Offshore Oil and Gas Industry

Alan Whitehead Excerpts

Thursday 3rd March 2016 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I, too, congratulate the hon. Member for Waveney (Peter Aldous) and my hon. Friend the Member for North Tyneside (Mary Glindon) not only on securing this important debate, but on conducting it with such evident good sense. That is not something I always experience on occasions such as this, but everybody in the debate this afternoon has spoken the most extraordinary good sense about the circumstances of the North sea and its future, and what our imperatives should be over the next period to make sure we get the best possible out of the North sea for the long-term future.

As my hon. Friend the Member for North Tyneside and my right hon. Friend the Member for Tynemouth (Mr Campbell) have emphasised, this is about jobs, about UK plc for the future and about the question of investment in a smart and different way that recognises the different realities of the North sea. It is about efficiency and making sure that the North sea remains a really good place to invest in because it works to the best of its capacity and ability for its own future. As hon. Members have reflected, circumstances are different now and will probably always be different. So we are not just talking about a circumstance of the moment; rather, this is something we need to think about for the much longer term.

I am not remotely as well versed in “Dallas” as the hon. Member for Waveney, but I recall that one particular series turned out to be a dream and they got on with business in subsequent series. That is not where we are now as far as the North sea is concerned. Obviously, we face circumstances right now in which, as hon. Members have reflected on, Brent crude is trading at the mighty high price now of $36 a barrel, up from $29 just recently, but it was $50 or so before the new year and much higher than that before then. Many industry experts are stating that that circumstance, albeit with some changes, is likely to remain with us for a long time to come. It is not thought likely that we will see sudden, volatile spikes and rising prices—that it will all turn out to be a dream and we will be back to business as it was. It is a different series of circumstances.

There is a second set of circumstances. The North sea is indeed a mature basin. That does not mean there is not a lot to do, not a lot to find, and not a lot to exploit. However, the reality is that we are two thirds to three quarters of the way through what there is in the North sea, and what will be there for the future is likely to be of a different order from what has been there in the past. A recent Oil & Gas UK report looked at the number of marginal fields that were discovered some time ago and are still there waiting to be exploited, but which are not at the moment likely to be exploited, because there are infrastructure problems in terms of access to those small and marginal fields—there are most certainly considerable investment problems in getting people to invest in and exploit those fields in the way they should be over the next period. It is likely that the 300 discoveries that Oil & Gas UK talked about—mostly of under-50 million barrels of oil equivalent—will be followed by other small discoveries.

The hon. Member for Aberdeen North is right that it is possible that there remain considerable discoveries within the areas that have already been exploited. I think it is possible, but it is probably more likely that there will be a large number of much smaller discoveries. We have to be clear about how we go about exploiting and supporting them, and making sure we get the best out of them over the next period. The hon. Member for Waveney emphasised that collaboration is absolutely essential over the future period. The assumptions made some while ago about who should do what to whom in relation to the North sea will be different. All sorts of collaboration will be needed, in equipment, infrastructure, joint working and standardisation. A whole range of things will be necessary to ensure that exploitation can be undertaken in the best possible way.

That also means something else—something that my right hon. Friend the Member for Tynemouth mentioned. He emphasised the question of asset transfer and how we should make things as easy as possible when existing assets have been under-utilised, or even when people have decided they no longer want to be part of the process. Not only should it not be difficult for asset transfers to take place; there should be mechanisms to make a transfer as smooth, efficient and productive as possible, so that the collaboration proceeds in the best way.

With a very mature field, there is the inevitable issue of decommissioning, which the hon. Member for Aberdeen North mentioned. On the one hand, bearing in mind that there is about £35 billion to £50 billion of decommissioning to be undertaken in the next period, there may be a temptation to say, “That is a new industry in its own right; let’s all get going on decommissioning. It will be important for jobs.” It will be important for jobs, but if there is an emphasis on decommissioning instead of the collaboration necessary to secure the exploitation of the fields in the next period, we will live to regret it fundamentally. That is precisely because, as the hon. Lady said, we have the benefit in the North sea, particularly in relation to exploiting additional small fields, of a mature infrastructure, which can come to the aid jointly of a number of the new discoveries and explorations. If in the mean time we decommission the nodes that would lead to that potential support, we will not just take away the installations; we will shoot ourselves firmly in the foot as far as future discoveries and activities are concerned.

I welcome what is being done under the aegis of the Oil and Gas Authority, which is being set up in its final form under the Energy Bill, towards ensuring that the process works well and that there will be proper consideration, before decommissioning is undertaken, of alternative uses for that infrastructure, and not just in future exploitation.

[George Kerevan]

On the point about decommissioning versus future exploration, the hon. Gentleman might like to know that Denmark has gone for the future development strategy, and this year had a successful seventh round of issuing new licences for prospecting in its sector of the North sea.

[Dr Whitehead]

I thank the hon. Gentleman for that information, which emphasises what the prospects can be if the process is undertaken carefully. I do not say that there should not be decommissioning, because clearly there will be a substantial amount to undertake, but it should be undertaken in the full knowledge of what is in store if it is not done carefully and of whether there may be different uses in future for elements of what is in the North sea, particularly for carbon capture and storage and gas storage. The infrastructure could assist with that in the future, establishing jobs and skills for the long term, when different circumstances may apply.

The theme that has come out of this afternoon’s debate on the future of the North sea is collaboration. As for what we and the Government should be doing, what has emerged is that support needs to be given now for careful investment in collaboration, and for establishing the circumstances for a bright future in the North sea, in the context I have set out. One of the investments that the Government have already considered is the question of joint seismic work for possible explorations, whose results will be publicly available—a point that highlights collaboration in exploration for the future. Investments and assistance with that approach in mind seem to me to be the most important way forward.

In the light of the good sense and harmony that have prevailed this afternoon, I should perhaps not venture down this route, but I wonder whether I should remind the House that as late as 2011 Her Majesty’s Treasury imposed a windfall tax on North sea oil and gas, by putting up the supplementary levy from 20% to 32%. One thing I must say to the Treasury about future arrangements and assistance for the North sea is: “Don’t do that ever again.”

[Peter Aldous]

I was a relatively new Member at the time and remember distinctly the unsettling impact that that measure had on the industry, because it came completely out of the blue. This is a risky business anyway, so it really knocked confidence. To be fair—I remember exactly what happened—the Treasury got the message from that very clearly. I remember attending the conference in Aberdeen that September, and the present Secretary of State for International Development, who was Economic Secretary to the Treasury, was surrounded by people from the industry. She brought the message back here, and it has been here ever since. We need to build on the new regime that we have had since then.

[Dr Whitehead]

I thank the hon. Gentleman for that intervention, which reminds us of the circumstances in which that began and the lessons learned fairly early on. Certainly, over the past year or two the Government’s activity and their approach to taxation and investment in the North sea show that the lesson was taken on board. I just want to make sure that we build on it. We should bear in mind the need for investment, to bring new players into the field and ensure the longer-term certainty and security of those investments for the future. Perhaps some kind of floor and cap investment arrangement might be undertaken, whereby, should volatility return to the North sea, there would be guarantees for the Government and, if it does not, there would be guarantees for the investor.

We need to think about new forms of investment for new times in the North sea to make sure that its long-term legacy will be that it did its best for UK plc, both for the jobs and skills that now exist, which it is vital to retain, and in making sure that the UK was fuelled as well as possible. I hope that it will be entirely uncontroversial if I conclude by saying that we are engaged in a joint enterprise that it is in all our interests to get right.