Future of the Oil and Gas Industry

Charles Walker Excerpts

Thursday 14th March 2019 Westminster Hall

[Douglas Chapman]

The UK Government has had a spend, spend, spend approach, but as I said, I would like us to put away much more of that wealth for future generations. Perhaps it is a bit late to do that now; we probably should have started doing it from the beginning. It is easy to say in hindsight, but it should have been part of the overall oil and gas strategy right from the start.

It was interesting to hear the Chancellor’s reply to my hon. Friend the Member for Aberdeen North (Kirsty Blackman) during the spring statement yesterday. He said:

“Scotland gets its share of…capital and resource, but precious little thanks do we ever hear from…the SNP Benches”.—[Official Report, 13 March 2019; Vol. 656, c. 360.]

The fact that £350 billion went into Treasury coffers but not a brass farthing went directly into the Scottish economy underlines the point made by my hon. Friend the Member for Edinburgh North and Leith (Deidre Brock) about what Scotland has got out of oil and gas. We could have had an awful lot more to benefit every man, woman and child in our country. The Chancellor’s concept of pooling and sharing is much different from mine.

I am grateful that the control, stewardship and the tax take will soon be back in Scotland’s hands—“stewardship” is the key word rather than “management”. I return to the eloquent point made by the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) on safety: if companies are being brought to the table to talk about how to license certain fields, surely that is a fantastic opportunity to talk about their responsibilities for trade union recognition, and the safety and security of people who work on rigs far out in the North sea.

Scotland does not underestimate the vital part the oil and gas sector plays in meeting our energy needs; as the Committee points out, it is forecast that two thirds of the UK’s primary energy needs will be met from the North sea until at least 2035. However, we must also appreciate that we need to transition to a low-energy, low-carbon economy. Our world-leading, export-oriented supply chain already plays a positive role in that respect by looking at ways to reduce its carbon footprint at every turn. Average emissions per unit of production on the UK continental shelf have fallen year on year since 2013, and total emissions have been in decline since their peak in 2000.

Our oil and gas industry is awash with highly skilled individuals in possession of world-leading expertise. The sector currently supports 283,000 jobs across the UK. We must seek to hold on to those workers to retain the value they add to our economy. As I said, the Scottish Government’s transition training fund has made good progress in that regard, facilitating training for many oil and gas workers to move into renewables such as tidal, onshore and offshore wind, wave power and solar. However, the UK Government’s decision to slash funding for the renewable energy sector does not give us much encouragement. In fact, it does exactly the opposite, removing opportunities for talented individuals to utilise their skills to develop new wind technology and other low-carbon technologies such as carbon capture and storage—not so much opportunity knocks as an opportunity lost.

Brexit looms large in many people’s minds. We stand at a Brexit crossroads, with freefall into no deal on one side and a car crash of a bad deal on the other. It is inevitable that business across the UK will suffer if we ever actually leave the EU, but the oil and gas industry is likely to be one of the hardest hit, due to its highly globalised nature. With approximately £61 billion of oil and gas-related goods traded with the rest of the world, the threat of tariffs looms over the industry. In a worst-case scenario where the UK reverted to World Trade Organisation rules with the EU and the rest of the world, the cost of trade would likely almost double to around £1.1 billion per annum, assuming trading behaviours remained unchanged.

[Mr Charles Walker (in the Chair)]

Order. I remind the hon. Gentleman that we want to share the time out: if he could wrap up in two minutes, that would be great.

[Douglas Chapman]

Certainly, Mr Walker; I will move on to my final comment.

The report’s conclusions focus on the positives: developing an ambitious deal for the sector as a whole, which I hope will be supported; developing new technology, which many Members spoke about, so we can recover more of what we need; reducing the costs of decommissioning; exporting the sector’s skills and experience, not just in exploration but in subsea work; and making the vital transition from carbon energy such as oil and gas to renewables—especially hydrogen, which could be a game changer and might just help save the planet. The opportunities remain immense, and the sector deal outlined by the Committee would offer energy security for decades to come and allow Scotland to remain a sector leader.

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

I congratulate the authors of the Select Committee’s excellent and wide-ranging report, and everyone who took part in the Committee’s proceedings. The report goes well beyond some previous considerations of the future of the North sea by putting it in the context of a number of other issues relating to where we stand on the exploitation of North sea oil and gas and what the future looks like.

As the report states, the North sea is a very mature basin. Hon. Members mentioned that its exploited resources total some 43 billion barrels, and estimates of what is left vary from about 8 billion to 10 billion barrels. Some of the discoveries to the west of Shetland notwithstanding, it is extremely likely that there will be no more Brents and that we will see the exploitation of smaller pools, which are more difficult to exploit. Clearly, there will be great emphasis on the efficiency of exploitation. The report emphasises the extent to which the oil and gas industry has increased its efficiency; it needs to continue to do so for that exploitation to be effective.

The report also goes into considerable detail about not just the future alternative paths, but what we might call the future imperative paths for the North sea as a mature basin. My hon. Friend the Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) mentioned that the oil industry has come through a challenging period—it is in a better position than it has been in for quite a while, given its efficiency achievements and what is happening with the exploitation of future fields—but he drew attention to the need to look at a future industry for decommissioning in the context of the climate change imperative. I was pleased to see that the report did not duck climate change; quite a few of its passages actually centred on the challenges that the fight to get us to a low-carbon economy will present for the oil and gas industry, and on how the industry can take part in that process rather than opposing it.

The hon. Member for Aberdeen South (Ross Thomson) is right about the need to consider how decommissioning can be turned from a liability into an opportunity and, indeed, become a substantial part of the industry. We need only reflect on what is at stake: 250 fixed installations, 250 subsea platforms, 10,000 km of pipeline and 5,000 oil wells need to be decommissioned. The potential decommissioning industry is huge, not just in its own right but in terms of the expertise that already exists, which could be added to. The UK could be a world leader in decommissioning, exporting its expertise and methods. I commend the report’s attention to the detail of decommissioning and how it can be undertaken to the advantage of jobs, skills and exports for UK plc.

We must recognise that the imperative of climate change will cause us to take a considerable number of decisions about the oil and gas industry. Indeed, the report identifies a number of those decisions, one of which is the question of what we do about carbon capture, use and storage. That is not just a possible extension of activity and industry for the North sea as fields are depleted—indeed, those fields are enormous potential repositories for carbon dioxide—but can be used to the benefit of the North sea fields in their own right.

I would link that to the decommissioning efforts that are under way, because the next phase will be about exploiting smaller fields. That needs to be done on the back of existing infrastructure, which arguably should not be decommissioned but rather kept in place, so that those fields can be exploited without the infrastructure having to be completely replaced. If we decommissioned all that infrastructure when a lot of it could be used as the carrying capacity for carbon capture and storage, we may well live to regret it.

We need an understanding about future roles for the North sea. We should not only think about potentially depleted fields that could be repositories for carbon capture and storage, but look at practical considerations in respect of how the capture, transport and sequestration chain can be completed, possibly by using installations that are already there. The same applies to the future North sea wind industry. As the hon. Member for Waveney (Peter Aldous) said, there is a close link between the skills and practical measures involved in developing offshore wind energy and maintaining the structure and infrastructure of the North sea oil and gas industry. Those two industries should work in tandem, rather than separately. As is mentioned in the report, that is important for satisfactory developments in the North sea and for the transfer of skills to the new industries. The skills, facilities and techniques that are already there in the North sea can greatly aid us in creating world-beating offshore wind energy installations and similar technologies, and ensure that the North sea plays its part in the transition to the attainment of a low-carbon energy economy.

In conclusion, the report marks an important milestone. It shows where we need to go next with the North sea oil and gas industry, and its recommendations and suggestions will stand the test of time. In the immediate future, I commend the report’s suggestion that we need to get on with a sector deal for the oil and gas industry. I do not need to say more about that, because I am sure the Minister will update us about it in his response. I emphasise my support for the need to get that deal over the line. In addition to milestones for the future, we have ambitions for the immediate time ahead to ensure that the oil and gas industry continues to be in a better position than it was in before and that it has the wherewithal to make its mark over the decades to come.

[Mr Charles Walker (in the Chair)]

Minister, please could you leave two minutes at the end for Mr Wishart to wrap up?

--- Later in debate ---

[Richard Harrington]

The hon. Lady has brought up an excellent point. From what I have seen—I expect to be corrected by her or by the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) if I am incorrect—I feel that there is a lot of co-operation between companies and the union. However, I was very concerned by the points that the hon. Gentleman brought up about the survey from Robert Gordon University on the stress and everything else; that is of concern. While this is, I hope, a highly-paid industry, it is one where we must be very conscious of health and safety—not just the formal things to do with safety regulations, but things to do with the wellbeing of the workers in it. The hon. Member for Midlothian (Danielle Rowley) was correct to bring the question to my attention; I am sorry I had not answered it in the body of my speech. I will confine my remarks to that, and thank the Committee again for the work it has done.

[Mr Charles Walker (in the Chair)]

Mr Wishart, you have three minutes, 45 seconds, or thereabouts.