Oil and Gas Industry

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Miss Anne Begg (Aberdeen, South): As an Aberdeen Member, I am pleased to participate in this debate on the future of the oil and gas industry. As the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) said, the industry is crucial to the north-east. Many of my constituents either work directly in the industry or their jobs are dependent on it.

I agree with the Secretary of State that prospects for the oil and gas industry did not look so good two years ago. That is putting it mildly. We were worried that we might see the end of oil and gas in the North sea. Oil companies were talking about a new average price for oil and gas of about $10 a barrel. At that level, the North sea could just have survived on existing reserves. If the price dropped to $8 a barrel it would no longer be economic. It jogged along at $12 a barrel, but needed to be above $15 or $16 a barrel to justify new exploration.

Ironically, the north-east was relieved when the price of oil went up. It was not popular elsewhere, but the more cerebral of my constituents whose jobs are dependent on development in the North sea were pleased and relieved when oil was $30 a barrel, because that unblocked future exploration, production and development.

In her previous role as Minister for Energy and Competitiveness in Europe, the Secretary of State was in Aberdeen so often last summer at celebrations such as that for the BP Forties field and the opening of Amerada Hess's new field that we started to think of her as Minister for Aberdeen. Since then, work in the North sea has increased, and this year investment will be £4 billion.

My constituents, who two years ago saw a black future for the oil and gas industry, are much happier now. However, the key is whether the drillers are happy, because that suggests new exploration work in the future. I can report that the drillers are as happy as drillers ever can be.

Reserves in the North sea are still remarkably high and there is a long-term future—some predict another 30 years—for the oil and gas industry. That may not seem a long time compared with other industries, but 30 years ago it was predicted that the industry would last only 20 years, yet there are still reserves that will last for 30 more years. There are as many known reserves now that have not been developed or exploited as there were 20 years ago. The oil is there to be extracted, but that is becoming more difficult and the larger fields, such as Forties, do not exist any more.

Thanks to Government help, new initiatives have helped smaller oil companies to develop fields that the larger companies consider uneconomic. For example, the Secretary of State for Trade and Industry was present at the opening a few weeks ago of the new Talisman building in my constituency. The top of the building is lit with green lights and it stands out as a beacon of hope for the future of the oil and gas industry. It is part and parcel of the Aberdeen skyline.

Talisman, which started as a small company, is now a major player in the North sea. One reason why it could develop was the announcement by the then Secretary of State for Trade and Industry of a royalties remission on the new Beatrice field, which Talisman took over from BP. It was a win-win situation for the Government, because although they missed out on royalties, the field would not have been developed if they had not given that extra tax relief. Now that the field has been developed, they collect corporation and other relevant taxes, and there are 700 more jobs in the North sea, many of which have been taken by my constituents.

The Secretary of State mentioned the sterling work of the oil and gas task force, which has now been replaced by Pilot. Safety is certainly an issue in the North sea.

I make a plea to the Government to encourage even smaller companies to get involved in the development or recovery of fields abandoned by larger companies. One telling statistic is that, even on abandonment, there may be unrecovered reserves of 50 per cent. or more. Some companies are willing to take that on. They do not have huge overheads but they are looking for some kind of tax help. The roll-over tax relief certainly helped, but that was on exploration. I hope that the example of Talisman and the remission on royalties may be a way of encouraging small companies to take over the assets of larger companies and develop them in a way that the larger companies would be unable to do.

The key to all that will be partnerships between the Government and the industry and between the industry and those who work in the area of safety. As the hon. Member for West Aberdeenshire and Kincardine said, safety is crucial. There are worries about development and safety issues in the North sea. I hope that Pilot will continue to consider those issues and that the Health and Safety Executive's role will be strengthened to ensure that those who work in this dangerous occupation are fully protected and that any incidents are fully reported and not swept under the carpet.

The oil industry in the North sea is doing so well because this Government have provided a stable fiscal regime. When they came to power, my right hon. Friend the Chancellor considered the fiscal regime and took advice from the industry, and those of us from the north-east who advocated leaving well alone. I think that that coincided with the low oil price. With that background of stability, the oil companies have a responsibility to ensure that they put investment back into the North sea, protecting and creating the jobs that we want so much.

I would worry about the oil and gas industry's future if we did not have a Labour Government. The average annual tax take from sea oil revenues during the 1990s was about £2.1 billion. I have figures for 1998-99 and 1999-2000, when the tax take was £2.5 billion and £2.6 billion respectively. The spending deficit in Scotland—the difference between what it raises in taxes and what it spends—is almost £5 billion. In the unlikely event that the SNP wins power and we have an independent Scotland, there would be an almost £2.5 billion shortfall even if all the North sea revenues were included as part of the Scottish budget. That would create instability in the North sea. People would certainly be looking over their shoulder to see how that £2.5 billion would be made up. For the sake of the North sea oil industry's future, I am hopeful that, come the election—we do not know when it will be—people in the north-east will realise that they are better off with Labour.

11.58 am

Mr. Alex Salmond (Banff and Buchan): I do not want to rise to the bait, but I will say to the hon. Member for Aberdeen, South (Miss Begg) that the last time that we debated oil in a Grand Committee in Edinburgh—I remember it quite well—she seemed convinced that oil prices would be in the basement for the foreseeable future. She seemed to regard that as a reason to attack the Scottish National party. Now that the oil price is $25 a barrel, she has found another reason to attack us. Whether oil prices are down or up, there is no pleasing some people.

To be serious, if the hon. Lady glances at the Budget report, she will see that the forecast from the Government—which must be correct—is that oil revenues will be £6 billion, £6.2 billion, £5.4 billion, £5.7 billion and £4.8 billion over the next five years.

Miss Begg: The hon. Gentleman has made my point for me; there is no stability in the price of oil. To base the whole future of a country on the amount of revenue that people think that they might get at some time in the future would be extremely foolhardy, because the oil price is incredibly volatile and could go down just as easily as it has gone up.

Mr. Salmond: I am glad that the hon. Lady has raised that matter, to which I shall return in addressing how the future can be secured. I speak for Scotland, but my remarks could apply to the United Kingdom. This year, the surplus of revenue on expenditure for Scotland is over £2 billion; next year, on the Government's forecast, it will be more than £4 billion. The documents to which the hon. Lady refers are some two years old and date from a time when the United Kingdom Treasury was in substantial deficit. As we know, that has changed.

I hope that it will not cause the Secretary of State too much surprise or damage if I say that I approve of the Pilot initiative, for two reasons. The first is that it is, in my experience, probably the first Government initiative to look at the oil and gas industry not as a here-today, gone-tomorrow industry that will last 20 or 30 years but as something that will, if the correct policy decisions are made, last well into the future. Policy decisions are obviously only part of that perspective, but they could be enforced. I very much approve of the ambitious targets that were set out in the Pilot initiative. I approve of the production targets and the jobs targets. I also particularly approve of seeing oil and gas as a long-term industry that will be produced in significant quantities from around the Scottish coast 50 years from now.

When the hon. Member for West Aberdeenshire and Kincardine was at university, he weighed up whether he could have a full career in oil and gas or whether he should waste his time in the House of Commons or with Liberal Democrat politics; he eventually plumped for politics, but I am sure that he would have been an ornament to the oil and gas industry if he had chosen to enter it.

Sir Robert Smith: The advantage of being in politics is that one can help all those who chose a career in the oil and gas industry.

Mr. Salmond: It is true that I used to earn a very bare crust working in the industry in the 1980s, but that colours my experience. Even at that time the dominant view in the Treasury was that it was a short-term milch cow industry from which as much revenue as possible could be grabbed as quickly as possible because it would not be there in the 1990s, never mind in the next millennium. That is why I welcome the Pilot initiative. I shall come to questions about aspects of the Pilot initiative and what areas the Minister thinks have been successful.

The second reason that I welcome Pilot is because it overtook the oil and gas industrial taskforce, particularly the oil taxation review, which—it is only fair to remind the Secretary of State—was an intensely damaging experience over the 18 months of uncertainty from the 1997 general election. I disagree with the position of the hon. Member for West Aberdeenshire and Kincardine that one should never change oil taxation, but one should not change oil taxation or appear to be about to change it at a time of low oil prices. [Interruption.] Oil prices were low and declining at that time and that is not a good time to change oil and gas taxation or add to the uncertainty that was already substantially affecting the industry.

In the past, Conservative Governments have changed oil taxation. The biggest change and tightening of oil taxation was in 1980 when the Government of Baroness Thatcher—having taken over the taxation regime from the right hon. Member for Chesterfield (Mr. Benn)—vastly increased it. In other words, the Conservative party decided to tax more than the right hon. Member for Chesterfield. It was done against a background of very strong oil prices.

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Prepared 28 March 2001