denis Rooke and the BGC want to know where they stand. So do the people doing the sums on nuclear power investment. So do Mr MacGregor and the coal industry planners.

And no wonder some Conservatives feel indignant and cross at being confronted with problems to which all solutions, whether free market or otherwise, still seem years away and are fraught with political awkwardnesses. But unfortunately indigna- tion and truculence, plus the occasional salvo of ill-will in the direction of Sir Denis Rooke, are no substitute for a clear policy.