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Press Release August 10th 2011: ESB accuses Shannon LNG of "free-riding" on the services that the gas interconnector provides.
Shannon LNG logic makes no economic sense say major Irish Energy players August 10th, 2011 was the final day for submissions to the Irish Commission for Energy Regulation (CER) on its public consultation process into how the €50 million annual fixed running cost of the gas interconnector pipeline from Great Britain is to be shared out among new entrants to the market such as Shannon LNG.
The CER decision is one that could see the end of the Shannon LNG project due to the fact that most of the major energy players in Ireland are now speaking out openly to the CER for the first time against the current Shannon LNG logic.
The CER, in order to avoid the cost being passed directly onto the consumer, has already stated that if this issue is not tackled then gas prices could increase by up to 15%. If the costs of the Interconnectors are not shared by all shippers then Bord Gais will never be able to compete on price with Shannon LNG as the Interconnectors tariff will be the benchmark on which Irish wholesale gas prices will be based. This would make Shannon LNG an immediate windfall winner which is not fair or equitable.
John Lawlor of ESB Energy International has written to the CER stating:
"As a significant user of the interconnector ESB PG agrees that the cost of the security of supply benefits should be shared. This cost should be shared by ALL users."
Hess LNG which, under the CER proposals, could have to pay up to half the running costs of the Interconnector if it achieves 50% market share in Ireland has threatened to pull out of the Shannon LNG project or even take legal proceedings against the CER if it is forced to pay any tariff to the CER.
However, John Lawlor of ESB Energy International informed the CER that:
"this leads those new users free-riding on the additional security of supply and financial balancing services that the interconnector provides"
Another energy player, Gazprom, has equally written to the CER saying that:
"the Interconnectors currently provide the best form of security of gas supply for consumers in Ireland".
Describing the interconnectors as "this critical security of supply product" Steve Mulinganie of Gazprom went on to state that these costs:
"should be shared with all market participants".
Maurice Scully of Bord gais Networks, in its submission to the Regulator, describing the interconnectors as "a critical asset of the Irish gas system" has said that if the current tariff system is not amended:
"this would be damaging to the wider economy, efficiency of operation of the gas market and adversely impact customers over the short and long term".
He went on to say that:
"in the short term IBP prices would be higher and customers would pay more for gas" .
He also stated that:
"in the longer term, inefficient investments would be made, i.e. new sources of gas may be encouraged onto the system in place of IC [interconnector] gas (which may be the cheaper option) and customers would end up paying more for gas due to the tariff structure rather than sound economic principles. This is neither in the interest of the gas industry or the consumer"
Deirdre Powers of Endesa Ireland, who run the electricity generating plant at Tarbert has, for her part, informed the CER that:
"Endesa Ireland agrees with the CER’s view that the security of supply associated with the interconnectors should be fairly supported by all those who benefit from it."
She went on to state:
"Endesa Ireland believes that a shipper should not have competitive benefit depending on where they source gas."
Safety Before LNG, which has been raising this very issue since 2008 told the regulator that refusal to force all gas shippers to contribute fairly to the cost of the Interconnectors is anti-competitive, not in the interests of consumers and is putting the interests of Shannon LNG (owned by the Cayman-Island registered Hess LNG) before the interests of state-owned Bord Gais by promoting market share for Shannon LNG rather than security of supply.
Safety Before LNG informed the Regulator that Shannon LNG are attempting to gain market share in Ireland under the guise of opening the market to competition with Bord Gais but that their real competitors are in fact the other gas exporters to Ireland from the UK. It said that the only way to have a downward pressure on gas prices would be if Shannon LNG was competing directly on price with UK-based LNG companies exporting into Ireland and that this would only happen if everyone had to contribute equally to the cost of the Interconnectors.
Safety Before LNG also told the Regulator that market share is now the goal of Shannon LNG and not security of supply and that waiving the levy of 22.5 million euro annually to Shannon LNG (as proposed by Minister Jimmy Deenihan) at the consumer's expense would amount to state aid for Hess LNG.
It went on to say that the Second McCarthy Report and the ESRI energy report of 2011 both encouraged the development of LNG terminals in Ireland but only if they were for the goal of "security of supply" and did not involve "state support" and that this was clearly, now, no longer the case.
The
group also reminded the CER that it was a legal pre-condition for the
CER in giving a licence to Shannon LNG to construct an LNG pipeline on
December 8th 2009 that Shannon LNG was capable of paying any levy to
the CER [see note 2 below]. Safety Before LNG also emphasised that it is important to make the clear distinction between indigenous gas producers on the gas fields at Corrib and Kinsale and the proposed Shannon LNG project. Shannon LNG is not an indigenous producer. Rather it is a merchant company proposing to import gas in liquid form and re-gasify it at the mouth of the Shannon Estuary at the enormous unmeasured cost of sterilising the Shannon Estuary for sustainable economic development in other areas. It will add no value to the product in Ireland. No new wealth would be created by Shannon LNG; rather a transfer of wealth will be created via market share from Bord Gais. Depending on the write downs of costs and the transfer pricing mechanism used by Hess LNG it is also a matter of debate whether or not the exchequer will receive less overall tax from the gas market.
Safety
Before LNG states that Shannon LNG are moving the goalposts at the last
minute in order to make millions of euros profits every year with state
support at the consumer's expense. From every angle looked at, be it
environmental, safety, strategic planning or economic, the Shannon LNG
project defies logic and is the wrong project in the wrong place and is
against the strategic national interest.
A decision is due by September.
-Ends-
Notes to the Editor:
Note 1. Public consultation documents on the Regulatory Treatment of the BGE Gas Interconnectors can be found on the CER website at: http://www.cer.ie/en/consultations.aspx?type=gas&article=bbaf3b0b-fe71-4316-b953-4fb6521365c6
Section 2(g) of Section 39A of the Gas Act 1976, as amended stated: “2.
The criteria in accordance with which an application for a consent
given under section 39A(1) (inserted by section 12(1)(a) of the Gas
(Interim)(Regulation) Act 2002) of the Gas Act 1976 may be determined
by the Commission are that the Commission is satisfied that - []
g) the applicant will be capable of paying any levy charged by the Commission”
The CER's opinion on this is stated in its decision: "The
CER has no reasonable grounds for doubting Shannon LNG's ability to pay
any levy charged by the CER and has received no reliable evidence to
the contrary. Accordingly, this criterion is met".
see http://www.safetybeforelng.ie/licensing/cerpipeline.htm for more details
Note 3.
Click here for full Safety Before LNG submission to the Commission for Energy Regulation
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