Higher Oil Prices

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Peter Luff: The evidence of recent months is that we might not be faced with higher oil prices so much as with fluctuating oil prices. We live in an increasingly unknowable, unstable world, and that highlights the very real risk to the British economy, especially given the previous question on oil and gas pricing, of our increasing dependence on imported gas and our failure to develop adequate gas storage supplies to deal with the increasing uncertainty. Can the Minister give the Committee any encouragement that one consequence of oil and gas price instability is that the Government are giving much greater priority to ensuring that we have the gas storage necessary to even out the peaks and troughs and maintain British supply in the face of diminishing British production?
Mr. O'Brien: I certainly agree with the hon. Gentleman that dealing with the issue of storage is important. We want to address it, and we have been encouraging the companies to consider the extent of storage capacity—“rough”, as it has been called—to ensure that it is adequate.
I caution the hon. Gentleman that we have access to pipelines and the capacity to import from relatively friendly countries such as Norway. They operate in a market and will sell their gas to whomever pays the highest price, but we have long-term relationships with Norway. When it does not have particular problems, as it unfortunately did last year with a gas platform, it has been relatively reliable. The Langeled pipeline, for which I signed the treaty about four years ago when I was last an energy Minister, has proved valuable. We want to ensure that we have that sort of capacity to bring in gas as and when we need it.
A considerable amount of rough is available. The storage is full, and we want to ensure that we can go through winter securely with the access to that rough, or any other gas storage that we may need in due course. We are encouraging the companies to look at the opportunities to create extra rough and to ensure that we have the storage that we need for the market in the long term.
Mr. Robinson: Can my hon. and learned Friend tell us, while he is on gas storage, whether there are any plans in hand to increase it? I think that it is only a fraction of what they have in Germany, for example. We are right at the end of the main pipeline that comes from the turbulent central Asian countries, and therefore in the most prejudiced position. If the Government have any plans to increase our gas storage, which is perhaps a quarter the size of Germany’s, that would be very interesting to know.
I would like my hon. and learned Friend to reply to two points on social tariffs, which were mentioned earlier. He said that a certain amount of money had been put to one side—was it £325 million?
Mr. O'Brien: It was £225 million.
Mr. Robinson: That does not seem an awful lot of money in the context of what we are discussing, and given the importance that the European Commission has attached to the matter. When does my hon. and learned Friend think we will have the pension credit information available to us? I know that he played a big role in getting that legislation through, and it will be the most useful thing for us to know, at least in broad numbers. We will then have something to measure by. It is all right to say, as he did, that the gas and energy companies are meant to compete on social tariffs, but they do not even compete on price, let alone social tariffs. My question is simple—if I am in order, Mr. Taylor, as I am not used to this format. When are we going to have some information that we can actually use? My hon. and learned Friend is responsible for providing that information for us to measure the companies’ performance on the ground.
I turn to a couple of questions on the long-term situation. If gas and oil are going to be more difficult to recover, when will we have an idea of what longer-term reserves are available to the UK? I have in mind the Celtic approach in the other areas around these islands, which has good prospects. I asked the Minister’s predecessor about that and I got quite a positive reply that can be found on file. Will he indicate the extent of those reserves? They will become economical as the premise of the document before us is fulfilled. We have an advantageous price at the moment for oil and gas—it is coming down—but in the long term it will surely go back up and we can therefore look to recovering economic resources.
My last question concerns the Canadian oil sands. Can the Minister tell the Committee why those extensive, long-term future reserves have been abandoned? He might care to look into that. Although the oil is difficult to recover—the document makes this point, and the Government’s own policy specifically mentions the long term—there are enormous reserves in Canada.
Mr. O'Brien: On the Canadian oil sands, there are enormous reserves in Canada, and I met the Canadians last week to talk about their plans for developing them. I would hesitate a little over those plans because there are clearly environmental issues associated with the development of that kind of resource. It requires a considerable amount of carbon generation, and there is concern that that should be done in a way that minimises damage to the environment. However, as far as I am aware there is no abandonment of the fields. Indeed, the Canadian Government people whom I spoke to last week were supportive of the process of the private sector developing and extracting oil from the sands.
Mr. Robinson: I believe that my hon. and learned Friend will find that Shell has in fact abandoned a big project in the sands.
Mr. O'Brien: Shell has decided to withdraw, but I am also aware that there is a great deal of interest from several other companies. The Canadians led me to understand that they were expecting the extraction of oil to be expanded substantially in the longer term. However, we also discussed dealing with some of the issues associated with carbon capture and storage, which they, too, are interested in. They are also aware of the environmental problems caused by the extraction of oil from that kind of sand and the way in which it has to be done.
My hon. Friend asked a series of other questions, including whether there are plans to increase gas storage. The truth is that there are always plans to do that; the question is whether they are delivered. At present, some companies are indicating to us that they are interested in expanding storage capacity. I will not publicly list them, but I would say that I have heard such comments before. We really need to see some action and to have considerable investment going into gas storage. We certainly want to encourage that in the long term.
On the social tariff, the big six companies have indicated that they are prepared to put aside an additional amount—“additional” is the key word—of £225 million to bring more people into social tariffs. The difficulty is that when the new Pensions Bill is through—in the coming weeks, I hope—we would have to work out as of the start of next year, when the Bill or at least the relevant portions of it would come into effect, exactly how information that comes from the Government and information on consumers that comes from the various electricity and gas companies will be co-ordinated so that each company gets information about only its customers who are on pension credit. We do not want to give them all the information about all the people on pension credit. Therefore, it is important that we work through the process of how information will be exchanged.
We want the energy companies to work with us to agree a way in which information can be passed to them. They will then have to consider how to do so within the envelope of the £225 million, or whether they will need to go beyond that, and I suspect that they may have to consider that. In the past, they have signed up those people whom they knew were on very low incomes, particularly pensioners. They have done that themselves. They have always said to the Energy Minister, and certainly did to me four years ago, that they wanted that information and that if only they had it, they could put so many more people on to social tariffs. Well, now is their opportunity to show that they can, and I am looking forward to their doing so. They may need some encouragement, and we will do what we can to encourage them.
My hon. Friend made a point about the ability to measure the performance of energy companies, and he is right. We disclose the number of pensioners on pension credit, so it will be possible, at least collectively, to measure the number of pensioners who are put on to the social tariff. We shall have a performance management mechanism, but the energy companies have not quite grasped that. It will be public and open, and I am sure that the media will be interested in seeing how well those companies are doing in helping their customers who are on very low incomes, and in ensuring that they are not paying more than they should for their energy.
Turning to difficult-to-recover oil and gas, particularly that on the UK continental shelf, there are prospects for the next 30 years or more. The question is not whether it is there; it is whether it is economic to access it. Some of the reserves are smaller, in deeper water and more difficult to access for various reasons. Not so many big oil and gas companies are developing substantial reserves because the easy-to-access reserves have been developed. We reached the peak around 1999, and it has been dropping off since then. The ability to access that oil and gas, and the economic viability of some of the projects, will be affected, and there will be a gentle decline in the UK’s CS development of oil and gas. That is inevitable. It is dropping off by about 9 per cent. a year, and we expect that to continue for a significant period.
It will be decades before that becomes uneconomic, but given the recent problems in the financial markets, many oil and gas companies that carry out exploitation and exploration activities in the North sea particularly, but also in other parts of the UK continental shelf, are looking for finance. Companies in America and other countries are also looking at the price of oil and gas, and for us as consumers the fact that the price of oil and gas is falling is a good thing, but if someone is considering a substantial investment in exploration in a difficult-to-access reserve, it is not so good because profits are likely to be lower.
Charles Hendry: May I question the Minister a little further about fuel poverty, which is such a key element in this report? He will be aware that the Government have given the United Kingdom a statutory duty to end fuel poverty for vulnerable households by 2010 and for all households by 2016. The indications are that we are moving strongly in the wrong direction: the Government’s own figures show 3.5 million households in fuel poverty, representing an increase of 1 million in the number of households in that position. Energywatch estimated that the true figure is about 5.5 million households.
The Minister will also be aware that last month there was an attempt by Friends of the Earth and Help the Aged to get the Government into court on this issue and to have a judicial review because they said the Government were not meeting their own targets. What is the outcome following the loss of that court case? Do the Government no longer have a statutory duty to end fuel poverty?
The Chairman: Before I call the Minister to respond, I remind him that we are close to the end of the time allotted for questions. I want to move on at 5.30 pm.
Mr. O'Brien: Thank you, Mr. Taylor. Since 1997, fuel poverty has fallen—as a result of our policies, there was a significant drop after we came to government. We still have 900,000 people out of fuel poverty who were in fuel poverty when the Conservative party was in power—if we had continued the policies of the Conservatives in government, far more people would be in fuel poverty—mainly because we have taken a number of steps to help people. We have also made changes in the market that have lifted people out of fuel poverty.
I assure the hon. Member for Wealden that we are taking steps through the insulation package that the Prime Minister announced in September, which will mean that a lot of people can reduce their fuel bills, and through the winter fuel payments to increase the amount of money that goes to pensioners in particular. For people over 60, the winter fuel payment is increasing from £200 to £250 and for those over 80 it is increasing from £300 to £400. As we know, people over 80 are most susceptible to hypothermia, so it is important that we help them the most—and we have done so.
The hon. Gentleman will be aware that the increase in winter fuel payments does not necessarily affect the fuel poverty figures. That means that although those payments are important for individuals, they do not necessarily impact substantially on the statistics because of how the statistics work. We need not get into that. The point I am making is that fuel poverty has fallen under this Government. If I were him, I would not raise the issue at all, because on this matter the record of his party in government was absolutely abysmal.
While we are talking about the record of the hon. Gentleman’s party and what is happening in respect of fuel poverty, I would appreciate it if he took the opportunity—no doubt he will do so in a moment—to tell us about the fair fuel stabiliser, which his party advocated back in July and under which the price of oil and petrol would increase substantially for the consumer. We estimate that there would be an increase—
The Chairman: Order. The debate should focus on the Committee’s analysis of the causes of the recent increase in oil prices and the proposed course of action.
Mr. O'Brien: Thank you, Mr. Taylor. Indeed, I was, I hope, looking at the price that people have to pay for fuel.
There are various ways in which it is suggested that the price of fuel could be reduced or increased. The official Opposition introduced a policy—a proposal that they asked us to undertake—that would have meant, initially, a reduction in the price of petrol, but which would, now, mean a substantial rise. I would like to know how far they accept that the price of petrol would rise under their policies, because it looks like 5p a litre extra would have been added on top of the average petrol price if we had accepted that view from the Conservatives. That is what we think they are proposing and at some point I hope the hon. Member for Wealden will be able to reassure the Committee that they have dropped their support for the so-called fair fuel stabiliser, because it is not fair.
The Chairman: We have come to the end of the time allotted for questions. I call the Minister to move the motion.
Motion made, and Question proposed,
That the Committee takes note of European Union Document No. 10824/08, Commission Communication on Facing the Challenge of Higher Oil Prices; and welcomes the Government’s support for appropriate action at the European level, where this would be effective in furthering energy efficiency, security of supply and the development of a liberalised energy market within the Union, and the Government’s own response to higher oil prices, in particular the Global Energy Initiative.—[Mr. Mike O’Brien.]
5.30 pm
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Prepared 5 November 2008