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9 Jan 2003 : Column 380—continued

Mr. Joyce: The hon. Gentleman raises an interesting point. Travel time is a different concept in this context. Virtually everyone travels to work, but the travel-to-work arrangements for offshore workers are very specific and are governed by tight rules and regulations. I am sympathetic to that but, similarly, anyone who flies to and from work—the hon. Gentleman will have an understanding of that—has to comply with the rigid and strict implications that apply when travelling anywhere by air. To that extent, there are constraints on anyone who flies to work.

This is a difficult area in which to legislate, and the best thing may be for companies to recognise their obligations. However, it is important—I think that the hon. Gentleman is hinting at this—to recognise that workers can spend a great deal of time between the heliport and their place of work. There are tight constraints on their behaviour in the heliport and in the aircraft. I understand that this is the subject of continuing negotiations.

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As the Minister knows, the international convention on civil liability for oil pollution damage, to which the UK is a signatory, was adopted in 1969. It has since been subject to a number of additional protocols and amendments, most recently in 2000. In essence, the present situation, following the 2000 amendments, is that while liability for any spill technically rests with the shipowner, in practice a strict limit is placed on that liability unless wilful negligence can be proved. That is difficult to prove, even in cases such as the Prestige recently.

The size of the limited liability relates to the size of the vessel, but it is presently set at between #2.6 million and #52 million, although the larger figure would apply mainly to oil companies, which tend to be the operators of such large vessels.

Independent operators insure themselves through an insurance arrangement that mutualises the risk among them. I understand that the typical cost of coverage for a #25 million liability is about #5 million. Where the amount covered by the insurer is insufficient, and that liability is insufficient, the international oil producing countries fund meets the balance of the costs up to a limit, at present, of #117 million.

That fund is, in turn, realised by signatory Governments through a levy on the oil industry. The calculation of the levy is complex and I do not intend to go into it, but it is proportionately broken up between the oil companies according to their activity in that sphere.

The figure will soon be raised to reflect the increasing costs of cleaning up spillage and the increased perception of risk in that area. After the Prestige spill, the EU is set to propose, in advance of the International Maritime Organisation conference in May, that the figure covered by the IOPCF should be raised to Euro1 billion, or about #660 million. Moreover, I understand that although the limited liability figure placed on operators may be increased, it will not reflect that new overall figure of Euro1 billion. There will thus be a substantial increase in the oil industry liability but no proportionate increase in the liability for the shippers.

The major oil and gas companies accept that a substantial increase to their liability via the IOPCF is on the cards, although the extent to which they agree as to the necessity for that increase or its size is a moot point. In some cases, as operators themselves, they have a foot in both camps. That is why it is important that their point of view is heard on whether the possible failure to raise shippers' limited liability to reflect the new Euro1 billion figure will have the effect of ensuring that best practice for safety, health and the environment is maintained.

Oil companies use independent shippers for most of their transport. It is important to note that each time an oil company hires such a shipper, the operator's credentials are checked carefully. However, while oil companies can share limited inspectorial information—an inspection is carried out in each case—that is limited to a broad letter of comfort. Anything exceeding that opens the risk of breaching anti-trust legislation in force elsewhere. As a result, some bad apples will, from time to time, sneak through. Although we must be careful not to make the risk to the shipping industry prohibitive, we should also be aware that not increasing the liability to

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the industry in line with the likely new IOPCF liability of Euro1 billion could send the wrong messages to the small minority of operators who may be tempted to Xwing it".

I understand that, in February, the UK will take part in a summit of European Ministers with the aim of agreeing the new IOPCF figure at Euro1 billion. At that juncture, I urge my hon. Friend the Minister to raise the question of the limited liability figure placed on shipowners. Perhaps he can deal with that point in his response to the debate.

My third point relates to charges at St. Fergus, where gas is piped from the North sea through the Miller and Flags systems. The charges in fiscal terms and the future of wet gas in market and exploration terms are complex matters and I have neither the wish nor the expertise to reproduce that complexity in this debate. What I want to do is to flag up—if the pun is not lost on industry enthusiasts—the pivotal stage that we are approaching for jobs in places throughout the UK, such as Grangemouth, and the wider future of wet gas extraction from the North sea.

Wet gas reserves in UK waters will be exhausted relatively soon—within years. When that happens, the focus for extraction will be on the Norwegian sector. If present circumstances continue, and if the economics do not add up, there is a risk that the Norwegians will create their own infrastructure, thus bypassing St. Fergus and possibly dashing many related jobs in the UK wet-gas sector.

That alternative infrastructure—I draw on an excellent article by Alf Young in The Herald last Friday—could take the form of up to a #1 billion investment by the Norwegians to create a wet gas pipeline to a location that would compete aggressively with St. Fergus. It is reasonable to conclude that, if the pipeline investment were made and the pipeline were constructed, locations such as Bacton would almost certainly involve lower costs.

It is clear, of course, that the major players in the oil and gas industry have a crucial role to play, and I imagine that the relationship between those interests and the Government in this respect have been even more productive since the Chancellor abolished oil royalties in his excellent pre-Budget report. The energy White Paper will, no doubt, focus on wet gas, among many other issues, but I wonder whether the Minister can confirm whether that will be the case. Any comments on that would be most helpful.

I should like to conclude with what may to some seem like a statement of the obvious: we are all heavily dependent on the oil and gas industries, domestically, economically and even geopolitically. In the cut and thrust of public discourse, those facts are too often sidelined or regarded as unavoidable but undesirable necessities. Indeed, too often the wider public discourse about energy policy involves an unthinking excoriation of the oil and gas industry, and considerable adjustment is required.

Energy is a gripping part of public policy, and issues such as the growth of renewable sources and the future of the nuclear industry merit extensive treatment. Debate about the future of energy policy is not always helpful, however, when it is characterised by interventions that apparently seek to consider the oil

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and gas industry as lepers, and the wider geopolitical and economic basis on which our success as a modern society is based is sometimes viewed similarly.

Of course the reality is that, for at least another 30 or 40 years, our energy needs will be hugely reliant on our continued efficient exploration and exploitation of hydrocarbons the world over and, for as long as possible, in the United Kingdom. The Government enjoy strong relations with the oil and gas industry, with employers and trade unions. That acts very much in the interests of those whose jobs and future jobs depend on a buoyant offshore industry. In many ways, the interests of my constituents, people in Scotland and across the United Kingdom converge very closely much more often than people imagine with the interests of the oil and gas companies and wider oil and gas interests. I hope that the Minister can respond to the three points that I have made in the debate today.

4.27 pm

The Minister for Energy and Construction (Mr. Brian Wilson): I congratulate my hon. Friend the Member for Falkirk, West (Mr. Joyce) on securing this debate and on raising some important issues, including some that are not often raised even when the House considers the oil and gas industry. I am also grateful to him for courteously giving me notice of the issues that he has covered in advance of the debate.

I want to say something general about the Government's strategy and objectives in relation to the United Kingdom continental shelf. We are committed to doing everything in our power to maximise the economic recovery of oil and gas in the United Kingdom, and we work towards that objective in very close partnership with the industry through Pilot. In particular, we are working to attract new entrants into the North sea, where a good range of companies are active and continue to break new technological ground. Our fallow fuels initiative and Promote UKCS project have been successful recently in attracting companies from the USA and Canada that are new to the United Kingdom to invest in projects in the North sea. We intend to hold a new, 21st offshore licensing round early this year to give all those companies and, of course, the established players in the United Kingdom sector, further opportunities to invest.

However, I agree with my hon. Friend that it is crucial to maintain the industry's status as an attractive place to work. The Government and the industry recognise that the work force in the oil and gas sector are ageing and that the industry must be attractive to younger people, and we have been addressing that at all levels. For instance, last month, I launched the XOpportunities" graduate attraction scheme to raise awareness of the sector and to introduce talented youngsters to the exciting career opportunities on offer. That takes the form of a road show, which is currently touring the UK and visiting universities, particularly in Scotland, where young people who have entered the oil and gas industry are communicating with their peers about the prospects on offer. The Government are therefore committed strongly to working with the industry, through Pilot, to maximise continuing activity on the UK continental shelf, and to ensure that this country has a healthy oil and gas industry for a long time to come.

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I shall now turn to the specific issues raised by my hon. Friend about the working time directive. As he rightly says, it provides for weekly and night working-time limits, rest breaks and paid annual leave entitlements. As he mentioned, the offshore sector was excluded from the directive when it was adopted in 1993. Its provisions will be extended to cover the offshore sector and others that were previously excluded on 1 August this year through the horizontal amending directive.

We have already issued a consultation document to implement the horizontal amending directive through amendments to the working time regulations. That consultation began on 31 October, and is due to end on 31 January. As part of the consultation process, my officials are holding a series of meetings with employer and trade union representatives from the previously excluded sectors, including the offshore sector. My hon. Friend the Minister for Employment Relations, Industry and the Regions told me just before this debate that he has had meetings with both the employers and the trade unions in the offshore oil and gas sector. We are therefore acutely aware of the need to get this right and to ensure that the people who work in the industry benefit from the extension of the working time directive to offshore oil and gas.

As we are still within the consultation period, I am sure that my hon. Friend will recognise that I cannot comment on what might be in the final regulations. I can assure the House, however, that those workers covered by the amending regulations will receive all their entitlements, including annual leave. I should also like to pay tribute to the way in which employers and trades unions have engaged in discussion on this issue, and I assure him that his comments will be taken into account.

My hon. Friend then turned to the question of liability for offshore oil spillages and pollution from both shipping and the offshore industry. Two separate sets of arrangements exist. On pollution from shipping, for which the Department for Transport has policy responsibility, the 1992 protocol to the civil liability convention of 1969 determines the level of liability for oil pollution carried as cargo by oil tankers. The limit of liability is determined by the gross registered tonnage of the tanker. The minimum is equivalent to #2.6 million, with a maximum of #52 million. As my hon. Friend rightly said, when that limit proves insufficient, an international oil pollution compensation fund provides additional compensation up to an overall limit, which is currently equivalent to #117 million. That compensation fund receives its revenues through levies on major oil receivers in each of the contracting states to the convention and the fund.

I am pleased to let the House know that, following an initiative by the UK at the International Maritime Organisation in 2000, following the Erika oil spill off the French coast, the international oil pollution compensation fund regime limit will be increased with effect from 1 November this year to the equivalent of #176 million. That will also raise the shipowner's liability by 50 per cent. to a minimum of #3.9 million for a small tanker and a maximum of #78 million for a large tanker. We believe that that strikes a fair balance between the interests of potential claimants who suffer losses arising from oil pollution and the respective liabilities of shipowners, oil companies and other receivers.

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My hon. Friend is absolutely right when he talks about the supplementary approach being taken through the European Commission. As a response to the Erika incident, the Commission made a proposal for an EU compensation fund to supplement the international regime. This envisaged a limit of Euro100 billion, and it is due to be adopted by the International Maritime Organisation in May this year. The fund will be open to all contracting states to the civil liability convention international oil compensation fund regime. The limit will be determined at the IMO's diplomatic conference in May but, following the recent Prestige oil spill in Spain, EU Ministers at the Transport Council recently agreed to seek a limit of up to Euro1 billion, which is approximately #660 million. The Euro1 billion compensation will be in addition to the #176 million that I mentioned earlier.

I assure my hon. Friend that the United Kingdom is playing a prominent role in the EU and internationally to promote implementation of the proposed supplementary fund, as well as other international conventions dealing with maritime liability that arise from polluting and hazardous cargoes and pollution from ships' bunker fuel oils.

To put the figures in perspective, it is worth reflecting that, at the time of the Braer and the Sea Empress oil spills in January 1993 and February 1996, the overall limit available from the regime that existed at the time was approximately #51 million. All eligible claims were eventually met under that regime. The limit was subsequently raised to the current limit—the equivalent to #117 million—in June 1996. It is clear that the sums that are being talked about now as a compensation fund in the event of oil spills are and will be substantially greater than they have been in the past.

As I have said, there are two sets of arrangements. The other is for offshore oil installations and that reflects the different situation for structures in a fixed location, often many miles from land. Under the terms of their licence, every operator of an installation on the UK continental shelf must be party to the offshore pollution liability scheme. As a member, companies must demonstrate adequate financial ability—insurance cover, for example—to meet claims for pollution damage and remedial measures.

Companies must agree to accept strict liability for claims up to $120 million per incident, although payments beyond that are not ruled out. A recent study, part funded by my Department, confirmed that, in the vast majority of scenarios, the potential costs of damage and remedial action for pollution from an offshore installation would be considerably less than $120 million. A further provision of the scheme is that, if an operator should fail to meet claims for pollution, the other members of the scheme are obliged to step in to cover the default.

I hope that I have satisfied my hon. Friend that an active approach is being taken by the Government and internationally to ensure that the money is in place to cover all eventualities when spills and incidents occur. Of course, the most effective way of dealing with them is prevention rather than paying compensation in circumstances that are always damaging to the environment.

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My hon. Friend raised an important point about entry capacity charges at St. Fergus. He sees a reduction in those charges as critical in ensuring a future for St Fergus, so it is perhaps important to go over the history. The entry regime at St Fergus—that is, the arrangements governing the access by gas from offshore to Transco's national transmission system for gas—has been a live issue for a number of years. More than four years ago, in the autumn of 1998, entry capacity constraints arose as a result of a work overrun in de-bottlenecking entry capacity at St Fergus at the same time as a new oil-cum-gas field, the Britannia, was coming on stream. In the circumstances of the time, Transco addressed the problem of excess demand by Xscaling back". That was a short-term administrative solution that could not last into the longer term.

Ofgas was already working on what became known as the new gas trading arrangements to introduce a computer-based on-the-day commodity market in gas together with entry capacity auctions. Those reforms were introduced a year later, in October 1999. The new entry capacity auctions went some way towards replacing the old administrative arrangements for allocating entry capacity with a market-related solution, but they were only designed to allocate existing capacity. Given the excess demand for entry capacity at St. Fergus, the options led to high prices at St. Fergus.

The next step was to develop an investment regime to incentivise the construction of additional entry capacity when that is an appropriate response to market conditions. That has been a focus of Ofgem's work over the past few years. An innovative investment incentive regime is part of Transco's price control covering the period 2002–07. In parallel with the new investment regime, Transco is in the process of introducing long-term entry capacity auctions. Until now, Transco's auctions for entry capacity into the national transmission system have looked no further than six months ahead, but from next week—Wednesday 15 January to be precise—Transco will, for the first time, hold long-term entry capacity auctions. Those will cover not six months, but 15 years, which is the whole period until 2017.

The auction arrangements are complex. There are, however, three key points to which I should like to draw my hon. Friend's attention. First, for the first time the auctions cover possible new, as well as existing, entry capacity. Secondly, the auctions have an important link with Transco's new investment incentive regime, because the prices bid in the auctions, and the prices paid in the secondary markets following the auctions, will be taken into account by Transco when deciding whether to invest in new physical infrastructure. Thirdly, the auctions should help to put downward pressure on future entry capacity prices at St. Fergus and elsewhere because new entry capacity will have reserve prices set by Transco on what is essentially a cost-related basis.

I am sure my hon. Friend will understand that I am not in a position to forecast prices for entry capacity at St. Fergus or, indeed, anywhere else. What I can say is that for the first time, Ofgem and Transco have put in place arrangements that are designed to make a link between the market demand for entry capacity, the price of that capacity and the cost of increasing entry capacity. That should help the market to work more

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effectively so that it can signal where it needs additional entry capacity and for what it is willing to pay. It should also help it to respond to the opportunities to flow more gas where weak demand may be leading to low entry capacity prices.

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