Deep-water Drilling (Shetland)

Charles Hendry Excerpts

Thursday 18th November 2010 Commons Chamber

[The Minister of State, Department of Energy and Climate Change (Charles Hendry)]

It is a pleasure to respond to this important debate. I am grateful to the hon. Member for Brighton, Pavilion (Caroline Lucas) for securing it, although I have found it hard at times to understand what her motivation has been. Has it been in general opposition to drilling for oil and gas at all? That is what she indicated in Westminster Hall last week. Alternatively, is it specifically about the deep-sea issues west of Shetland, on which she has focused tonight? It would be helpful to have a clear understanding of exactly her objective and whether she is trying to end what is, for Britain, an extremely important industry. There is a great deal of confusion in the arguments that she has put forward. I shall try to clarify some of the issues, the Government’s approach and why we have reached the decisions that we have made.

It is right to put this debate in context. We have all been profoundly concerned about the terrible accident at Deepwater Horizon earlier this year. It was a very serious and tragic event. Eleven people died and there have been huge consequences for the gulf of Mexico and those who make their living there. As new developments focus increasingly on more challenging prospects, including deep water, the situation presents Governments, regulators and the industry with a real challenge, which they must address. That has been recognised by the Energy and Climate Change Committee, which is conducting an inquiry into the matter with great thoroughness.

I want to pick up on one of the issues that the hon. Lady was talking about towards the end of her speech. She spoke about tax breaks, as if they involved money that could be spent somewhere else. The reality is that the companies pay in tax 50% or 75% of their profits from oil and gas production. To encourage them to go into more difficult, challenging and expensive waters, the Government have reduced that rate so that they pay slightly less tax. The consequence of what the hon. Lady is saying would be that those billions of pounds of funding from the North sea oil and gas sector would simply dry up completely. Far from having £12 billion, which could be reallocated to other facilities and services, we would be billions of pounds short in the public finances, and massive cuts would have to be made elsewhere. That is the reality. We are talking not about a subsidy, but about a reduction in one of the highest rates of tax that any industry pays in this country.

[Caroline Lucas]

I want to clarify two things. First, I want to make very clear my motive for securing this debate: it is indeed to try to secure a moratorium on any new oil licensing, including the Lagavulin prospect, until the result of the judicial review and until we find out what happened at Deepwater Horizon. The Minister is correct: over time, of course, I would like to see a transition away from fossil fuels and towards green energy. However, I am not suggesting that we do that via a moratorium now; I am suggesting that the particular risks off Shetland are such that we should be acting.

[Charles Hendry]

I am grateful to the hon. Lady for that clarification, and I shall respond in the same tone. We have looked extremely carefully at the UK regime. We believe that it is absolutely paramount that we in the United Kingdom should have the toughest safety standards. We have a long record of safety. The UK was one of the first areas worldwide in which offshore exploration and production took off. We have four decades of experience. More than 10,000 wells have been drilled in UK waters, including more than 300 in waters more than 300 metres deep.

Our regulatory system has been developed to meet the evolving challenges faced by the industry. Following the Piper Alpha disaster, safety regulation was brought under the Health and Safety Executive umbrella, to get the benefit of its expertise in regulating major hazards. The Department of Energy and Climate Change, of course, plays a vital role in overseeing the environmental performance of the offshore industry.

In the light of the evidence, we have taken further steps to strengthen our regulatory regime by doubling the number of environmental inspections of mobile rigs, and we are satisfied that the regime remains one of the most robust in the world. I am sorry that the hon. Lady cannot recognise that. With great care and scrutiny, we have reassured ourselves about the steps in place, decided what more should be done to maintain our gold standard in oil and gas security and safety mechanisms, and made sure that we have gone a bit further to enhance that. People should welcome what the Government have chosen to do. Of course, we have been looking extremely carefully at all the information from the Macondo incident, and we will continue to do so. When those investigations are complete, we will determine what more, if anything, needs to be done to reinforce our regulatory approach.

The hon. Lady questioned the ability of the inspectors to do the work that is most important. We do not believe it is necessary to inspect every single offshore facility every single year, but we focus on those more challenging operationally, which is appropriate.

[Caroline Lucas]

It is interesting to talk about the checks that went on. In fact, Deepwater Horizon had been checked just two weeks before the tragedy happened, so we can put to one side arguments about the regularity of the checks. The hon. Gentleman talked about doubling them, but I understand that that still means only going from two to four, so that is not going very far. The point is that we do not know why Deepwater Horizon happened. One of the complicated aspects is that it was checked two weeks before, so why are we putting so much stress on that as a way of being able to say that we are certain that we will be safe?

[Charles Hendry]

I hope that the hon. Lady accepts that there has always been a fundamental difference between the way that safety is handled and monitored in the United States and how it is done here. We have had significant contact with the American Administration since Macondo, and they are looking to see what lessons they can learn from our regime. After Piper Alpha, we separated out the licensing roles and the health and safety and environmental roles, so the body responsible for health and safety—the HSE—has no financial involvement whatsoever in the licensing rounds. As a result, over 20 years we have had in place an extremely robust mechanism.

We believe that there is an imperative national interest in ensuring that we get the best of the resources available. The reality is that for all the ambitions the hon. Lady may have—we want to decarbonise this country as well—by 2020, and well beyond, we will still be dependent on a significant amount of oil and gas. We can either find those resources within our national waters or import them. About 17% of our remaining reserves in the United Kingdom lie in deepwater areas west of Shetland. About 3.5 billion barrels of oil of the remaining 20 billion or so on the entire UK continental shelf are in that area. We think it is a matter of great national importance that we should be maximising the economic recovery of those resources, and there is a great deal more that needs to be done in this entirely legitimate and proper activity. That is why we were pleased recently to offer 144 new licences in the 26th round. That shows the continuing confidence of the industry in the UK continental shelf and provides a strong basis for continuing exploration and development activity. We will encourage industry to continue to invest in exploration, development and production while maintaining high standards of management and minimising environmental impacts.

[Caroline Lucas]

On safety, I want to come back to the quote from the Health and Safety Executive’s offshore division, which says that it is

“particularly disappointed, and concerned, that major and significant hydrocarbon releases are up by more than a third on last year”

and calls on the industry to up its game. The HSE itself is expressing that concern. How is that consistent with the hon. Gentleman’s words about how safe everything is and how fantastic our record is?

[Charles Hendry]

If one looks further into the figures, one sees that the volumes released have been gradually coming down over time. We are safer, we have fewer leakages, and every single leakage is required to be reported. Any leakage is unfortunate and should be avoided or stopped, and any threat to human well-being has to be addressed, but I have never seen any industry anywhere with higher safety standards than the offshore oil and gas sector. Those people are constantly driving and striving to improve standards, and the Government will work with them in ensuring that they achieve that.

Let me turn to the Chevron consent at Lagavulin. The hon. Lady questions why we announced that while the House was not sitting. There is no requirement on the Government to announce the issuing of new rounds of licences to Parliament, but we have always done so, as we believe that it is right and proper that Parliament should know about it first. However, individual consents do not require to be announced to Parliament. Before we could make the announcement of the consent, we needed to be absolutely satisfied that Chevron’s plans were fit for purpose, had been thoroughly assessed, and, in the light of any additional evidence from the challengers in the gulf of Mexico, had been tightened up even further. That meant, for example, that we required an update of the oil pollution emergency plan. We considered that very carefully, and not until Chevron was able to satisfy the additional requirements was consent granted.

The additional requirements included an exercise to co-ordinate the work of all the key contractors and to examine the roles, plans and procedures in place to prevent incidents and identify gaps and mitigations, taking into account the Macondo experience. Workshops were required for key onshore and offshore Chevron drilling and service personnel, to secure the alignment of all parties with Chevron’s safety and environmental principles. An audit of Halliburton’s practices and procedures by Chevron’s in-house cementing experts was required, as was comprehensive checking that all relevant Chevron and Stena personnel held up-to-date certification in well control. Regular well control drills were required to test the equipment and crews weekly or more frequently. A dedicated safety meeting of all key rigging contractor crews was required, to review the key findings of the Macondo well experience. There were further steps to ensure that the blow-out preventer would operate reliably if needed, including a third-party audit of the equipment and the presence of a Cameron engineer on board at all times to maintain the equipment and its control system.

A further reason why we can have confidence in the system in this country is that we have also made progress in putting in place capping devices, so that if there is a disaster we can respond much more quickly. Since 1974, some 315 deep-water wells have been drilled in UK waters, with no blow-out or drilling-related oil spill, but we nevertheless require detailed contingency plans that can be brought into force in the event of a spill. Those requirements have been updated in the light of what happened in the gulf, and every single well is subject to detailed case-by-case scrutiny. We now also have containment devices from the gulf of Mexico in the UK, based in Southampton.

The work of OSPRAG is aimed at adding a third dimension to the equation—a capping device that can be deployed on any well head, not just deep-water ones, to mitigate and capture oil flows in the event of failures such as we saw in the gulf. That should be available by the end of 2011 or sooner. In addition, Chevron has developed a quickly deployable capping device that is located in Scotland and could be deployed on the Lagavulin well within nine days of any incident.

[Caroline Lucas]

Will the Minister answer just two questions? First, why was it so urgent to grant the licence now, before we have understood what happened at Deepwater Horizon? We do not know why that happened, so could we not have waited a few more months to find out before going ahead? Secondly, I go back to the HSE’s stating that

“major and significant hydrocarbon releases are up by more than a third on last year.”

Surely those two things should give the Government pause.

[Charles Hendry]

On the second point, the hon. Lady should examine the long-term trend and give the House the full details. She will see that, over time, there has been a steady reduction in injuries, leakages and emissions, and that there has been continual progress.

On why we made the decision when we did, we did not believe that there was any case for holding back the decision once we had been fully satisfied that every necessary safety mechanism was in place and every safety issue had been properly addressed. After all the extra questions that were put to Chevron, we believed that it had been able to satisfy that requirement. One must also consider the commercial factors involved. When a ship is available to do the drilling work, it costs thousands of pounds a day. Once we were satisfied that it was entirely safe and proper for the work to go ahead, there was no case for holding back further.

The hon. Lady made comparisons with the US approach, pointing to a difference between its prescriptive approach and our safety case approach. Our practice already includes, and goes further than, the measures being proposed under the new US rules. The US Government themselves have examined what needs to be done and lifted the ban on deep-sea drilling in the gulf of Mexico, which is beginning again. They have recognised that it can be done safely, even with all the tensions and pressures that exist in the United States on the matter.

In addition, we have established processes for environmental management that require operators to have an effective environmental management system in place before starting operations. The new US rules will require a similar system, but they will not be in place for another year. Whereas we already have third-party audit of the environmental management system, the US is still considering whether to adopt it.

We have looked carefully at the systems that operate here and elsewhere in the world and we have talked to the companies involved. We should not shy away from the fact that nowhere, apart from Norway, has such exacting standards on safety and environmental protections. The hon. Lady says that Norway has put in place a moratorium, but that is not correct; it has not adopted a moratorium on deep-water drilling, and a number of deep-water wells have been drilled in Norwegian waters this year since Macondo.

[Caroline Lucas]

In fact, I was careful not to say that Norway had put in place a blanket moratorium. I said that it had allowed ongoing drilling under the 20th round of licences, but that it will not release any licences under the 21st round—the new round—until it has learned the lessons. Surely that is the kind of model that we should follow. I come back to my point that I do not understand how Ministers can reassure the House that deep-water drilling is safe until we know why the blow-out happened. We do not know what went wrong, so we cannot be sure that we have put it right or made sure that it will not happen again.

--- Later in debate ---

[Charles Hendry]

We have looked at the safety mechanisms—the tests, structures, emergency procedures and fail-safe devices—to see how they are imposed in the United Kingdom. What happened in the gulf of Mexico happened under a very different licensing and safety regime. We have looked at practices here, and we believe that it is safe to go forward, particularly given the many years of deep-water drilling in the United Kingdom. That is the basis of our decision.

In addition, we have looked at the oil pollution emergency plans. We had a review of their format and content. As a result, plans submitted for all drilling activities must now assess the worst-case scenario, where all containment barriers have failed, resulting in a well blow-out that cannot be controlled in the short term. All ongoing drilling operations now have revised oil pollution emergency plans to assess the worst-case scenario. All OPEPs submitted by operators contain a section relating to oil spill modelling. Operators conduct computer modelling on worst-case scenarios to give an indication of the consequences that could arise if the scenarios were to occur. As such, that information gives an indication of where oil might beach on shore and of the time factors involved. That allows pre-planning to take place to address such issues.

The UK has a tough regulatory regime. Everyone anywhere who has looked at the approach in the UK believes that it is a gold standard to which others should aspire. However, we will continue to look at any evidence from anywhere in the world, and we will refine and improves things as necessary. We have made a number of changes in the light of Macondo, such as increasing the number of environmental inspections and seeking revised oil pollution emergency plans.

All drilling applications are considered on a case-by-case basis, and no consents are issued until DECC and the HSE are absolutely satisfied that the drilling proposals are sound and have taken into account the issues that contributed to the Macondo incident. More than 300 deep-water wells have been drilled to the north and west of Shetland with no incidence of a blow-out or oil spill. Deep-water drilling is not a new concept in this country; the industry has been conducting such activities here since 1974.

Taking account of those factors, we do not believe that there is a need to halt deep-water drilling on the UK continental shelf. As I said, the US has recently lifted its moratorium, and Norway has never had one.

The UK oil and gas industry is a great success story, but it does not always receive the praise and attention that it deserves. I have been offshore and seen first hand the dedication, determination and skill of the work force. The industry has shown continuous technical innovation to meet the tough challenges of operating in the North sea and beyond. It is of course vital that operations are carried out safely and that environmental impacts are minimised, and we must ensure that lessons are learned from the US incident. However, the UK regulatory system already provides one of the toughest regimes for the upstream oil and gas industry to operate in.

[Caroline Lucas]

Will the Minister give way?

[Charles Hendry]

I am about to conclude.

The industry’s track record, particularly post-Piper Alpha, demonstrates its effectiveness. As I said, we have been looking closely at information from the Macondo incident and we will continue to do so. When those investigations are complete, we will determine what more, if anything, needs to be done to reinforce our regulatory approach. However, I can give the hon. Lady and the House an absolute undertaking that we will take no gambles or risks in making sure that we do these things in the most effective and safest way possible.

Question put and agreed to.