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29 Oct 2009 : Column 167WH—continued

The Government's response, dated 14 October, basically says, "We're doing things across the board," but says nothing about specific assistance. That ties into the two specific points that have been made, which I want to reinforce as strongly as I can.

First, it seems to me that, if we have a lot of well-established, well-used and fairly old plant that needs replacing to gain new generation investment, that would need some helpful banking finance up front. It might not be enough just to have general Government support for the banking industry. I ask the Minister specifically, if he can respond when he winds up, to confirm that he will take away what I think he has heard from every speaker so far: because oil and gas is one of the UK's most important industries, it is crucial that it should have the opportunity to obtain the credit and finance that it needs to be able to put the necessary infrastructure in place.

Secondly, there is a clear benefit to that, for the reasons that we have all discussed. At the moment, there are 350,000 to 400,000 jobs in the industry. Unemployment is rising, and we need people with engineering and technical skills in particular. It is vital that we use opportunities to give people training and work, particularly work, not just in the conventional activities of oil and gas exploration and bringing it home but, as colleagues have said, in developing opportunities in carbon capture and storage.

Again, will the Minister confirm in winding up that he has heard that message? We have a tough line in our party that the next range of coal power stations should all be carbon capture and storage from the beginning. That is increasingly the advice of environmental and climate change experts. If that is the case, we must be ahead of the game, not behind it. Given that we have a great country with a great engineering and scientific tradition, there is no reason why we should not be. The Americans in California have done a lot of work.
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Companies that come to see me say, "We have no technical problem; it's about taking it from the pilot scheme to an operating model."

This is also about jobs-new jobs in new skills. As the hon. Member for Angus said, the opportunity to continue to employ people in new things in the North sea, along our east coast and around the coast of Scotland, is as important as it is in old activities. That includes carbon capture and storage, but it also includes renewables: offshore wind, tide and the like. Those are what the Prime Minister might call green jobs-the jobs of the future. The Government get into a muddle about that. The Prime Minister says, "We're going to have all these green jobs," and then another Minister says, "There's no definition of a green job," so there is a problem, but the general argument is that they are job opportunities.

This is not special pleading; it is a point made by other colleagues. I am trying to reinforce the two last points that come up in the report. The point about access to infrastructure by small companies is clearly understood. The Government said in their reply, "There's a voluntary code, and we're keeping an eye on it," but colleagues from the region, particularly from Scotland, are saying that it does not appear to be working well. Smaller companies are saying that they do not find it easy to negotiate the deal. The law is in place; it should work. If it is not working, it needs to be revised, but if it is not working because it needs to be oiled as a bit of machinery, the Government need to produce pressure to get the oil working down the pipeline.

On the Shetland point, the Government say in their response to recommendation 20:

the United Kingdom continental shelf-

Anybody who has seen it, even from the shore or flying overhead, rather than by living and working in the west of Shetland, must understand that point. That is a fantastic opportunity, and the Minister has accepted it.

My hon. Friend the hon. Member for Orkney and Shetland, Tavish Scott and others are keen to press on the Government that the field allowance regime has not yet delivered. I understand when the Government say, "We can't have a regime that produces additional money where it doesn't need to be spent"-that is not good public expenditure-but the system must be flexible enough to ensure incentives where there is no activity currently. I am told that the application of the field allowance system announced in the Budget this year, though welcome, does not work for some of the technologies needed for the west of Shetland. If we are to explore there, that is important.

My last point is one that I made in an intervention. Some activity is bound to be very near the edge of our territorial waters. It makes absolute sense to collaborate with the Faroese authorities, as we have done in other things with Norway. Colleagues in Shetland would wish the result of the exploration to come directly to Shetland, rather than having to go all the way to the Faroes and come all the way back. I hope that the Minister will make it clear that he understands that. If he has the time-I know that it would mean an extra flight after his visit to Aberdeen-is he willing to visit Shetland and talk to colleagues there? That would be much appreciated.


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There is absolute commendation of the value of the oil and gas industry in this country and its contribution. We want to express our collective gratitude to both those who work in the industry and those who come here to brief us, particularly Oil and Gas UK, which is very good about keeping us well informed, answering any queries and ensuring that we understand the issues. I hope that in both the autumn statement and the Budget next year-the last Budget before the general election-the Government will do all that they can to be even more helpful, so that our oil and gas industries, which are two jewels in the crown of UK plc, have a successful future. It is not at all incompatible with saving the planet and averting the climate crisis to ensure that we intelligently and responsibly exploit the natural resources that we have been given, and they are two of the most important.

4.20 pm

Charles Hendry (Wealden) (Con): May I begin by referring on the record to the visits and conferences that are in the Register of Members' Interests? I also went to Moscow this week to speak at the international energy week conference that was organised by the Moscow chamber of commerce.

This has been a useful and constructive debate. The Select Committee's work in creating the report has been valuable and useful. I speak not only as the Conservative Front-Bench spokesman on this issue, but as a member of the Select Committee. It is a young Committee, but it has hit the ground running. It has already done valuable work. It is extremely well supported by the Clerks and officers, who have given some outstanding briefings. It has shown it is prepared to deal with the difficult issues. Many easier issues than this could have been adopted for the first report, but this is one of the most important issues for energy policy in Britain, and in Scotland in particular. It is to its credit that the Committee has put forward a report that is unanimous and meaningful. Sometimes it is difficult to achieve those two together.

The North sea and the oil and gas sector are often the forgotten element in energy policy. For all involved in this report and all those in Parliament, the oil and gas sector has been there for the whole of our political lives. It is sometimes taken for granted that, because it has worked well and has been successful, it will inevitably go on doing so. We must recognise the massive contribution the sector has made. In total, it has paid £271 billion in taxes. This year, it will pay £7 billion in taxes, which will account for a quarter of all the corporation tax collected in the UK. It provides between 65 and 70 per cent. of the country's primary energy demand. We all join the Minister and the hon. Member for North Southwark and Bermondsey (Simon Hughes) in paying tribute to the industry for its achievements, for driving forward investment and for the exceptional courage of all who work in the sector.

One of the most extraordinary visits I have ever made was with the British-American parliamentary group to BP at Houston in Texas. We saw the way in which new technology is being applied to an established industry. It is identifying potential new deposits under 10,000 feet of water and 20,000 feet of rocks using sonar equipment that is dragged across the top of the Gulf of Mexico.
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That can pinpoint to an area much smaller than the size of this room where should be drilled to give the best opportunity of success. This is not an old industry but an incredibly modern one. It is at the cutting edge of research and development. It is to the huge credit of Britain that British companies are the global leaders that are driving the industry forward.

The industry has been a great source of wealth for the country and an important element in our energy security, but we must adapt to a new world. Gas output is declining, bringing new challenges. We have discussed gas storage, which is one of the big challenges that the Government have to face. This country is critically short of gas storage. We have capacity for only a couple of weeks, compared with about 100 days in Germany and 120 days in France. Lord Hunt of Kings Heath, the Minister of State, Department of Energy and Climate Change, said recently that if all the projects that were planned to be built by 2012 were constructed on time, our gas storage would be increased by just five hours. That brings home how much more must be done.

We will inevitably become increasingly dependent on imported gas. The involvement of Russia has been mentioned. We currently import about 2 or 3 per cent. of our gas from Russia. That will almost certainly rise. We need to get a better understanding of the importance that gas will have in the mix in coming years. In his excellent introduction, the hon. Member for Sherwood (Paddy Tipping) said that 60 per cent. of our gas could be imported by 2020. In "The UK Low Carbon Transition Plan", the Government say that the figure will be only 40 per cent., whereas others say that it could be as high as 80 per cent. That is a wide range. The answer has important implications for the amount of gas storage that the country will need. We have facilities and areas where gas can be stored, but we must drive forward the investment.

There must be a normalisation of the relationship between Russia and Ukraine. The transit and domestic supply issues must be separated. Eventually, a proper market price must be paid in Ukraine for the gas it receives. We agree with the hon. Member for North Southwark and Bermondsey that there must be new pipelines to market. Nord Stream, South Stream and Nabucco can all contribute to ensuring that a smaller proportion of Europe's gas comes through Ukraine.

From what I heard in Moscow this week, the co-operation being sought by the Russian Government is encouraging. Prime Minister Putin himself has recently worked with the heads of energy companies actively to seek their involvement in developing the potential for liquefied natural gas facilities on the Yamal peninsula. He has set out clearly the terms of investment, the local expectations and the benefit to the Russian economy from technology and jobs. That element must not be taken for granted, but should be taken into consideration in this debate.

Simon Hughes: Russia has always sought bilateral arrangements with individual European countries such as Italy and France. Would the hon. Gentleman support a much more effective European Union energy strategy that challenged the dominant state positions of some EU countries, which have gone unchallenged in the history of the EU?


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Charles Hendry: It is important that energy policy remains as a retained power that is set at a nation state level. In January, we saw the extent of our interdependence in European energy policy. In response to a crisis thousands of miles away, we saw gas being pumped out of Britain at an alarmingly high rate when we were approaching our coldest winter for 18 years and should have been building up our gas storage. There is inevitable interdependence, but that does not stop me believing that the fundamental principles of energy policy should be decided at nation state level. We should decide the best way to meet our low carbon obligations and to ensure our energy security.

We have heard about the need for maintaining output at high levels. The report says that there is scope for between 11 billion and 37 billion barrels of oil in the future. Oil and Gas UK gives the figure of 25 billion barrels, which is roughly in the middle of that range. For that potential to be realised, there must be a greater strategy than we have at the moment. I join others in paying tribute to the work of PILOT. However, that has been more about setting targets than delivering a road map. To contrast this sector with the nuclear sector, the Office for Nuclear Development has a month-by-month plan of who should do what so that new nuclear plants can open within a decade. Everybody knows whose responsibility it is to keep that programme on track. We do not have the same road map in oil and gas. It is important that people know whose job it is to do what if we are to realise the potential of the sector.

The hon. Member for Sherwood was generous in his opening remarks-he is always very generous-in saying that the Government had responded favourably to the report. I felt that the Government response was a bit complacent and bland. It was full of warm words that suggest that everything that needs to be done is being done. It did not contain enough on recognising the extent of the challenges and the dropping off of investment activity, which is crucial for future development.

We have had a discussion about what more could be done to ensure that small and medium-sized companies that are still pretty big in the sector get access to the finance that they need, because a real struggle is going on with that. It would be interesting to hear more from the Minister on that.

We understand that the Minister is having discussions with the Treasury, but I must emphasise that the whole fiscal regime could not be more important. My hon. Friend the Member for Tatton (Mr. Osborne), the shadow Chancellor, has asked Tim Eggar-a distinguished former energy Minister-to look at the fiscal regime and report back to him early in the new year. We can then set out in great detail exactly how we would try to ensure that this sector prospers.

As the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) said, if one does not get the fiscal balance right, there will be no exploration and, without exploration, the relevant taxes will not come in. We all have a vested interest in ensuring that exploration work is continued as much as possible. It is important to have enhanced oil recovery in this area, and that work is done to invest in the declining fields. Again, those policies will be of fundamental importance to such areas.

The companies involved in the sector do not just look at the opportunities in the United Kingdom; they look globally. If, at the end of the day, they think there is a
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better regime somewhere else in the world, that is where they will invest. So we are truly in a competitive market in trying to secure that crucial investment in the United Kingdom.

We have had a discussion about the carbon capture and storage element. Again, the hon. Member for Sherwood talked gently to the Minister about there being no finishing line. I would put it slightly more robustly: the Government scheme is in chaos. We have seen the scheme changing over time and, as we have heard, the best opportunity, in Peterhead, closed down as a result of the delays. Initially, the scheme was to be only for post-combustion technology, even though for many of us the most exciting opportunities were in pre-combustion and oxy-fuel combustion technologies. However, they were ruled out at the outset.

In response to a lot of pressure from all parties, the Government decided to extend their scheme. So we now have one competition for a single post-combustion project, and potentially three other projects. While the delay has been going on and there is the lack of a finishing line, we are being overtaken by other countries-for example, the United States, Canada, Abu Dhabi, Germany, Norway or Australia. Around the world, companies and countries are moving ahead of Britain in an area where we could not have had a better opportunity to lead.

We have hundreds of years of coal supply, we have the technology and the skills base from the North sea sector, and we have the depleted oil and gas field. There could be no country with a better opportunity to lead the debate, so it is disappointing that we have slipped in terms of the leadership that Britain could have shown in that area. I know that the Minister is relatively new, but I hope that his enthusiasm-I always think of him as a sort of Duracell bunny Minister with boundless enthusiasm and energy-means that he can kick-start and drive the whole approach forward. If Britain does not take advantage of the situation now, in 20 years' time, we could be saying, "How did we lose out and why did we get it wrong?"-as in relation to the wind and other sectors. The leadership on this has to come from the Government.

The report also refers to the global opportunities that are in the UK. The companies that are leading in the North sea are those that have fantastic opportunities globally. However, the real reason why they have such unique opportunities is the maturity of our own industry. Such companies have had to do more on energy efficiency, more on eliminating flaring and more to ensure that they get the final remaining elements possible from the declining assets. Therefore, such companies can offer particular skills to countries that are behind the curve in that area. Through UK Trade and Investment and our embassies, I hope that we will advocate the opportunities for those British companies to try to deal with that.

Again, I go back to the issues in Russia. Prime Minister Putin has said that he wants international involvement and we must be foremost among the countries looking to take advantage of those international opportunities.

Simon Hughes: I endorse that by saying that there are new opportunities in parts of the world that are traditionally supportive of us, with which we have good links-for example, Ghana is looking at oil exploration offshore and potentially even Sierra Leone could do with some
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new investment coming in. There are plenty of places where good British people are already out there doing the work, bidding and getting some of the contracts. The opportunities do not stop at trying to do deals with places such as Russia; we have a good traditional base of support in continents in other parts of the world.

Charles Hendry: The hon. Gentleman is absolutely right. There is astonishment in some of these countries that, when they realise the potential and the size of the market available there, heavier weight representation is not made by the British Government. Such countries find that companies from other countries arrive with their energy Ministers, their Prime Ministers and a whole raft of ministerial support, while our representations are left to our very able diplomats on the ground, without that high level of ministerial support and representation. Again, that is an area where we need to step up to the plate more. If we take things for granted, some of those countries will simply look to other opportunities and businesses to help develop those assets and potentials, because they do not believe it matters enough to us.

We have heard from the Minister about some of his discussions with the Treasury, which are always challenging and interesting. In those discussions, I hope he will also consider some of the other aspects of Britain's national interests in this sector. The oil that we develop in Britain is particularly good for refining for petrol, but the declining market for petrol and the growing market for diesel means that we end up having to export a huge amount of petrol, particularly to the United States. However, we import phenomenal amounts of diesel, because the oil that is appropriate for that is found in other parts of the world. In the Minister's discussions with the Treasury, I hope that he will also look at that tax regime, because the tax regime on diesel vis-à-vis the tax regime on petrol will have an impact on the extent to which we can use our own resources.

In conclusion, the most important thing that we can say-this has come through clearly in the debate and in the report-is that this is a crucial industry that cannot be taken for granted. We have seen warning signs that investment is declining sharply, which means that in a few years' time, production will decline sharply, too. We have a vested interest in trying to make the best use of the natural resources that we have. We understand fully the challenges of climate change and of moving towards a low-carbon society. However, I agree with the hon. Member for North Southwark and Bermondsey that a distinction does not need to be drawn between those two approaches. We have a crucial need for energy security, and we have seen reports, even from the Government's own expert scientists, that say we could have power cuts in just a few years' time because so much plant is coming offline. When we have on-or under-our own doorstep such an extraordinary resource, it would be madness to allow it to dwindle unnecessarily fast. Clearly, that resource is finite in its nature, but it has a tremendous potential and it is vital to this country. The Government must respond by ensuring that that potential can be delivered.


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