Third Party Access
Summary and Background
395.The Government considers that access to infrastructure on fair and reasonable terms is crucial to maximising the economic recovery of the UK's oil and, particularly, gas. This is because many fields on the UK Continental Shelf (UKCS) and in the territorial sea do not contain sufficient reserves to justify their own infrastructure, but are economic as satellite developments utilising existing infrastructure.
396.There is a voluntary “Infrastructure Code of Practice” (The Code of Practice on Access to Upstream Oil and Gas Infrastructure on the UK Continental Shelf) which sets out principles and procedures to guide all those involved in negotiating third-party access to oil and gas infrastructure on the UK Continental Shelf. There is existing legislation in the Acts listed below under which, if a third party is unable to agree satisfactory terms of access with the owner of most upstream infrastructure, the third party seeking such access can – and under the terms of the Infrastructure Code of Practice is obliged to - make an application to the Secretary of State to decide whether access should be granted and, if so, on what terms:
397.In the existing regulatory framework there are gaps in the coverage of the Secretary of State’s powers to determine third party access that mean some parts of the upstream petroleum infrastructure are not covered. “Upstream infrastructure” refers to infrastructure relating to the production of oil and gas including transportation and processing required to get it into a saleable state. Downstream infrastructure refers to facilities such as oil refineries and the distribution and storage network required to get oil products and gas to consumers. Gaps in the legislation exist, for example, in relation to access to oil processing facilities, certain gas processing facilities and services associated with pipelines. This means that a party seeking access to all links in the chain of the infrastructure would currently be able to ask the Secretary of State to determine a dispute over only certain parts of it. The legislation can only be wholly effective as a backstop if it covers the entire range of upstream infrastructure. If it did so, the Secretary of State would be able to be a more effective arbiter in situations where interested parties cannot reach commercial agreement.
398.The Act extends the existing regime so that, if he is requested to intervene in the case of disputes over third party access, the Secretary of State will have the power to determine third party access rights to all upstream petroleum infrastructure.
Commentary on Sections
Section 78: Third party access to infrastructure
399.This section extends the scope of definitions in the existing legislation, so that parts of the upstream petroleum infrastructure not currently covered by the third party access regulatory regime are brought within their scope.
400.Subsection (1) amends section 66(1) of the Pipe-lines Act 1962 (c.58) (interpretation) to expand the definitions of:
“Gas processing operation” to include separating, purifying, blending, odorising or compressing gas to convert it into a form in which a purchaser is willing to accept delivery from a seller, or to enable the gas to be delivered to another place either inside or outside Great Britain. The expanded definition also covers the loading of gas for the purpose of enabling the processed gas to be transported to another place (whether inside or outside Great Britain) either at a facility carrying out gas processing operations (as described above) or where the gas has been piped from such a facility.
“Terminal” to include oil processing facilities (oil processing facilities are defined at section 78)
“Upstream petroleum pipe-line” to include apparatus, works and services that are associated with the operation of a pipe-line or network. As a result, the new definition captures services used for operating upstream petroleum pipelines which are not currently part of the third party access regulatory regime.
The effect of the expanded definitions is to increase the scope of the Secretary of State’s powers over third party access to upstream petroleum pipe-lines provided by section 10E of the Pipe-lines Act 1962 (c58).
401.Subsection (2) amends subsection (6) of section 12 of the Gas Act 1995 (c.45) (acquisition of rights to use gas processing facilities) to expand the definition of:
“Gas processing operation” to include separating, purifying, blending, odorising or compressing gas to convert it into a form in which a purchaser is willing to accept delivery from a seller, or to enable the gas to be delivered to another place either inside or outside Great Britain. The expanded definition also covers the loading of gas for the purpose of enabling the processed gas to be transported to another place (whether inside or outside Great Britain) either at a facility carrying out gas processing operations (as described above) or where the gas has been piped from such a facility.
402.Subsection (2) also amends subsection (7) of section 12 of the Gas Act 1995 to expand the definition of:
“Associate” to bring it in line with the new provisions covering third party access to oil processing facilities in this Act. The definition of associate is set out in section 79 and is explained in the detailed commentary to that section. These changes ensure the definition of associate is consistent across the whole of the third party access regime for upstream petroleum infrastructure.
The effect of the expanded definitions is to increase the scope of the Secretary of State’s powers over third party access to gas processing facilities under section 12 of the Gas Act 1995 (c 45).
403.Subsections (3) and (4) amend sections 26 and 28 of the Petroleum Act 1998 (c.17) respectively. Subsection (3) amends section 26 (“meaning of pipeline”) so as to expand the scope of the definition of a pipe-line to include services (for example the provision of fuel or power needed to operate third party equipment on or from the host facility) as well as the apparatus and works associated with a pipe-line.
404.Subsection (4) amends section 28 (interpretation of Part 3) in two ways, expanding the definitions of:
“Gas processing operation” so as to bring it into line with the changes in the Pipe-lines Act 1962 and the Gas Act 1995 described above, i.e. to include separating, purifying, blending, odorising or compressing gas to convert it into a form in which a purchaser is willing to accept delivery from a seller, or to enable the gas to be delivered to another place either inside or outside Great Britain. The expanded definition also covers the loading of gas for the purpose of enabling the processed gas to be transported to another place whether inside or outside Great Britain, either at a facility carrying out gas processing operations (as described above) or where the gas has been piped from such a facility.
“Terminal” to include oil processing facilities (oil processing facilities are defined at subsection (4)(b)).
The effect of the expanded definitions is to increase the scope of the Secretary of State’s powers over third party access to controlled petroleum pipelines under section 17F of the Petroleum Act 1998.
Section 79: Modification of pipelines
405.This section inserts two new sections after subsection 10F of the Pipe-lines Act 1962 (c.58) (reducing necessity for constructing additional pipe-lines):
10G which provides for compulsory modifications of pipe-lines by way of notice; and
10H which concerns enforcement of such a notice.
These additions are modelled on the Secretary of State’s powers under section 16 of the Petroleum Act 1998, under which he can issue a notice requiring the modification of controlled pipelines (which in the context of section 16 of the Petroleum Act 1998 means pipelines which are offshore). As with the third party access regime under that Act, this power is only exercisable on application by a person other than the owner of the pipeline. Failure to comply with a notice issued under section 16 is an offence and a similar offence will be included in the new additions to the Pipe-lines Act 1962.
406.The section will therefore give the Secretary of State powers under the Pipe-lines Act 1962 in relation to upstream petroleum pipelines equivalent to those the Secretary of State already has under section 16 of the Petroleum Act 1998 for controlled pipelines offshore.
New Section 10G: Compulsory modifications of pipelines
407.This section gives the Secretary of State the power to issue a pipeline modification notice in respect of upstream petroleum pipelines, on the application of a person other than the owner. A notice can be issued to the applicant and owner of the pipeline only if the Secretary of State is satisfied that the capacity of the pipeline can be increased by modifying the apparatus and works associated with the pipeline, or that the pipeline can and should be modified by installing junctions to connect it to other pipelines. A modification notice also covers any changes, substitutions, or additions in relation to apparatus and works associated with the pipeline. (see subsection (5)).
408.Subsection (3) sets out that the notice must:
Specify the modifications that the Secretary of State thinks should be made.
Specify the sums or method of determining the sums which the Secretary of State thinks should be paid to the owner by the applicant to pay for the costs of carrying out the modifications.
Require the applicant to make arrangements to ensure those sums will be paid to the owner if the owner carries out the modifications or satisfies the Secretary of State that they will be carried out.
Specify the period in which those financial arrangements must be made.
Require the owner to carry out the modifications within a period specified in the notice.
Authorise the owner to recover the sums from the applicant if the works are carried out or the Secretary of State is satisfied that they will be carried out.
409.Furthermore, before issuing the notice subsection (4) requires the Secretary of State to give the owner of the pipe-line an opportunity to be heard.
410.Subsection (6) clarifies that if a pipeline is offshore (i.e. it falls into the section 14 Petroleum Act 1998 definition of “controlled pipeline”), the modification provisions under that Act will apply (see section 16 Petroleum Act 1998) instead of the provisions under this new section 10G of the Pipe-lines Act 1962.
New section 10H: Enforcement
411.This section makes it an offence for an owner to fail to comply with a “pipe-line modification notice” issued under new section 10G. A person found guilty of such an offence is, as set out in new subsection (2), liable to:
on summary conviction, a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland), or;
on conviction on indictment, to an unlimited fine.
412.Subsection (3) provides a person in proceedings for prosecution of the offence with a defence, if the person can prove he exercised due diligence in trying to comply with the pipe-line modification notice.
413.Subsection (4) states that proceedings can be instigated only by the Secretary of State (or a person authorised by the Secretary of State) or by or with the consent of the Director of Public Prosecutions
414.Subsections (5) to (7) provide that if it can be proved that an offence committed by a body corporate was attributable to any actions of or failure to act by, or was done with the consent or involvement of any director, manager, secretary, member, or other similar officer of the body corporate (or any person who was purporting to act as one) that person (as well as the body corporate) will be liable for the offence and can be prosecuted accordingly.
415.In addition to inserting the two new sections 10G and 10H into the Pipe-lines Act 1962, section 79 also inserts a new subsection (5) into the current section 10F (supplemental provision relating to third party access). This requires the Secretary of State, before issuing a pipe-line modification notice:
to give the person who applied for the notice details of the modifications the Secretary of State is proposing, and
to give the person an opportunity to make an application for third party access to upstream petroleum pipelines (covered by section 10E of that Act) if they have not already agreed these terms.
Section 80: Third party access to oil processing facilities
416.This section sets out the process of dispute resolution for third party access to oil processing facilities. It specifies the steps that need to have been taken before the applicant can apply to the Secretary of State for directions, as well as what the Secretary of State may do if these initial steps do not enable the applicant and owner involved to reach a consensus themselves. Subsection (2) explains the extent of this provision; it applies only to oil processing facilities situated in Great Britain and the territorial sea adjacent to Great Britain (including areas of the sea designated under section 1(7) of the Continental Shelf Act 1964).
417.Subsections (3) and (4) require the applicant to apply to the owner of the oil processing facilities by a notice specifying the nature of the access they are seeking. This should include the period of time over which the applicant wants petroleum processed by the facility in question, the kind of petroleum to be processed at the facility, and the quantities of petroleum the applicant wants processed by the facility.
418.If the applicant and the owner cannot reach an agreement on the application, subsection (5) allows the applicant to apply to the Secretary of State for directions securing the access required (as set out in the applicant’s original notice to the owner of the oil processing facilities). Subsection (6) provides that the Secretary of State may not consider such an application unless satisfied that the parties have had a reasonable time to reach an agreement.
419.When considering an application, the Secretary of State must, according to subsection (7), decide whether the application needs to be adjourned to give the parties further time to negotiate, considered further or rejected. The applicant must then be notified of the Secretary State’s decision. If the Secretary of State decides to consider the application further, then notice must be given to the persons set out below (as set out in subsection (8)) and give them the opportunity to be heard in relation to the application:
the owner of the oil processing facility;
any person who has a right to have petroleum processed at the facility; and
the Health and Safety Executive.
420.Subsection (9) provides that the Secretary of State may give directions (the terms of which are set out under section 81) on an application for third party access, if satisfied that they will not prejudice:
the efficient operation of the oil processing facility;
the processing of petroleum by the facility of quantities of petroleum which the owner or an associate of the owner requires (or may be reasonably expected to require) to be processed for the purposes of their own business; or
the processing of petroleum by the facility by other people with a right to have their petroleum processed by the facility.
Section 81: Directions under section 80: supplemental
421.This section describes the terms of the directions for third party access that may be made by the Secretary of State in relation to an application from a third party seeking access to an oil processing facility under section 80.
422.The Secretary of State may, under subsection (1), issue directions that:
specify the terms on which the Secretary of State considers the owner of the oil processing facilities should enter into an agreement with the applicant for access to the facilities for all or any of the purposes listed in subsection (2) (see paragraph below for a description of this list);
specify the sums (or method for working out the sums) that should be paid by the applicant to the owner by way of consideration for the right to use the oil processing facilities; and
require the owner to enter into an agreement with the applicant if the applicant pays (or agrees to pay) the sums within a specified period. The specified period will be stated in the directions.
423.Subsection (2) sets out the purposes for which the Secretary of State can specify terms in directions made under subsection (1):
securing to the applicant the right of having petroleum processed at the oil processing facility;
securing that the applicant is not stopped from exercising that right;
regulating the charges which can be made for the right to access the oil processing facility;
securing any ancillary or incidental rights for the third party that the Secretary of State believes are necessary or expedient. For example, the right to have their pipe-line connected to the oil terminal by the owner.
424.Subsection (3) sets out that in order to consider an application made to him for directions about third party access to an oil processing facility (under section 80(5)), the Secretary of State can issue a notice requiring the owner of the infrastructure or the applicant to supply information relevant to the application.
425.Subsection (4) states that this information may include financial information relevant to the owner’s or applicant’s activities in terms of oil processing operations.
426.Subsection (5) provides that any information obtained by the Secretary of State with respect to subsection (3) may not be disclosed unless either the person who provided the information has consented, or the Secretary of State is required to disclose it by, or under, an enactment.
427.Subsections (6) and (7) set out that the Secretary of State can enforce compliance with any directions made relating to third party access of oil processing facilities through civil proceedings. i.e. the Secretary of State can apply to the High Court or Court of Session in Scotland for an injunction (or interdict) requiring compliance with the Secretary of State’s direction. The court that imposes the injunction will be responsible for the enforcement of that injunction. The reason that this section only focuses on oil processing facilities is that these are the only areas that are new on the face of the Act – all other infrastructure is (at least partially) covered in other Acts.
428.Subsection (8) provides definitions of terms used in the new third party access regime for oil processing facilities:
“Oil processing operations” are defined as including:
the blending or other treatment of petroleum required to produce stabilised crude oil and other hydrocarbon liquids to the point at which a seller could reasonably make delivery to a purchaser;
receiving or storing this stabilised crude oil and these hydrocarbon liquids piped from a facility carrying out oil processing operations (as described above) before taking them elsewhere; and
loading stabilised crude oil and these hydrocarbon liquids piped from a facility carrying out either of the oil processing operations described above in order to transport it elsewhere.
“Oil processing facility” is any facility that carries out these oil processing operations and which is situated in Great Britain, in the territorial sea adjacent to Great Britain, or in areas of the sea designated under section 1(7) of the Continental Shelf Act 1964;
“Owner” is defined as any person occupying or controlling an oil processing facility including a lessee.
“Petroleum” has the meaning given by section 1 of the Petroleum Act 1998 i.e. mineral oils, relative hydrocarbon or natural gas in its natural condition. This definition also includes petroleum which has been processed.
Section 82: Meaning of “associate”
429.This section defines “associate” for the purposes of section 80, which relates to applications from a third party for a right of access to have petroleum processed by an oil processing facility.
430.For a person to be an associate of the owner either or both need to be bodies corporate. The meaning of “body corporate” is broader than a limited company and includes limited liability partnerships (LLP). The section sets out the test for determining whether one body corporate is associated with another. In essence, one body corporate is associated with another if one of them controls the other or if a third body corporate controls both of them.
