Oil: Changes in Global Markets

Lord Howell of Guildford Excerpts

Thursday 21st May 2020 Lords Chamber

Asked by

[Lord Howell of Guildford]

To ask Her Majesty’s Government what assessment they have made of the changes in global oil markets and the implications of those changes for (1) trade, (2) addressing climate change, and (3) international security.

The Question was considered in a Virtual Proceeding via video call.

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[Lord Howell of Guildford (Con)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and draw attention to my interests as listed in the register.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

The global Covid-19 pandemic has resulted in unprecedented falls in demand in global energy markets and increased market volatility. The Government are closely monitoring developments and assessing the implications, including for the UK’s oil and gas sector and for climate change, with an emphasis on the importance of a clean, resilient recovery and international security. In doing so, we are in regular contact with international partners.

[Lord Howell of Guildford]

I thank my noble friend for that reply. Does he agree that, with the average spot price of crude oil now around $25 to $30, having been down to almost zero the other day in the US, we are back at about the same cost per barrel as in 1970, which at that time was about $3 to $4, before the rise of OPEC? Is it not likely to stay that way, given the worldwide supply surplus, together with the huge demand reductions that he has just referred to? Do the Government see this as a good prospect? Could relatively cheap energy and low petrol prices help post-Covid economic recovery and maybe clip Mr Putin’s wings as well, or are there some dangerous costs and disadvantages, such as a further blow to the North Sea and the transformation to green energy being made a lot more difficult?

[Lord Callanan]

As my noble friend has implied, there are of course advantages and disadvantages. Around 11% to 13% of our domestic oil demand and around 47% of domestic gas demand are currently met through domestic hydrocarbon reduction. Any significant impact on oil production and prices would lead to an increased reliance on imports and therefore a loss of revenues from the North Sea. Of course, there are benefits as well—certainly regarding motoring costs and so on.