Petroleum (Transfer of Functions) Regulations 2016

Baroness Jones of Whitchurch Excerpts

Tuesday 12th July 2016 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, these regulations transfer certain functions relating to the licensing and taxation of oil and gas from the Secretary of State for Energy and Climate Change to the Oil and Gas Authority. With the recent debates on the Energy Bill—now the Energy Act 2016—no doubt still fresh in our minds, I am sure that most noble Lords will be familiar with the background to the establishment of the Oil and Gas Authority and Sir Ian Wood’s review of maximising the economic recovery of petroleum from the United Kingdom continental shelf. However, for the sake of clarity I will outline briefly where we have got to.

The benefit our oil and gas industry has brought to the United Kingdom is not in doubt, with around 43 billion barrels of oil extracted, over £330 billion of taxes paid and many thousands of jobs supported. However, as one of the most mature regions in this global industry, it is now facing new challenges, with remaining reserves increasingly dispersed and more difficult and expensive to exploit. Notwithstanding this and the additional pressures resulting from low prices, there is still great value to be extracted from the North Sea and the continental shelf. The Wood review recommended that delivering on this required a new approach, and the focused attention of a new independent regulator and asset steward.

In response to this, the Government legislated to establish the principle of maximising economic recovery —MER UK—and has set out a strategy to deliver this. Industry and the Oil and Gas Authority are now required to act in accordance with this strategy when going about their business. The authority has also been established as an executive agency of the Department of Energy and Climate Change, and has made great progress. The successful passage of the Energy Bill—now Act—enables it to be set up as a government company and empowered with a broader range of tools to meet the challenge of MER UK, as envisaged by the Wood review.

A central part of the establishment of the Oil and Gas Authority is the transfer to it of essential functions currently exercised by the Secretary of State. Noble Lords may recall that Schedule 1 to the Energy Act provides for the transfer of the majority of these functions, including some relating to offshore oil and gas infrastructure, as well as the licensing of carbon dioxide and gas storage. However, it was decided that certain core functions in relation to petroleum licensing and taxation would not be transferred in that Act, due to the interdependencies with the new devolution settlements for Scotland and Wales, as outlined in the Scotland Act and the Wales Bill currently passing through another place.

Specifically, both those settlements include provision to devolve these functions in the onshore area. This all requires amending the same part of the Petroleum Act 1998. Due to the complexities caused by the sequencing of these pieces of legislation, it was decided that we would transfer these specific functions via regulation under the Energy Act to allow greater flexibility. The regulations before the Committee seek to give effect to this. The rationale for transferring these functions to the Oil and Gas Authority remains the same as for those transferred in the Energy Act; namely, the effective establishment and operation of the Oil and Gas Authority as a regulator and asset steward of the United Kingdom continental shelf. The only difference in this case is the legislative vehicle by which these functions are formally transferred.

It is worth noting that, as with the functions transferred in the Energy Act, these functions are all currently being exercised by the Oil and Gas Authority in its capacity as an executive agency of the Department of Energy and Climate Change. However, once the authority is established as a government company, it will be legally distinct from the department and, in order to continue to carry out its functions, they will need to be formally transferred to it.

In conclusion, these regulations make relatively minor amendments to legislation governing petroleum licensing and taxation, to enable the Oil and Gas Authority to continue the important work it is doing to regulate the oil and gas sector, and to ensure a smooth transfer of functions to Scottish and Welsh Ministers in due course. I beg to move.

[Baroness Jones of Whitchurch (Lab)]

My Lords, I thank the Minister for his introduction of the order before the Committee today. As he reminded us, this follows the Wood review into maximising the recovery of oil and gas from the UK continental shelf. The Oil and Gas Authority is already established under the Companies Act 2006; its functions have now been extended under the Energy Act 2016, subject to the provision introduced under the Scotland Act 2016 to devolve onshore oil and gas licensing in Scotland. As the Minister reminded us, debate on extending the powers to the OGA was extensively undertaken during the passage of the Energy Bill. At that time, we fully supported the creation of the OGA, with powers to co-ordinate the industry and secure the best outcomes for the next phases of North Sea development. I am sure the noble Lord will also recall the debates on our amendments to the Bill to extend its environmental functions and to give the OGA powers on strategic decommissioning of infrastructure, particularly in relation to the development of carbon capture and storage.

We are happy to agree the order but we would have liked the powers to have gone further. Therefore, I have just one aspect to follow up with the Minister. At the time, all sides of the House appreciated the advantages that would result from the development of carbon capture and storage. However, this technology is largely untested. So does the Minister agree that the OGA’s planned licensing role could include research into CCS to develop the technology in the field so that we could benefit from it in the future? Is there a role for the OGA in that capacity?

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Baroness for her contribution. She correctly described the structure of the OGA and the fact that it is incorporated under the Companies Act 2006. She is right that the Official Opposition fully supported this aspect of the Bill. She is also right about the importance of carbon capture and storage. We did accept some amendments on CCS, some of which are now in the Energy Act.

The noble Baroness will recall that I suggested the establishment of an advisory committee chaired by the noble Lord, Lord Oxburgh. That is just about at the end of its work. I am seeing the noble Lord, Lord Oxburgh, next week to discuss its findings, of which I have had sight of some of the most important. We will be looking very closely at that advice. We accept the importance of CCS. Indeed, I have been discussing with colleagues in other countries the possibility of collaboration because many countries are further forward than we are on carbon capture and storage; for example, Canada has a very successful CCS plant run on a commercial basis at Boundary Dam, which I believe is in Alberta. Other states are happy to collaborate as well, at least on research and data. I assure the noble Baroness that we see the importance of CCS and are keen to take it forward.

I am very happy to update the House on developments as and when they happen but the important point to watch for is the publication of the advisory committee’s report, which I think will be forthcoming, certainly within the next two weeks. I am sure that that will be widely circulated. I thank the noble Baroness for her support.