The Energy Minister statement will be viewed by industry analysts as a dramatic game-changer that  shows  the Irish government's intent not to allow the country become a  hostage to a Shannon LNG monopoly price-fixing business model.

The first major criticism by any Irish Minister for Energy in the D�il (Parliament) on Tuesday November 29th 2011 of the "windfall gain" that will accrue to US Multinational giant HESS, could signal a dramatic game-changing end to the proposed Shannon LNG project  [c.f. note 1].

Minister Pat Rabbittte has cast serious doubts on the acceptability to the Irish Government of the Shannon LNG business model which is based on the benchmark price paid by Ireland for gas imported via the interconnector from the UK. The minister agreed with the logic put forward by the LNG project opponents that less customers to pay for the €50 million annual cost of the gas interconnector to the UK means that if the Shannon LNG project goes ahead then 

adding

"that this is not the outcome we seek".

The Minister was responding against pro-LNG lobbyists who are attempting to stop the independent Irish Commission for Energy Regulation (CER) from setting a tariff on all gas shippers based on their market share to pay for the fixed costs of the interconnector in order to prevent gas prices from increasing by up to 15% for consumers [c.f. note 3 and note 4 page 11]. Major wholesale gas purchasers in Ireland (the ESB, Bord G�is and Endesa) have supported the CER position with the ESB even going as far as to accuse Shannon LNG of "free-riding" on the services that the gas interconnector provides  [c.f. note 2]. Shannon LNG would earn a yearly windfall gain of €22.5 million euros on top of its normal profits if it decides to take a 50% market share and has threatened to pull out of the project if it is forced to pay the tariff along with all the other market participants.

Minister Rabbitte stated in the D�il:

"This regulatory issue is complex. Under the current regulatory regime the coming on stream of this liquefied natural gas, LNG, project will have implications for gas network tariffs set by the regulator. The same applies to the Corrib field. This, in turn, will have implications for general wholesale gas prices bearing in mind that the model is based on Irish prices following United Kingdom prices plus an additional amount for the price of transport through the interconnectors. In an environment in which gas from the Corrib field and LNG meet some or all of Irish demand, the interconnectors built and owned by Bord G�is �ireann would become under utilised and their proper remuneration by the reduced number of gas customers becomes an issue. In such circumstances, the prices for the consumer would go up and there would be a windfall gain for the multinationals. Deputy Ferris is likely to be minded to agree with me that this is not the outcome we seek. We have no wish for prices to be pushed up as a result of a stranded asset, that is, the interconnector, and a windfall profit to the multinationals, much as we welcome them here, whether they are associated with Corrib or LNG."

'Safety Before LNG' is of the view that the CER has now been given a green light by the Energy  Minister to make a decision on the tariff to be charged to Shannon LNG with the knowledge that the government has a clear understanding of the issues at stake.

Complaint by Shannon LNG to the EU Commission:

In signs of a further deterioration in relations between Shannon LNG and the Goverment, the Minister  for Energy went on to criticise the move by Shannon LNG to complain Ireland to the EU Commission before the CER even rules on the tariff to be charged to market participants for the gas interconnector.The Minister stated:

The Competition Authority of Ireland, the state body responsible for enforcing Irish and European competition law in Ireland has not even been consulted on the matter as it already informed 'Safety Before LNG' that it could not assess the matter until a decision was first made by the Regulator.

'Safety Before LNG' has consistently stated that Shannon LNG should be considered as a competitor in Ireland, not of Bord G�is, but of the suppliers to the Milford Haven and other LNG terminals in Great Britain and therefore of other exporters into Ireland. Shannon LNG itself admitted in its submission to the CER on this issue that:

Disagreement  within the  coalition:

The Ministers comments may also put strain in the relationship between the coalition partners. Fellow cabinet minsiter, Jimmy Deenihan, Minister for Arts, Heritage and the Gaeltacht, has already stated publicly to the "Limerick Leader" newspaper that Hess LNG should not have to pay any money to the CER for the interconnectors and Minister Deenihan went on in the same interview to state:

Minister Rabitte, as Minister responsible for the Energy portfolio, however categorically contradicted Minister Deenihan's position when he stated:

"The regulator is set up by statute of this House and is independent and has a job to do in the interests of consumer protection, competition and so on. I cannot interfere with that but I will be helpful in any way I can. I have signalled only recently following a request from my colleague, the Minister, Deputy Deenihan, my willingness to meet the county manager and I am pleased to do so."

Note 4.

Note 5.

Media Interest in this Issue.

http://www.downstreamjobs.com/news/article.aspx?a_id=28760&AspxAutoDetectCookieSupport=1 Europe & Russia LNG / LPG News Shannon LNG Asks Commission to Settle Pipeline Tariff Dispute by James Enright   European Spot Gas Markets December 06, 2011 �Digg It �Stumble it! �Newsvine �Del.icio.us �Technorati �Reddit �Facebook Shannon LNG, the operator of Ireland's regasification plant project, has referred a dispute with the country's regulator about a proposed interconnector tariff to the European Commission, claiming a tariff for operating and maintaining the UK-Ireland natural gas interconnectors would amount to unlawful state aid. Shannon LNG is awaiting a decision by the watchdog Commission for Energy Regulation (CER) on the proposed E10m annual tariff towards the operation and maintenance of gas interconnectors with Britain. The company, a subsidiary of Hess LNG, has refused to pay the charge, saying it will not use the interconnectors. "The tariff not only contravenes EU law but represents a massive policy shift from the previous government's stance on interconnector policy," Gordon Shearer, CEO of Hess LNG, told ICIS Heren on Thursday. "This switch in methodology is totally unreasonable and quite controversial." Sherarer insisted that a tariff breaches EU Regulation 715/2009, which forbids cross-subsidies between network users. The CER expects to reach a decision on the regulatory treatment of the gas interconnectors by the end of January. A CER spokesman said: "We seek to balance the interests of gas customers with keeping Ireland as an attractive location for gas producers. The CER will also endeavour to comply with relevant European legislation and regulatory best practice." Hess LNG has said it is committed to constructing the west-coast regasification terminal despite the possibility of a tariff, which would threaten to undermine the project's viability ( see ESGM 22 August 2011 ). "We will still pursue it but the tariff seriously compromises the project," Shearer said. "Over a 20-year period, the tariff will cost E200m. Our current budget runs to E500m, so that's a 40% hit." Hess LNG has been granted 100% of the capacity at the proposed terminal for a 20-year period. Shearer said the terminal had not attracted third-party interest from European utilities because of a perceived lack of liquidity in the Irish market. JE Copyright 2011 Heren Energy Ltd. All Rights Reserved. (Originally published December 2, 2011, in European Spot Gas Markets.)