UK Oil and Gas Industry

Claire Perry Excerpts

Thursday 19th April 2018 Westminster Hall

[Colin Clark]

I thank my hon. Friend for that point. I am a member of the Environmental Audit Committee, which took evidence from Lord Turner, the former chairman of the Committee on Climate Change. I asked him for how long he saw oil and gas being a major source of energy, heat and power, and he said at least into the next century, which is well over 80 years. He went on to say that in terms of an industrial raw material, we just do not know—we could be looking at hundreds of years. It is important that we realise that we probably cannot bring all the hydrocarbons we have to the surface, but that we certainly have to use them better and in a much cleaner way. I know that is a big consideration, particularly in the City of London.

[The Minister for Energy and Clean Growth (Claire Perry)]

I want to reassure my hon. Friend that I, the Government and many industry commentators absolutely see a role for oil and gas in the mix going forward, with a shift towards gas. Technologies such as carbon capture and storage, which I have had the great pleasure of debating with the hon. Member for Stockton North (Alex Cunningham), my hon. Friend the Member for Waveney (Peter Aldous) and others in this House, are part of the way to extend the industry’s life even further. The Government are committed to gas—it is not just me; it is other international parties as well—but finding ways that can help us take carbon out to keep the energy supply flowing is also part of that mix.

[Colin Clark]

I thank the Minister for that intervention. It is very important that we are careful that this industry is not demonised and is not seen as something of the past. It is a constructive industry and it is important that we do not suggest it is a stopgap until we move on to something else. We have to recognise its importance. How we use hydrocarbons responsibly is something we have to get right for generations to come, while reflecting on how we have got it wrong in the past.

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[Colin Clark]

rose—

[Claire Perry]

Will my hon. Friend give way?

[Colin Clark]

I shall.

[Claire Perry]

I wanted to do two things, briefly: first, I remind everyone of the wonderful page 218 of the industrial strategy, which shows the productivity gains that the industry has delivered to the north-east—productivity gains driven by a UK Government-wide fiscal policy that supported the industry through the 1970s and ’80s. Secondly, I remind hon. Members that the carboniferous formation that has delivered the offshore extraction has also allowed us to explore, in a sensible, environmentally safe and robust way, onshore extraction of such incredibly valuable resources. The formation runs underneath us as well.

[Colin Clark]

I thank Members for that plethora of interventions—it is good that everyone is so interested on such a hot day.

As I was saying, this is an enormously important industry, which has been the bedrock of the manufacturing industry of the United Kingdom. That is why Her Majesty’s Government have invested in it and made this country one of the best places fiscally to produce oil and gas. With the transferable tax history, the UK Government have delivered a massive incentive to invest—other Members campaigned for that for some time. However, it is important that the companies now investing in the industry understand their future responsibilities and that the companies that invested in the past, which have already had the tax benefit, realise that they still have a responsibility.

Fiscal policy makes the UK continental shelf one of the best places to produce oil and gas, and the low corporation tax of the United Kingdom means that the bigger part of the industry, the service sector, is well compensated when operating in the UK. To produce more revenue and grow the whole economy is what we are trying to do. For “business sector” read “jobs”, because employment in the oil and gas industry is picking up, and there is a huge spin-off from the industry. It has been reported that more than half of the companies surveyed expect employee numbers to rise this year. That is a big change.

The north-east of Scotland and the rest of the country involved in oil and gas have seen numbers heavily depleted. As we discussed in a Westminster Hall debate on social mobility a few weeks ago, some businesses are reporting difficulties in recruiting people with certain skills and competencies. That is a worry; perhaps our technical colleges and universities are not producing enough. I had not realised that that could be the case—I expected that Robert Gordon University in Aberdeen or Aberdeen University would be completely focused on the oil and gas industry, but there is already concern about skills shortages.

The oil and gas industry reminds me of the space programme in the US in the 1960s: when oil was $120 a barrel, the industry could not spend money fast enough—probably throughout the entire world, but particularly in the UK continental shelf. Since the oil price has dipped, the industry has obviously pulled back from training, which is probably the reason for our skills shortage. We saw a massive dip in training, although it is beginning to pick up again. Government should do everything possible to encourage training and investment in training, because the industry will continue to be important.

In the north-east we have the highest concentration of technicians and engineers in the United Kingdom—in both north-easts—and all sides can recognise that that is hugely valuable all over the UK. It is also important at the Oil and Gas Technology Centre that STEM—science, technology, engineering and maths—learning is an important part of what the oil industry offers.

Recently, the Aberdeen and Grampian chamber of commerce carried out an industry survey including employment and attitudes. I shall give a few of the numbers because it is important for us to understand where the industry is. The picture is a mixed one, but 80% of firms believe the industry has hit the bottom of the cycle and is now starting to go back up. That means we will start to see investment again—and we are. Fifty-four per cent. of the companies expected to be growing, which is very important, because we are clearly coming out of what was a major recession.

Companies also predicted that they will grow new opportunities, as came up in an earlier intervention by the hon. Member for Stockton North. I visited Sparrows, which builds complex cranes. It had a £10 million order for cranes to put on turbine platforms, to lift parts on and off: 105 of those automated cranes at between £50,000 and £100,000 each. That is a huge investment, and there is the industry diversifying out. More than 80% of companies expected to be involved in decommissioning, where the spend will probably be about £40 billion—that is not to be sniffed at and will sustain an engineering industry for a long time. Many sectors in the United Kingdom would like a £40 billion investment.

On Brexit specifically, the survey covered the issue of recruiting talent in future. The figures are worth mentioning: 47% of the companies surveyed believe that there will be no effect; and 33% were worried. I accept absolutely that we have to get immigration right because this industry employs such highly skilled people.

The Oil and Gas Technology Centre, funded by the city region deal to the tune of £180 million, combines academic research, including that of Aberdeen and Robert Gordon Universities, and industry to create value: to unlock the potential of the UK continental shelf, to anchor the supply chain in the north-east—predominantly the north-east of Scotland, in this case—and to create a culture of innovation that attracts industry and academia. The centre is trying to bring all that together.

For a long time, the oil and gas industry operated in silos, with independent commercial organisations. Sir Ian Wood, with one organisation, has been brilliant at encouraging companies to come together. I have to say—I am sure that all Members involved would agree—that the basing of the Oil and Gas Authority in Aberdeen has been an enormous success. I would be delighted were other Ministries to consider basing anything related to oil and gas in Aberdeen as well.

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[Colin Clark]

The hon. Gentleman must have read my speech—ah, there is a camera behind me! Yes, there should also be a sector deal focused on transformational technology, underwater engineering and decommissioning that drives technology with spin-outs to the wider economy. That is so important with regard to STEM subjects alone. It worries me that young people—students and kids who are still at school—say, “Has the oil and gas industry got any future?” One young man said to me that he was going to work in the car industry, building cars with steering wheels. I said, “Nobody will be driving them in 10 years’ time, but we’ll still need oil and gas, so I would stick to the oil and gas sector.”

My third ask of the Department is to support the high-tech and highly productive supply chain, which has the potential to double its share of the global services market. I ask Departments more broadly to ensure that the UK continental shelf remains fiscally competitive and that we have UK frameworks that strengthen the UK internal market, which is essential to oil and gas.

BEIS has long supported the industry, and we appreciate that one of the Minister’s first visits in her current post was to Aberdeen.

[Claire Perry]

It was my first visit.

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[Kirsty Blackman]

I certainly worry that the city deal that was signed was looked at on a different basis from some other city deals. The Scottish Government have put in significant additional funding to the city deal, particularly recognising the issues with infrastructure. I was pleased to hear the hon. Gentleman talk about looking at additional infrastructure projects and so on. The Aberdeen western peripheral route will make incredibly positive changes. No one can wait for it to come—I think we are expecting it in the autumn. It will be hugely positive and will make a big difference, and I think that it will help encourage people to come to the north-east.

Let me turn to where we are now. Companies are working together like never before. I was at the forefront of calling for changes to transferable tax history, but other parties supported them; the Conservative party was behind the call, too. I very much appreciated the Chancellor making those changes in last year’s Budget. I would have preferred them to happen more quickly, but we cannot have everything. We are looking forward to their implementation later this year. I could not be clearer about how important they are, and I am sure the Government recognise that.

Just for a bit of information, if a big company owns a number of rigs and one of them is nearing the end of its life, the company has a choice: it could put a lot of work, capacity and people into that installation to try to get the maximum recovery from it, or it could say, “Look, this is not a priority for us. We are focusing on other things.” That is completely understandable, but the transferable tax history allows a new company—a new player in the market—to take over that asset to ensure that the maximum recovery is made from it. That is really positive, and I am pleased that it has happened. That is a helpful measure in terms of maximum economic recovery, which we are fully behind.

Where are we going? I was pleased to hear the hon. Member for Gordon mention Vision 2035, because it is incredibly important and people do not talk about it enough. It is the vision for the future of the Oil and Gas Authority, which so far seems to be doing a good job. It focuses in particular on the north-east of Scotland, but also on the wider industry across the whole of the United Kingdom. Vision 2035 is about ensuring that we get maximum economic recovery, extract oil and gas from the small pools and have a supply chain that is anchored—particularly in the north-east of Scotland—so that once we get to the stage when no oil and gas is coming out of the North sea, everyone will know that the very best supply-chain companies for oil and gas are in the north-east of Scotland and parts of the wider United Kingdom. Then, rather than seeing those companies lifted and based in the US or other countries, they could continue to sell their expertise, with a tax take continuing to come in and be spent here—preferably in Scotland.

We must anchor the supply chain now for the future, and there are a few ways to do that. In relation to small businesses, all too often such businesses in oil and gas come up with a great concept, start working on it, grow the business to a point and then they are sold. I get that that is a way forward for some, but both the Scottish and UK Governments are beginning to ensure that if such companies have the potential to grow, they do not get sold and their concept lost within a bigger international company but can access the finance they need to anchor themselves and have that next step of growth, whether that is through beginning to export or ensuring that their intellectual property is turned into something real that can be sold. That is really important for the supply chain, rather than seeing companies sold on to somebody else who may not pay as much tax here because they are not a wholly owned United Kingdom company.

On maximising economic recovery and exploration, even though we have a super-mature basin we should still be doing exploration; there is more that we can do. I think someone from Statoil said to me, “You’re most likely to find oil and gas somewhere you have already found oil and gas.” We should do exploration in those areas. We have better ways of surveying now than ever before, and of trawling through and understanding the data from that surveying, which will be important going forward. Anything the UK Government can do to ensure that exploration continues, even in a super-mature basin, would be welcome.

[Claire Perry]

I am really enjoying hearing another perspective from the hon. Lady’s fine city. Could I put on record that I am a little mystified about the Scottish Government’s decision to refuse to allow exploration for gas onshore when we know it is there because it is a geologically identical strata? Ultimately, the same operators would be looking to extract it. We can do it safely and in an environmentally secure manner, because that is what we do in Britain, as we have done demonstrably in the North sea basin. I find that an ideological rather than a practical decision.

[Kirsty Blackman]

What Governments do in any decision is look for best value—the good things and bad things that would come out of it. The Scottish Government and Scottish Parliament decided that fracking will not happen onshore in Scotland, and it is within that Parliament’s rights to take that decision.

[Claire Perry]

Will the hon. Lady give way?

[Kirsty Blackman]

In a moment.

[Mr Virendra Sharma (in the Chair)]

Order. The Minister will get a chance to respond to the debate, and I would appreciate it if she would—

[Claire Perry]

I am trying to keep us awake.

[Mr Virendra Sharma (in the Chair)]

I will send you another bottle of water.

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[The Minister for Energy and Clean Growth (Claire Perry)]

Thank you for your chairmanship, Mr Sharma. I also thank the members of the Backbench Business Committee and its Clerks, who have provided us with an opportunity for an excellent debate. I agree that this was a quality debate, not a quantity one, and perhaps if we had more of those we should all be the better for it. I heartily congratulate my hon. Friend the Member for Gordon (Colin Clark)—and he is a friend—on securing the debate, and on an exemplary speech. It was thoughtful, detailed, clear and extremely well informed. Clearly he and other hon. Members in the Chamber have a strong constituency interest, and we debate the issue frequently because we are all passionate about the oil and gas industry and agree about the great value that it brings to the local and national economies.

I asked for and was able to keep the oil and gas brief when I became the Minister for Energy and Clean Growth because I think it is an integral part of the transition to a lower-carbon economy, as well as an enormous provider of productive employment and benefits to the economy, historically and in the future. It was striking to hear the comments of my hon. Friend the Member for Waveney (Peter Aldous), who perfectly combines those two interests, given his chairmanship of the all-party parliamentary group for renewable and sustainable energy and his frequent strong support for the industry.

We also heard excellent speeches from the hon. Member for Aberdeen North (Kirsty Blackman), who cares passionately about the issue and speaks up for it frequently; from my hon. Friend the Member for Banff and Buchan (David Duguid), who I was delighted to hear, because it is always wonderful to hear from somebody who actually knows what they are talking about—we all know what we are talking about, but some of us know more than others—from the hon. Member for Kilmarnock and Loudoun (Alan Brown), who gave a typically doughty defence of Scottish independence and managed to slip in some telling points that I will respond to; and from the hon. Member for Southampton, Test (Dr Whitehead), who I seem to spend a lot of time debating such matters with.

I will not detain hon. Members too long, because it is a lovely sunny afternoon, but I will make a couple of important points. I and the Government fully recognise the importance of the industry to the UK, historically, currently and in the future. It has been an enormous provider of revenue to the Treasury, of centres of excellence in terms of innovation, and of hundreds of thousands of jobs.

It is striking that in the past few years, we have stopped talking about the industry as a declining force, and started to talk again about the opportunities for it in the North sea and other areas. We have now realised that we can integrate those fuels into a lower-carbon economy. There are also incredible opportunities, such as decommissioning, which we in the UK can own as the world faces the same questions about the future of the industry.

There are encouraging estimates of what is left. Vision 2035 has led industry to say that there are between 10 billion and 20 billion barrels of oil equivalent left in the continental shelf, which could be worth up to £1 trillion. If we continue to responsibly explore and extract those hydrocarbons, use them in the most economically effective and responsible way, and work on decarbonisation, there is a great opportunity for north-east Scotland and the whole of the United Kingdom.

The challenge of the security of supply has been interesting in the past few months. The beast from the east, the changes to storage facilities in the UK and the discussions about diplomatic relations with other major gas-producing nations have led to conversations about the security of supply that we have not heard in the past few years.

In fact, indigenous gas production meets 46% of our gas demand and contributes to the balance of trade. We are clear that we have robust gas security for the future, but we may be able to increase the effective extraction of gas from the UK. I do not want to make the debate about hydraulic extraction, but I am convinced that we must soberly test the science, as we are doing through the exploratory phrase, to understand the size of the opportunity and whether it can be extracted, not in a wild west, Texan sense—that is not how we do business in the North sea base or anywhere else—but in the most environmentally responsible manner in the world. We want to test that. We have to be clear that that makes an important contribution to our energy security and our future economic prosperity.

As has been mentioned, I jumped on a plane as soon as I could and went straight up to Aberdeen—I did not drive up the motorway network, because it was not there, and it would have been a long way from Devizes even if it was. Aberdeen is a wonderful city and an amazing place to visit. Looking at the productivity map of the UK, the contribution that fishing, originally, and now this extraction have delivered is clear.

It was heartening to sit down with people from the Oil and Gas Technology Centre at the Oil and Gas Authority and talk to them about what they have been through. It has been a very tough time. They would say that they perhaps took decisions a little hastily—unfortunately, there have been job losses in the local economy—but as a result of going through that trial, the industry is in a better place than ever. It has the resilience to face any future changes in oil prices and an understanding of what it needs to do to build a more sustainable supply chain, and the co-investment that is coming together around the technology institute is very exciting.

It was also heartening to talk to the people from the OGTC about operational decisions, such as how they pulled together through the Forties pipeline interruption to deliver that back on stream more quickly. Of course they will always be competing, but the recognition of what co-working can mean is incredibly impressive.

The OGA has been a driving force for that. I pay tribute to its work, and to that of the offshore petroleum regulator for environment and decommissioning, which never gets enough credit. It is a superb operation with lots of civil servants from the Department for Business, Energy and Industrial Strategy working extremely hard and doing a very good job of regulating and ensuring the safety of the industry. We are aware of the painful losses that have been suffered and we are determined to work together to make the industry more resilient.

Hon. Members have spoken about the uptick in mergers and acquisitions activity, some of which predated the transferable tax history. I am told by industry that that has been such an important part of getting assets out of the hands of those for whom it might not be economically effective to extract, because they have global interests, and putting them into the hands of smaller operators.

Related to that, there has been an interesting surge in technological investment in things such as reusable tiebacks that enable companies to extract reserves in a more nimble way. That innovation and technology is really exciting. It is excellent that those lobbied-for tax changes, which were passed by a Conservative Government, are delivering. As the hon. Member for Aberdeen North said, there is renewed investment in innovation and drilling—people are getting out there and exploring.

Some of those changes will unfortunately lead to further restructuring and there may be job losses. We all want to build up a healthy ecosystem for the industry that will extend to a broader region and offer additional employment opportunities, particularly in new technology.

The Wood review, which we commissioned, suggested that we should establish a strong independent regulator. That is working well. We are committed to the driving investment principles that have underpinned that success, and we now have a globally competitive tax regime, which places the UKCS in the top quartile globally in terms of post-tax returns.

In total, the Government have provided £2.3 billion of fiscal support to the sector so far. We also committed another £40 million for new seismic acquisition, which has been managed by the OGA, and we co-funded the Oil and Gas Technology Centre through the Aberdeen city deal. I echo the point that the hon. Member for Aberdeen North made about that; it was a brilliant example of co-working. When we put aside our national, local and political boundaries, it is incredible what we can deliver in local areas. That has been a real success.

In response to the debate, I will announce three further things. First, I understand the comments about an ultra-deep water port, which we talked about in our manifesto. We are immediately commissioning a UK-wide scoping study, which will work closely with my Scottish Government counterparts, because they have kicked off a piece of work in Scotland and we want to ensure that we incorporate it. It is important that we look across the UK. If we can get an ultra-deep water port that is economically effective, it could have a material impact on our ability to attract decommissioning business.

Secondly, not for the first time, I listened with concern to the issues about helicopter safety. I understand that it is the only way for people to commute to work, as my hon. Friend the Member for Gordon said. I will write to the Civil Aviation Authority to ask it for reassurance that the measures it introduced on helicopter safety are working, and for what further assurances it can give.

Thirdly, on the issue that the hon. Member for Aberdeen North and others raised about customs treatment, I will instruct my officials to seek clarity immediately from their Treasury colleagues and to write to the industry and to all hon. Members present by the end of the month, so there can be no lack of clarity about what is required.

We have talked a lot about the industrial strategy. Trevor Garlick has done a fantastic job in getting the sector together and pulling together a series of interesting proposals. As I have said before, we must not define a Government’s willingness to work with an industry on the basis of there being a big-bang sector deal landing on people’s desks. Much of the financial and fiscal support that we have given to the sector is part of a broader sector partnership that we are committed to taking forward. However, there are some very interesting specific proposals in that deal. One that strikes me is for the decommissioning opportunity, which I am very keen to explore quickly and to bring forward. The House has my commitment that we will do that.

I believe we all share the view that environmentally rigorous extraction of oil and more particularly gas, and the use of that fuel, absolutely has a place in our low-carbon transitions. Our current assumptions are that we will continue to use gas. I understand the question of carbon capture and storage; we have debated it before and I will not run through the debate again. I will only say that we now have private sector partners with very deep pockets who are prepared collectively to invest in that technology through the oil and gas climate initiative; we did not have such partners before.

We also understand that we not only need to decarbonise generation; we also have to put that work within a cluster, so that dealing with industrial emissions can be put into the same infrastructure and framework. There are only five places in the world where CCS plants associated with generation are running purely on subsidy alone, which is effectively what we have been asking for. The other 16 places rely on enhanced oil recovery as a revenue source. Even the Norwegians, who have the sovereign wealth fund that we have talked about, find it very difficult to get pure subsidy for CCS through their Parliament. That is why I have set up the carbon capture council, which is headed by the best brains, including some of our friends from north of the border, to try to work out how we improve the technology in a cost-effective way. What is the irreducible core of cost and risk that Government have to take in order to move this technology forward?

The CCS cost reduction task force is specifically looking at cost reduction proposals and also committed £100 million for innovation, because without that technology we will not decarbonise either generation or industrial emissions, and I want us to lead on CCS.

In conclusion, this is a vital—

[Alan Brown]

I thank the Minister for giving way, especially when she is just winding up. I raised the Grangemouth renewable energy project and the possible application of a retrospective cap on the amount of renewable heat incentive money that the project can claim. Is that something that she can reconsider? We do not want to put this project in jeopardy.

[Claire Perry]

I would be very grateful if the hon. Gentleman wrote to me about that, so that I can consider that question and give him a more detailed reply. By the way, if I have missed out any points that were raised during the debate, Members should please feel free to raise them with me and I will try to respond to them.

It has been wonderful to have this debate on such a sunny day. It is 18°C in Aberdeen—I have just checked—so it is a slightly more balmy place than usual for people to head home to. This has been a really fantastic opportunity to reiterate all of our collective support for this industry, which has delivered so much, not only to the north-east of Scotland but to the United Kingdom. I want people to be in no doubt that we are committed to making sure that, yes, we do the economic extraction—I think that I have described it as being down to the last drop—but that we also think carefully about how we use this fuel in a low-carbon economy, and make the appropriate investments in the future. And once again, I commend my hon. Friend the Member for Gordon for raising this matter in the House.