Gulf of Mexico: Oil Spill

Lord Marland Excerpts

Thursday 16th December 2010 Lords Chamber

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland)]

My Lords, I thank my noble friend Lord Moynihan for bringing this to the House and his invaluable insight and very measured speech on this matter. I hope that my own speech will cover a number of the issues raised by noble Lords in what I think has been an excellent and very informative debate. I think that the Opposition have set out very clearly the state of the nation as regards the oil industry. My noble friend Lady Falkner made very clear the long-term problems for the nation, and I shall deal with some of those points later. Noble Lords must forgive me if I repeat in my speech some of the things that have already been said, but they are worth repeating.

The Deepwater Horizon accident was a most serious and tragic event in recent years. We must not forget that 11 people died, which was a terrible loss of life, harrowing for the families and friends of all those involved in the industry. There were very serious consequences: the resulting oil spill and its after effects caused untold stress and heartache for local communities, with widespread disturbance of fishing, tourism and other activities in the region, which is still recovering from the horrendous Katrina hurricane. But in considering all this, let us keep it in a degree of context and recognise the vital contribution that oil and gas exploration has made to the world economy.

We have all noticed that lawsuits are back in the newspapers today. It is clear that the legal process has had some time to run. We should wait for the due process of the presidential and the Marine Board and other investigations to shed light on where responsibility lies and the action that could be taken. It would be wrong to suggest that there have been extensive cross-Atlantic discussions at this point between legal departments but, obviously, there is an ongoing process that started when the incident happened because BP, among others, is a transatlantic company. Both departments have been talking for a long time, to answer one of the questions asked by the noble Baroness.

We should not forget that BP is a great British company, creating not just wealth and jobs here in the UK but also in the US and many other parts of the world. Millions of pensioners benefit and this Government have been right to stand behind it during this time of crisis.

Ultimately, BP has suffered badly. This was manifested in its stock market value and in the eventual resignation of its CEO, Tony Hayward, to whom my noble friend Lord Moynihan paid tribute. BP is of course working hard to complete remedial actions stemming from the incident, and to learn from it. It is restructuring its safety culture and has reviewed its operations around the world. It has sold some of its assets to provide assurance that it can meet all legitimate liabilities arising from the disaster.

In the UK, while we are working hard to move towards a less carbon-intensive future, we cannot overnight remove our need for hydrocarbons. We will be dependent on oil and gas for several years to come. We have a choice of either producing oil and gas in UK waters, where we are recognised as having one of the most robust safety and environmental regulatory regimes in the world, with all the economic benefits that that will bring, or paying to import oil and gas from elsewhere.

The oil and gas industry, which has been operating here for more than four decades, is a fantastic success story. Its innovation and verve have ensured that we have been able to produce 40 billion barrels of oil and gas in the UK. We should not forget that UK oil and gas still provide around two-thirds of the UK's primary energy needs. However, the contribution is not just to our security of supply, but to our economy. The industry supports around 350,000 jobs directly and indirectly, and another 100,000 people are involved in exporting goods and services. Annually the industry spends around £12 billion in the UK and provides around £10 billion to the Treasury in taxation. The good news is that we still have the equivalent of some 20 billion barrels of oil—perhaps more—left to produce. To realise this potential, we need continued investment and new exploration, and we want to support the industry in every possible way to achieve this.

My department is working closely with the oil industry on a number of fronts to ensure that the right incentives remain to bring the required level of investment and exploration, and that the legislative framework facilitates new developments, for instance by securing third-party access to existing pipelines and facilities. I will bring new provisions in this area in the forthcoming Energy Bill. My department was pleased to offer 144 new licences recently in our 26th offshore round. This shows the continuing confidence in the future of the UK continental shelf and provides a strong basis for continuing exploration and development activity.

We have an innovative and productive industry. The UK was one of the first areas worldwide in which offshore exploration and production took off, and we now have more than four decades of experience. More than 10,000 wells have been drilled in UK waters, including more than 300 in depths of more than 300 metres. This means that the risks associated with drilling wells on the UK continental shelf are well understood. Our regulatory system has been developed to meet the evolving challenges. Following Piper Alpha, safety regulation was brought under the Health and Safety Executive umbrella to get the benefit of its expertise, not least in regulating major hazards.

The recommendations after the Piper Alpha inquiry of the noble and learned Lord, Lord Cullen, shaped the North Sea safety regime that the UK industry has been successfully operating under for the past 20 years. It was a step change, and it was recognised at the time that a more comprehensive approach to regulating safety in the industry was required, with a change of culture that put more responsibility on duty holders to manage risks across the range of their activities. The concept of goal setting was introduced, with duty holders required to identify their hazards, assess the risks they posed and put controls in place to minimise those risks. For high-risk offshore activities it was necessary to formalise the process into a permissioning regime, with the industry required to show in writing, via a safety case, that the health and safety risks were “as low as reasonably practicable”. The regulator’s role is to assess the safety case, accept it when appropriate and initiate inspections to ensure that it is being implemented. Other legislation on evacuation, escape and rescue, management and administration, design and construction, was revised in a less prescriptive style to complement the new safety case regime. I could go on. The key point is that we have a tough and effective regime in the UK that is considered a benchmark around the world, and particularly in Europe.

DECC plays a vital role in overseeing the exploration, development, production and environmental performance of the offshore industry. Following the US incident, an internal review was conducted by senior officers on the basis of the information available immediately after the accident, looking at the implications for DECC’s offshore regulatory regime. Both current and expected future drilling operations were considered. I am glad to report that the review did not uncover any gaps in the regulatory controls, or any reason to doubt their effectiveness. I pay tribute to the previous Government, too, for their activity in this regard. However, it was recognised that, with the prospect of more activity in deep waters, it is increasingly important to be assured that operators are doing what they should be doing. We have taken a number of steps to further strengthen our regime. We have increased the number of environmental inspectors and doubled the number of environmental inspections of mobile drilling rigs. The requirements for OPEPs were revised. All OPEPs submitted for exploration, appraisal and development drilling must now assess the worst-case scenario where all containment barriers have failed, resulting in a well blowout. Pre-drilling inspections are now carried out on deepwater mobile rigs before any final drilling permit can be issued. Containment devices are now available in the UK, and the industry is working on a capping device that we expect will be ready for deployment in the North Sea before the end of next year. I hope that that answers one of my noble friend’s questions.

The ceiling on the industry insurance liability scheme, Oil Pollution Liability Ltd, which the noble Lord also asked about, was increased from $120 million to $250 million, and the industry is looking at liability issues in general to see if anything more is required. I am aware that the European Commission wishes to look at the way in which deepwater drilling activities are regulated across Europe, with the aim of ensuring consistent standards. While we will continue to work on this with our European counterparts and the Commission, everyone should be clear that we will strongly defend the UK’s ability independently to regulate its oil and gas industry, because we have been shown in the past to have a strong regulatory regime. If the exercise is focused on raising standards in other member states’ territories, the UK can provide a strong contribution, given our substantial experience in this world.

Before summarising, I will answer a few specific questions that I have not yet covered, and perhaps amplify my noble friend Lord Moynihan’s question about insurance. I spoke to insurance industry leaders this morning and I do not believe that there is no market available for an increase in liability protection. However, we should recognise that BP was not a great purchaser of insurance and elected to run potential liabilities against its balance sheet. Of course, insurance should not be a substitute for a balance sheet. People should not carry out work unless their balance sheet can cope with the inevitable potential liabilities that manifest themselves.

The noble Lord, Lord Grantchester, asked whether we were in contact with OSPRAG. We are in regular contact and, as I indicated earlier, we are looking for technological advancement. Huge lessons have been learnt from this disaster. We must look at the US review when it comes out; we await it with great interest. We will consider its implications for our own regime and will implement any changes that we think should be made. However, I point out that we suggested to the US regime that they follow our regime, which separates health and safety from departmental issues. The US regime chose not to, but I understand that it is now about to do so. On the wider issue, the G20 has initiated a best practice dissemination work group for deepwater drilling as part of a global marine environmental initiative, and of course we strongly support that.

The noble Baroness, Lady Falkner of Margravine, has told us, rightly, that we cannot continue to depend on oil. I welcome her encouragement of the development of renewables, which we will doubtless be discussing in a few minutes’ time.

The noble Lord, Lord Selsdon, made a most engaging speech. Earlier, I looked up what his interests may be in this field and I was glad that he came out with about 30 or 40 of them in a very short time to demonstrate that he has a close association with the oil industry. I look forward to hearing about his discussions at the Christmas table as much as he looks forward to hearing about ours.

I am grateful to the noble Baroness, Lady Smith of Basildon, for giving me prior notice of one or two of her questions, because that meant that I could do the requisite research to respond to them in a way that I hope she feels is adequate for her needs.

One of the questions was, “Do you consider that the difference in the two countries’ regimes offers greater protection in the UK?”, which was a further amplification of things that I had discussed. The straight answer is that, as I said earlier, we have in place a number of safeguards that offer the UK greater protection. The requirement for a safety case ensures that risks are identified and suitable controls are selected. HSE reviews, well design and procedures are fundamental, while a schedule of well examination by independent and competent persons is an addition to the HSE review. A scheme for the verification of safety-critical equipment, including blow-out preventers, is in place and the HSE monitors well operations on a weekly basis. These are critical issues.

Our department has a close working relationship with the HSE and has accepted safety cases of the current deep-water drilling activities that include the emergency procedures required to ensure safety. After the HSE has accepted the safety case for an installation, it produces an inspection plan and inspects the installation at least once a year—sometimes three times a year, depending on the type of installation and activities being undertaken.

The noble Baroness rightly brought ITPOES, the UK Industry Taskforce on Peak Oil and Energy Security, to our attention and she mentioned that Sir Richard Branson was a member. Of course we welcome any outside suggestions and contributions to this debate. It is not as if we are not carrying out such work ourselves; our chief scientist is permanently in discussion with stakeholders about the threats to oil supply. We started an initiative in that regard in August and we intend to review that and work within its results.

In summary, the Deepwater Horizon accident was a most serious and tragic event, causing 11 deaths and, subsequently, environmental and unprecedented economic consequences. I am sure that the knock-on effects will be felt by local people and businesses in the region for years to come. It was also viewed as a wake-up call for the industry and regulators worldwide.

The oil industry is fundamental to Britain. We will be reviewing the US report once those investigations are complete to see whether there is anything more that we need to do on top of our own significant regulatory scheme. Deep-water drilling in the UK is not a new concept; the industry has been conducting such activities here since 1974. However, we must not be complacent. We have to remain extremely vigilant. I thank noble Lords for their excellent contributions to this debate and I look forward to further discussions as the years go by.