Ms Claire Madden:

I thank the Chairman and committee members for inviting us here today to outline Gas Networks Ireland’s position on Brexit. I am the head of legal and regulatory affairs at Gas Networks Ireland and I am joined today by my colleague, Mr. Padraic O’Connell, head of human resources and public affairs.

Before I outline our position on Brexit, let me first give some brief background information about natural gas in Ireland. Gas Networks Ireland operates the gas network in Ireland. There are three entry points to the Irish system. The entry point from the UK, at Moffat in Scotland, supplied 40% of Ireland's gas demand in 2016. Two indigenous entry points at Inch and Corrib supplied 6% and 54% of 2016's demand, respectively. It is anticipated that the Corrib gas field will supply on average up to 57% of Ireland’s gas demand out to 2020. We also have a business in Northern Ireland, details of which are contained in the slide pack provided.

Ireland’s gas market is heavily interconnected with that of the UK. Whereas Great Britain currently supplies 40% to 50% of Ireland’s gas demand, this has historically been as high as 92%. In turn, 100% of the gas supplies to Northern Ireland and the Isle of Man are delivered through Gas Networks Ireland’s network in Scotland. For this reason, Gas Networks Ireland has a strong record of co-operation with neighbouring system operators in the UK. With the advent of Brexit, Gas Networks Ireland, as part of the Ervia group, has considered carefully the implications for the Gas Networks Ireland business and for the Irish gas market. Our findings to date have identified three main areas of focus, which are "day one" versus "day two" issues, security of supply and cost of gas. I will consider each of these in turn.

With day one versus day two issues, we understand it is the intention of the UK Government to transpose all existing EU legislation into UK legislation. Should this be the case, then no immediate - what we call day one - negative repercussions are foreseen in terms of the daily functioning of the gas market but further discussions with the UK network operator, National Grid, are needed to confirm this.

Of more concern is a scenario wherein at any point post-Brexit - what we call day two - new EU legislation is introduced which Gas Networks Ireland is obliged to implement but the United Kingdom chooses not to implement, or vice versa. In such circumstances, Ireland could be forced to seek derogations from such legislation. Without further information as to the nature of the UK's participation in, or interaction with, the single energy market, the nature of these derogations cannot be anticipated. However, Gas Networks Ireland notes that derogations are possible under the third European gas directive, the key legislation underpinning the European single gas market. In addition, many of the cross-border requirements under European gas legislation already provide that they may not apply at interconnection points to third countries, namely, countries outside the European Union, subject to a decision of the Commission for Energy Regulation.

With regard to the second of the three main areas of focus, the issue of security of supply can be further subdivided into the physical security of gas supply and regulatory compliance. The physical infrastructure linking Ireland to the rest of Europe will not change following Brexit. More generally, the fact that the supply of gas to Northern Ireland and the Isle of Man is reliant on Gas Networks Ireland's infrastructure can only serve to underpin continued co-operation between Ireland and the UK on gas supplies. In this context, it is worth noting that within the framework of existing intergovernmental agreements in place since 1993 between Ireland and the UK concerning Ireland’s two gas interconnectors, Gas Networks Ireland and National Grid have agreed a voluntary protocol for dealing with gas emergencies affecting the UK and Ireland. We see no reason for these arrangements to change post-Brexit.

With regard to regulatory compliance, Regulation (EU) 994/2010 concerning gas security of supply and a revision thereof which is due to be approved in 2017 require all member states to take necessary measures in order that, in the event of a disruption of the single largest piece of gas infrastructure in that member state, the remaining infrastructure is able to satisfy total gas demand on a day of exceptionally high gas demand occurring with a statistical probability of one in 20 years. This is known as the infrastructure standard or N-1 test. Ireland is currently grouped together in a region with the UK, the north-west region, for the purposes of compliance with the regulation and passes the infrastructure standard or N-1 test on a regional basis with the UK. The United Kingdom has an installed capacity of 140% of its demand, such that in the event of an infrastructure outage it would have sufficient supply to meet Ireland's gas demand. Ireland’s gas demand equates to 6% of that of the UK. In the event that the infrastructure standard was applied on a stand-alone basis to Ireland, it would not be met. As such, in the absence of legislative change or other accommodation or derogation from the European Commission, there is a possibility that Ireland would be obliged to build additional infrastructure to comply with the infrastructure standard post-Brexit. Gas Networks Ireland notes that the physical security of Ireland's gas networks will not change following Brexit. As such, any decision to build new infrastructure should not be based on compliance requirements alone, but should take full account of the costs and benefits to Irish gas consumers.

With regard to the third area of focus, there has been some commentary about possible negative effects of Brexit on the cost of gas. Our analysis to date does not support this view. We have also specifically considered the possible imposition of a trade tariff to gas. Currently, all members of the EU Single Market benefit from having zero tariffs on imports, which is essentially a free trade agreement. As the UK Government has already signalled its intention to depart from the Single Market and the prospect of having a free trade agreement in place with the EU does not currently appear likely to be completed prior to Brexit, it appears likely that the UK will default to World Trade Organization, WTO, rules for tariffs.

Analysis carried out by external economic advisers on behalf of Gas Networks Ireland has identified that the maximum tariff that can be applied to imports of all gases is 0.7%. In practice, the European Union currently applies a zero tariff on all gas imports but it could apply a tariff ranging from 0% to 0.7%. The imposition of any such tariff, while not posing a direct financial risk to Gas Networks Ireland, would naturally increase the cost of gas for the end user and, depending on tariffs applied to other fuels, could reduce the competitiveness of gas. If such a tariff were applied against the UK, the most favoured nation provisions of the WTO provide that it would also need to be applied identically to all imports of natural gas from any WTO member. Tariffs cannot be applied on a discriminatory basis to just one country. As both the UK and Europe are net importers of gas, it appears that neither party would benefit from the introduction of such a tariff. We believe, therefore, that Ireland should not be disadvantaged in terms of gas pricing from the perspective of WTO tariffs.

In summary, high level conclusions to date suggest that, as the UK is expected to transpose all existing EU regulations into national law, there will initially be no major changes to the structure of the gas market or to Ireland's daily interaction with the UK in the transportation of gas. In addition, we anticipate very little, if any, impact on the cost of gas for Irish customers. Naturally, there may be greater fluctuations in the exchange rate in the short term. However, analysis to date suggests that the overall cost of gas has not fundamentally changed directly as a result of the Brexit announcement. The two key concerns Gas Networks Ireland has in relation to Brexit are the future divergence between UK and EU gas regulations and how Ireland will continue to comply with the EU security of gas supply regulations.

Gas Networks Ireland continues to monitor and manage its position regarding what is potentially a very significant transformation for the energy sector in Ireland. Gas Networks Ireland is actively engaging with all relevant key stakeholders in Ireland, Europe and the UK. In particular, as a member of both Gas Infrastructure Europe, GIE, and Eurogas in Brussels, we seek to represent the views of the Irish gas market in Brussels. Gas Networks Ireland is co-chairing a GIE working group tasked with representing the views of European system operators and infrastructure owners to the European Commission and the task force on Article 50 negotiations with the United Kingdom.

I hope this briefing has provided some useful information to the committee. I thank the chairman and the committee for affording us the opportunity to outline Gas Networks Ireland's current position on Brexit. We will be pleased to answer questions from members.