Energy BILL [ Lords ] (Third sitting)

Callum McCaig Excerpts

Thursday 28th January 2016 Public Bill Committees

[Andrea Leadsom]

I am delighted to tell the hon. Member for Southampton Test that I welcome his bringing forward this proposal, as it is an important area for debate. It gives me the opportunity to set the record straight on the economic narrative of the North sea. I am sure all hon. Members here will be aware of the issue, but it is important to put it on the record.

The Government believe in making the most of the UK’s gas and oil resources. To date, the oil and gas industry has contributed more than £330 billion to the Exchequer, and it is the UK’s largest industrial investor, supporting hundreds of thousands of jobs, supplying a large portion of the UK’s primary energy needs and making a significant contribution to GDP. Those jobs are not just in Aberdeen, or indeed in Scotland, but right across the UK. Members have all paid tribute to the contribution made by that North sea basin over many years.

With between 11 billion and 21 billion barrels of oil equivalent still to be exploited, the UK continental shelf can continue to provide considerable economic benefits for many years to come. That is what we are here to try to sort out, with the establishment of the OGA.

As the hon. Member for Southampton, Test pointed out, decommissioning is an inherent cost of doing business in the UKCS. Capital allowances are available on decommissioning expenditure, as they are for most of the costs of doing business in the UKCS. The rate of allowances for decommissioning match those for oil and gas research and development, exploration and appraisal, and mineral exploration and access.

I will answer the specific point raised about whether the tax relief situation might encourage people operating in the North sea to hurry to decommission, lest they be whisked away. The tax relief rate is guaranteed by way of decommissioning relief deeds between Government and operators so there is not a likelihood that either they will disappear or that people need to take precipitate action to avoid the risk that they might disappear.

[Callum McCaig (Aberdeen South) (SNP)]

One issue around decommissioning that is inhibiting new players from coming into the market, as I am sure the Minister is aware, is that of transferring tax history and the tax basis built up to allow it to be offset against decommissioning in future.

If new entrants do not have a significant tax history, that could be an impediment to their coming in because they would have to foot a greater part of that bill. Likewise, the company looking to offset an asset may not want to transfer it because it might come back, should that company be unwilling to do that. Would the Government be willing to look carefully at that issue to find a solution to allow the freeing up of assets?

[Andrea Leadsom]

That is exactly the area we are looking at. That issue has been raised, including at the maximising economic recovery meetings before Christmas.

To reiterate, as hon. Members from all parties have repeatedly stated, it is crucial now more than ever that we provide support for this industry that has contributed, and will continue to contribute, so significantly to the balance sheet of our country.

I will now speak to new clause 9, and I thank the hon. Member for Southampton, Test for tabling it. It would require the Secretary of State to report to each House of Parliament on the estimated cost of decommissioning North sea oil and gas infrastructure, one year after the Act comes into force and annually thereafter. As we have discussed, the inevitable consequence of a maturing basin means that the future cost of decommissioning activity in the North sea is expected to be substantial, and the scale of the decommissioning challenge is undeniable. That is why Government measures in the Bill are aimed at preventing premature decommissioning of critical UKCS infrastructure and ensuring that the decommissioning that does occur represents the best value for money.

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[The Chair]

With this it will be convenient to consider new clause 16—Strategy for incentivising competitiveness of UK-registered companies in decommissioning contracts—

‘(1) By June 2017 the Secretary of State shall develop a comprehensive strategy for the Department of Energy and Climate Change to incentivise the competitiveness of UK-registered companies in bidding for supply chain contracts associated with the decommissioning of oil and gas infrastructure (“the strategy”), which shall be reviewed annually thereafter.

(2) In developing the strategy the Secretary of State must consult—

(a) HM Treasury;

(b) the Department for Business, Innovation and Skills;

(c) the Oil and Gas Authority;

(d) Scottish Ministers, and

(e) any other relevant stakeholders that the Secretary of State thinks appropriate.

(3) The strategy must include, though shall not be restricted to—

(a) an appraisal of tax incentives that can be extended to oil and gas operators to incentivise their use of UK-registered supply chain companies; and

(b) an outline of other appropriate support that can be provided by the Government, or its agencies, to UK-registered companies which express interest in bidding for decommissioning contracts.’—(Callum McCaig.)

This new Clause would compel the Secretary of State to bring forward a strategy for ensuring that UK-registered supply chain companies benefit from decommissioning contracts.

[Callum McCaig]

I will be brief, because the debate that we have just had has already highlighted a number of the decommissioning issues that arise with this clause, and in many ways my new clause 16 speaks for itself.

As the Minister said and as I think everyone in Committee agrees, we hope that decommissioning is delayed as far into the future as is possible. If not, there is the potential to miss out on significant amounts of hydrocarbons that meaningfully could be extracted. The issue here and the vast amount of what the Bill is about is maximising economic recovery and delaying decommissioning, although that does not mean that it will not become a reality. It is something we are fully aware of—the costs are clear and a large part of them will fall on the taxpayer—so it is important that the Government in conjunction with relevant bodies, including the Scottish Government, are prepared for its economic potential.

The costs will be what they are and jobs will come from that decommissioning—that is inevitable—but the long-term viability or added value that can be got from it is if we become a true world leader in the development of the new technologies, skills and expertise, so that we can export and/or project manage decommissioning in other places. That is the real prize on offer. To achieve it and to enable the work to be done, there may be a requirement for infrastructure improvements to harbours and so on, most notably up and down the North sea coast. If the UK taxpayer is to foot the bill, it would be much better were it to be cashed in the UK, rather than in other parts of the world.

[Andrea Leadsom]

I am grateful to the hon. Gentleman for tabling new clause 16.

The new clause would require the Secretary of State to develop a strategy for the Department of Energy and Climate Change to incentivise the competitiveness of UK-registered companies in the decommissioning supply chain market. There is no doubt that UKCS operations are served by a world-class UK supply chain. The industry supports more than 350,000 jobs in the UK and produces a £35 billion annual turnover. As we have discussed, the inevitable consequence of a maturing basin is the ramping up of decommissioning activity in the North sea in the coming years.

The intention behind the new clause—the development and support of a world-class decommissioning supply chain industry—is something that the Government wholeheartedly support. Such an industry certainly has the potential to create world-leading expertise and to support thousands of UK jobs.

The UK Government stand 100% behind our oil and gas industry and the thousands of workers and families that it supports. We have today announced a £250 million Aberdeen city deal to boost innovation and diversification in the north-east Scottish oil and gas industry. The city deal will address various proposals from the region, including a new energy innovation centre and supporting the industry to exploit remaining North sea reserves, as well as the expansion of Aberdeen harbour, enabling the city to compete for decommissioning work, and I hope that cruise liners will stop there in future. There is a lot to see in Scotland and I am sure visitors would enjoy making the most of that. The Prime Minister is visiting Aberdeen today to meet local employers and workers, as well as senior executives from the oil and gas industry, to hear about the challenges facing the area.

I was delighted yesterday to be enrolled in a new ministerial group on oil and gas, chaired by the Secretary of State for Energy and Climate Change, which has been set up to reiterate the UK Government’s commitment to supporting the oil and gas industry and those who work in it. We met for the first time yesterday and agreed to produce a UK oil and gas workforce plan in the spring. This will focus on what steps the Government aim to take to support those who may lose their jobs in the oil and gas sector, and will set out how Government and industry can help the skilled workers, particularly in the supply chain, move into other sectors, including other energy-related infrastructure projects: the offshore wind sector and the new nuclear sector, for example. This builds on the significant work that the OGA is already doing in this area, bringing together industry, Government and trade bodies to develop and promote a strong decommissioning supply chain that can compete globally, while anchoring activities in the UK.

The OGA is working to produce a supply chain-specific strategy, which will influence the development and commercialisation of supply chain opportunities, capitalising on the inherent strengths of the sector not only to support the UKCS, but to grow exports. Decommissioning will be a part of the whole world’s oil and gas story, so there is an opportunity for the UK to take a leading role in that. The OGA has been working closely with BIS, Scottish Enterprise and with UKTI in this area, as well as taking opportunities to participate in industry-wide events such as the offshore technology conference in Houston.

Furthermore, the OGA continues to support and be involved in the significant decommissioning supply chain work of industry trade bodies such as the Oil and Gas Industry Council and the Technology Leadership Board. Such forums are critical in bringing together Government, industry and the OGA. Such efforts are already bearing fruit. For example, the OGA has recently connected eight operators conducting well plugging and abandonment campaigns in the southern North sea with the UK supply chain.

Although I recognise and agree with the intention behind the new clause tabled by the hon. Member for Aberdeen South, the need for action is now, as we have discussed at length. Putting his proposal into primary legislation could force us to stop, consult and think again, and we could miss the ever-closing window of opportunity that we have to support the industry immediately. I hope the hon. Gentleman is reassured by my words and will agree to withdraw his proposed new clause.

[Callum McCaig]

I welcome what the Minister said. I am not tempted to be drawn on the city deal. I will go no further than to say that The Press and Journal, a local voice of repute, described it as underwhelming. The investment is welcome, but I shall leave it at that.

I am not convinced I agree with the Minister that putting the new clause in primary legislation would cause us to miss the boat on decommissioning. The concentration of minds and of efforts and expertise is absolutely fundamental. In many cases, there have been opportunities that, for whatever reason, we have missed the boat on. This opportunity is one that we are absolutely clear will come. The question of timing is not explicitly clear, but it will come and we need to be ready. There may be specific investments in infrastructure, from Norfolk up to Nigg in the Highlands, that can deal with the kind of port facilities that will be required, and we need a proper strategic overview to enable that to happen.

I understand we will not be dividing on this matter today, but at a later stage I wish to press it to a vote.

Question put and agreed to.

Clause 74 accordingly ordered to stand part of the Bill.

Clauses 75 and 76 ordered to stand part of the Bill.

Ordered,

Manuscript amendment made: in programme motion (b), leave out “and 2pm”—(Julian Smith.)

Ordered, That further consideration be now adjourned—(Julian Smith.)