V&E Energy Update E-communication, February 26, 2009
The UK Energy Act 2008, which received Royal Assent on 26 November 2008, introduces a new regulatory framework for the offshore storage of natural gas and the unloading offshore of natural gas including in the form of liquefied natural gas (LNG). Under this new framework the UK government proposes to introduce a licensing scheme for these activities. This new framework does not relate to CO2 storage.
Although DECC will run and implement the licensing scheme for the development of gas storage and unloading facilities, the exclusive proprietary right to unload and store gas will be vested in the Crown. Accordingly, a person or company associated with the development of a new offshore gas storage or unloading facility will also need to apply to the Crown Estate for the right to conduct regulated activities in the area of the seabed, the sub-sea, and water column, which the facility will exploit.
The licensing scheme will cover any regulated activities relating to the unloading and storage of gas within the territorial sea or Gas Importation and Storage Zone (GISZ). A GISZ is an area from the edge of the territorial sea out a further 188 nautical miles (within the UK continental shelf) over which the Crown can choose to claim sovereign rights for the storage of gas.
1. New Licensing Requirements: Gas Storage
A Gas Storage Licence (GSL) will be required where developers wish to carry out one or more of the following activities:
- the storage of gas;
- the conversion of any natural feature for the purpose of storing gas;
- the recovery of stored gas;
- exploration in connection with or with a view to carrying on any of these activities; and
- the establishment of an installation for any of the above activities.
Under the GSL there will be a three phase process similar to the current Petroleum Licence model:
- Phase 1: The Exploration and Appraisal term (provisionally a four-year period);
- Phase 2: The Development term (provisionally a four-year period); and
- Phase 3: The Operational term (provisionally an 18-year period).
Under each phase of the licence, DECC will agree to certain activities, then as each phase of activity is completed, consent will be provided by DECC for the next phase of activities. In relation to Phase 2, a Gas Storage Development Plan will need to be produced; guidance on the development plan has also been provided.
The consultation is asking for views on, among other things: the phased approach; whether the guidance on the Gas Storage Development Plan is satisfactory; and whether the guidance needs to include other things.
2. Natural Gas and LNG Unloading
A licence could be required where developers wish to carry out one or more of the following activities:
- the unloading of gas to an installation or pipeline;
- exploration with a view to or in connection with the unloading of gas to an installation or pipeline; and
- the establishment or maintenance of an installation for unloading gas.
DECC is consulting on options in relation to how the proposals are put in place and whether a new licensing regime is even required for unloading activities. DECC raise this since the development of gas unloading projects does not currently appear to be hampered by the existing regulatory framework.
3. Other Matters
DECC is also consulting on the process for making an application for a licence and the terms and conditions and the use of model clauses for the GSL. The consultation closing date for responses is 23 April 2009.
The full text of the consultation paper along with the Gas Storage Development Plan Guidance and Gas Storage Licence: Operatorship Guidance and can be accessed here.
For further information on this topic, please contact V&E lawyer Michael Doble. To learn more about V&E's London office, visit our website.