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Westminster Hall

Wednesday 8 December 1999

[Mr. Michael Lord in the Chair]

Oil Fabrication

Motion made, and Question proposed, That the sitting be now adjourned.--[Mr. Touhig.]

9.30 am

Mr. David Stewart (Inverness, East, Nairn and Lochaber): Thank you, Mr. Deputy Speaker, for the opportunity to deal with the important issue of the oil fabrication industry in the United Kingdom. First, I shall focus on the Barmac oil construction yards, some of which are located in my constituency. Hon. Members will be aware that more than 3,000 redundancies were announced in the yards. Secondly, I shall focus on the wider issues that affect investment decisions in the UK continental shelf. I am grateful that my right hon. Friend the Minister for Energy and Competitiveness in Europe will reply to the debate. She has an excellent level of expertise on the matter and chairs the oil and gas task force.

I understand that a number of hon. Members may want to contribute to the debate, especially my hon. Friends the Members for Western Isles (Mr. Macdonald), for Aberdeen, Central (Mr. Doran), for Waveney (Mr. Blizzard) and for Stockton, South (Ms Taylor). I am sure that the right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) and the hon. Member for Moray (Mrs. Ewing) will also wish to contribute, although that is a matter for you, Mr. Deputy Speaker.

I shall begin with some of the background to the issues surrounding Barmac. As hon. Members may be aware, Barmac is a joint operation, involving Brown and Root and McDermot's. Those corporations are the only two to have survived in their present form since day one of the development of the UK oil fabrication sector. They operate in Ardersier and Nigg in the north of Scotland and their work force statistics will give some context to my points. In 1998, the work force numbered 6,000 people and this year the average work force is 3,500. The work force are skilled, well trained and well managed under the direction of Don Wright, the managing director. They have a comprehensive list of skills, from engineering to IT, fitting, welding, rigging, crane operation, scaffolding and painting.

Barmac's annual wage bill for the highlands and islands is approximately £85 million, which is a substantial sum for the region, and it is the largest private employer in my area and north of the central belt. The joint operation is also one of the largest private employers in Scotland and, interestingly, it is also the largest steel manufacturer in Scotland. Historically, as independent sites, the two yards survived an industry bedevilled by peaks and troughs. Barmac is the largest trainer of skilled labour in Scotland. More than 7,000 people have received training from it, in a variety of skills. Currently, more than 90 apprentices are involved in training.

Oil analysts predict that next year will be the leanest on record for downstream construction work. The

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immediate effect of such changes at Barmac has been the loss of 3,000 jobs. That loss is a tragedy for the work force and for the families who are facing a bleak winter without a wage or job. Both yards face the new millennium with the possibility of care and maintenance costs and near empty books, which may occur in particular towards the middle of next year. If Barmac were to close, the effect on the highland economy would obviously be disastrous. The gross domestic product of the highlands and islands is already less than the European and British averages, which triggered off the area's objective 1 status.

The management and work force have not been waiting for the crisis to happen. They have implemented the CRINE--cost reduction in the new era--regime. They have also opened a dry dock, which gives them a lot more flexibility and for which they had more than £3 million of objective 1 funds. The beauty of dry docks is their flexibility, especially for the construction of floating production vessels.

The management have sought new markets abroad, in Canada, Mexico, Norway and Denmark, and have considered diversification closely, especially in respect of the decommissioning of redundant rigs. Such decommissioning will be an important factor for the UK sector, especially post Brent Spar. The key issue is when it will come on stream. It may be some considerable time before substantial decommissioning work is available to the sector. The management and work force have also looked at renewables, which are very important for the future of the UK sector and not just for Barmac. I refer in particular to wind and wave power.

The campaign to generate new work is very different from that which occurred in the early 1990s, especially for Barmac. In the early 1990s, the game plan was to ensure in the UK continental sector that work went to UK yards rather than to allegedly highly subsidised yards in Spain and Italy. Now, matters are different, and there is little work in the UK sector. The campaign now is to convince the oil and gas companies to bring forward their exploration and drilling work.

What about the wider environment? First, how much oil is there? That is a difficult question to answer. Many seasoned observers, such as Dick Winchester, the director of technology at the Centre for Marine and Petroleum Technology in Aberdeen, estimate that between 4 billion and 4.5 billion barrels of oil remain to be developed. There are also between 80 and 180 undeveloped oilfields. The problem, inasmuch as one exists, is that the remaining fields are very small in the scale of things. Do small fields and large companies go together? Many companies have said that their strategy is to develop much bigger fields, such as the one that is to be developed in the gulf of Mexico. Shell has negotiated a deal in Iran and BP is known to be bidding for 50 licences in the same area.

I am concerned about the UK block leasing terms, which do not provide any incentive to accelerate development work, as ownership periods range from 30 to 40 years. The earliest licences expire in 2010. First, my right hon. Friend the Minister may wish to comment on whether changes should be made to the block leasing scheme to provide greater incentives for oil companies to invest in development in existing and new fields. Such changes may motivate companies to explore and drill.

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My second practical suggestion is that we consider encouraging the establishment of new, smaller companies with fewer overheads and more manoeuvrability than their larger counterparts. Such an approach has worked well in the United States of America, where clusters of small companies have operated a small number of small fields. In the UK, such companies would, of course, benefit from lower corporation tax. Thirdly, I believe strongly that the UK has no national champion or flagship operator in the same way that Norway has Statoil and France has Elf and Total. Despite being free-market companies, those organisations are highly supportive of Norwegian and French industry and technology. I believe that every United States oil company is a United States champion.

I am pleased to have had the opportunity to initiate the debate, to which I know that several hon. Members will wish to contribute. I shall summarise some of my key points. I have faith in the UK fabrication sector generally and in the local Barmac yards. The yards have an excellent work force, are well managed and have world-class facilities. I regret the loss of 3,000 jobs, which is damaging to the fragile highlands and islands economy. I shall meet the major oil companies--Shell, BP, Texaco and Conoco--and my game plan is to bring forward exploration and drilling work. This morning, I met Dr. George Watkins, the chairman and managing director of Conoco and I thank him for arranging such an early meeting.

The investment decisions made by oil companies depend on a series of factors, such as the price of oil, accessibility and geology of fields, demand, level of resources and exploration costs. Perhaps the key issue is confidence. No one can force large companies to invest in the UK sector. I believe that my right hon. Friend the Chancellor kept his side of the bargain, as the fiscal machinery remains unchanged.

Perhaps it is now time for the oil companies either to use their licences or to lose them, although some people might say that I would say that. I want to quote from the September issue of Petroleum Review, which said:

We need to encourage smaller companies to enter the market, as in the United States, and to look at the development of a UK champion, as in Norway and France. Let us not forget about gas. Gas-fired power stations may prove to be an important factor and the Minister may wish to say something about the current moratorium on those.

The oil industry is a volatile, cyclical and global market, which has been dominated by multinational companies and the Organisation of the Petroleum Exporting Countries. However, the harsh reality is that decisions by oil companies to mothball exploration in the UK sector condemn thousands of highland workers to the dole over Christmas.

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9.41 am

Mrs. Margaret Ewing (Moray): I congratulate the hon. Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) on securing this debate at this particular time because all of us, irrespective of our party-political allegiance, share a deep concern about the implications of events at Barmac and about the long-term future of the UK industry as a whole. We do not need to emphasise the scale of the problem in human terms and the manufacturing implications for the highland economy--the loss to the economy that will result from the closures, or at least the mothballing or care and maintenance, whichever term we care to use, of those yards. It is important to remember that the arguments for objective 1 status did not take into account the cyclical nature of the industry. If we revisited that argument now, we might be in a better situation.

I am sure that the right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) and I share a sense of deja vu because, on many occasions, he and I have taken part in meetings with Ministers, Adjournment debates and interventions on debates on this subject, throughout all of which we have tried to ensure a cohesive approach to this important industry, because it is the sole manufacturing industry in the highlands of Scotland. We were all proud of the work undertaken by Barmac in rationalising the yards at Nigg and Ardersier. I find it strange that people still tell me that there is an itinerant work force in those yards. Gone are the days of the Kishorn commandos. In the highlands, we have built up a skilled and dedicated work force, as we saw during the building of the turret for the Schiehallion field, one of the frontiers of the oil fabrication industry. We shall pay tribute to that skilled work force who live in our communities. I know only too well that, when Ardersier and Nigg are doing well, the small shops and hotels in the villages in my constituency do extremely well. When that purchasing power has gone, there will be a knock-on effect on the rest of the economy. In Moray, it is estimated that 500 jobs will go as a direct result of the announcements and that will have a knock-on effect on other sectors.

I am sure that we all wish to make this a contructive debate and that none of us wishes to score party political points. I want to raise one or two issues with the Minister, who chairs the oil and gas task force. Some of us have been arguing in the Scottish Parliament that there should be a general task force to consider the issue as it relates to the highlands and that the task force should include representatives from the oil industry. As the hon. Member for Inverness, East, Nairn and Lochaber said in his opening remarks, it is important to involve the oil industry in discussions because it has the technical expertise--I do not pretend to be a technical expert in these matters. It is important that, in addition to involving local enterprise companies, Highlands and Islands Enterprise and the councils, we should include representatives from the oil industry, with their skills and knowledge, to talk this through. I should like a specific task force to be set up, as one was set up to deal with the problems at Continental in the Lothians and Kvaerner in Govan. That would reassure many people in the highlands, who still feel at times that they are regarded as being all tartan, haggis, sheep and granny's hielan hame, when, in fact, we have a skilled facility in our communities that we do not want to lose.

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Such a task force should tackle some of the issues relating to research and development in the smaller fields. Much emphasis has been placed on the Clair field and how that might be developed. Can the Minister tell us what is happening with the Clair field development, what the time scale for that is and what the implications will be? Secondly, from her knowledge of the tax regime, can the Minister give some consideration to how some of these issues have been dealt with by the Chancellor? If we go back to the Finance Act 1997, we can see that the allowance for development drilling was then 100 per cent. If we could have an allowance of at least 100 per cent. for drilling, that might be an incentive to oil companies to consider giving work to our yards.

Thirdly, the royalty and tax system impacts harshly on projects in mature fields. A royalty relief, remission or reduced rate and/or some petroleum revenue tax relief for incremental projects, such as uplift on incremental investment or a petroleum revenue tax credit for such expenditure, could provide a reasonably cheap incentive. The gain in tax revenues from incremental projects might exceed the value of the tax reliefs. The Government would need permission to do that because the oil price is currently high, but I think that it would be extremely worth while in the context of the problem that we face.

In terms of dealing with the immediate crisis, at a meeting last week of all the Members of the Scottish Parliament with constituencies in the highlands and islands, the Scottish Minister for Enterprise and Lifelong Learning, indicated that resources would not be a problem if Highlands and Islands Enterprise, which is dealing with this with local enterprise companies, were to require additional resources. Perhaps that needs to be confirmed through Government Departments in England, because it is important. We want to put in place the structures that are necessary to retain the work force in the area. The Department of Trade and Industry and the Scotland Office must ensure that they work closely together, along with the Scottish Executive, to ensure that that will happen. Tomorrow afternoon, there will be a meeting at Ardersier with the Minister from the Scottish Executive and highlands and islands Members of the Scottish Parliament--I am unsure whether Members of Parliament have been invited--

Mr. David Stewart indicated assent.

Mrs. Ewing: The hon. Gentleman says that they have. I wonder what input the Department of Trade and Industry and the Scotland Office have made to that.

We do not need to emphasise the scale of the problem in personal and humanitarian terms. We should like a long-term structure for the yards in our constituencies--the hon. Member for Inverness, East, Nairn and Lochaber and I have argued that case long and hard. I know that there is a problem in the United Kingdom because skills are being sought elsewhere in the world, but we have a responsibility, as an oil and gas producing country, to ensure that we retain our skills and give people a secure future.

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9.50 am

Mr. Frank Doran (Aberdeen, Central): I am grateful for the opportunity to speak in the debate and I congratulate my hon. Friend the Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) on securing it.

This is an important issue for the north of Scotland. I stress the north of Scotland rather than the highlands because what is happening in Barmac reflects events in the oil industry in general. My constituency of Aberdeen is recognised as the oil capital of Europe and we are also experiencing difficulties, although they are not as apparent as the fairly dramatic circumstances at Barmac.

I shall speak about employment in the oil industry and how we should proceed. The industry tells us that it employs 380,000 people directly or indirectly in the United Kingdom. That massive number of people reflects the importance of the industry. However, it is wrong to think of the employment as being concentrated in one part of the country. A survey by the Offshore Contractors Association about a year ago showed that 220 hon. Members in the House had more than 500 oil jobs based in their constituencies. The business permeates the whole of British industry. My local council estimates that 40,000 jobs in its area are directly related to the oil industry.

For 30 years, the oil industry has taken workers from all parts of the UK. When it began to develop in the 1960s and 1970s, the bulk of workers came from the traditional heavy engineering and manufacturing industries on Teesside, Tyneside and Clydeside--I see that my hon. Friend the Member for Stockton, South (Ms Taylor) is here to represent that interest--and that remains the case. Any day of the week, the southbound train from Aberdeen is full of Geordies and Teessiders who are heading home after two or three weeks on the rigs.

It is important to understand the nature of employment in the North sea industry, which includes onshore facilities such as Barmac. It is a cyclical industry. Some of our major economic crises in the past 20 years stemmed from the oil crisis in the early 1970s. At that time, the UK industry was in its infancy, but when the price collapsed from between $32 and $35 a barrel to between $8 and $9 a barrel almost overnight in 1985-86, industry in my area was devastated. It was estimated that the oil industry lost 50,000 jobs virtually overnight. Investment was immediately stopped and no money was spent on new projects. Drilling, exploration and rig construction were halted, although existing contracts were fulfilled. The industry suffered severely for three or four years, especially the onshore fabrication yards in Scotland, such as those at Ardersier and Nigg.

There is a particular culture to offshore employment that is difficult to find anywhere else in Britain. About 10 per cent. and, in some cases, 20 per cent. of onshore and offshore employees are directly employed by oil companies in my area. The remaining jobs are contracted out. A meeting in my constituency on Friday night was attended by 50 or 60 people who run one-person companies--IR35 companies as they are known. They are highly skilled, but the industry refuses to employ them directly. Instead, it prefers to take on employees through agencies or other contracting

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operations. That shows the way in which the industry operates: it demands flexibility. The other 80 to 90 per cent. are employed through single-person companies or other companies to fulfil contractual requirements--[Interruption.]

Mr. Deputy Speaker : Order. I do not know who owns the machine that is making that noise, but Madam Speaker takes a dim view of such disturbances.

Mr. Doran: Thank you, Mr. Deputy Speaker.

That practice underlines the flexibility of and the insecurity in the industry. The people that I was with on Friday night strongly wanted full-time permanent jobs in the oil industry, but they knew that that was not going to happen. In times of downturn--a year ago, the oil price decreased to about $9 a barrel--those people are dispensed with at little notice. They do not figure dramatically in large-scale unemployment such as that experienced at Barmac, but they lose their jobs as readily. However, they know that there will be opportunities when the industry picks up, as it is doing now--today's price is about $25 a barrel. The industry is cautious and there is little sign of real investment over the next year, so the problems will be with us until it is certain that the oil price is stable and it can make longer-term decisions.

The same culture exists in the rig construction yards, although they have managed to achieve some stability. They went through difficult times in 1985-88. Rig construction yards have been an important resource for the oil industry. One of the major failings of the industry is that it has not trained people. Instead, it has developed its facilities offshore and plucked skilled employees from other parts of the country, such as plumbers, boilermakers, electricians and engineers who were drawn into the oil industry as their traditional manufacturing industries declined. The rig construction yards were used as a training base. Many of the people who work in the oil industry were first trained in the yards. I suppose that that could be considered an indirect subsidy by the oil industry, which paid for the rigs, but the enlightened training policy at Barmac has been important in bringing new recruits into the industry. The oil industry's failure to train must be recognised.

I was pleased to hear the reasoned contribution by the hon. Member for Moray (Mrs. Ewing) who has a long involvement with the industry. Indeed, we have occasionally worked together on issues. Her speech contrasted sharply with the behaviour of some of her colleagues in Scotland on this issue. Fairly hysterical comments have been made in an attempt to pin the blame for the problems on the Government. It is important to understand the way in which the industry operates and I have deliberately spent time spelling that out. I back wholeheartedly the hon. Lady's suggestion that the Government have a role, but it is important to recognise that the oil industry also has a role.

People throughout the UK have benefited from the oil industry, with which I have been pleased to work closely in my area. It has created employment and paid huge taxes into the national coffers, and it has helped to build

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new skill bases, for example in information technology and underwater technology, which we are beginning to export. That will benefit us in the longer term, but the legacy of the oil industry is that there is little sign of any company bedding down in our communities.

The industry is in a long and slow decline phase. Oil companies in my constituency assure me that we have at least another 30 years and some have shown me the long-term plans that demonstrate their commitment. However, those companies are not making major contributions to the community. The perception is that they come in and take what they need in skills and Government assistance. They work within the system and buy what they need. I realise that they pay heavily for what they do, but they do not seem to feel a social responsibility to the areas in which they operate. There is a sense that, when the oil has gone, they will simply up sticks and go to the next great oil province. There have been a number of recent scares in that respect. For example, when the former Soviet Union territories opened up to western investment, it was strongly felt that, as the oil there would be a lot cheaper to exploit than it is offshore in Scotland, we would lose out on new investment. That has not yet happened, mainly because of the political difficulties in the former Soviet Union, but it could happen at any time.

In conclusion, we should learn the lessons of Barmac--as hon. Members have said, we have been here before. It is, however, important that the oil industry, the Government and local authorities work together. We must recognise the important contribution that our local authorities have made. Aberdeen city council is now recognised as a world expert because it has enabled its local area to make the transition from a non-oil, semi-rural economy, which relied on, for example, fishing, agriculture and meat production, to an oil economy. Other authorities in Mexico, Canada, the former Soviet Union, the far east and Australia are learning lessons from the experiences of Aberdeen city council. Local authorities together with the oil industry and central Government must work out a programme or task force to deal with the industry's decline. What happened at Barmac emphasises the importance of planning for that final stage.

10.2 am

Mr. Charles Kennedy (Ross, Skye and Inverness, West): I am grateful for the opportunity to make a brief contribution to the debate. It is fortuitous that the hon. Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) secured the debate, although all the hon. Members present--particularly those of us who represent constitutencies in the highlands and islands--would agree that the reasons that occasion the debate are far from fortuitous. Both the hon. Gentleman and the hon. Member for Moray (Mrs. Ewing) outlined those reasons and I do not intend to repeat them. I would, however, underscore from a constituency point of view the overwhelming importance of Barmac's presence, not just the immediate employment, massive though that is--it is the largest private commercial sector employer in the mainland highlands--but equally the ancillary and spin-off employment opportunities and the social and economic underpinning that comes with them.

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Although, as a result of redistributions, the Nigg part of the Barmac site is no longer within the boundaries of my constituency--it now lies just over the border in the constituency of my right hon. Friend the Member for Caithness, Sutherland and Easter Ross (Mr. Maclennan)--there is no doubt that over the years one could track, in constituency surgeries and the postbag, the fortunes of the local economy by the employment and contractual fortunes of the Barmac sites--the one is in direct proportion to the other. I fear that we are in for a significant economic downturn next year as a result of the recent shock to the system.

From my dealings in the past decade and a half with Nigg in particular--now Barmac--in its split site and various mutations, there is no doubting or escaping the essentially cyclical nature of the oil industry. One of the lessons that has been learned commendably by those at management level--aided and assisted by the trade unions, which have contributed powerfully and responsibly over the years--is the need for diversification based on substantial investment in forefront technology. The industry has done that to a considerable extent, but of course that in itself is not enough to cushion the blow that has just been felt as a result of the recent downturn in extraction activity in the North sea in particular.

As the debate relates to the UK in general and not just to the local situation--overwhelmingly important though that is to some of us here--it is worth considering the assessment that the United Kingdom Offshore Operators Association has made on likely probable developments as they affect the fabrication sector and oil exploration as a whole. It says that the most recent data from Wood Mackenzie

In other words, even with the diminished number of orders likely to come on stream and assuming that the price per barrel remains more buoyant than it has been of late, the changed nature of the technology means that there is less potential for the Barmacs of this world to achieve the huge fabrication contracts that have been their mainstay hitherto. That poses serious questions for the medium to longer term, leaving aside the fact that there are still several decades of North sea extraction left--I agree with the hon. Member for Aberdeen, Central (Mr. Doran) on that.

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I am, however, critical of the Government in this respect. After the last election, when the then new Chancellor announced his review of the fiscal regime of the North sea, several of us warned that the fact that the price of oil was falling internationally was bound to add to the climate of uncertainty in what is a very reactive business on a global level; and, indeed, it did. Anyone who has dealt with the oil majors over the years knows that the business involves a great deal of brinkmanship--that is the nature of the beast. Some of the companies that announced in lights that they were postponing major developments may well have used the Chancellor's review as an excuse to bring forward an announcement that they may have been likely to make anyway; I am not so naive as to suppose that that was not so. Without doubt, however, the fiscal review, against the backdrop of the plummeting price per barrel of oil internationally, contributed to added uncertainty, which led to some genuine postponements, if not cancellations. That has certainly not helped the domestic fabrication sector.

There needs to be a twofold approach. First, there is the micro-approach. Highlands and Islands Enterprise and Government Ministers sitting in the Parliament and Executive in Edinburgh can attempt to cope with the immediate local economic and social impact. I know that they are trying to do that and they deserve--and will receive--all possible support in their endeavours. However, that is merely Elastoplast after the event. Action is also needed on the macro level, which is where Westminster comes in--the Treasury and the Department of Trade and Industry in particular. There is an argument to be made--we have been here before under Nigel Lawson's tenure--for fiscal stimulus as it affects marginal field extraction and development, not least the satellite technology around existing fields. The high rates of marginal taxation that are applied to existing satellites could be diminished to try to increase the likelihood of further fabrication contracts.

Our approach needs to work locally and regionally, as well as on a macro level, which is why it is appropriate that the debate takes place here, in the presence of the Minister for Energy and Competitiveness in Europe. I have had the opportunity of a brief exchange with the right hon. Lady, whose concern is well documented and whose interest and support are much appreciated, and I also met the Chancellor last week. At a time when the highlands has received such a setback in the cutting edge of technology--coincidental with our traditional sectors all suffering so severely, although for very different reasons--there is an urgent need for the Chancellor to consider in the run-up to the next Budget what tax stimulus he might be able to give. Nigel Lawson's actions some 10 years ago undoubtedly helped confidence nationally and internationally and the flow of orders that followed.

Mr. Deputy Speaker (Mr. Nicholas Winterton) : Order. Before I call the next speaker, I should tell hon. Members that I intend to begin winding-up speeches by calling the Liberal Democrat spokesman at 10.30 am. Three hon. Members who wish to speak have caught my eye; if they are brief, I am sure that they will be able to do so.

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10.10 am

Mr. Bob Blizzard (Waveney): I, too, am grateful to my hon. Friend the Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) for securing the debate. The name of his constituency might be rather a mouthful, but, unlike the more obscure name of my constituency, it has the advantage of naming the towns and settlements within it so that people know where it is.

Mr first point is that the oil and gas fabrication industry is not just a Scottish industry--there are fabrication yards along the east coast of England, even stretching down to East Anglia and the town of Lowestoft, which I represent. We have two yards in the town--the Odebrecht yard, which is part of an international company, and the smaller but no less successful KYE yard, which is a local company. We must remember that, in addition, there is a chain of small and medium enterprises that make component parts and supply engineering services which feed into the industry. All of them are affected by reduced investment in the North sea; the task force forecasts that that will fall by 50 per cent. by 2002 if no action is taken. That would affect hundreds of jobs in my constituency, as well as the thousands of jobs of which we have already heard.

The oil and gas industry is enormously valuable to our country. We have so far had tax revenues from it of £89 billion and, as has been said, 30,000 jobs offshore and more than 300,000 on land depend on it. I am told that investment in the North sea is equivalent to the cost of building a channel tunnel every two years. We are dealing with a hugely important industry.

The entire industry suffers from the reduction in investment, but those of us connected with the fabrication yards most feel the effect because the greatest concentration of jobs lies in the yards. The yards are vital to coastal towns up and down the country. They took on people from closed shipyards, just as the supply and standby vessels took on people from the fishing industry. Shipbuilding and fishing were the mainstays of the Lowestoft economy until the shipyards were closed and the fishing fleet was decimated. We are now reliant on the fabrication industry.

The Odebrecht yard in Lowestoft is in the centre of the town, at the entrance of the harbour. It is not big enough to build the jackets; instead, it builds the top sides and the accommodation modules. Visitors to the town often ask what those rising structures are. I tell them, and say also that the structures symbolise a barometer of the health of the local economy--while we have them there and while they move up, people are in work. When one project is completed, there is anxiety about whether another contract will follow. We live with that; there is currently less and less work to bid for.

The changes to the oil and gas towns are comparable with those that have affected coalfield communities. We are extremely dependent. We must not forget that real people and real communities are at the end of decisions. People naturally look to Government and ask what Government can do. In many respects, the Government have already acted--my area, like others, has been submitted for assisted area status and objective 2 European funding. It is important that the Government see the negotiations in Brussels through to the end; the

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granting of the status and the funding is vital to my area. Coastal towns suffer from being peripheral. We suffer from poor transport links in East Anglia. The firms and community of my constituency will need that external support.

I should emphasise to the Minister that it is vital, when we have those designations, that the oil and gas industry is able to access assisted area status funds and European structural funds--we have previously had problems with that. It is important that we encourage industries to diversify into related activities. They will need support with capital expenditure to do that. Lowestoft was given those designations by the Government as recognition that, for a long period, it had been one of the top--or bottom--10 travel-to-work areas for unemployment. The problem will be made worse if we also lose jobs in fabrication. I urge the Government to include in the urban White Paper being devised a special remit for coastal towns, and not just to consider the problems of big inner cities. Whole Government policies could then be driven in that way.

Gas represents a big share of activity in the North sea--our gas reserves will outlast our oil reserves. Why do we continue the moratorium on gas-fired power stations? Extra confidence would be given to the industry if it was lifted. I cannot understand why it was imposed, and I do not think that it is necessary. The Government declared that they wanted to reform the energy pool. It takes several years to build a power station; the operator of a power station would have to take the risk of buiding one knowing that there might be a different energy market once it was completed. It would help if that decision were reconsidered. Gas is the best fuel environmentally after renewables, which can meet only some of our needs.

We should consider what the oil companies could do. They were clearly going to be cautious when the price of oil was as low as $10 a barrel--investment was discouraged. The price has returned to $25 a barrel. We do not know that it will stay at that level, but I ask the oil companies to reconsider and to be more positive about investment in the new situation.

We must focus on the big issue--the macro-economic situation concerning the future of the oil and gas industry. We cannot alter geology. It took millions of years for the oil and gas to form, and we must accept that the North sea industry is now in its mature stage. The big fields have been discovered and, therefore, the days of big kit, such as big platforms, are over. The all-party offshore oil and gas group, which I chair, recently saw what might be the last such construction to be built at the Wallsend yard for the Shearwater project. That does not mean the end of our industry--we can exend its life if we fully exploit the smaller and more marginal fields. Thirty years ago, people were saying that the industry would be finished by now. It is not finished; it has not yet peaked because of innovation, technical advance and cost reduction since those early days. We must maximise the life of the industry of the United Kingdom continental shelf in that way.

The Government industry task force, which has been a model of co-operation between Government and industry, is addressing that matter. The Leading Oil and Gas Industry Competitiveness initiative, supported by

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the Department of Trade and Industry, will also have a great part to play. A special section will study fabrication and how we can learn from the gulf of Mexico and get down to the cost levels of the industry there. We shall have a future if we do that.

Developing opportunities in recommissioning and decommissioning will also be important. In East Anglia, we are keen to be involved in those opportunities as they represent a great source of employment. It will be important to maximise the industry's export possibilities, as we are world leaders. The task force has set an ambitious target of a 50 per cent. increase in exports. That is difficult currently because of the high pound. One of the yards in my constituency told me yesterday that it was buying raw materials from Germany and Italy; if it used our raw materials, it would be uncompetitive when exporting the final product.

We must focus on innovation now because the window of opportunity is small. We cannot build satellites once the major installations have gone or have been closed. We must develop our industry now, while the infrastructure is in place.

The Government have their part to play in the actions identified by the task force. I am pleased that they have already acted by introducing more flexible regulations, modernising the licence award system and granting capital gains tax roll-over relief. It is crucial that the Government recognise that not merely oil price but field size will be the key factor in determining investment for the future. I hope that the Treasury will take a long-term view of taxation and realise that, if it can gradually be planed down as the marginal fields are exploited, it will help to stretch the life of the industry, make the fields more viable and keep more people in work. It will mean more overall tax revenues to the Treasury and enable good environmental husbandry of the finite resources if what is there is taken out when the installations are available to do so.

The Government have agreed to keep royalty and petroleum revenue tax under review. The industry must then convince the Treasury that any relief given will bring forward increased investment. It would help if the oil companies could show that they would respond to the higher oil price by keeping their part of the deal.

We must remember that more jobs are with the contractors and the suppliers than with the oil companies. It is important that the fabrication industry is represented in the task force, which is to be relaunched at the beginning of next year. It should reflect the whole industry, including contractors and fabricators, and also have a geographical balance so that all parts of the country have confidence in it. The trade unions, too, should be fully involved. It is for the industry to decide who it puts forward, but I am sure that ultimately the Minister can insist on a fair and balanced representation from the industry.

There must be a national effort. Oil and gas is a great industry, which has cast off the old image of being dirty and irresponsible; it is now a leading-edge, high-tech industry. We must all work together, remember that there are people at the heart of it and do everything that we can to maintain levels of employment.

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10.22 am

Mr. Calum Macdonald (Western Isles): I am grateful to my hon. Friend the Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) for securing the debate and for giving us the opportunity to contribute to it. As you requested, I shall be brief, Mr. Deputy Speaker.

I begin by paying tribute to the work force and management of Lewis Offshore, which operates the Arnish yard in my constitutency. I was closely involved with the reopening of the yard in 1991, which seemed like a leap of faith at that time. The economic context was in many ways even less promising than it appears today. Moreover, whereas the Arnish yard had been operated in the 1970s and 1980s by large multinationals, the new operation, when it was restarted, was unique: it was locally managed and very much locally controlled.

Under that local management, the yard succeeded beyond our most optimistic hopes at the time. Employment was consistently about 200 people, largely drawn from those living locally. At times, the number increased to about 500 people, some drawn from outside, adding to spending power in the local economy. Sadly, the company is now in receivership, but it is to its great credit that it kept the yard active for what was, it transpired, the longest continuous period of operation since it first opened in the early 1970s.

As several hon. Members have said, the industry is subject to ups and downs. Arnish has been caught by the current downturn. Given the yard's excellent record in the past decade and the crisis elsewhere in the industry, there is no shame in its present predicament and I firmly believe that the yard still has good prospects for the future. The qualities of the work force are such that it still has a good chance of attracting new investment when the climate becomes more favourable.

In terms of that more favourable climate, a number of hon. Members have already talked of the need to encourage new development. One of the areas to which people look for new development is off the west coast of Scotland. That development will be technically difficult and hugely expensive, but the shift westwards has already begun. I am told that west of Shetland has the largest producing fields on the British shelf. It will be useful to hear the view of my right hon. Friend the Minister for Energy and Competitiveness in Europe of the prospects for further development off the west coast in the next few years.

Many hon. Members have mentioned the importance of the gas industry. There are anxieties about the impact of the moratorium on development and production and it will be useful to hear my right hon. Friend's view of it. What has been the impact on gas development? It might be appropriate to have another look at the moratorium.

There is also the prospect of large amounts of work decommissioning old, redundant platforms, as my hon. Friend the Member for Inverness, East, Nairn and Lochaber said in his opening speech. The combined value of the work in the next decade and beyond is reportedly billions of pounds. If only a small part of it were won by the yard in my constituency, for example, it would generate contracts even more valuable than have been achieved in the past decade. Again, it would be extremely helpful to know the Department's view of

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how the decommissioning work might develop, how big it might be, when it is likely to start and the likely trend of development.

At the first signs of decommissioning work, British yards face strong competition from Norway. With the help of the Department of Trade and Industry, it is vital that we keep a close eye on the development of that market. An important task for the Government will be to advise and assist British companies to keep abreast of their Norwegian rivals.

The other big tasks for the Government are, first, to keep viable the yard in my constituency and all the other yards that are suffering, so that they continue to be available for future business. The second task will be to maintain the skills and training of the work force so that they can take advantage of any future work in the industry. A third task in my constituency, which is perhaps more directly suited to the Department rather than to the local economic agencies, is to assist Lewis Offshore in its pursuit of outstanding creditors, especially when it is owed substantial sums from companies that are based overseas.

I would welcome the Minister's assurance that the Government are focused on those tasks and that the Department of Trade and Industry will assist the Scottish Executive and Highlands and Islands Enterprise in pursuing these matters. The Government cannot create work, but they can help companies such as Lewis Offshore and the others that have been mentioned this morning to be ready to make competitive bids for work when it arrives. I am sure that such opportunities will come along and I am hopeful, too, that my right hon. Friend will continue to take a close personal interest in the fate of the industry, especially the yards in the highlands.

10.29 am

Ms Dari Taylor (Stockton, South): I am grateful to have a few moments to speak at the end of this debate and I am grateful, too, to my hon. Friend the Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) for securing it.

The Tees is absolutely distraught at the state of the oil and gas fabrication industry, in which more than 8,000 people in that area are employed one way or another. An impact assessment shows that, if the industry goes down, our economy will lose about £220 million. That is a sizeable amount, and it is creating serious trauma.

My hon. Friend the Member for Aberdeen, Central (Mr. Doran) stated that many Geordies travel to the north-east of Scotland on a week-by-week basis. He might have added that so do many thousands of Teessiders, who are boilermakers, fabrication workers, engineers and welders. We have a tradition of travelling to where the work is. The commitment of this work force is to work and they want to hear from the Government that they, too, are committed to giving the oil and gas industry a chance.

So much of what I could say has been said in the debate, so I will not repeat it. We have seen Kvaerner's Triton sail out into the North sea. It is an astounding piece of engineering. We have also heard it said that the industry is finished. That cannot possibly be true or

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acceptable. The workers have inordinately high skills. The industry is value added. We should not be allowed to say goodbye to it.

I listened to my hon. Friend the Member for Aberdeen, Central questioning what the industrialists and the industry are doing. My goodness, was he reading my mind? Last year, the industry achieved record profits. It has had difficult times, but in the past 20 years it made record profits virtually every second year. My community wants to know where the payback is. People ask what is being put back in. What is that industrial community doing about it? What will they help to develop? The skills and the technology are there. The community is looking to the industry--to Kvaerner, Odebrecht, and Heerema, which are very large companies. We do not want them to run to the easy fields of Mexico. We want to hear them say that the shallow beds in the North sea are still worth extracting from; that submersible engineering and other forms of engineering are greatly valued; that the work force are valued; and that they have a commitment to the community, so they will stay.

I have had two minutes in which to speak. This industry is crucial for me and my colleages from the Tees, and for the trade unionists. I am grateful to you, Mr. Deputy Speaker, for allowing me that two minutes.

Several hon. Members rose--

Mr. Deputy Speaker: Order. I am delighted that we were able to fit the hon. lady into the debate. I knew her late father well. He spoke with great passion; so does she.

10.31 am

Mr. Andrew Stunell (Hazel Grove): I congratulate the hon. Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) on securing the debate on a most important issue. Everyone present would agree that we face a tragic loss of jobs. The impact on the local community, the industry and the economy of not only Scotland but the United Kingdom will be devastating, as hon. Members have pointed out.

Broadly speaking, what is happening is part of an overall loss of momentum in the UK oil industry. In part, it is due to the inescapable facts of geological life. Available oil reserves are now smaller and harder to find and they are expensive to extract. The marginal cost of bringing them ashore is also higher. That will have a fundamental and unavoidable impact on the industry in the coming few years, but there is still a good deal of life left in those fields and a good deal of investment still to be made.

Some significant facts of life must also be confronted. This time last year, oil and gas prices were probably historically at their lowest point ever--certainly well below what investment analysts had expected a decade earlier. That has a serious impact on the industry's profitability and the effectiveness and value of investment. The price of oil has multiplied two and a half times, but is clearly in a period of considerable instability. Gas is extremely cheap on the international market.

The industry has also to cope with the political facts of life. Here I join my right hon. Friend the Member for Ross, Skye and Inverness, West (Mr. Kennedy), who

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said that the Government must look back at part of their record of the past two and a half years. The uncertainty of the Chancellor of the Exchequer's review of the fiscal regime left the industry unclear about the future economic profitability and viability of its investment in the UK oil sector. His acceptance of that review was a little tentative. In the words of a representative of the oil industry to whom I spoke yesterday, it was acceptance for the time being. This is not the basis on which long-term investment decisions at a marginal and critical level can be soundly based.

The uncertainty of purpose of the fiscal regime was somewhat compounded by another uncertainty--that of developing and exploiting alternative energy systems. The hon. Member for Inverness, East Nairn and Lochaber said that the yard had tried to look at diversification into wave and wind energy fabrication and construction.

We need steadfastness and stability of purpose not only in the oil industry, but in the broader energy market. The key to that is confidence. The industry must have confidence in its investment decisions, not least because it is a global industry and, essentially, perhaps the ultimate market-driven industry. It is not given to sentiment or to spending a great deal of time on its social obligations. Therefore, it is essential for the Government to supply what they can by way of fiscal and investment support and the stable framework so necessary to reassure that investing community.

I make two pleas. The first is to the companies to hang on in there and not give up on the UK industry or the Scottish oil industry. I ask them to have faith in the skills and added value that the Scottish fabrication industry and the wider UK industry have and can contribute to their profitability in the coming decades. My second plea is to the Government--and I want to leave time, Mr. Deputy Speaker, for them to respond. I make three requests. Please will they give a clear signal about long-term fiscal stability and help for the industry based in and around the UK oil and gas sector? Please will they respond to several pleas made this morning for a clear direction to their strategy on decommissioning, where a great deal of investment and creation of jobs will be necessary in the future? Please will they give today a clear signal about how they intend to facilitate the diversification of investment into alternative energy technologies? The skills, manpower and capacity are there and, with the alternative sources of energy, we have a rich environment.

This is not the day for scoring party political points. I simply ask the Minister to respond positively to this tragic set of circumstances.

10.38 am

Mr. Nick Gibb (Bognor Regis and Littlehampton): I add my congratulations to the hon. Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) on securing this important debate. There is no doubt that the two impending sets of job losses at the Barmac yards at Nigg and Ardersier are personal and economic tragedies not only for the 3,000 individuals directly involved, but for the surrounding community because of the indirect effect of job losses there. The hon. Member for Moray (Mrs. Ewing) pointed out that when the Nigg and Ardersier yards are doing well, the small shops and hotels in her constituency do well, too.

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The reasons for the absence of new orders after the Elf Enterprise Elgin platform, which will be completed in March next year, have been well rehearsed. The UK continental shelf is now a mature development, with remaining reserves confined to smaller fields. The low long-term oil price--recent but temporary hikes notwithstanding--is also a major contributor. Exploration and appraisal drilling are at the lowest level since the 1970s. The 35 proposed near-term developments in the North sea are unlikely to be of the size and type to require substantial new rigs from the fabrication yard. According to the United Kingdom Offshore Operators Association, which the right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) mentioned, 17 of the 35 developments are expected to use subsea technology, using existing infrastructures; so there will be no need for further infrastructure there. Nine use not usually manned rigs and five are expected to be developed by the new technology in drilling--the extended-reach drilling techniques.

According to the Department of Trade and Industry's figures, whereas development expenditure was £5.1 billion in 1998, it fell to £3.2 billion in 1999 and is set to fall to £3.1 billion next year and £2 billion for the following two years. Despite that, Barmac remains relatively optimistic about the long term. Its managing director, Don Wright, said:

There do seem to be some long-term trends, which may be hard to resist. We need to ask whether the Government are doing enough to slow those trends down, or alternatively, whether they are making the situation worse. I pay tribute to the hon Member for Inverness, East, Nairn and Lochaber for his energy in raising these important matters with industry and the Government. More controversially, his exemplary activity on behalf of his constituents contrasts sharply with the insouciance of the leader of the Liberal party, the right hon. Member for Ross, Skye and Inverness, West, whose constituency neighbours the Nigg fabrication yard. Although the hon. Member for Inverness, East, Nairn and Lochaber used his opportunity commendably at Prime Minister's Questions last week to raise the subject of the Barmac fabrication yard, the right hon. Member for Ross, Skye and Inverness, West failed to use either of his two weekly opportunities to raise the issue. Last week, he even made a joke and asked about the London tube instead.

The hon. Member for Aberdeen, Central (Mr. Doran) says that the Government are not to blame. The Government's approach, however, has been confined to establishing the oil and gas industry task force, now to be renamed PILOT, and Leading Oil and Gas Industry

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Competitiveness, which is about lowering costs. As I said, the key question is whether the Government are making matters worse. The answer is yes.

The United Kingdom Offshore Operators Association believes that one of the most important requirements to achieve the goals that the oil and gas industry task force set itself is

The North sea oil tax review--also referred to by the right hon. Member for Ross, Skye and Inverness, West--which seems to hang dangerously over the industry, has been put on hold. When the Minister said that the review had been put on hold, she referred to the low price of oil as the reason for doing so. Now that the oil price has increased, I hope that the Government do not intend to reignite the threat that the oil tax review presents to the oil industry.

There is also the gas moratorium, a policy implemented by the Government solely for internal Labour party reasons. It has resulted in higher than necessary electricity prices and carbon dioxide emissions, and lower than necessary demand for North sea gas. Even the hon. Member for Waveney (Mr. Blizzard) cannot understand why the moratorium was imposed: the reasons given in the energy White Paper simply do not stack up.

Three Government policies, therefore, are adding to the difficulties of the North sea sector. No one would claim that those three policy solutions could deal with all the problems in that sector, but they would at least be a step in the right direction instead of a step in the wrong direction, which is making matters worse.

10.45 am

The Minister for Energy and Competitiveness in Europe (Mrs. Helen Liddell): May I join right hon. and hon. Members in congratulating my hon. Friend the Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) on securing this debate? He has been particularly active on this issue and those of us who know him would expect nothing less.

I welcome our reasoned and thoughtful debate, marred only by the contribution of the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), who gave a singularly ill-informed and ungracious speech. Several important points were raised in the debate and I may not be able to do justice in 15 minutes to the depth of some of them. However, I have been most impressed by the depth of knowledge and the local insights from right hon. and hon. Members and I will convey a copy of the

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Official Report of this debate to the oil and gas industry task force, which will be able to see the ideas and the passion generated in our debate.

Like you, Mr. Deputy Speaker, I pay tribute to my hon. Friend the Member for Stockton, South (Ms Taylor). She had only two minutes, but managed to say what many of us have been trying to say for a long time. I note also that my hon. Friend the Member for Middlesbrough, South and Cleveland, East (Dr. Kumar) was trying hard to enter the debate, but was unable to do so. I shall seek to converse with him in due course.

I feel a sense of poignancy in this debate, particularly regarding the problems of Barmac at Nigg, Ardersier and Arnish. I recall many years ago visiting Nigg before even a sod had been cut in the grass. The scale of development there has changed considerably now. The history of the Barmac operation in the highlands of Scotland has been put into context for us. We are talking not about metal bashing, but about a major operation with a highly skilled work force. I pay tribute to that work force and to management, who are showing a commitment to the community. The work force are excellent and I know that recent decisions have not been taken easily. I pay particular tribute to the work of the shop stewards at Barmac. I woke up in the early hours of Monday morning to a report from Canada. The convener of shop stewards had been there to look for work opportunities for the Barmac work force.

In common with the hon. Member for Moray (Mrs. Ewing), I am well aware of the multiplier effects of the yards on local communities. The hon. Lady asked about the possibility of a wider task force. She would acknowledge that that is more a matter for the Scottish Executive than for the House. However, I shall liaise with my colleagues in the Scottish Executive, which knows that it can call on my Department's resources to assist in this matter.

I have already met the oil and gas industry task force and I will provide more detail in a moment. I would like to announce now that the oil and gas task force met on 1 December and the main item of discussion was the difficulties faced by the UK fabrication industry. I chaired the task force and was supported by my hon. Friend the Member for Central Fife (Mr. McLeish), who is also a member of the Scottish Executive, and by my hon. Friend the Minister of State, Scotland Office.

Following that meeting, several plans were formulated. I have asked all relevant Government Departments and agencies to meet, with the facilitation of the Department of Trade and Industry, to discuss their existing strategies in response to the challenges faced by the fabrication industry, to formulate a coherent UK-wide plan to mitigate current difficulties. The Scottish Executive, Scottish Enterprise, Highlands and Islands Enterprise, the Glasgow development agency, One North East and representatives from the oil industry national training organisation are to be invited to a meeting in the DTI on 20 December.

Picking up the point made by my hon. Friend the Member for Inverness, East, Nairn and Lochaber about industry champions, one of the great advances since the development of the oil and gas industry task force is the way in which companies operating in an intensely competitive market have sat around a table to examine

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difficulties in the industry to plot a way forward. I want the fabrication industry to enter into that, so that we have a champion for UK fabrication.

Let me try to give some comfort to my hon. Friend the Member for Stockton, South. Much of the debate has been about Scotland. Last week, I spoke at the Northern Offshore Federation, which has a major event planned for February next year, supported by the Prime Minister and my right hon. Friend the Secretary of State for Trade and Industry. It will be a major showcase for the supply industry--not just in the north of England, but throughout the United Kingdom.

Many points have been made today about the decline in the UK continental shelf, but we must separate that issue from the prospects of the industry as a whole. That is what the oil and gas industry task force has been seeking to do. The right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) made the excellent point about the geological challenge of the UK continental shelf. There is significant change in the North sea and we must manage that change.

The Government's initiative in bringing together the oil and gas industry task force has brought about significant progress. The reduced world demand, caused not merely by the dramatic fall in the oil price, but by the changing nature of energy markets, has been recognised. Indeed, the increase in the oil price has changed the situation a little, too. I shall come back to that when I talk about decommissioning, which has been changed by the increased price per barrel of oil. The continental shelf is undoubtedly maturing and is geologically more difficult. It is imperative therefore to reduce the cost of operating on the UK continental shelf, but we must not lose sight of the opportunities for exploration, production and the development of oil and gas.

My hon. Friend the Member for Inverness, East, Nairn and Lochaber spoke about the marginal fields and mentioned that a number of licences have been issued for fields that are not being developed. One exciting initiative by the task force is to set up an organisation called LIFT, the Licence Initiative for Trading, which is a virtual trading market in licences. If a company has a licence for a marginal field that it does not want to develop, it can trade that licence in a way that has not existed before. That initiative will work together with other initiatives such as LOGIC, which stands for Leading Oil and Gas Industry Competitiveness.

My hon. Friend the Member for Aberdeen, Central (Mr. Doran) talked about small suppliers such as one-man companies and self-employed contractors, many of whom have fantastic expertise. I have seen some of that expertise. It is world-leading stuff, but often, because they are small, they are not plugged into the mechanisms of the large oil companies. LOGIC aims to deal with that and to ensure that, right through the supply chain, big businesses can see what small businesses have to offer. Linked to that is the industry technology facilitator. Many of the far-sighted technological ideas come from small operators, who lack the money or expertise to market them themselves. Through the Department of Trade and Industry, we will help both LOGIC and the industry technology facilitator to make sure that those ideas are marketed too. This is about putting a coherent supply chain into place.

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The task force has far-reaching aims. It is aimed at ensuring that investment is sustained at £3 billion per annum from UK continental shelf activity. That should ensure that production remains at or about 3 million barrels of oil equivalent a day. It is about prolonging self-sufficiency in oil and gas. It is also, and this is the bit that I want to work at particularly hard, about a 50 per cent. increase in export in oil and gas supply products. That amounts to something like £2 billion in value. I shall meet the OSO board tomorrow to talk about export opportunities.

My Department, through British Trade International, works hard to exploit the opportunities for a world-class industry. My hon. Friend the Member for Waveney (Mr. Blizzard) mentioned that our industry is world class. We believe that it is possible to secure £1 billion additional value from new businesses supporting up to 100,000 jobs--more than there would otherwise have been. We recognise that there will be a decline in jobs. This has been a sensible and reasoned debate which has acknowledged that change. However, there is the opportunity for the future too. We must deal with the short-term issues that affect communities such as those in the north of Scotland and down the east coast of England. That is a key area for us.

A number of right hon. and hon. Members mentioned the fiscal regime. One of the benefits of the task force is that it has brought together industry leaders, and I include trade unionists as well as representatives of the Government, with the Chancellor. One direct consequence of that was capital gains roll-over relief. The industry can therefore discuss the whole fiscal framework for the North sea directly with the Chancellor, who will keep it under review. It is not for me to speak for him, but he is aware of the difficulties in the North sea.

A number of hon. Members asked what the industry is doing about this problem. I have also asked that question and, indeed, I put it to the industry last week. The reply was that the industry took a bad hit in the past year because of the fall in oil prices. I ask the industry now to show its commitment to the people who made it the great success that it is and to recognise the skills that there are in the North sea. I have found a ready response from the industry, but I will keep in touch and I will keep the pressure on too.

A number of hon. Members raised the stricter gas consents policy. There is an irony here. Two weeks ago, I was replying to an Adjournment debate about the coal industry and was asked to ensure that the stricter gas consents policy was kept in place. The policy was put in place to allow us to reform the energy pool. We know from the Queen's Speech that there will be a utilities Bill in this Session, which will allow us to put in place that reform of the energy pool. I do not underestimate the impact of the gas consents policy on the UK oil and gas industry. I am aware of that, as is the Secretary of State. We wish to give fairness, and not favours, to the coal industry and we seek to give the same to the oil and gas industry. We hear what the industry says about that.

My hon. Friend the Member for Western Isles (Mr. Macdonald) talked about the problems of Arnish. I am sad that the company is in receivership, which is largely due to a commercial dispute. The local work force are excellent--like the Teesside work force they are international and have transformed their abilities

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over the lifetime of the Arnish development. My officials will do everything that they can to assist the yard. The company and yard are well regarded and the management has respect throughout the industry. We will do what we can to help.

The hon. Member for Moray asked about the Clair field and a number of hon. Members referred to the need to look at development west of Shetland. The field is very difficult geologically. It operates in difficult weather conditions and is the only field awaiting development there. A large number of licences are involved. BP Amoco is leading attempts to align the various interests but, as to timing, we must take into account the serious environmental impact on the area west of Shetland. The earliest possible approval and contract award would be mid-2001. Regrettably, I cannot suggest anything earlier.

I listened carefully to the points that have been made. Hon. Members know that I am available to them at any time to discuss the difficulties that the industry is experiencing. I do not want to hear us talk about the decline of the UK oil and gas industry: we are talking about managing change from the UK continental shelf in a way that secures an oil export industry that is for the benefit of all of us.

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