Oil and Gas Industry

John McNally Excerpts

Tuesday 9th October 2018 Westminster Hall

[John Mc Nally (Falkirk) (SNP)]

I beg to move,

That this House has considered the future of the oil and gas industry.

It is a pleasure to serve under your chairmanship, Mr Hollobone.

I start my contribution today by taking a moment to remember the 167 workers who lost their lives 30 years ago in the Piper Alpha disaster, off the coast of Aberdeen, on 6 July 1988. Piper Alpha is the world’s deadliest ever oil rig accident. This anniversary is and should be a reminder to us all that we must remain vigilant and do all we can to help the oil and gas sector in seeking to eliminate major hazards and risks.

I will focus my remarks on the success of the North sea oil and gas industry, and on how the sector is working alongside its partners downstream and in its supply chain to secure a lower-carbon future. I will also outline two choices that the UK Government must make. The first is to protect existing labour and supply chains through the single market and customs union membership, or risk sacrificing world-leading firms and skilled, productive jobs.

[Martyn Day (Linlithgow and East Falkirk) (SNP)]

I am grateful to my hon. Friend for securing this important debate and for taking an intervention so early. Grangemouth, which is in my constituency, is home to Scotland’s only crude oil refinery, as well as the terminus of the North sea Forties pipeline system. It hosts a number of petrochemical plants and leading players in the chemicals industry, and it accounts for more than a third of the chemical sector’s gross value added in Scotland. In total, 60% of the UK’s chemical exports and 75% of imports are to and from the EU. How important is it to have frictionless, tariff-free trade, and to ensure that multinational companies can move their staff between different countries to support local jobs and growth across districts?

[John Mc Nally]

My hon. Friend makes an excellent point; it is absolutely essential that we remain in the customs union. Of course, I will come on to the importance of frictionless trade and the supply of labour later in my speech; indeed, I hope that everybody will speak about that.

The second choice that the UK Government must make is to recognise the £350 billion contribution to the Treasury that the sector has made over the past 50 years and provide the political certainty and financial support it needs now, or risk undermining North sea oil and gas by once again using it as a cash cow, this time to pay for Brexit Britain.

With sales up by 18.2% between 2016-17 and 2017-18 and the North sea holding up to 20 billion barrels of oil, the sector is in very strong health. Recent industry announcements, such as BP’s successful discoveries in the Capercaillie and Achmelvich wells, Nexen’s phase II development of the Buzzard field, and the Norwegian oil and gas giant Equinor’s deal to buy Rosebank’s share of the oil reserves to the west of Shetland, demonstrate the enormous investment potential that the United Kingdom continental shelf still holds.

The sector supports 283,000 jobs across the UK. In the town of Grangemouth, which is in my neighbouring constituency of Linlithgow and East Falkirk, INEOS alone employs 1,300 people, including seven new apprentices, who started training in 2017. Those figures somewhat contradict the predictions we hear about the sector’s constant decline. Healthy investment is continuing.

[Martyn Day]

I am grateful to my hon. Friend for giving way again and for mentioning the great work that goes on in my constituency. INEOS, which now owns the Forties pipeline system, estimates that the economic life of the asset will be extended to 2040, which is 10 years longer than BP’s original projection. INEOS has already invested £500 million in the Grangemouth site in the last five years, and it is now investing in infrastructure projects at Grangemouth that will have a further positive impact on the longevity and reliability of the Forties pipeline. The firm has already committed to the UK’s North sea sector with investment in the northern gasfields west of Shetland, which contain the Lyon prospect. However, I wonder how much potential investment by the wider sector has been delayed until the uncertainty of Brexit has passed. Will he join me in calling on the UK Government to do more to stimulate exploration and investment?

[John Mc Nally]

I thank my hon. Friend for that intervention; again, he makes a very good point indeed. He is right to raise the concerns about investment, and I join him in calling for the UK Government to support and encourage investment in this vital asset that we have on our shores. I give him my full support in that regard.

Healthy investment is continuing, even though in some cases the level may not be as good as it should be, and new discoveries are being made and developed. In 2017-18, revenues from Scottish North sea oil and gas increased to £1.3 billion. Surely it is now time that the UK Government acted to support the sector’s future.

The sector recognises the need to decarbonise our economy and its responsibilities in supporting that transition. It is an international leader in supporting the low-carbon transition. Average emissions per unit of production on the United Kingdom continental shelf—its carbon intensity—have fallen year on year since 2013, with total emissions in decline from their peak in 2000. Firms are increasingly diversifying and using their existing skills to grasp opportunities emerging from the green economy, thereby providing sustainable employment. Often, infrastructure owners and operators in the oil and gas sector are already part of wider portfolios across a range of conventional and renewable energy sources. Contractors and supply chain companies with expertise in offshore operations and maintenance are also providing solutions across a range of energy industries, to diversify and replenish their order books.

As we all know, innovation is absolutely key to that process. Building the sector of tomorrow presents exciting and challenging opportunities for our people. The Offshore Petroleum Industry Training Organisation’s workforce dynamics report has predicted that by 2025 there could be as many as 10,000 roles that require completely new skills. It is reassuring to note that the industry continues to attract young people to build its future. There were 105 new entrants to the oil and gas technical apprentice programme in September alone. Once again, I have seen that forward-looking agenda at first hand in my neighbouring constituency of Linlithgow and East Falkirk.

As I mentioned, the town of Grangemouth is home to Scotland’s only crude oil refinery. It is a truly remarkable site. For example, the refinery was the first to introduce ultra low sulphur diesel and ultra low sulphur petrol to the UK market. Grangemouth already makes up approximately 8% of Scotland’s manufacturing base. Many of my constituents are employed at the site or in its supply chain. Grangemouth’s success shows the impact that downstream operations and manufacturing can have on the economy, locally and globally.

[Martyn Day]

I am grateful to my hon. Friend for his indulgence in giving way to me so many times.

Grangemouth has one of the country’s largest concentrations of energy-intensive industries in down- stream petrochemicals operations, and its development of a strategically located carbon capture and storage infrastructure in its industrial cluster may be essential to ensuring that those industries can compete in the low-carbon world that is coming in the future. I know that the Grangemouth site, INEOS and others are working with Imperial College as part of a wider collaboration to evaluate the feasibility of CCS for the UK. Does my hon. Friend agree that this developing technology would have been given a huge boost if the UK Government had not cancelled its CCS competition back in 2015, and that that decision demonstrated how they are failing the long-term interests of the industry?

[John Mc Nally]

Once again, my hon. Friend makes a good point about the need for long-term certainty of investment and policy. The CCS decision was an example of a shambolic state of affairs, given that many hundreds of millions of pounds had been invested for the future. That future was basically taken away from under investors’ feet, so I absolutely agree with him.

The export-orientated supply chain generates about £30 billion annually across the UK, and its exported services deliver £12 billion, and the future blueprint for the sector, “Vision 2035”, grasps the importance of that. Alongside adding a generation of productive life to the basin, the blueprint has the objective of doubling the long-term opportunities for the supply chain. If we work together to maximise production from the UK continental shelf and to help the supply chain grow its share of the global energy market, we can boost that prize by half again and generate £920 billion of revenue for the UK economy through to 2035. That is a real game changer for us all. By doubling its share of the global market and embracing the opportunities available through diversification into other markets, the sector can achieve an additional £150 billion of revenue above the baseline estimate of £350 billion.

However, Grangemouth, its workforce and the wider sector are being put at risk by Brexit. The latest Oil & Gas UK report makes it clear that Brexit will have a significant impact on the oil and gas sector, warning about the impact on frictionless access to goods and services, and that the UK Government’s Brexit plans could cause a “skills shortage” for vital North sea services such as emergency response and rescue vehicles.

The Scottish National party is clear that the best way to achieve the goals I have mentioned is to protect Scotland’s place in the single market and the customs union. The Scottish Government have delivered an exceptional range of support for the oil and gas sector and its workforce, including an investment of £2.4 billion in enterprise and skills through our enterprise agencies and skills bodies, £90 million over the next decade to support the Oil & Gas Technology Centre as part of the Aberdeen city region deal, and a £12 million transition training fund to support individuals and help the sector to retain talent.

The other major risk that is looming also comes from Westminster, and that is the Budget on 29 October. With the Treasury having taken about £350 billion from the oil and gas sector in the past 50 years, this is an opportunity for the UK Government to repay their debts and show their support for the sector. The Chancellor must ensure in his autumn Budget that the UKCS is globally attractive for investment, with a competitive and predictable fiscal regime. The UK Government must not repeat the mistakes of previous Administrations and undermine the sector by using it as the Treasury’s cash cow. Instead, they must protect tax incentives designed to support the sector, introduce measures to improve exploration and attract fresh investment, complete the work on transferable tax history, urgently ensure that the tax treatment of late-life assets is addressed so that those assets are in the right hands, and support the urgently required alternative solution to end-use relief.

The SNP also demands that the UK Government use the autumn Budget to implement an oil and gas sector deal, instead of dragging their feet, as is currently the case in Ayrshire, Tayside and Inverness. A sector deal should support practical steps to protect, progress and promote operators, the supply chain and the offshore and onshore workforce. A sector deal for the industry must include visionary national hubs for underwater innovation, transformational technology and decommissioning, based in Aberdeen but serving the whole industry.

In conclusion, North sea oil and gas is booming and the sector is working hard alongside its downstream and supply chain partners to secure a bright, lower-carbon future. The sector has a clear route map in “Vision 2035” and is ably supported by the Scottish Government, who are using their limited powers to the full. The UK Government must now make two choices: to protect the supply chains and the labour supply through single market and customs union membership, and to provide the long-term political certainty and financial support that the sector needs.

[Several hon. Members rose—]

--- Later in debate ---

[John Mc Nally]

I thank the Minister for his kind and generous comments. All Members have been supportive of the debate. Many points were made about how vital this industry is to the economy in the transition to renewable and sustainable energy in the future. We are all agreed that we need a stable regime in place so that we are all aware of what will happen for the future of the industry. The points made about short-termism were excellent. We seem to have been practising short-termism for decade after decade, and that has to stop.

I particularly liked the emphasis on safety in the North sea and on how important it is to retain skilled, clever and well-trained workers. I was not actually around at the time of the Piper Alpha disaster—I was running businesses at the time the news started to come out. I was terrified, as everyone else was, and I read the papers and listened to the news to find out whose friend or relative had been killed and who had been injured. The long-term consequences of that disaster, such as post-traumatic stress, are still going on today. That should never be allowed to happen as long as we are in charge of safety, so the emphasis on safety is appreciated.

The need for a collaborative approach has been well versed. We are all singing from the same hymn sheet. We might want to get there in different ways, but I think we are all trying to get to exactly the same place. I am very appreciative of that.

Good and interesting observations were made during the debate, which showed a good understanding of local and global issues and of the importance of the sector, in particular to our constituents and the businesses in our constituencies, including all the support industries. The basic thing that most people like in their life is stability and an understanding of where the future is going. I hope the Chancellor and the Government have listened to the points made today. We need certainty of policy and of investment—everyone present agrees that that is what needs to happen. I am extremely happy with the debate.

Question put and agreed to.

Resolved,

That this House has considered the future of the oil and gas industry.