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Column 738round for many years. One may ask why we have done this when the industry is facing such severe problems due to the low oil price. The answer is simply that there is an underlying buoyancy in the industry's outlook. The licences we are offering now will be the basis for the oil production that we need in the 21st century. No one in the industry doubts that there is a long-term future. That is why there is enthusiasm in the industry for the 11th round. I detect that that enthusiasm is spread among all sections of the industry. Our proposals are geared to interest every type of company--majors and independents alike.
There are further reasons for expecting the round to be successful. First, we have included in the 11th round some blocks which have never before been licensed in areas which are known to be of widespread interest. Secondly, exploration techniques have shown remarkable advances in the past five to ten years. Oil companies can now home in on small accumulations of oil and gas which previously went unnoticed. Thirdly, I have already referred to the industry's adaptability and willingness to introduce new technologies. That augurs well for the future prosperity of the industry and puts it in a strong position to compete for the licences that we are offering. I know that even now companies are working hard on the proposals that they are due to put to us on 7 or 8 February, and I look forward eagerly to receiving their proposals.
The Bill may appear to be a small one, and, taken alone, it certainly is, but it is part of a large and important segment of Great Britain. Measures such as this will be needed to maintain the right climate for development. Without them, the success of the North sea would never have been possible. I commend the Bill to the House. 5.31 pm
Mr. Frank Doran (Aberdeen, South) : First, I thank the Minister for his kind opening remarks. I hope only that the attendance in the debate has nothing to do with my debut on the Front Bench--perhaps hon. Members would rather read what I have to say than listen to it. I also thank the Minister for his kind remarks about Aberdeen. I represent Aberdeen, South, and the city of Aberdeen, the Grampian region and north-east Scotland have made a very significant contribution to the success which Britain enjoys in its oil industry. Of course, we should not forget that other regions send their workers there. Many of the workers in the oil industry are migrant workers from Glasgow, Dundee--my home town--Tyneside and Teesside. Nor should we forget the contribution of the southern sector by the people in and around east Anglia. It is a national contribution to a national asset. I thank the Minister for his kind remarks.
The Bill is very specific in its intention, but, as the Minister has already pointed out, it provides us with a welcome opportunity to debate the offshore oil and gas industry. Such opportunities do not occur often. Next year we celebrate the 25th anniversary of operations in the North sea. As the Minister has said, those years have seen a tremendous leap forward in technology and the ability to exploit further and improve on our oil and gas reserves. The oil industry has made an enormous contribution to the wealth of the country, and all those involved in that tremendous achievement are to be congratulated.
Oil and gas are extremely important to the economy. We produce about 2.5 million barrels of oil and gas a day,
Column 739which is a tremendous boost to our balance of payments. We export 1 million barrels a day and save on imports to the tune of 1.5 million barrels a day. All in all, at current prices that is a benefit to the trade balance of £1 billion per month--a significant achievement on anyone's terms. It is a tragedy for the country that the positive input that we have enjoyed for a number of years is wasted on what Opposition Members regard as failed economic policies which rely more on dogma than economic reality.
We used to get much more benefit from North sea oil and gas. As the Minister said, the price of oil collapsed in 1986. It is interesting to examine the position since then, and what the collapse meant for our economic position.
According to the Brown Book--the Department's annual statistics on oil and gas development--in 1985 the GNP arising within the oil and gas sector was £15.1 billion. That is a huge amount of money. The provisional figures for 1987, reported in the 1988 edition of the Brown Book, was £8.2 billion--a huge reduction. Tax and royalty revenues have gone down from the 1984-85 figure of just over £12 billion to the 1987-88 provisional figure of £4.7 billion--a significant drop. That is a direct result of the massive drop in the oil price in 1986. Since then, the oil price has fluctuated between just under $10 a barrel and about $20 a barrel. Today, it is just over $14 a barrel. Early hopes that this week's OPEC agreement would result in a substantial increase in the oil price have not been borne out. For understandable reasons, the markets have been cautious on pricing.
Currently, there are two major preoccupations in the oil industry--price and safety. I shall return to the question of safety. In this country, price has been left purely to market forces. The market is particularly sensitive, and that has hit my area of north-east Scotland. The oil price rises or falls in response to a whole range of factors, the most important of which is the level of production. It is quite clear that there is gross over-production and that there is a glut of oil on the world market.
Far from the controlled production levels and price stability sought by the OPEC countries, which would be of tremendous benefit to those countries and to our own industry, there is an international free-for-all on the world oil market. That has led directly to a fall in income in the United Kingdom and in other countries and to a severe depression in activity in the United Kingdom sector of the continental shelf. Only in the past year has there been a real recovery in activity. There has been an improvement in investment, but it is very cautious investment, certainly not at the levels expected in 1984 and 1985.
Britain and its oil industry have a vested interest in price stability, which would allow planned investment programmes and more planned depletion rates of existing fields and the development of new ones. Yet the Government have chosen to take no part in influencing the oil price. They are prepared to rely on market forces alone, and in doing so they isolate themselves from international discussion. None of us can say what influence the Government would have had had they been prepared to do what the Norwegian Government have done--simply to talk to OPEC and try to reach some agreement on production. None of us can say that that would have added to price stability, given the other international factors, but some
Column 740sense needs to be brought into world oil markets, and the United Kingdom, as a major and influential producer, should be part of that process.
Of course, the price of oil and gas is not just the cost of getting it out of the ground or the cost per barrel. Overshadowing all North sea activity at the moment is the Piper Alpha tragedy. I thank the Minister for his comments and for his recognition of the severe and shocking effect of that disaster, particularly on the city of Aberdeen and the north-east of Scotland. The hon. Member for Gordon (Mr. Bruce) will probably comment on the disaster later in the debate.
One hundred and sixty-seven men lost their lives in the Piper Alpha tragedy, which sent shock waves through the whole industry. Safety is now right at the top of the agenda. I never have a meeting with oil companies in which safety is not the major issue under discussion. I commend the Secretary of State, as my hon. Friend the Member for Aberdeen, North (Mr. Hughes) commended the Minister, on the speed with which the Government reacted to the disaster. I know that, in the early hours of 7 July, the Minister immediately went to Aberdeen to be present at the command centre to lend whatever assistance he and his Department could offer. I commend them for the speed with which the judicial inquiry has been instructed. Hopefully, the inquiry under Lord Cullen will pinpoint the precise causes of the tragedy and make recommendations to prevent future occurrences. It is important, however, that the Government do not shy away from making improvements in safety, where they are obviously required, now rather than waiting until Lord Cullen has reported. Parliamentary answers and the replies to the numerous letters that I have written to the Minister and to the Secretary of State suggest that to a certain extent they are hiding behind Lord Cullen and that everything is frozen until he has reported. We need, as emphatically as possible, to make the point that the biggest single contribution to safety in the North sea would be the establishment of a single, independent agency responsible for all safety matters. That was recommended by the Burgoyne committee in 1981, but despite the Secretary of State's public statements the Government have singularly failed to appoint that single agency.
There is still a multiplicity of agencies responsible for safety in the North sea. The petroleum engineering division, a section of the Department of Energy, is responsible for health and safety aspects, and the pipelines inspectorate is responsible for the integrity of pipelines. It is another section of the Department of Energy, but the two operate separately and distinctly, with quite different areas of responsibility.
There are approved certifying authorities--private companies are responsible for the integrity of platforms ; the Department of Transport is responsible for fire-fighting and safety equipment and for supply boats ; and the Civil Aviation Authority is responsible for helicopters. Where is the unity in that system? There is none. The Secretary of State was at pains to point out in his numerous interviews immediately following the Piper Alpha disaster that all of the recommendtions of the Burgoyne committee had been implemented, but that is not the case. The multiplicity of agencies is severely hampering the establishment of a proper safety system in the North sea.
Column 741In case hon. Members think that this is an academic argument about bureaucracies, I remind them of what was said in the technical report prepared by Mr. James Petrie of the Department of Energy. I commend him for the content of and the speed with which his report was produced. It confirms that the scale of death and destruction on the Piper Alpha platform was the result of ruptures in high-pressure gas pipelines. Burning gas was released on to the platform like a blowtorch, destroying everythind in its path. The integrity of the pipeline is the responsibility of the pipelines inspectorate, while the integrity of the platform is the responsibility of the certifying authority. No one has assumed responsibility for the interface between the pipeline and the platform, or, for example, considered what would be the effect of a breach of a pipeline.
That is not a novel thought. The Government are well aware of the problem, because the Burgoyne committee, way back in 1981, said in paragraph 5.64 of its report :
"One of the grey' areas referred to above is the overlap in responsibility between the PED and the certifying authorities in respect of the pipeline riser and other pipeline equipment on the installation. Although forming an essential part of the pipeline system it clearly has a bearing on the integrity of the installation."
That was in 1981, and we know what happened on the Piper Alpha in 1988. That tragedy was a direct consequence of the failure to deal with that grey area.
The Department of Energy, through the Minister, has taken one positive step and announced a proces of consultation with the industry on fitting emergency shutdown valves. The failure to install such valves in Piper Alpha led to the scale of death and destruction. Will the Minister tell the House if and when he intends to introduce regulations to make the installation of emergency shutdown valves mandatory on all high-pressure gas and oil pipelines in the North sea? I recognise that there is not the same demand or need on low-pressure pipelines. Can he confirm that those regulations will be retrospective?
I want to deal with the southern sector and the relevant content in the Bill. As the Minister said, the package is intended to be tax-neutral. The first stage of the package was presented in the Budget and confirmed in the Finance Act earlier this year. Although the intention is to be tax-neutral, the Minister made it clear that some encouragement would be given to new development in the North sea, especially the smaller gasfields that have been identified but, at present, are considered uneconomic to develop.
That whole process was undertaken in the northern oilfields in 1983, and was vigorously opposed by the Opposition at the time. There are substantial differences between the two areas. The southern basin comprises mainly gasfields, which are cheaper to develop and have lower operating costs. We opposed the 1983 measures for good reasons that I believe still apply today. The first is the principle on which royalties are paid. Oil and gas in the United Kingdom are publicly owned, and have been since 1934. That public ownership is confirmed and emphasised by the payment of royalties.
Secondly, the Government already have sufficient powers to restrict the payment of royalties in appropriate cases. The powers are contained in existing legislation and are much more sensitive and sophisticated than the
Column 742proposed measure. They enable the Government to take a field-by-field approach, which is much more satisfactory than the system installed in the northern section in 1983 and now proposed for the southern basin. The blunderbuss approach will mean that some operators will benefit, but many will lose. The two biggest losers are likely to be Britoil, in respect of its Amethyst field, and Conoco.
There is another, more worrying aspect about the Government's general approach, and it was not mentioned by the Minister. British Gas is a monopoly purchaser in the southern basin--it is a monopoly. It can virtually dictate its terms and it negotiates field by field. At the time of the Budget debate, a number of analysts commented on that. The "FT North Sea Letter" of March 1988 stated :
"On this front, both Capel and Woodmac raise the possibility of BG using the improved economics on some new projects to force the price it offers down further, thus taking the benefit itself. Woodmac calculates that a 1p/therm cut could now be made on Anglia without affecting its rate of return. Capel suggests BG could cut the Ravenspurn North price by 0.9p, Barque/Clipper by 0.5p and Welland by 0.1p to leave sellers with the same pre-Budget economics." Even with those advantages over the northern sector, development costs are still very high in the southern sector. No operator will become involved in development costs until he has a contract signed, sealed and delivered by British Gas. The whole pace of development in the southern sector is therefore dictated by British Gas and its willingness to negotiate. Of course, British Gas is now a private company. No company can afford--
Mr. Hunter : Is the hon. Gentleman saying that it is Labour party policy not to remove royalties from the northern and southern sectors? In Committee on the Finance Bill, the Labour party argued for an even lower level of oil production. Are we to understand that Labour party policy is now to increase significantly the taxation burden on the oil industry?
Mr. Doran : The hon. Gentleman has misunderstood what I said. Had he taken the trouble to read the report of the Finance Bill Committee, he would know the Labour party's position. At the time of the Finance Bill debates, the Labour party accepted some of the points made by the oil industry. In the original draft of the Bill, the Government had proposed a petroleum relief of 100,000 barrels, the oil industry argued for 160,000 and the Labour party tabled an amendment for 150,000. The Government compromised at 125,000 barrels, which we regarded as unsatisfactory. At that time, we also accepted that it was appropriate to remove the royalties as part of the package. However, we stand on the principle that the royalties are an expression and a confirmation of ownership of oil in the ground, and that is still the legal position. There is no question of supporting any increase in the level of taxation. I hope that that satisfies the hon. Gentleman.
The whole pace of development in the southern sector is dictated by British Gas, which is now, of course, a private company. Will the Minister tell the House what steps, if any, he proposes to take, first of all, to ensure that any fiscal benefits which accrued to the operator because of the measure now before us will be diverted to development and not simply negotiated into the pockets of British Gas? Secondly, is the Minister content to leave the pace of the development of the southern basin to a single monopoly private company, and, if so, in what way would the public interest be protected?
Column 743The second part of the Bill relates to an agreement between ourselves and the Irish Government. It must be put on the record--especially this week, when all the other debates about our relations with the Irish Government have been so difficult and fraught-- that it is a pleasure to see that we can actually agree on something. Given the Prime Minister's statement yesterday, which today has been shown to be fairly ill-advised and misjudged, is the Minister satisfied that the agreement that was drawn up, presumably by those legal advisers to the Foreign Office, is safely signed, sealed and locked up in a safe of the Foreign Office, and now inviolable?
Mr. John Hannam (Exeter) : The Bill is not highly controversial, as the hon. Member for Aberdeen, South (Mr. Doran) stated, and it should not place us in an adversarial position. However, it gives us the opportunity to discuss a vital and successful oil and gas industry. As we drive our cars, switch on our gas heaters or even purchase various manufactured items, which are derived from oil-based feedstock and from fossil reserves and resources which must be drawn from those reservoirs many thousands of feet below the surface of the earth, we often forget the hazardous human involvement until there is an occurrence, such as the recent Piper Alpha disaster.
If we study the fuel split in United Kingdom energy demand, we find that coal produces 13 per cent., electricity 14 per cent., gas 33 per cent. and oil 40 per cent. The domestic sector consumes only 30 per cent. of those resources, and the remainder is consumed by commerce, industry and transport. That is why it is vital to ensure that we get the pricing system right. If we look back at the late 1970s--during the period of the Labour Government--we find that the balance certainly was not right, because the domestic consumer of gas was being heavily subsidised by the industrial user. Recently British Gas has been called to account by Ofgas for leaning too heavily on the industrial consumer. I welcome the strong stand being taken by Ofgas and by James McKinnon, and I welcome, too, his determination to effect more control over this huge monopoly supplier.
It is in the context of our need to encourage further exploration and development of our oil and gas reserves that we should consider the Bill, which removes the royalties system for post-1982 oil and gas fields in the southern basin of the North sea. That abolition follows from the Finance Act 1983, when royalties in the northern and central North sea were abolished for future fields. At that time we were facing a downturn in activity in the offshore sector, so, in addition to the abolition of royalties in the northern and central sectors, the oil allowance from petroleum revenue tax was doubled to 500,000 tonnes. That produced a welcome increase in exploration and development. It was an act of faith on the part of the Government, and the results confirmed what those of us involved in energy matters had been pressing on the Treasury for some time before--that a tax regime cannot just be installed and then left indefinitely in the hope that, despite all the other factors, it will produce the desired result. In fact, we must have constant adjustments-- which are especially necessary during a period of world instability in oil prices--if the free-enterprise companies are to be given incentives to make the huge investments which are inherent in exploration and development.
Column 744We must ask ourselves whether this year's reduction in the oil allowance--the question posed by the hon. Member for Aberdeen, South--from 250,000 tonnes per chargeable period to 125,000 tonnes will truly balance out with the abolition of royalties and that we will have what the Treasury said would be a neutrally fiscal solution.
The original Budget proposal for an allowance of 100,000 tonnes for the southern basin would have had a deterrent effect. I believe that it was too low. The southern basin oil allowance would have been only one fifth of the level applied to new oil fields elsewhere and would have increased, rather than eliminated, the discrimination against the southern gas fields. I was, therefore, pleased when the Government upgraded the allowance to 125,000 tonnes, which I believe was the minimum figure.
Important oil companies, such as Conoco, have evaluated their positions. They are worried, and convinced, that they will lose about half of their post-1982 and future oil field valuations, because of the loss of the tax allowance. The problem in the oil industry is that every company has a different parameter within which to evaluate such matters, because of the nature of oil fields. However, we shall see the result. I stress how important it is for my right hon. Friend to monitor carefully the effects of any such changes on the level of activity and, if necessary--on behalf of this important industrial sector--to press the Treasury if and when the occasion arises. We are fortunate to have these oil and gas reserves. As technology improves, the extent of the recoverable reserves will increase. We can now confidently expect to be self-sufficient in oil well into the 1990s--far beyond our expectations of a decade ago. In fact, since 1979 the estimates of initially recoverable reserves have risen by 13 per cent. The impact of that incredibly successful private enterprise industry on our economy is enormous--2.25 per cent. of our GDP in 1987, which is more than £4 billion in revenue from taxes and royalties, 85,000 jobs a year, and our United Kingdom offshore and onshore oil industry is winning a record 87 per cent. of the £2 billion orders for the North sea. Next year will signal the 25th year of this great endeavour in the North sea. We should congratulate all those who have made it possible.
At the same time, however, we must recognise the dangers inherent in a tough industrial environment ; and, with the tragic Piper Alpha incident still fresh in our minds, it is right that Parliament should take every possible step to ensure that proper protection is given to those working in those hazardous conditions.
I would not want to prejudge the public inquiry, but I do not believe that the changes that the oil industry has been implementing in recent years have generally borne down on the safety standards on the rigs. It could not possibly be in the interests of a rig operator or an oil company to take short-cuts in safety. The huge losses of production that would result from an accident or a close-down would far outweigh the kind of cost reductions from such short-cuts. Safety and profitability inevitably go hand in hand, with safety always a step in front. That is the declared attitude in the oil industry, which I believe must generally be true. Nevertheless, the Piper Alpha disaster, on one of the oldest rigs in the North sea, requires the closest re-examination of training, safety procedures and equipment used on our rigs. The confidence of the work force and of the public must be fully restored by visible signs of the safest regime possible. I know that my right
Column 745hon. Friend accepts the Government's role in ensuring that the most rigorous statutory system of safety standards is effected. Some 12 years ago my wife came back from having her hair done-- that oftens happens--and told me that her hairdresser's husband was a scientific journalist who was considering the effects on metal oil rigs of prolonged immersion in sea water. Because I had an interest in energy, she asked me if I would meet him to have a chat. He produced a lot of evidence that he had collated. He was worried about some of the forecasts made to him privately by scientists suggesting that some oil rigs would collapse much earlier than expected. At that time, I tabled some questions to the then Secretary of State for Energy and wrote to and met various oil company chairmen, board members and scientists. At the end of my inquiries I was reasonably satisfied that those worries had been appreciated by all involved. However, with the recent disasters on some oil rigs I thought back to that journalist's queries. I would like my right hon. Friend to reassure me that safety is still a priority and that we are unlikely to face the unexpected collapse of rigs because of the chemical effects of sea submersion upon the steel supports.
I saw a report in The Scotsman recently of comments made by Mr. Allan Millar, the general secretary of the Association of British Professional Divers, who said that he and other divers had expected the Piper Alpha platform to be one of the first to go. I do not think that he was forecasting the collapse and disaster that occurred, but he and other divers knew that the structure was becoming outdated and antiquated. He said that it was held together by clamps which had been installed after cracks appeared on nodes--the part of a rig's leg where various members are joined together. It is obvious that the fears expressed to me a long time ago about the long-term strength of rigs still remain. Therefore, we must consider carefully the strength and viability of the older rigs and ensure that we have a system to effect the necessary checks to prevent disasters.
We cannot eliminate the risks in North sea oil operations altogether. However, given the proper safety training, full use of new technology, a strict statutory regime, full equipment checks and a responsible approach by the operators, I am confident that the overall downward trend in accidents and injuries will continue. With the welcome agreement on compensation that has now been reached, the tragic Piper Alpha accident may result in a safer industry, which is vital to us all.
As we are discussing the oil industry, it is worth mentioning the major issue of the decommissioning or dismantling of our installations and pipelines. Since 1967, 150 fixed platforms and 3, 000 miles of major sub- sea pipeline have been installed in the North sea, and obviously their abandonment will present a major financial and physical problem in years to come.
Crucial decisions on tax regulations, environmental protection and forms of dismantling are still to be made. One thing is clear, however : the cost will be enormous. The figure of £3 billion has been bandied about. That is higher than our nuclear decommissioning costs for the same period.
Column 746Some years ago in a similar debate in the House the idea was floated that some rigs could be towed offshore and turned into holiday hotels. I suspect that that idea is no longer even remotely tenable, but no doubt there will be other ingenious ideas for the re-use of the rigs. Perhaps The House Magazine might like to test Members' ingenuity with a competition for ideas. Their future use will be an important aspect of our deliberations. Because of the vast number of rigs and pipelines, and the hazards that they present, we must concentrate our minds on how best and to what extent we require the dismantling of rigs.
I welcome this small but important measure and hope that the House will give it a fair wind this evening.
Mr. Malcolm Bruce (Gordon) : It has aleady been said that next year will be the 25th year of North sea activity. I was not in at the beginning, but I have had contacts with the industry for 17 of its 24 years. I have seen it go through price hikes and collapses, peaks of profitability and economic squeezes. I recall the right hon. Member for Old Bexley and Sidcup (Mr. Heath) visiting my office shortly after he lost the October 1974 election. He was somewhat startled to be told that he had left his concern for and interest in the North sea a few months too late and that, had he paid greater attention to what was going on a little earlier, he might not have lost the election.
It is true that, at that time, the knowledge and detailed hold of the Government on the North sea was not as it should have been. That must be true, as they even resorted to using me as a source of information when answering parliamentary questions.
Mr. Bruce : That might be so, but I knew more than the Government, although our sum knowledge might not have amounted to much. In the 1970s, I always supported the case for a flexible taxation regime that took proper account of price changes, the real rates of return and the variations from field to field. When the North sea was being developed, when the real rush was on, the OPEC cartel became strong and it was rightly argued that the super-normal profits that that cartel would create for those producing oil and gas should accrue to the nation rather than the oil and gas companies. It was right that the regime then established ensured that the super-normal profits were effectively creamed off for the Exchequer. Now that oil prices are relatively depressed and there is a shortage of orders for the fabrication yards in some parts of the north of Scotland, the converse is true.
The pressure on the margins is acute, although companies have shown considerable ingenuity in cutting costs. It is appropriate, however, to ensure that tax regime changes take account of the significantly changing circumstances so that we do not have a severe front-end deterrent on oil companies, which would depress exploration and development activities. That would have been the case if the recent changes made by the Government, which I fully supported, had not been introduced. The Bill is the last element of those changes. My view is not incompatible with that expressed by the hon. Member for Aberdeen, South (Mr. Doran)--that there has been a period of over-production in the North sea. It is a matter of judgment--and only judgment--that oil sold today at $11 or $12 is, by definition, not available
Column 747to be sold or used at a later date when the price in real terms might be higher or lower. Of course, the resource cannot be used twice.
I have always believed that oil and gas reserves are a strategic asset that belong to the nation and not to the oil companies. The extraction process should be geared to meet national and strategic requirements. To do that, we must ensure that there are optimum levels of development and exploration and that we know what is available. We need to ensure, as has been crudely suggested, that the plumbing is in first. If we are to impose a regulation on production, we must do it when the taps are installed. I support the Government's measures. We need to ensure that the maximum encouragement, exploration and development of associated and marginal fields takes place. I know that the Government do not agree, but if there is to be any restraint on production, it ought to be directed at larger fields, and only after all capital write-offs and uplifts have been secured by the operators so that they receive a full return on their investment.
We should be encouraging research and development into reducing the costs of oil development and recovery. Those of us closely connected with the industry are impressed by the way in which oil companies and related contracting engineers have found ways of reducing costs by using their imagination and a variety of different techniques and developing technologies.
In relating commercial factors to safety, one enters a sensitive area, but one must inevitably do so--the Minister was right to address it. Fourteen of my constituents were killed in the Piper Alpha disaster. The inquiry will take place in my constituency, which is also the location of Occidental's North sea operational headquarters--so the disaster had a definite and traumatic impact on people in my area. As the hon. Member for Aberdeen, South pointed out, looking through the casualty list, one finds just how wide is the distribution of the victims' addresses, showing that the industry is truly national and draws its work force from all over the United Kingdom. It should be fully understood that Piper Alpha was not just a local tragedy.
There are one or two areas of concern that should properly be explored in the public inquiry. However, the Minister knows that I have made it clear that he has responsibilities aside from the inquiry, and that I shall continue pressing him directly on those other matters. The hon. Member for Exeter (Mr. Hannam) alluded to the particular problem of Piper Alpha and other older platforms. It worries me that it was possible to install process modules under a platform's accommodation section, and how that came to happen has not yet been satisfactorily explained. We still need to know how that came about.
Ministers know that I strongly support the case for an independent safety inspectorate. More power and resources will be needed to carry out inspections and to lay down standards. Those who work offshore, and their dependants, deserve to be satisfied and to have their concerns allayed. I feel sure that hon. Members representing Aberdeen constituencies and others will all have received many letters from those working offshore--many of them written anonymously. Normally, I discount anonymous letters but it is a matter of real concern that such people are unwilling to identify
Column 748themselves. The Minister knows we must reassure them that action is being taken on offshore inspection and control.
The hon. Member for Aberdeen, South mentioned helicopter safety. It is a separate matter, in the sense that the Minister, when replying, can legitimately argue that it is not his departmental
responsibility. However, as the Minister responsible for oil and gas, and as someone who uses helicopters when visiting platforms, he surely accepts that they are an essential component--the lifeline and main transport vehicles for North sea personnel. Statistically, the record of North sea helicopter operations is good, but that is not to deny that there have been one or two major catastrophes or that many more alarming incidents have often been averted only by the pilots' skill and experience. There was one such incident only a couple of weeks ago.
I accept that the CAA has made several changes over a number of years, but it takes too long to review accidents and to make recommendations, partly because the CAA lacks competence and authority in dealing with helicopter operations. I partly draw that as a parallel with the reason why we need a stronger and more independent offshore inspectorate. Not enough expertise and personnel are available to deal with inspections. Also, there are costs involved in safety, which inevitably creates tension.
The hon. Member for Exeter rightly said that no operator willingly cuts corners, because the cost of a catastrophe such as Piper Alpha far outweighs any possible saving. That is true, but judgment must still be exercised, particularly at a time when profit margins are tight. Appropriate safety measures are a matter of judgment, and where costs are involved, they are another factor to be considered, according to how seriously one weighs the safety benefit that will accrue. That is why, as the Minister will surely acknowledge, we need an offshore safety inspectorate able to make decisions free of commercial pressure.
In circumstances where one is dealing with a marginal field, and where costs are crucial, corners may not be cut but measures that, on balance, should be taken might not be because they might tip the field over the balance of viability. That is an extreme example, but it illustrates my point that commercial factors cannot be wholly ignored.
Given that the Government have been flexible and responsive in meeting the industry's commercial needs, it is reasonable to maintain independent pressure on the industry to ensure the highest safety standards.
Mr. Hunter : On the hon. Gentleman's remark that companies might cut corners, is that speculation or does he know, from his far greater knowledge of North sea exploration than I have, that companies are doing so?
Mr. Bruce : That is a fair question. Other hon. Members may share my experience that people working offshore believe it to be the case and could quote chapter and verse. The problem is that they are not willing to testify against the companies for which they work, and those who have left risk being accused of having an axe to grind. The answer is that specific cases are quoted, but I am not in a position to judge their validity. However, I am entitled to say that concern exists and that we should take account of it.
It is that which convinces me that the inspectorate should be independent of the Department of Energy. Both
Column 749the Secretary of State and the Minister of State have on occasion rebutted robustly, and with some chagrin, the implication that their inspectors are in some way compromised. I am sure that they are sincere, but Ministers must understand that they also are part of the commercial calculation, or are perceived to be so. That is because, first, the Government's revenue is affected by costs, profitability, and the ultimate level of taxation ; secondly, their balance of trade figures are affected by production levels. I do not quarrel with the Minister's sincerity in commenting on his own Department, but it is a matter not just of justice being seen to be done and of independence being assured, but of the inspectorate being operated in such a way that it cannot be questioned and is recognised as something apart--in which those having any commercial interest are not directly involved.
The nuclear industry, where levels of concern about safety are much higher, has a shortfall of nuclear inspectors. If, despite pressure being applied, the nuclear industry has been left with a shortfall, is it not arguable that the oil industry has been left with one greater than it needs to be?
The hon. Members for Aberdeen, North (Mr. Hughes) and for Exeter also mentioned the toppling of Piper Alpha. The concern surrounding that disaster arises not least because not all the victims' bodies have been recovered. Here we enter the realm of personal distress, particularly since most bodies have been recovered. For many people, it is a psychological necessity that the body be returned and that there be a proper funeral so that, although tragedy has struck, at least it may be given a proper and final ending. For those who have not been given that opportunity, there is continuing, open-ended distress. The House will recognise that for those individuals the suggestion that the platform's remnants may be destroyed without the remaining bodies being recovered is unacceptable. The Minister said that he would comment on that, and I look forward to hearing what he has to say.
I served on the Standing Committee considering the preliminary enabling Bill that dealt with the abandoning of offshore platforms. We had many ingenious and rather light-hearted discussions about the possible options, but a general feeling emerged that the toppling of such installations-- although relatively cheap--was not an acceptable final solution. First, we need an assurance that any action on Piper Alpha will not establish a precedent for any other field disposal.
There is some concern that the offshore industry may be dealt with differently from other industries in which it is in close competition. It is widely reported that the Electricity Bill, which was presented to the House today and will be published tomorrow, will contain a pretty open- ended taxpayers' indemnity of the nuclear industry for the decommissioning of nuclear power stations, the cost of which is estimated at £3 billion. That is comparable with the estimate of the cost of disposal of North sea platforms.
It would be unfair if oil and gas companies and their customers were forced to absorb their costs with no
Column 750assistance, while the privatised nuclear power operators' costs were contributed in full by the taxpayer. It would also be unfair to fishermen and other seafarers if the cheaper option of toppling platforms were pursued on the ground that the oil and gas industries were not being treated as generously as other industries and could not afford to absorb their costs. Debate on that will continue, but I wish to put down a marker now : many of us are not at all happy about the balance.
Like others who have spoken, I am happy to support the Bill's relatively limited objectives. It is, as the Minister has said, part of a package, not all of which I agree with but which should ensure the continuation of a viable offshore oil and gas industry. I should, however, like to pick up two of the Minister's comments about onshore exploration.
I agree that the industry has a good record on environmental restoration, and has been able to harmonise its activities effectively. Nevertheless, at a time of North sea over-production, it is surely inappropriate to press for developments in areas of dense population where there is pressure on amenities. Local authorities, particularly in the south of England, are understandably sensitive to that.
We have yet to observe the final results, but we hope that the change will be fiscally neutral, which would help the continuing development of gasfields in the North sea. The hon. Member for Aberdeen, South (Mr. Doran) commented on the monopoly position of British Gas. I wonder whether the measure will have any effect on that company's wish to import gas from elsewhere. Does the Minister think that it will enable sufficient gas to be provided to meet our requirements for the foreseeable future? Personally, I doubt it. This is a modest but sensible step, which tidies up matters. I think that we all agree that the future of the North sea industry is much greater than its past, and that, in spite of its difficulties, the industry will employ many people, using ingenuity and technology, for a long time to come. Hon. Members on both sides of the House are anxious to ensure that the industry continues to thrive.
Mr. Andrew Hunter (Basingstoke) : As the past few years have shown, the theme of North sea oil and gas production and exploration has not set the scene for major confrontation between the two sides of the House ; and I do not intend to inject a note of confrontation tonight. I am grateful to the hon. Member for Gordon (Mr. Bruce) for clarifying his party's concept of the ideal fiscal framework in which the industry should operate. I now understand that the party welcomes the withdrawal of royalties, but seeks a tax allowance of 150,000 tonnes per chargeable period.
I readily confess that I have come to the debate unprepared, because I thought that we had already had it. Those of us who sat through the 100 or so hours of the Committee stage of the Finance Bill were under the impression that all this was behind us, and I find myself enveloped by a sense of political de ja vu. I know that my hon. Friend the Member for Maidstone (Miss Widdecombe), who has just left the Chamber for an important engagement, would share both my hope that the debate will be short and my belief that it has already been well covered in Committee.
Column 751I think that the industry will say of the Bill, "About time too." As long ago as 1983, when royalties were removed from the northern and central fields, the industry said that the same should apply to the southern fields. The withdrawal of royalties from the northern and central fields was accompanied, under the Finance Act 1983, by a doubling of the oil allowance from 250,000 tonnes per chargeable period to 500,000. This Bill reduces the allowance. The Government accepted in 1983 that oil revenue could and should be reduced to further and promote exploration and investment. In my view, the financial and economic climate of 1983 was rather different from that of 1988, although Opposition Members may argue differently : the economy was less robust than it is now. But the Government were prepared to decrease North sea oil revenue, whereas in these healthier days they are making other demands.
That fount of all wisdom, Conservative central office, has reminded Conservative Members of the political perception for which my right hon. Friend the Minister is so renowned, and has drawn our attention to his departmental press release of 15 March, which stated : "It had become clear to the Government, in the light of our discussions with the industry, that the Southern Basin fiscal regime was becoming insensitive to the economic realities of more recent fields and could be an obstacle to the development of worthwhile projects. The incidence of royalty, a non-profit-related levy, was the most serious impediment."
I entirely accept that basic proposition.
We should bear in mind the principle, or maxim, that what is good for the United Kingdom offshore industry is good for the United Kingdom, and what is best for that industry is best for the United Kingdom. The objective of our policies must be to prolong the self-sufficiency of the North sea into the late 1990s--and, we hope, beyond--and to increase the estimates of resources that are economically recoverable.
My hon. Friend the Member for Exeter (Mr. Hannam) drew attention to some of the basic statistics of the North sea industry : that oil contributes 2.25 per cent. to our gross domestic product and provides the Government with revenue in excess of £4 billion--very approximately the equivalent of 4p on the standard rate of income tax. The number of people who are directly employed in the industry was also mentioned by my hon. Friend the Member for Exeter, as well as, if I remember correctly, by the hon. Member for Gordon--about 85, 000. The oil industry has enormous repercussions on employment throughout the country and provides tremendous spin-offs. A recent manpower studies paper suggested that well over 500,000 jobs depend on the North sea oil and gas industry.
Last year, 132 offshore explorations and appraisals were started, besides 38 onshore appraisals. About eight wells are producing oil on shore. The second largest of those wells is partly in my constituency. Humbley Grove oil production straddles the parliamentary constituencies of Basingstoke, Winchester and Hampshire, East. We must not under-estimate the importance of the industry. We need to create the fiscal climate within which it will flourish. There is one matter about which I begin to quarrel with the Government. The purpose behind the package, part of which was introduced in the Finance Act and part of which we have here, is to establish fiscal neutrality. My hon. Friend the Economic Secretary to the Treasury is on record as saying :
Column 752"we wanted to set the petroleum revenue tax oil allowance at a level that would leave the overall tax take unchanged over the life of the fields affected".--[ Official Report, Standing Committee A, 16 June 1988 ; c. 512.]
Questions need to be asked about fiscal neutrality. First, has it been achieved? Secondly, is it necessary to achieve it? Thirdly--this is my own proposition--would it not be far better not to achieve it? As to whether fiscal neutrality is maintained by the Finance Act and this Bill, the industry is adamant that it is not. It persists in saying that the oil allowance should be 160,000 tonnes per chargeable unit. If that is not the allowance, operations that are marginally viable will no longer be viable. The industry says that the Treasury and the Department of Energy have got it wrong--that it should be 160, 000 tonnes, not 125,000 tonnes.
As to whether fiscal neutrality has been achieved, there may well be a strong argument that it has not been. The next question is whether it is necessary to achieve fiscal neutrality. I am a staunch supporter of my right hon. Friend the Chancellor of the Exchequer. I applaud all that he has achieved. We are told that last year there was a surplus of revenue over expenditure of £3.6 billion and that this year there is likely to be a surplus of revenue over expenditure of between £10 billion and £12 billion. If there is such a surplus of revenue over expenditure, and if North sea oil and gas are so important to us--as they are--we do not need to maintain fiscal neutrality. We can look for a genuine lowering of the tax burden on that vital part of our national economy.
My right hon. Friend the Member for the City of Chester (Mr. Morrison) and other hon. Members have acknowledged that the debate has provided an opportu-nity for wide discussion of North sea matters. I do not propose to repeat what has already been well expressed. Of course the priority is safety. We are totally united about that, and I echo the sentiments that have already been expressed. No hon. Member could take part in the debate without recalling the Piper Alpha incident and wishing to be identified with the sympathy that has been offered to those who suffered injury and to those families who suffered bereavement. I identify myself with those expressions of sympathy.
I hope that there will be a clear and unequivocal assurance that everything possible will be done in what remains a hazardous enterprise to ensure the maximum level of safety. The hon. Member for Gordon referred to the fact that North sea exploration began 25 years ago. We must acknowledge that achievement. It was pioneering work of the first order. Technological advances of that kind deserve the highest praise. They have been of the utmost benefit to our economy. A debate of this nature is an appropriate occasion to recall those achievements.
The hon. Member for Gordon and I were involved in the 1987 Standing Committee proceedings on the Petroleum Bill. On that occasion, we had to consider the abandonment of oilfields, which is becoming an even greater reality ; the days of abandonment are drawing nearer. There was some objective, non-political controversy in the Standing Committee proceedings. I should like my right hon. Friend the Minister to take this opportunity to assure us again that he is convinced that the Government have sufficient powers to control the abandonment of platforms and pipelines.
The abolition of royalties is to be welcomed. It will enable marginal fields to remain economically viable. It is