Press Release December 6th 2011: Major criticism by Irish Minister for Energy of "windfall gain" to US Multinational 'HESS' a dramatic game-changer that could spell end of proposed Shannon LNG project.
agrees that less customers to pay for the €50 million fixed annual
cost of the gas interconnector to the UK means that if the
Shannon LNG project goes ahead "the prices for the consumer would go up and there would be a windfall gain for the multinationals" adding "that this is not the outcome we seek".
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 Dáil (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].
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
"the prices for the consumer would go up and there would be a windfall gain for the multinationals"
"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 Gáis 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 Dáil:
"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
Gáis Éireann 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:
"I did say that I expected a decision at the end of October or early
November, as I was so advised. I believe that is what would have
happened were it not for the rather unusual step by the company to lodge
a formal complaint with the European Commission against the process
underway by the regulator. One can understand the lodging of a
complaint against a decision of the regulator but it is unusual to see
an action taken against an anticipated decision by the regulator."
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
Before LNG' has consistently stated that Shannon LNG should be
considered as a competitor in Ireland, not of Bord Gáis, 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:
Shannon LNG charges the same price as UK imports of gas to Ireland,
then Shannon LNG cannot gain market share” [c.f. note 4 page 3].
Disagreement within the coalition:
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:
“if we lose this project, there will be a major issue over the role of the regulator and how it was established” [c.f. note 4 page 4 and ' Limerick Leader' - May 21st 2011.]
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."
'Safety Before LNG'
is of the view that there is now an obligation on Minister Jimmy
Deenihan to publicly clarify his position towards political
interference with the Energy Regulator's office in the
light of Minister Pat Rabbitte's comments in the Dáil on the
Before LNG' understands that any direction from the Governnment to the
CER contradicting current government policy is possible but would first
require extensive public consultation in order to develop a new Irish
Energy Policy - a process that could take months, if not years to
Unbalanced Reporting in Local Media
In an implicit acknowledgement that the issues at stake
in the LNG plan are not being fairly reported in some pro-LNG local
media outlets Deputy Martin Ferris T.D. stated in the Dáil on the same
"The truth about what is holding this up should be spelt out for the
people of the area. People are not aware of what is going on."
After Minister Rabbitte had explained how Hess would get a windfall at the country's expense, Deputy Ferris noted:
"As the Minister is aware, I have no love for multinationals and I am
keen to ensure value for money for the taxpayers of the country - I
subscribe fully to this principle as I have done consistently all my
states that Shannon LNG's attempt to create a monoply for itself in
Ireland at the consumer's expense at a time of increasing fuel poverty
has now been exposed.
genie is out of the bottle as the proposed Hess LNG project has now
been exposed as a slick attempt to create a price monopoly in Ireland
at a time of increasing fuel poverty.
€22.5 million annual windfall to Hess from Ireland amounts to a support
of €450,000 per year for each of the only 50 long-term jobs that the
Shannon LNG plant would hope to create.
people are not mushrooms to be kept in the dark and there is now a duty
on all media to explain all the issues at stake in the proposed LNG
in government is finally listening to the argument that the Shannon LNG
project is only an attempt at price fixing at a time of increasing fuel
poverty and is not in the national interest.
Shannon LNG is hoping to make millions of euros profits every year with state
support at the consumer's expense at time of increasing fuel poverty.
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.
dramatic statement by the Minister is a game-changer against attempts
to allow the country become a hostage to Shannon LNG monopoly price
four years of campaigning this has now become a truly national debate
about value for money for the Irish taxpayer and consumer.
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 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
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.
December 2, 2011, in European
Spot Gas Markets.)
construct a €500 million liquefied natural gas (LNG) regasification terminal
on a 104 hectare site on the Shannon Estuary are under threat over the
proposed introduction of annual costs of €21m for the use of
The developers of Shannon LNG have threatened to pull the plug on the project
if the Irish Commission for Energy Regulation (CER) proceeds to levy gas
suppliers with costs of €21m by transferring this tariff for the use of
interconnectors to competing Irish suppliers, who don’t use
According to a consultation paper published last January by the CER, the
rationale for this cross-subsidisation is to pay for the “security of
supply” benefit of the second interconnector.
Another consultation paper was published by the CER in July, which LNG claims
presented a completely new set of issues and proposals, which are not
described adequately or clearly, including investor incentives,
“diversity premium”, tariff volatility, tariff capping and the
role of the Common Arrangement for gas in Ireland.
An economic assessment provided by DKN Economic Advisors estimated the value
of the LNG project at over €206m annually for the Irish economy.
Shannon LNG will employ 500 people during the three-year construction
programme and 100 full-time jobs afterwards.
Shannon LNG has made a formal complaint to the EU Commission that the CER
proposals are anti-competitive, discriminatory, create barriers to entry,
provide cross-subsidies, lack transparency and fair procedures and provide
illegal State aid.
The promoters have advised they believe the consultation and options it
contains are legally defective under Irish and European regulations and laws.
According to an assessment provided by the company, these proposals introduce
a degree of instability to the regulatory regime in Ireland, which will have
a chilling effect on any future investment and perhaps worst of all, they
fail to address the primary issue identified by the CER with the
interconnectors, namely the future stability of the associated tariff.