Future of the Oil and Gas Industry

Deidre Brock Excerpts

Thursday 14th March 2019 Westminster Hall

[Deidre Brock (Edinburgh North and Leith) (SNP)]

It is a pleasure to serve under your chairship, Mr Walker.

As has been mentioned, Scotland’s oil and gas industry is a world leader in many areas, health and safety being a notable one. Of course, we know the reason for that and we should pay our respects to the memory of the workers who have lost their lives in the industry, particularly in the Piper Alpha explosion and fire, but also in other incidents, including helicopter crashes, which the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) mentioned.

We should acknowledge that other workers have suffered serious injuries over the years while working in the industry. The safety record of North sea operations is better now, but that did not come easily or free of charge. The North sea industry has come a long way since its beginnings in the 1960s and the first gas from the Sea Gem rig, which gave us the first large-scale loss of life three months later. The industry has delivered substantial sums in wages, profits and taxes over the last half century, and it is incumbent on the Government to make a substantive contribution to decisions on the future of the industry, as the Committee’s report lays out.

That should include the transfer of skills to new industries, and it seems to me that renewable energy should be a major recipient of those transferred skills. Offshore wind farms and marine energy schemes would be ideal recipients of those skills. I recently had the privilege of visiting Nova Innovation, which is headquartered only a few hundred yards from my constituency office in Leith, and I was extremely impressed by the advances it is making and the pace of change in the offshore renewables industry. Nova leads the way in the tidal energy industry, and the Shetland tidal array looks like it may be at the leading edge of a new energy revolution. Just as Shetland was important in the development of the oil and gas industry, it may well be important in the development of the next energy industry.

While the Government are developing their future plan for the oil and gas industry, they really should be developing a parallel plan for the future of renewables that offers proper financial support for research and development and for connection to the grid. I have a bit of trouble having confidence in the UK Government to do that, however, given the record of past UK Governments when it comes to the North sea. Regulatory and taxation changes have come abruptly and swept in with very little consultation. Frankly, there is little in the current Government’s approach to legislating that gives me much hope of an alternative way of working.

[David Duguid]

Does the hon. Lady, my Committee colleague, agree with me and the testimony of witnesses that locating the Oil and Gas Authority, which is responsible for the regulations, in Aberdeen, close to the action, has already shown benefits and should show more in the future?

[Deidre Brock]

I agree that that was a definite point of progress and much to be welcomed, but the industry has been going for some 50 years, and some within it would argue that it was too little and almost too late. It is great that that came along, but much more can be done to support the industry.

As I mentioned with regard to improved support, I hope that the Government will surprise me, because the industry still has a lot to offer. The industry has plans to increase productivity so that in 16 years’ time it will be producing an additional £920 billion in revenue—not bad for an industry that we get told regularly is finished.

The scale of the contribution that the industry has made over the years is breathtaking. Scots will be aware of the famous, or infamous, McCrone report that was uncovered in 2005 by a friend of mine, Davie Hutchison, but written some years before he was born, in 1974. Professor McCrone was a UK Government civil servant at the time of writing, when he pointed out that the resources in the North sea were so enormous that they destroyed all the economic arguments against Scottish independence. Recently, Professor McCrone said that he regrets that the UK Government wasted that resource, frittering the income away, rather than investing in a sovereign wealth fund.

Furthermore, the McCrone report was written some years before the biggest discoveries in the North sea. Peak annual production did not come until 1999 and, as we have heard throughout the inquiry, new extraction techniques are increasing the potential recoverable resources even now. With another half century of extraction still possible, and new fields coming on stream in other areas, the industry has a long future yet. The Government need to step up to the plate.

One of the issues that has been mentioned is the protection of the environment and the development of serious carbon capture and storage proposals. Previous attempts to develop such schemes fell foul of Government inaction and broken promises. We need to see some serious commitment to making progress. I once heard about a pilot project, I think in Poland, where the carbon was captured and pressurised only to be driven a couple of hundred miles in tankers to the injection site, possibly defeating the purpose.

Some schemes that have been suggested before may well be capable of revival, and I am sure that more ideas would emerge when asked for. I hope that the Government will open the door to those ideas and help fund them, perhaps even hypothecating some of the revenue gleaned from the offshore industry, which should have gone into a sovereign wealth fund for Scots but is instead frittered away by successive UK Governments. The Government should consider doing a lot more for the environment with the resources brought in by the offshore industry. They could match the Saltire tidal energy challenge fund launched by the Scottish Government earlier this year, or reinstate the marine energy subsidy. If oil and gas were the energy choices in the second half of the 20th century, renewables will fill that role in the 21st century. We urgently need Government investment to make that industry a world leader.

The oil and gas industry is not dead yet, not by a long way. With at least as many years of exploitation left as we have already seen, there is still some way to go. The UK Government should sit down regularly with the industry to help plan the next half century. Vision 2035 is the industry view of the next few years; it would be good to see a UK Government vision or, better still, one agreed by the Government with the industry.

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[Douglas Chapman (Dunfermline and West Fife) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Walker. I thank the Committee members and the witnesses for helping to reach the well-considered conclusions and recommendations, and I thank the Chair, my hon. Friend the Member for Perth and North Perthshire (Pete Wishart), for his push to consider matters of real significance to Scotland. If one sector has been a dominant industry in the political discourse of Scotland in the past 40 or 50 years, it has been oil and gas.

Today’s Scottish oil and gas sector is in a strong position. With up to 20 billion barrels of oil equivalent remaining, there is enough to sustain production for the next 20 years and beyond. Recent discoveries such as the Capercaillie and Achmelvich wells by BP, the huge and significant gas reserves west of Shetland and Clair Ridge, and Nexen’s phase two of developing the Buzzard field, demonstrate the significant untapped potential that this industry holds should we wish to exploit reserves.

Figures published in the last week by the Oil and Gas Authority forecast that 11.9 billion barrels will be extracted by 2050, up almost 50% from the estimated 8 billion barrels predicted just four years ago. That is why the Scottish Government are keen to do everything they can to support the industry and its workforce. In 2016, the Scottish Government launched a £12 million transition training fund to help oil workers retrain and make the most of their transferable skills to forge careers in other sectors. Some 4,000 applications have been approved, with training satisfaction at around 90%.

We have helped the Scottish supply chain to capitalise on an expanding decommissioning market that is forecast to reach £17 billion by 2025. The decommissioning challenge fund has offered grant funding of £3.1 million for projects focused on delivering innovative infrastructure improvements and technological advances in this area. As part of the Aberdeen city region deal, the SNP has committed £90 million over the next decade to support the Oil & Gas Technology Centre.

We are looking at an uplift of over £194 million in the enterprise and energy budget to support entrepreneurship, construction and productivity. That additional funding will contribute to an investment of almost £2.4 billion in enterprise and skills through our enterprise agencies and skills bodies.

The Scottish Government offer an impressive range of support for the industry. As we move forward, I hope the UK can step up to the plate and do more to support the industry as it moves into its next phases of production. However, successive Tory and Labour Governments have continually exploited the oil and gas industry for cash, with little regard for its future sustainability. They have been quite content to rake in a tax take of £350 billion from North sea revenues alone over the past 50 years. The Tories failed to deliver any real fiscal support when the sector was in depression after the oil price dropped. I hope that is a lesson learned. This is an extremely important sector for the future, and we need to support it to allow it to continue, maintain jobs and transition out of oil and gas into other areas.

[Deidre Brock]

On successive UK Governments’ management of the oil resource, I should say that in recent years Norway’s state-owned oil sector has generated many billions of pounds in Government revenue, while the UK has lost many. Does my hon. Friend agree that that points to a gross mismanagement of this valuable resource over many years by successive UK Governments?

[Douglas Chapman]

My hon. Friend makes an excellent point. Norway’s population is very similar to Scotland’s and it has a similar ability make good from the resource it found on its doorstep. It now has the world’s largest sovereign wealth fund, yet in Scotland and the UK we have not put anything aside for future generations. That is a huge lost opportunity for the industry and the UK people.

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[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Richard Harrington)]

Certainly, Mr Walker. It is a great pleasure to serve under your chairmanship. The Chairman of the Scottish Affairs Committee referred to you as a distinguished member of the Panel of Chairs. The next time I appear in front of him in a different capacity, I will remind him of that, as it implies that he is less than distinguished. I am sure nobody could say that about him; in fact, Mr Walker, I think you would agree that the opposite is true.

I congratulate the Scottish Affairs Committee and its Chairman on bringing forward the report, which I have read. One never knows what happens with Committee reports behind the scenes—the whole idea, of course, is that that information is privileged to the Committee—but from what I can gather, the Committee is an exemplar in the way that its members work cross-party. With the greatest respect to the hon. Member for Dunfermline and West Fife (Douglas Chapman), the spokesman for the Scottish National party, most of the comments today were of a non-partisan nature. I will try to answer in that spirit.

Ministers in Westminster Hall debates either give a prepared speech—written by civil servants, then checked and rewritten by Ministers—or respond to comments; the difficulty is that so many comments were made today, and I disagree with so few of them, but I will absolutely do my best.

The former Prime Minister referred to this sector as the real jewel in the crown of the UK economy. Of course, I would refer to the former Prime Minister as the jewel in the crown, but he is not here to answer that. I briefly held the energy portfolio, but I am here today because there was a fight of a verbal nature between myself and the Minister for Energy and Clean Growth as to who should appear at this debate. I cover sector deals generally and she covers the oil and gas sector, but we are not both allowed to speak. I discussed the subject extensively with her and I am trying to speak for us both.

When I held the energy portfolio I went on a visit to Aberdeen, and I was amazed by the way the industry was fighting back from a real recession, if not depression, caused entirely by the reduction of the oil price on the international markets. I have not had any experience in oil and gas, but I realised that the cycle was similar to those in the mining sector that I had read about, though I have no experience in mining, either. Once skills disappear, it can be difficult to restart. In mining, as in oil rigs, some sites can become disused, and it is difficult to get them back into action. Exactly the opposite has happened; I was amazed by the way the oil and gas industry fought its way out of the recession, especially given that the core bit—the international commodity price of oil—is completely beyond its control.

To paraphrase some of the Brexit debate—the hon. Member for Dunfermline and West Fife brought Brexit into this, so I felt I should—the oil companies are market takers, rather than market makers. They cannot control the international oil price—the price of what they have to sell. At least, I assume they cannot; nothing I have read suggests that they can. The sector has changed itself into a lower-cost, more nimble industry, which is interesting. Some big companies found that difficult because of their high overheads, but other companies have come into the market, are more nimble and have new sources of cash. I found that fascinating.

On setting a regulatory environment in the oil and gas industry and funding for research and development—that funding can come about in different ways, including from Government—Government’s work has been absolutely brilliant. In these discussions, it is easy to criticise Governments generally, but please do not think I am making a party comment; any sensible Government would have done this. I am pleased to say that we have had a lot of sensible Governments in this country. My comments are not a reason for complacency, though; I hope hon. Members do not think that I am saying that.

I am completely ignoring the speech that I prepared because I was so excited by some of the things that were said. To an outside person, perhaps a reader of the Daily Mail, it may seem as if North sea oil is finished and the continental shelf is clapped out. The exact opposite seems to be the case. I am pleased that the report reiterates that, and that it has been confirmed by hon. Members. There is huge potential. I hope the Government are on top of it.

A formal response to the report will be made in the usual way. However, the major conclusion, as far as I can see, was that a sector deal—a really ambitious one—should be agreed. I absolutely share the Committee’s desire to support the sector; there is a close relationship there.

I will make one comment that might be politely critical, if it is possible to be politely critical, to the hon. Member for Edinburgh North and Leith (Deidre Brock) regarding what she said about the McCrone report. I know one should not talk about drinks party conversations, but I had the pleasure of meeting Gavin McCrone—I believe that is his name—once. I do not think it was quite a formal report. He was a well-respected adviser to different Scottish Secretaries of State, I seem to remember his telling me—if Gavin McCrone is the same person. The way the hon. Lady quoted him, if I may respectfully say so, was a little unfair to what has happened.

On sovereign wealth funds, Norway sounds really great—it is wonderful what it does; it invests billions of pounds all over the place—but it is a little bit selective to say that our money was squandered. First, as has been said, a lot of tax came from it. We have a big economy and a big population. It is not as though the money was spent somewhere else; it was spent for the benefit of everybody in the United Kingdom, so I do not accept the “squandering” point of view.

[Deidre Brock]

I think we will have to agree to disagree on the benefits or otherwise of sovereign wealth funds, but can I ask about the taxation situation and North sea oil revenues? In 2017, Norway taxed the Royal Dutch Shell company £4.6 billion, while the UK gave the company £176 million. Can the Minister talk a little bit about the implications of those figures? I find them quite staggering.

[Richard Harrington]

The hon. Lady has caught me unawares, because I am afraid tax is not one of my specialities; I apologise to her. I will find out about that, and if she would like me to write to her—or we could have a coffee together outwith this place—I would be happy to do so.

I should make some progress, because I am testing the patience of the Chair, and he wants two minutes left over. Trevor Garlick and the team have done a lot for the industry. He has brought a diverse sector together, which is the purpose of our sector deals; previously, most relationships between Government and companies seemed to be based on a few big companies that had very effective lobbying machines and knew the way the Government worked. In the oil and gas sector, he has helped to break that and has brought a lot of things forward.

The leadership has been very good, as have many of the work streams; we have five areas of focus in the report, but it seems to me that work on them is already being undertaken. For example, the National Decommissioning Centre has already been launched, with £38 million in funding. The Oil & Gas Technology Centre continues to lead on new technology and to support MER UK, which I was happy to visit in Aberdeen, on transformative technology. The work on exports that was mentioned is progressing well.

The work streams on other things that are part of Government policy, such as diversity and inclusion as well as CCUS, have developed very well. I was pleased that the Chancellor yesterday called for evidence to identify what more should be done to make Scotland and the UK a global hub for decommissioning, as the Chair of the Select Committee has talked about.