Westminster Hall
Thursday 29 October 2009
[Sir Nicholas Winterton in the Chair]
Oil and Gas
[Relevant documents: First Report from the Energy and Climate Change Committee, on UK Offshore Oil and Gas, HC 341-I, and the Government response, HC 1010.]
Motion made, and Question proposed, That the sitting be now adjourned.-(Steve McCabe.)
2.30 pm
Paddy Tipping (Sherwood) (Lab): I am delighted to speak about the first report of the Energy and Climate Change Committee. As the first report of this new Select Committee, it is the first bit of work that we have undertaken, and we now have a 100 per cent. record: we have produced a report and are having a debate about it in Westminster Hall.
Perhaps I could just say a few words about the Select Committee's inquiry. It involved three public evidence sessions in March, one of which was held in Aberdeen. I believe that there is a strong desire across the House for Select Committees to get out and about and take evidence elsewhere. We had a range of witnesses: the Oil and Gas Independents Association, the Royal Society for the Protection of Birds, Professor Alexander Kemp, who also acted as an adviser to the Committee, the trade association Oil and Gas UK, and the Minister of State, Department of Health, my Friend the right hon. and learned Member for North Warwickshire (Mr. O'Brien), who was then the Minister for Energy and E-Commerce, and his officials. In Aberdeen, the Committee had a breakfast meeting hosted by the Scottish Council for Development and Industry that brought together more than 50 individuals who work in the oil and gas sector and related businesses, and we visited Subsea UK-the trade body that represents those who work in the subsea supply chain.
The Select Committee's report, which was unanimous-there was a lively discussion around its conclusion-was published on 30 June. Perhaps I could highlight briefly some of the issues that are contained in it. The Select Committee believes that we must move to a low-carbon economy, and that we must decarbonise our generating industry. At the same time, there is practical acknowledgment that the UK continental shelf will continue to provide oil and gas resources for a long time. It is vital, therefore, that we make best use of those resources.
We live in a difficult time for the economy and the environment. There are real concerns about the future of our energy policy. In broad terms, the Government's energy policy depends on three pillars: first, the need to combat climate change; secondly, affordable products for consumers; and thirdly, security of supply. It is security of supply that I want to turn to first.
The UK has traditionally been a net exporter of gas and oil, but the situation has changed and is continuing to change rapidly. Last year, in 2008-09, 40 per cent. of our gas was imported, and figures from the Department
of Energy and Climate Change suggest that 60 per cent. of the UK's gas needs could be met from imports by 2020. That is a remarkable change-around from being a net exporter of gas.
The situation is highlighted and put into profile by the difficulties with the transmission and export of gas. The Minister will have followed the dispute between Russia and Ukraine about the transport of gas, which was an issue primarily for Ukraine but one that affected major economies in western Europe. I am interested in the gas industry in Russia. Gazprom is a good company in many respects, but people who have dealings with it and the Russian economy are concerned about the transparency and openness of the gas market there. To be so heavily dependent on gas from abroad, particularly from Russia, may not be a wise way forward.
Of course, Gazprom always tells me that the majority of its product goes to the west. However, there is a ready market to the east as well, so Russia is not dependent on the market in western Europe.
Simon Hughes (North Southwark and Bermondsey) (LD): I appreciate that this debate is about UK offshore oil and gas, but the hon. Gentleman rightly puts the subject in the context of the wider European and global oil and gas industry. Did his Committee form the view during its inquiry that it would be in the interests of the UK, as well as more widely, that there is a much more clearly integrated European energy policy to give the continent, as well as the UK, security of supply?
Paddy Tipping: Those of us who believe in the benefits of the European Union believe that that issue comes high up the agenda. The Committee came to no formal decision about it, but we hope to visit Brussels soon to discuss that exact point, among others. If we had a more transparent gas market across Europe, for which many of us have argued for a long time-that has been the Commission's position for as long as I can remember, and it has been promised for at least a decade-we could make some progress.
The notion of European direction on a European market and transmission system makes a great deal of sense long-term for Europe and particularly for the UK. But of course, one thing that makes it so significant is that, because we have reserves in the North sea, the gas storage facilities here in the UK have been limited. Again, using the Department's own figures, there is storage for 13 days' supply of gas in the UK, compared with 99 in Germany and 122 in France.
There is recognition that more needs to be done. There are a number of planning applications in for new projects of this kind, but some are facing real difficulty and real objections. Faced with a heavy winter, there are concerns, which are shared across the industry, that the present storage capacity is not sufficient. Therefore, being able to extract more, more quickly from the UK's own reserves makes a great deal of sense. The Prime Minister's own adviser, in the Wicks report, has just looked at this issue. I suspect that there has been far too little discussion about the importance of security of supply, compared to climate change, but that is a real, pressing issue. I say gently to the Minister and the Secretary of State that, if the lights go off in the UK, it will not be the chief executive of E.ON UK, Paul Golby, who is called to account, but the Minister and his officials.
Charles Hendry (Wealden) (Con): The Minister will be long gone by then.
Paddy Tipping: Yes, he would be in the firing line. He is coping well with his new tasks, but let me bring this point to the forefront of his mind.
The second issue that we must take into account, which the Committee considered, is the importance of gas and oil revenues in the UK. The industry employs about 350,000 people, so it is a significant employer, particularly in the Aberdeen area. The industry acknowledges and predicts tough times ahead over the next two years: there is a suggestion that 14 per cent. of those jobs could be lost in that time. There is an argument for moving people away from working in the oil and gas industry into offshore renewables and carbon capture and storage; but ultimately, we need to acknowledge the importance of the industry for our economy.
As I have said, oil and gas production is declining. It peaked in 1999 and is declining by about 5 per cent. annually. There are various estimates of the amount of oil and gas remaining, ranging from around 11 billion to 37 billion barrels of oil equivalent. That is a marked gap. The Government-the Department-take a mid-term estimate, which might be a sensible way of going forward. A lot of the discussion about future extraction depends, of course, on the price of oil and gas. But it would make sense to try to have further, more detailed and precise estimates on the way forward.
The Select Committee commented that the industry faces a
"quadruple whammy"-
taking a phrase from your party, Sir Nicholas-
"of high costs, low prices, lack of affordable credit and a global recession."
So we need to be clear that the industry faces a tough time.
Sir Nicholas Winterton (in the Chair): Order. Just for accuracy, in the Chair, I have no political party: I am entirely unbiased, and I listen with an open mind and open ears to everything that is said.
Paddy Tipping: I know that to be the case, Sir Nicholas. I have heard you make comments, in the Chair and elsewhere, about various parties, including your own. That reflects a lack of partisanship.
The industry acknowledges that there are real problems and says that, by 2010, 50,000 jobs could disappear. So, for the industry, the issue of credit is live and important. Some banks-a limited number-are prepared to invest for the future, but the sector faces a tough time for credit, as does all industry.
There was a long discussion in the Select Committee about the measures in the 2009 Budget, and we received a lot of evidence about it, particularly about a new initiative called the field allowance, which was generally welcomed, to allow the development of and extraction from new fields. But the Select Committee's view is that that does not go far enough. It is early days for that initiative, which concentrates on new development. We need to consider carefully making best use of and maximising the resources from existing, established oil fields. The field allowance does not do that, and there is no agreement across the sector that the major area left for development west of Shetland will be brought forward by the use of field allowances.
The area west of Shetland is an important resource that provides 20 per cent. of our future needs. It is important that there is a strategic view on how we can get into that field, discover oil-discoveries are being made-and bring it back. The Government have a role to play in this. This takes us to the heart of the argument on small government and big government. We have intervened in a big way in the bank sector. The Government will have to think through carefully what their role is in respect of the oil and gas sector and how far they will play a more interventionist, positive role.
We received evidence on the environment. Many environmental organisations are, to put it bluntly, giving the oil and gas industry a bad press, but the record on the ground or out at sea is not bad. The big companies are keen to meet their environmental responsibilities. The industry feels that it has done a lot, but it is an area that needs careful consideration.
Finally, the Select Committee was interested in the development of carbon capture and storage, which the Government are also interested in and making progress on. However, although they describe themselves as a world leader in that regard, I am not sure whether that is so. The notion that we can capture carbon from coal-fired power stations and sequestrate it into former oil fields is good for the coal industry and could be good for the oil and gas industry. The Government are committed to going forward on this issue. Currently, there is a competition to try to identify four pilots for demonstration projects. However, I say gently to the Minister that, at the moment, this appears to be a competition without a finishing line and that the finishing line has been moved on a number of occasions.
If the Government want to make a proud claim that they are a world leader, they need to match their rhetoric with reality. It will be good for the oil industry if we can do that and good for my area, too. Perhaps I can make a local point. Harworth colliery in Nottinghamshire is presently mothballed, and it will take £200 million to access new coal reserves there. UK Coal is confident that it can do it, but is finding it difficult in the present financial climate to raise money from the market. There is a discussion with the European Investment Bank about making that money available. A number of hurdles have been jumped; but ultimately, the EIB is asking whether the coal can be burned more cleanly. At present, there is nowhere in the UK where coal can be burned using clean technology or carbon capture and sequestration. Although there is rhetoric on carbon capture and storage, many of us believe that much more needs to be done much more quickly.
Despite criticisms, the Government responded favourably to the report, and produced their response on 16 October. They welcomed it, and I shall pick up one or two points from their response. They accepted that we must maximise resources from existing gas and oil fields and said that they would work with the industry to produce
"a more effective performance framework...which would focus on more accountable measures, or a basket of measures."
Will the Minister tell us today what that basket of measures might be? There is agreement in principle on the way forward, but it is incumbent on the Government to state clearly for the oil and gas industry how it might go forward.
The Government also said, to my surprise, that complaints from the oil and gas industry about difficulties with their banking facilities and raising capital for new development
"do not seem to differ significantly from"
other parts of the economy. In fairness, people in Aberdeen could argue that the Government have provided major aid in a variety of ways to the car industry. They have some responsibility, given that oil and gas are strategic assets, to consider carefully how more readily available finance could be found for the industry to move into the future. A few of us of a more radical hue find it hard to understand why, as a major shareholder in banks, the Chancellor cannot influence better behaviour. Shareholders can argue for changes, and I am not convinced that we are using the leverage that we undoubtedly have to produce better results.
A further area of discussion is the notion of using a common infrastructure and common pipes when developing oil and gas fields, and it makes sense to use commonality of infrastructure whenever possible. There have been difficulties with companies agreeing to that, but there is a structure for forcing that through. The Government possess reserve powers, but they have never been used. In their response, the Government state that they are
"working with the industry, through improving guidance...and through other initiatives, to strengthen the voluntary arrangements".
The Committee and I, and particularly the industry, would be interested to know what steps the Government intend to take.
Taxation and the introduction of field allowances have been an issue. I have acknowledged that these are early days for seeing how that develops, but the Government have said that they
"will continue to review the effectiveness of the field allowance".
There may be an opportunity for the Minister to make a lengthy reply, and again it would be helpful if he used that opportunity. He will say that it is a matter for the Treasury, not for him, but I am keen to know what representations the Department is making to the Treasury.
I turn to the marine environment. You will know, Sir Nicholas, as will hon. Members in the Chamber, that this week the House agreed radical and landmark legislation in the Marine and Coastal Access Bill. The Minister's Parliamentary Private Secretary has been involved in that, and it gave us the opportunity to consider the marine environment in detail. Extraction west of Shetland will, by definition, produce major environmental issues that must be considered carefully. The Government have a lot of information, as have the oil companies, and a lot of survey work has been done; but ultimately, in the light of the new legislation, the Government should practice what they preach and consider a comprehensive study of environmental factors and constraints west of Shetland if we are to balance economic growth and environmental protection. It is important to have the best possible knowledge.
I welcome the work that my Committee colleagues have done and the evidence that was provided by our witnesses. I also welcome the Government's response; but ultimately, our long-term interest is to ensure that the UK really does have security of supply. The Government must treat the matter extremely seriously, acknowledge the problem and discuss the way forward. As always with the energy industry, there is a view that the
Government's rhetoric and good intent must be matched with real action. The report sets out some steps for real action. The Government are on the road, and I hope that they will look closely at the recommendations, work with the industry and ensure that we maximise the reserves that are left for us and our children.
Sir Nicholas Winterton (in the Chair): Order. I intend to call the Minister last, and he will be preceded by Her Majesty's Opposition spokesman, who will be preceded by the hon. Member for North Southwark and Bermondsey (Simon Hughes). I will also call other hon. Members who catch my eye.
Simon Hughes: On a point of order, Sir Nicholas. Following that indication, will you reconsider and give permission for the Minister to speak next, because the Government have given their response, and then to speak at the end of the debate, with your leave and that of the House? It might be helpful for colleagues to hear the Minister's response, so that they may then respond. We have seen the Government's written response to the report and I think that there would be time for the Minister, as well as the Committee Chairman, to wind up.
Sir Nicholas Winterton (in the Chair): I do not believe that that suggestion has ever been made to me during all the years that I have been a member of the Chairmen's Panel, but I am happy to work with the House on this matter. If hon. Members believe that it would be helpful for the Minster to speak next, I will be happy to call him, if he is prepared to speak.
The Parliamentary Under-Secretary of State for Energy and Climate Change (Mr. David Kidney) indicated assent.
Sir Nicholas Winterton (in the Chair): Given the number of hon. Members present, it may be possible, with the permission of the House, for the Minster to speak again at the end. We can be flexible in the Chamber to meet the requirements of hon. Members who are participating in the debate.
2.59 pm
The Parliamentary Under-Secretary of State for Energy and Climate Change (Mr. David Kidney): I am pleased to follow my hon. Friend the Member for Sherwood (Paddy Tipping), who is so ably now chairing the Select Committee. I enjoyed reading its report on UK offshore oil and gas, and I am glad that the Chamber has the opportunity to debate it, and to highlight the huge contribution that the North sea and the oil and gas industry make to UK energy needs and our economy.
The oil and gas industry in the UK is one of our most important and impressive industries. Since the beginning of offshore development four decades ago, we have seen a sequence of major, often unprecedented engineering projects, requiring huge investments and repeatedly groundbreaking innovation. I pay tribute to the enterprise and commitment of the companies and individuals who have made that possible.
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