Oil and gas industry fights energy chapter

By Maria Kielmas

Date: 04/12/03

FOR EU oil and gas producers it's a fight for their very survival. For the European Commission's energy and transport spokesman Gilles Gantelet, it's an incomprehensible fuss over nothing.

The problem is the 125-word, two-paragraph energy chapter of the draft European constitution (Article III-157) which has galvanized government and opposition parties in the UK, the Netherlands and Ireland to support oil and gas companies who fear that the chapter is an unwarranted, and ultimately wrecking, interference in their business.

"The UK has significant oil and gas resources and it is extremely dangerous to expose that to EU interference," says Sir Ian Wood, chairman of Scotland-based energy services company, Wood Group, and co-chairman of the UK oil and gas Industry Leadership Team.

The companies argue that the energy chapter would introduce EU competence for the first time in the licensing of exploration acreage, depletion policy, ie the rate at which oil and gas fields are produced, the decommissioning of offshore energy infrastructure, and the ability of member states to sign energy agreements with other countries.

John Conmy, public affairs manager at the UK Offshore Operators Association (UKOOA), says that a recently-signed long-term gas supply agreement between the UK and Norway would not have been possible had the energy chapter been in place.

In addition, future investment in this oil province will be seriously harmed by the legal uncertainties in the vaguely worded chapter, as well as another tier of regulations, he said. Conmy believes the energy chapter increases the political risks for investors in the North Sea and other oil and gas provinces in the EU.

As a major oil and gas supplier to the Union, even non-EU Norway is worried. "It [the energy chapter] introduces a larger competence to Brussels so energy policy will have a higher place on the agenda than today," says Arve Torvik, Brussels-based director of Statoil, the former Norwegian state oil company which is still 80%-owned by the Norwegian state. But if the EU is worried about security of its energy supplies, "most of the oil is under the water waiting to be taken out", he says.

Oil companies are especially angry that nuclear energy is excluded from the energy chapter. This remains independently regulated under the Euratom Treaty enabling France, the EU's largest nuclear energy generator, to remain in sole charge of its industry.

But Professor Thomas Wälde, Jean Monnet Chair at the Centre for Energy, Petroleum and Mineral Law at Dundee University in Scotland, thinks the energy chapter does not provide for any significant changes to EU powers or its main energy objectives.

"It possibly expands the current single energy market qualified majority procedure to matters relating to security of supply, energy efficiency and promotion of renewables, but the unanimity requirement for significant intervention in domestic policy is maintained," he says.

Nevertheless, John McEldowney, professor of law at the University of Warwick in the English Midlands, has another point of view. In evidence submitted to the UK House of Lords' constitutional select committee, he said that the draft construction should be read as an aspirational document that leaves unclear and uncertain how the future EU will work in practice. He explained that the constitution, currently being negotiated by the intergovernmental conference (IGC), initiates a process and, thus, predicting its impact or assessing its significance is made more difficult.

The energy chapter seems to have caught everyone on the hop. It was inserted at the end of the Convention deliberations in July, to evident opposition from Germany. This opposition was dropped over the summer but taken up by the Netherlands' government. It was only at this point that the oil and gas industry realized that something important was afoot.

"We were asleep on the job," admits UKOOA's John Conmy. According to Ian Wood, the UK government only realised the seriousness of the matter in October, a significant omission given that the UK holds 80% of the EU's oil and gas resources. In late November, Irish Foreign Minister Brian Cowen added his country's support to the objections. Ireland's growing offshore industry has become a popular investment target for foreign companies.

Opposition parties joined in the fray ahead of the foreign ministers meeting in late November. The UK's shadow Europe minister, Conservative MP Richard Spring, said: "If the British government accepts this new chapter it will add to the rough ride the constitution will receive in Britain." Referring to potential job losses in the oil sector which could go the way of those in the EU-regulated fishing industry, Scottish National Party's foreign affairs spokesman, Angus Robertson, said that, should the energy chapter remain unamended, "Scottish public opinion will turn against the constitution".

Ideally, the oil industry would like the energy chapter dropped entirely. But Paul Blakely, vice president of Aberdeen-based Talisman Energy (UK), admits that would be unlikely. The hope is that the IGC will draft a tighter, less ambiguous wording.

Oil companies say that governments are on their side. But when Chancellor Gordon Brown recently said the UK government would "red line" tax, social security and budget matters from EU competence, he did not mention energy.

A Netherlands foreign ministry spokeswoman said that her government has proposed a clarifying amendment to the energy chapter.

But the oil industry knows it still has a fight ahead.

• Maria Kielmas is a freelance journalist specializing in the energy sector.

Oil and gas companies in the European Union are worried about the energy chapter of the draft European constitution. They fear the chapter will lead to European Union 'interference' in their business and may ultimately wreck it.