The consultation by the Department of Energy and Climate Change (DECC) on the detailed proposals for the new offshore gas storage and gas unloading licensing regime established under the Energy Act 2008 (Energy Act) closed at the end of April. It is expected DECC will move quickly to introduce the new regime to ensure offshore gas storage projects are facilitated and can play a part in maintaining the security of energy supplies in the UK. Some aspects of the regime closely follow the existing approach for petroleum licensing however other aspects are new and reflect the distinct nature and challenges of offshore gas storage operations. Below we identify some of the key features of the offshore gas storage regime DECC hope to implement in the coming months.
Gas Importation and Storage Zone
Part 1 of the Energy Act vests in the Crown rights to carry on gas storage operations beyond the territorial sea in a designated gas importation and storage zone (GISZ). On 6 April 2009 the Gas Importation and Storage Zone (Designation of Area) Order 2009 came into force – designating an area identical to that identified by the Merchant Shipping (Prevention of Pollution) (Limits) Regulations 1996 – broadly an area extending 200 miles from the UK territorial sea baselines and equivalent to the UK Continental Shelf. The new regime will apply throughout this area and will apply to gas storage in both depleted hydrocarbon fields and other sub-sea features, including salt domes.
Some geographic differences
The Energy Act removes the need for a Food and Environment Protection Act (FEPA) licence for the operation of offshore storage and gas unloading projects in English territorial waters and in part (but not all) of the GISZ. The devolved administrations have elected to retain the application of FEPA in their own territorial waters. So while the Energy Act provides that a FEPA licence is not required for projects in English territorial waters and a large part of the GISZ, a FEPA licence (in addition to a licence under the Energy Act) will be required for projects in Scottish territorial waters, the Scottish part of the GISZ, and within Welsh and Northern Irish territorial waters.
Licence and a Lease
In addition to a licence under the Energy Act (see below), developers will need to secure rights to carry on regulated activities in the area of the sea-bed, the sub-sea and water column from The Crown Estate (TCE). This will be in the form of a lease in the territorial sea or authorisation in the GISZ - though developers will be able to carry out some limited non intrusive exploration work (where drilling does not go beyond 350 metres) without the need for a TCE lease or authorisation. The need for a lease and a licence (in contrast to petroleum operations) represents a complication during project development however DECC and TCE have indicated that neither the licence or the lease will be issued until both documents are agreed and anticipate the need for the developer to progress discussions with DECC and TCE in parallel. Because of the need for both a lease and the licence it is anticipated the documents will need to be linked, so that the expiry or termination of the lease will trigger the revocation of the licence (and vice versa).
Unlike a petroleum licence (which is defined in two dimensions) TCE have indicated the intention is to lease specific sub-sea features using three dimensional co- ordinates. This makes possible the grant of rights at different horizons which are overlapping.
For exploration activities the developer will need a licence and DECC propose relying on the existing three year licence for non intrusive exploration activities which is used for petroleum licensing purposes throughout the UK Continental Shelf. DECC plan to make this licence more generic in application so it can be used in relation to exploration activities for different projects, including CO2 storage, gas storage and gas unloading as well as conventional petroleum exploration.
The new licence
Following exploration a developer will need to apply for a gas storage licence (GSL), which will have separate exploration and appraisal, development and operational phases. The proposed content of the GSL is largely based on the contents of existing petroleum licences; the licensee will commit to a work programme during the exploration phase, will be required to submit a gas storage development plan in the development phase and comply with all relevant requirements relating to gas injection and withdrawal during the operational phase. What remains uncertain is the overall duration of the GSL; the time needed for development of a depleted hydrocarbon field and for a sub-sea salt dome with no previous operational history will differ and it is expected the duration of the GSL will be determined on a project by project basis.
The production licence
The operation of a storage facility comprising a subsea natural porous hydrocarbon feature will involve the production of native petroleum and the developer will need to hold a petroleum production licence in addition to a GSL Where native petroleum quantities are thought to be negligible the Secretary of State can direct that this requirement should not apply, though if hydrocarbons are subsequently discovered the developer will be given an opportunity to apply for the licence without the need to suspend storage related activities during the application process.
The Energy Act extends the decommissioning provisions of the Petroleum Act 1998 to include offshore gas storage installations. This means a single consistent regime applies to all offshore infrastructure decommissioning. The Secretary of State therefore has the power to serve a section 29 notice requiring an offshore gas storage operator to submit a costed decommissioning plan.
The Energy Act creates two types of offences relating to licences. It is an offence for a person to carry on offshore gas storage operations unless the person holds a GSL or the person is carrying on an activity for a second person holding a GSL. It will also be an offence to breach certain conditions of a GSL, including carrying on activities which under the licence require the consent of the Secretary of State in the absence of such consent or in breach of any conditions attached to any such consent. The Energy Act also allows the Secretary of State to specify further breaches which may give rise to criminal sanction.