Onshore Oil and Gas

Tom Blenkinsop Excerpts

Tuesday 26th January 2016 Westminster Hall

[Angela Smith (Penistone and Stocksbridge) (Lab)]

As always, it is a pleasure to serve under your chairmanship, Mr Howarth. I congratulate the hon. Member for Thirsk and Malton (Kevin Hollinrake) on securing this important debate on the role that manufacturing can play in the unconventional gas extraction industry.

This is not really a debate about whether the UK should develop a shale gas capability. The House has rightly focused on the need for a robust regulatory framework for such an industry, and it will no doubt continue to debate such important issues, but this morning’s debate is much more pragmatic. The question before us is clear: if the shale gas industry is going to develop within the clear regulatory framework agreed by the House, how do we best ensure that UK manufacturing can exploit to the maximum the supply-chain opportunities made available by that nascent industry? That pragmatic point is what is important to people up and down the country who have traditionally depended on manufacturing jobs to maintain their prosperity, living standards and family life. At its heart, this is about a debate that understands the importance of manufacturing to the UK economy.

In the US, which has had a shale gas industry for some time, one of the biggest winners has been the chemicals industry. Shale gas production in the US has seen feedstock costs reduce significantly, giving the chemicals sector a major competitive advantage over manufacturers in the EU and Asia. Shale gas ethane from the US is much cheaper than that from the EU, which is produced from naphtha, a refined form of crude oil. Cheaper energy, combined with cheaper feedstock, has kick-started investment in the US chemicals industry, attracting $138 billion of investment so far and funding 225 new projects.

In the UK, the chemicals industry is already a major exporter, with about £25 billion of exports. Yearly, it adds almost £9 billion to the UK’s GDP, as well as underpinning much of the manufacturing sector, including steel. In terms of competition, the chemicals sector could benefit greatly from a new source of domestic feedstock. It would benefit from lowers costs and, importantly, from shorter, more secure supply lines.

There should also be opportunities for many UK-based manufacturers in other sectors to supply an emerging shale gas industry. A report by Ernst and Young estimates that more than 39,000 indirect jobs could be created by UK shale gas extraction. It also suggests that the total spend involved in bringing UK shale wells into production would be £33 billion by 2032, which would include £17 billion on specialised equipment, such as high-pressure pumps and mixers. I note with interest that EEF has said that, although the majority of pumps are currently manufactured outside the UK, with some assembly done here, there is significant potential to increase UK production. However, if UK manufacturing is to benefit, it will be necessary to build the case for investment in those things, and that is my first ask to the Minister.

This is, however, not just about pumps; it is also about the sand that will be required for the fracking process. That will come from existing quarries and could generate a £2 billion spend in the UK from 2016 to 2032. This is also about the cement, for which there could be a nearly £1 billion market, and that cement could come from the UK’s four cement manufacturers. We cannot afford to dismiss that potential.

For me, as a south Yorkshire MP, however, the most exciting prospect lies in the opportunities the shale gas industry could create for steel manufacturing. Steel is in crisis. A global slump in demand, contractions in the oil and gas industry and the dumping of cheap, subsidised steel on global markets by the Chinese have combined with high energy costs and unsustainable business rates to create a debilitating sense of volatility in the industry. I acknowledge entirely that the industry must respond positively to the challenges it faces, but if UK steel is to develop a positive way out of its difficulties, it needs Government support.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

My hon. Friend is making a good case in relation to the UK steel industry, but the shale industry could help other integrated industrial sectors in the wider economy to develop, and one of those is carbon capture and storage. In a world where fossil fuels are getting cheaper, we should be using pots of funds originally used for renewables for CCS, and the Government should review their decision to get rid of it. In addition, non-conventional gas such as syngas, which comes from coal gasification—there are still tons of coal in the Durham coalfield under the North sea—could be less than 50% of the price of conventional gas. Those two pillars could lead to an industrial renaissance in some areas.

[Angela Smith]

I completely agree with my hon. Friend on both those points. On CCS, it is difficult for the Government to make progress on gaining public acceptance for the shale gas industry, and part of the argument against the industry has always been the emissions and the problem of using fossil fuels into the foreseeable future. CCS is one of the key ways we can deal with that issue and that argument. If there is to be a long-term future for any fossil fuel, the Government must think again about their abandonment of CCS technology.

We need to understand that the nascent shale gas industry offers one of those rare opportunities to create new demand for steel—something we badly need at the moment—and a new sense of hope that there is a positive future for one of our foundation industries. As United Kingdom Onshore Oil and Gas points out, the crisis that the industry faces will not be solved just by dealing with issues relating to energy and business rates, important though those issues are. It needs to be addressed by supporting UK steel to play a bigger role in manufacturing supply chains domestically and globally. This is about the Government supporting the development of a wider range of steel capabilities, by building the business case for the development of a UK shale gas supply chain.

What we do not need, as the hon. Member for Thirsk and Malton said, is a repeat of what has happened with the UK’s offshore wind industry, where we have missed opportunities to build a robust supply chain, despite our strength in the wind energy market. This time, the Government can get things right by working with industry and by supporting the building of a business case for developing shale gas. They can encourage confidence among investors and supply-chain companies and prevent the industry from meeting the fate that has befallen the green energy sector.

Steel’s opportunities as part of the shale gas supply chain focus on two main capabilities. First, as was pointed out earlier, the shale gas industry could need more than 12,000 km of high-quality steel casing, costing £2.3 billion. It could also need 50 drilling rigs, which would cost £1.6 billion to manufacture. So how do we make sure that we make the best of British, in meeting that potential demand? I suggest that we need first to identify the best means of making the UK contribution to the rigging requirements of the shale gas industry. That may or may not mean the domestic manufacturing of the rig components; but at the very least there is great potential for exploiting domestically the need to upgrade rig components to UK standards and to provide ancillary equipment. According to EEF, that market could be worth £1.2 billion. That is a good, practical, pragmatic way forward, which the Government could help to deliver.

As to the steel casing, the problem is, of course, that the UK manufactures welded tubing—not the seamless tubing required by the industry. UKOOG points out, however, that a significant amount of work is required on seamless pipes before they are ready to be used by the shale gas industry and that that could and should be done in the UK. That position is supported by EEF. I would prefer it if the necessary investment could be made to give a UK home to such a manufacturing capability once again; but, however we look at the issue, the Government have a role to play in supporting the steel industry to exploit the opportunities available and thereby to secure a better future for itself.

The Government need to support the establishment of the business case for all aspects of the shale gas supply chain, with particular urgency in relation to the steel aspects of that supply chain. As UKOOG points out,

“We are at the start of the shale journey and the steel industry needs help now.”

UKOOG has pledged to work with the Department for Business, Innovation and Skills to see whether any support can be given. That is incredibly helpful. What we want from the Minister today is a commitment to ensuring that that offer of collaboration from an industry that in a sense is new to the UK—shale gas extraction is new—is taken up enthusiastically by the Government; we want it to be translated into a supply chain strategy that guarantees that the best of British will lie at the heart of a successful, safe and environmentally sustainable British shale gas industry.

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[Neil Parish (Tiverton and Honiton) (Con)]

It is a pleasure to speak under your chairmanship, Mr Howarth. I thank my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) for securing the debate. He is quite a brave man—I can stand up and support fracking because it largely does not affect my constituency, but when fracking does affect a Member’s constituency, supporting it is a much braver thing to do. He made a measured speech, as did my hon. Friend the Member for Weaver Vale (Graham Evans). We have to ensure that the public understand what we want to do, because they want to be reassured that it will be safe.

I have made the point before in this Chamber that we sometimes miss a trick in this country. I spent 10 years in the European Parliament—do not blame me for everything that happened in Europe over that period. In France, for example, when they build nuclear power stations they ensure there are houses, roads, infrastructure and leisure facilities. I am not saying we can do all of that with the fracking industry, but we can make the industry more beneficial for local residents. That is what we need to do, because at the moment we are not really selling fracking very well. That is the trouble; we need to sell it.

[Tom Blenkinsop]

Carbon emissions are obviously a big issue surrounding shale or any form of fossil fuel extraction. We have to treat CO₂ as not only a waste product but a potential by-product, because the chemical industry already uses it as feedstock for a lot of different things, including agriculture, the bottling industry, the canning industry and the food preparation industry in general. It is the purest form of CO₂ when it comes through those energy-intensives. We need to educate people about the benefits of fossil fuels, the CO₂ from which can be sequestered and used again, thereby reducing the emissions that they create.

[Neil Parish]

The hon. Gentleman makes a good point, but we have to ensure that the people who will be living around the mouths of the wells, where the shale gas comes up to the surface, feel that there is a direct benefit to them. It is good to appeal to the greater good, but it is also good to appeal to those who will see the fracking most. That is the particular point I am making.

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[Tom Blenkinsop]

The hon. Gentleman is being generous with his time. I want to back up what he is saying. He is a fellow North York Moors MP, where we have the Boulby potash mine in the national park. The mine goes more than 1 mile underground and 2 miles out under the North sea. Although it does not use the same technology, it goes through the same strata that the shale and gas industry will go through and is completely controlled. When large developments such as that occur, there is initially big uproar and upheaval, but the mine now employs more than 1,000 people. Although it is sadly letting people go, without it, the community would not have benefited from the well-paid jobs and solid employment they have reaped over the past 30 or 40 years.

[Neil Parish]

The hon. Gentleman raises an interesting point. I became very much involved with potash, because it is important in growing crops. We have such a massive amount of potash that we can probably produce enough not only for this country but for virtually the whole world. As he says, everybody has to be reassured that the processes can work together.

I am really heartened by this morning’s debate, given what I was expecting—perhaps I am tempting fate, as Members may yet come in with the opposite view. I often think that when we are talking about shale gas, it is easier to support those who are protesting against it. They make an awful lot of noise and have a fair point to make, but they get almost undue attention, and I think we have to be realistic about the potential for shale gas and the resource that we have.

To pick up on a point that my hon. Friend the Member for Weaver Vale made, we are potentially very reliant on gas from Russia, given that it may well come through Europe to Britain. We also import an awful lot of frozen gas from the middle east by tanker through Milford Haven. All those routes are susceptible to problems, and we will need a lot of gas in future. As we reduce our carbon emissions, there will still be a great need for gas. I think about 40% of our heating in this country comes from gas, and when people have gas in their homes, they expect to be able to turn on the gas boiler or gas fire. It would be wrong of people on all sides of the political debate not to allow shale gas to be got out of the ground, although we have to make sure that the controls are there, that we can do it safely, and that local communities feel that they get huge benefits from it.

We will continue to need gas as we decarbonise, particularly for heating and manufacturing. If we are not able to extract shale gas, the UK will have to import. In 2014 the UK imported 48% of its gas needs, and in 2030, without shale gas, it will import three quarters. Shale gas is still in its exploration phase, and if production is successful, it could vastly reduce gas imports. National Grid projects that it could meet about 40% of UK gas demand by 2030, but we need to get the process up and running if we are ever to hit that figure. We have to make shale gas extraction much more acceptable to local people, and we need to have a single regulator.

Additionally, shale gas extraction has the potential to create more than 64,000 jobs, which would not only help our long-term economic plan but ensure energy stability, which, with our ever-growing population, is a matter of increasing concern. Furthermore, the shale gas industry could help to revitalise our struggling steel industry. If shale gas extraction were to take off in the UK, the industry could need more than 12,000 km of quality steel casing, which would cost in the region of £2.3 billion. I have looked into that, and it is interesting that the type of pipes that are needed are not manufactured in this country. If we were to go into shale gas in a big way, we could invest in the steel industry to get it back up and running.

[Tom Blenkinsop]

The two tube mills in Britain are in Corby and Hartlepool, and they could easily be adapted to produce non-welded tubing. Of course, there is also a very good site in Teesside that is no longer being used. Again, that site could be adapted to provide non-welded tubing if virgin steel were produced once again there.

[Neil Parish]

I agree with the hon. Gentleman, because a way of supporting our steel industry would be to make sure that we produced British steel that went into the British shale gas industry. We would also be certain that the steel pipes that we produced were of great quality. We should be able to reassure the general public about the quality of that steel piping, so it could be a win-win situation.

In the US, having abundant cheap shale gas has helped to attract $138 billion of investment in the chemical industry, which is funding something like 225 new projects. The US has also brought a huge amount of its manufacturing back to that country because of its supply of shale gas. I do not believe the UK has quite the resource that the US has, but it will make a significant difference.

This has been a good debate, with many ideas being raised that I hope the Minister will take on board. My final point is to repeat what I said at the beginning: we have to make sure that the plans are acceptable to local people and benefit them. We have to bring out into public exactly what safety measures are being put in place, and we have to make that argument clearly in public meetings. We should ensure that we bring shale gas out of the ground in this country, to create better energy security in the future.

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[David Mowat]

That is a strong point and I agree with it. It is extremely important that, as in the US, there are no methane emissions. We have seen over and again in places such as Pennsylvania that methane is not emitted and that some of the scare stories are not true. I am sure that when the Scottish Government conduct their pragmatic and responsible review of the industry they will find that out for themselves.

In the US—I will not repeat my points—there are two elements in what cheap energy can do in manufacturing. The US has created around 200,000 jobs in that industry but, more important, the estimate is 1 million jobs in the onshoring chemicals industry in the US eastern seaboard. The transformation is extraordinary. It is re-shoring industry from Asia, China, Europe and, frankly, the UK.

Organisations make marginal decisions—this is not about closing Teesside and moving it to the US. When it comes to the marginal decision of where to open the next production unit, it will not be in Grangemouth, Teesside or Runcorn, but in Pennsylvania or Cleveland because that is where energy prices and feedstock prices are so competitive that more money can be made. We need to be cognisant of that. We sometimes talk in this House as though it is a new industry, but it is not.

The question arises—it is a fair one—of whether that applies to the UK. I have heard it said many times that things are different in the UK. It is true that we have a smaller manufacturing base and a much smaller chemicals industry, so perhaps it will not be so dramatic. People sometimes say, “Well, US gas prices have reduced by 70%, but that can’t happen here because we are on a European grid.” Generally speaking, when there is more of a commodity, the price falls. It is true that we have a European gas price and a European hub, but we had a global market for oil and look at what shale eventually did to the oil price. We are still living with that.

[Tom Blenkinsop]

I take on board what the hon. Gentleman is saying about a sheikhs versus shale fight, but the reduction in general fossil fuel prices, because of the online, downstream effect of renewables in the last 10 years, has also had an effect on driving down fossil fuel prices. The future of shale could be very beneficial to energy intensives because of cost, which is at least 50% cheaper than conventional gas. In addition, most of those industrial sites in Britain are located close to where those feedstocks are found.

[David Mowat]

I meant to say at the start that with current prices where they are, I do not think we will see a massive upkick in the UK’s shale industry. I think that will happen where shale is available near a chemicals site—INEOS in Runcorn and in Grangemouth is an example—because the costs and economics are different.

[Tom Blenkinsop]

Rather than seeing shale as a means by which to reduce consumer prices for heating boilers, for example, we should also have an industrial strategy that targets the use of shale gas for cheap energy-friendly intensives because that would be a cheap benefit.

[David Mowat]

My point was more about feedstock. I have no problem with an industrial strategy along those lines, although I make the point gently that the million jobs that were created on the eastern seaboard of the US were the result not so much of industrial strategy, but of a massively cheaper economic model and business case and all that goes with that. We need to learn from that.

The Chairman of the Select Committee on Environment, Food and Rural Affairs, my hon. Friend the Member for Tiverton and Honiton (Neil Parish), made a number of points about the fact that we are running out of gas. This is not principally a discussion about whether we should have gas versus renewables. It is gas versus coal, as I said earlier, in environmental terms. Gas production is now 70% lower than five years ago and we are importing it from Qatar and principally from Norway, but increasingly from Russia. Centrica has a contract with Gazprom and around 10% of our gas will come from Russia by 2020. We need to understand that and be comfortable with the implications.

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[Kirsty Blackman]

We are still in the process of researching this. The research does not finish until later this year, and then in 2017 the public consultation will finish, so we are not at the point in time at which we will be publishing the evidence. I think that that is reasonable. It is reasonable to look at the research properly before we bring it all together—

[Tom Blenkinsop]

Will the hon. Lady give way?

[Kirsty Blackman]

Not now. I want to make some progress because I do not have long.

I want to talk briefly about carbon capture and storage, which is very important for reducing carbon emissions; that is not just about moving from coal to gas. I have mentioned already the issue in relation to methane emissions. I understand that there is some evidence that methane emissions are relatively low, but I would like to see the body of evidence brought together in a report on unconventional oil and gas.

I also want to talk briefly about the supply chain and the benefits in that respect. I represent Aberdeen, where we have been feeling the effects of the oil crash for much longer than a few weeks or months. For the past year, contractors have been finding it very difficult to get jobs and redundancies have been being made. In terms of the supply chain and supporting jobs in the UK, particularly in manufacturing around the supply chain, renewables would be very helpful. Also helpful would be looking at supporting the oil industry as it is now. I understand that the unconventional onshore oil and gas industry would bring jobs, but we need to protect the jobs that people currently have and are currently losing.

[Tom Blenkinsop]

I thank the hon. Lady for giving way; she is being generous with her time. The argument that I have certainly tried to make is that to have the industry that provides the solutions for renewables, which we still need to keep pushing hard for, we need the cheaper energy in order to retain the industry—so that we onshore that industry. For a steelworks to go forward and development to become cheaper and more efficient, it needs cheaper energy; and it is only the steel industry that provides the slab that is then rolled into tubes for monopiles that go into wind turbines, for example. It is the only onshore solution and it needs that cheaper energy.

[Kirsty Blackman]

I appreciate that. I am not sure how much the onshore oil and gas industry will affect the price of energy. I did not know a huge amount about the chemicals industry and things like that; a point was made about feed. However, we do have the lowest oil price for a long time, and natural gas is at a 10-year low as well, so energy prices should be cheaper as things stand, without the need for fracking.

[Tom Blenkinsop]

rose—

[Angela Smith]

rose—

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[Kevin Brennan]

I understand that, although I think that there is a case to be made for saying that some of the subsidies that the Government have withdrawn could have been planned in a longer term way. We will leave that point, however, because is not the subject of our debate.

I praise my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith), as other hon. Members have done, for her speech and for campaigning assiduously, particularly on behalf of the steel industry and her constituents. She put the case very well. Whatever we may think about the industry, the House has taken a decision, although it may not be the one that we wanted. There are clearly opportunities for British manufacturing, so we have to take a pragmatic approach and plan accordingly. We need a strategic approach to ensure that UK plc and jobs in the UK benefit to the greatest extent possible from the development of the industry. My hon. Friend outlined the potential for the UK chemicals industry and for manufacturing in general. She made some good points about the pumps that would be required for the industry, about sand and cement and about the steel industry. I congratulate her on her contribution.

The hon. Member for Weaver Vale (Graham Evans) described a public meeting in his constituency. I understand the difficulty of getting the message across. Energy generation is one of the great “wicked issues” of politics. We all know the rule in politics: everybody wants cheap, plentiful, clean energy at the push of a button, but nobody wants it to be produced anywhere near to where they live. Those two things, as we all know, are incompatible. We are required to wrestle with such wicked issues every day as constituency MPs, Ministers and leaders in our community and across our country. The hon. Gentleman was quite right to point that out.

I believe that Ministers might have a more direct role than the hon. Gentleman seems to think in taking the message to the public. That is part of Ministers’ responsibility, and they should not duck away from taking on difficult issues. In my experience, when Ministers take such responsibility, in the longer term they produce results for the Government in question—not that it is my duty to give them advice on how to win elections. I certainly think that Ministers have a direct role, although I appreciate that the Minister might not wish to spend his Friday nights in the way in which the hon. Gentleman described.

The hon. Member for West Aberdeenshire and Kincardine (Stuart Blair Donaldson) gave us an interesting insight, in his brief contribution, into the fact that the industry had its place in the 19th century. Shale was exploited in his constituency in the 19th century, so it is not a new concept.

The hon. Member for Tiverton and Honiton (Neil Parish) told us about his experience in Europe, and told us not to blame him for the bad things that have gone on there. Yesterday, other hon. Members and I attended a dinner with the aerospace industries. Since the start of the European collaboration that is Airbus, the European share of the commercial airline market has gone from 18% of the world market to 50%. It was made absolutely clear to us last night that that would not have happened without European co-operation and our membership of the European Union, so it is not all bad.

The hon. Gentleman described his friend the hon. Member for Thirsk and Malton as brave, and I am sure that he is. I am sure he would be equally brave if his majority were 456 rather than 19,456. He is quite right that it is always tough to have to wrestle with concerns from one’s own constituents.

The hon. Member for Warrington South (David Mowat) made, as ever, an informative and expert speech. He pointed out—this is the elephant in the debate—that the current wholesale price makes it substantially more difficult for the industry to get going than might otherwise be the case. He made a well-informed and interesting speech, in which he pointed out the potential for other industries.

We had a speech from the SNP spokesperson, the hon. Member for Aberdeen North (Kirsty Blackman), who laid out her party’s position. I wish my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) had made a speech. He made many interventions, all of which were interesting and, as ever, informative. We slightly missed out, but he did give us the benefit of his interventions.

It is my responsibility to set out our position as a party. We have already laid out the conditions that we wanted to see in place before the industry developed further, to ensure the implementation of the protections that hon. Members have expressed concern about. I will not go into great detail on that, because we have not got time. Given that the UK will rely on gas, on any estimate, until at least the 2030s and possibly beyond that—we are very reliant on imported gas from Norway and Qatar, as was pointed out during the debate—we support exploratory drilling, but it must not be at any cost. We made that clear in the amendments we tabled last year to the Infrastructure Bill. Despite conceding some of those points during the debate, the Government have somewhat reneged on them since the general election. We laid out a large number of conditions that we thought were necessary before exploratory drilling could go ahead. I will not list them now, because of the time, but they are well established on the record. That remains our party’s policy.

We have criticised the Government for allowing communities to decide whether they want onshore wind farms but not extending the same community involvement to this industry. There are questions about the appropriate level of local concern over a strategic industry of this kind. In relation to onshore wind, the Government have rather undermined their argument about the industry by the position that they have taken. I will not press any further on that point.

The development of this industry offers great opportunities for manufacturing industry in this country. One might call it “manufracturing”, as some have done. The Government must acknowledge that unless they bring forward an active industrial strategy, those opportunities will not be realised. We have heard about opportunities that have been missed with other industries, including offshore wind, because of a failure to understand and exploit the supply chain opportunities of a developing industry. There is a great danger that the same thing will happen in relation to this industry as it develops, unless there is an active industrial strategy. That must be driven by the Government being prepared to pull every lever at their disposal and bring all the appropriate parties together in the same room, as the previous Government did, for example, with the creation of the Automotive Council. In fairness, that was carried on beyond 2010 and is still in existence. It has brought tremendous benefit to UK manufacturing by getting industry and interested parties together and encouraging them to understand that there is a commonality of need, even where people are in competition with each other, for the sector.

[Tom Blenkinsop]

On the subject of an integrated industrial strategy, the comments of the hon. Member for Warrington South (David Mowat) about the east coast of America are quite interesting. The Obama Administration underwrote a lot of those projects with stimulus funding, which is part and parcel of the Obama Administration’s industrial strategy.

[Kevin Brennan]

On this side of the Atlantic, we tend to think that the USA is a laissez-faire society, but when we go there and see the reality of policies, not only at federal level but at state level, we soon find out that the picture is very different from our assumptions. Next time, I hope that my hon. Friend will prepare a speech, because we will not let him intervene so many times, no matter how interesting his contributions are. We look forward to hearing from the Minister about what he will do to make sure that the Government pull every possible lever.