Milford Haven Port

Source: Exec Digital UK

Date :21/05/2007 16:04:12

Milford Haven Port: MHPA spreads the risk in a new energy age

Milford Haven Port is losing its principal focus on oil in favour of LNG and other energy sources but it must also balance its business activities with environmental and social responsibilities, writes David Hughes

Written by David Hughes & Produced by Paul Radbourne

Even if we haven’t managed to turn the world up to Regulo 9 by then, in 50 years time we will be running pretty short of the energy sources that keep us in the lifestyles to which we have become accustomed.

As the hydrocarbon reserves are exhausted, energy security – the ability of nations to acquire the calories they need to function – will become a hot topic in international affairs and could lead the more intemperate towards conflict as the situation becomes desperate.

We have already had foreshadowings with Russia demonstrating a ruthless streak as it gains a new appreciation of the power its gas fields represent over its neighbours, and Europe has had to have sharp words with President Putin over interruptions to its supply as a consequence.

In the UK, the depletion in North Sea gas and delays in getting new sources into the system sent prices soaring last year.

From this year, however, new supplies from different places are coming on line. The pipeline that used to export gas to Europe will now import 15 percent of our needs; two new pipelines from Norway and Holland will import a combined 26 percent; and in 2005, Qatar, which has the world’s largest reserves, was contracted to supply about 20 per cent of the UK’s needs in the form of Liquid Natural Gas (LNG). Almost all of it will be coming through Milford Haven Port.

“We will be receiving the first ships towards the end of this year in September or October,” says Ted Sangster, CEO of the Milford Haven Port Authority (MHPA). “They will bring commissioning cargoes to cool everything down with the tanks going into operation in 2008.”

There will be two LNG terminals at Milford Haven. Dragon LNG is a partnership between BP, Petronas, the Malaysian oil and gas company, and Petroplus, the Dutch refiner and wholesaler. Dragon LNG will have two tanks and will bring in about 6 million tonnes of gas every year as cargo.

The other terminal is South Hook LNG, a partnership between Qatar Petroleum and Exxon Mobil, which will have two phases of development that will each bring in 7.8 million tonnes when they go into operation in 2008 and 2010 respectively.

Step Change

“We’ve recognised for quite some time that in the foreseeable future, we will be become a lot less dependent on oil as a country and as a business,” says Sangster. “When the refineries here go, it will be a significant step change. But we would still have to provide the same administration, the same dredged channel, navigation buoys, pilots, port control, launches and so on, the same costs but with less traffic. So our policy has been to try and encourage diversification so we are less dependent on one niche market.”

He continues: “LNG is a massive investment for the long term that also represents more diversification. This site has also been short-listed for a new 2MW power station that will be commissioned this year and make use of some of the gas that comes in. There are two or three companies looking to set up down here to make products that can be used by oil refineries for their bio-fuel obligations.”

In addition, the area controlled by MHPA is host to wave energy and tidal energy production projects, while Total has received planning consent for the three largest wind turbines in northern Europe, which will be situated in the middle of its refinery, with proposals for a similar project nearby. Pembrokeshire County Council and the Welsh Assembly Government are also funding an academic research centre and small incubator units for companies with new energy-related ideas and products.

“There is a real spin-off effect from the oil and gas into other areas of energy production with Milford Haven Port at the focus,” says Sangster.

Balancing Responsibilities

Sangster and his organisation are trying to pull off a difficult balancing act: Milford Haven is an essential part of the British economy, serving one of the heaviest and potentially most polluting industries imaginable, yet is located on one of the most beautiful coastlines in the world. The clean technologies that are being attracted to this energy nexus are, however, no more than symbolic of the practicalities of the MHPA’s conservation and management tasks.

In addition to oil and gas, MHPA is also a growing ferry terminal, a major route for freight and passengers to Ireland. It handles general cargo, timber sand and massive engineering projects for offshore industries. It has a fishing port, which is declining, and marina business that is at capacity and growing. It is a very busy 22-mile stretch of waterway.

“As a Trust Port, we have bespoke economic responsibilities and statutory environmental ones that we believe we can balance: management of the environment requires financial resources which can only come from a successful economy,” says Sangster.

“Out of those duties comes our plan is to be the most highly regarded port in the UK within ten years. This is a maxim that colours our whole approach, in the way we deal with our customers, with potential customers and with the wide variety of agencies we have be involved with, whether it’s the planning authorities such as the county council or the National Park, or the statutory agencies like the Countryside Council for Wales and the Environment Agency. We want our relationships with all these different groups to be held up as examples of best practice within the industry.”

He continues: “The most important driver in this is our staff. If we, the people who work in this business, are proud to do so, to be happy to stand up and say we work for Milford Haven Port Authority, that that sends a message about the significant benefit of working with this organisation and its 220 staff.”

Freedom to Act

Trust Ports, of which there are more than 100 each one set up by its own Act of Parliament, are required to act in the long-term. With no shareholders to please, MHPA reinvests any surpluses back into the business. Like a private company, it has also been able to borrow to invest where necessary. That is, until recently.

Three years ago, the Office of National Statistics decided that as the government exercised a degree of control over MHPA and other ports where it appoints non-executive board members and could therefore compulsorily privatise the business, these ports were in the public sector and subject to Public Sector Borrowing Requirement (PSBR) restrictions.

“In reality, there is no real constraint,” says Sangster. “Our borrowing laid out in our Act of Parliament is capped at £50 million, and our requirement is well within that. However this decision means that ostensibly we cannot borrow money on the open market and are required to apply through the Department for Transport, which has its borrowing limits determined by the Treasury, of course. The interesting thing is that the government does not have the powers to do as the ONS says without passing more primary legislation, which it doesn’t want to do. It wants to reform the law through Harbour Revision Orders to do away with these criteria and take us back to where we were before. It can’t do that however until the outcome of the current Ports Policy Review is known. We believe it will be one of the first things that’s changed.”

Under a different party political colour, in former times at least, MHPA would be an attractive candidate for privatisation and it is an idea that could still be supported by Sangster.

“We quite seriously considered it, particularly if the PSBR issue were going to remain – it would not be beneficial and would starve us of the capital to develop the business. We came to the view, however, that while we would keep an eye on developments, we believe the most appropriate thing would be to maintain our Trust Port status and in so doing play our part in the Pembrokeshire economy continuing to manage our business effectively and to increase the opportunities and jobs in the area.”