Oil and Gas Industry

Colin Clark Excerpts

Tuesday 9th October 2018 Westminster Hall

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Falkirk (John Mc Nally) on introducing what is clearly a timely debate, given that the Budget is forthcoming. As he rightly said, that Tory Budget cannot undermine the future of the oil and gas industry by once again using the North sea as a cash cow—terminology that was effectively recognised even by the hon. Member for Ayr, Carrick and Cumnock (Bill Grant), who acknowledged the £350 billion that the UK Treasury has accrued over the lifetime of the oil industry. That money has simply been frittered away.

[Colin Clark (Gordon) (Con)]

Will the hon. Gentleman give way?

[Alan Brown]

No, because I have limited time.

Where is the legacy from the UK Government? Where is the onshore infrastructure investment to support Aberdeen? It has been left to the Scottish National party Government to pick up the pieces, including the Aberdeen bypass and rail improvements. Where is the oil fund we have called for? Norway’s oil fund, started in 1990, has now topped $1 trillion in assets, and last year returned a profit of $131 billion. That alone gives lie to the myth that Scotland relies on the broad shoulders of the UK to deal with any price volatility. Careful stewardship would have taken care of that.

Let us look at the measures the UK Government have taken recently. In the spring 2016 Budget, they reduced the supplementary charge back to 10%. That was very welcome, but the predicted cost to the Treasury of £l billion was only a third of the inheritance tax giveaway to millionaires—such were their priorities. In the November 2017 Budget, the transferable tax history was a welcome measure, but given that it was predicted to bring an additional £70 million in revenue to the Treasury, that was not a difficult decision. The UK Government need to close out the process going forward. Over the same period, we have had the £1 billion carbon capture and storage betrayal. That project would have facilitated diversification from the wider oil and gas industry.

As others have recognised, the offshore oil industry has clearly been a great success story and has turned Aberdeen into a global city. Despite the predictions of when oil will run out, there is still a bright future. Just last month, Total announced a major gas discovery off Shetland, with an estimated 1 trillion cubic feet of gas that can be extracted. Rosebank, off the west of Shetland, is estimated to contain around 300 million barrels of oil. Equinor has called it

“one of the biggest undeveloped finds on the UK Continental Shelf.”

Overall, the North sea holds significant potential, with the equivalent of up to 20 billion barrels of oil remaining. That could sustain production for the next 20 years. I repeat that the UK Government cannot do another cash grab on the industry. Production statistics show that the sales value of oil and gas has gone up, and we know that production of oil and gas remains 23% higher than the level recorded in 2014-15. Even so, the UK Government must introduce measures to improve the exploration and attract fresh investment. They need to support the industry in its ambitions to increase the total economic value of the North sea.

With the publication of the Intergovernmental Panel on Climate Change report, we have to recognise the wider climate change issues and that the world is not on track to meet the temperature goals of the Paris agreement. The UK Government will have to take action in that regard, but that does not mean that we need to pull out of the North sea any time soon. Even if we did, we would then be reliant on imports.

Scotland’s energy strategy recognises that a strong domestic oil and gas industry can play a positive role in supporting the low carbon transition. What would help that transition, while we are still extracting oil and gas, is carbon capture and storage, greater investment in renewables, and allowing onshore wind developments in Scotland. The UK Government must also back away from the nuclear folly, and invest that money in offshore renewables, grid upgrades and directly in energy efficiency measures in homes.

We must recognise that the North sea industry is highly regulated, with some of the most advanced and comparatively least polluting production methods in the world. The industry is focused on reducing its carbon footprint and average emissions have fallen year on year since 2013. An oil and gas sector deal could help that process. Where is it? We really need one, and we need to hear about that from the Minister. The future of the oil and gas industry is bright, but it needs better leadership from the UK Government.

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[Colin Clark (Gordon) (Con)]

It is a pleasure to see you in the Chair, Mr Hollobone. I congratulate the hon. Member for Falkirk (John Mc Nally) on securing the debate, only a few months after my own debate on the industry.

Oil and gas is a massive part of the UK economy and an enormous part of my constituency of Gordon, with 233 service companies operating from Gordon alone. I routinely claim that I have the largest oil and gas footprint, but other Members may try to argue the point. Thanks to this Government, and the transferable tax history that will come into effect in November, billions of pounds of investment will be released into the industry. I am disappointed that voices from the Opposition Benches have said that transferable tax history is the wrong thing to do.

The industry continues to develop efficiencies in decommissioning, supported by Her Majesty’s Treasury. It contributes £1 billion a year to HM Treasury—somewhere short of the estimated £11 billion that the Scottish National party, during the independence referendum, claimed would be contributed. Fifty-nine UK constituencies have a major oil and gas footprint and, as my hon. Friend the Member for West Aberdeenshire and Kincardine (Andrew Bowie) said, the same Members seem to turn up for such debates. Many other areas should realise what a significant industry oil and gas is. It is truly national and international, and it is not a dying industry. It has shrunk from 4.5 million barrels a day to 1.5 million. It is still of great importance, and it has tremendous longevity.

Why is that industry so important to the north-east? The north-east has 8% of the population of Scotland, but 18% of its economy. Even during the downturn, unemployment only got to 1.2%, because the people of the north-east believe in getting out and working, even if it is in another part of the world. The north-east is the engine room of the Scottish economy. The cost of living is higher and house prices were driven up by the boom years, but we have the highest council tax bills. It is the most expensive place to live in Scotland, because the Scottish Government chose to put council tax bills up. Employers feel penalised by higher business rates, to the extent that buildings are being knocked down in the north-east of Scotland. I recently drove past the Baker Hughes GE building in the constituency neighbouring mine, and I am told it will have to be knocked down because the business rates are so punitive.

The UK Government have delivered, with transferable tax history, a massive incentive for oil and gas estimated at £30 billion. The fiscal policy that is making the UK continental shelf the place to produce oil and gas is that of the UK Government, and there is low corporation tax for the whole sector, UK-wide, because of the UK Government. In the north-east there is the highest concentration of technicians and engineers in the UK. We have an incredibly strong and robust economy. The industry puts safety first, absolutely, and I pay tribute to Step Change in Safety, which has brought together producers, the service sector and offshore workers in a collaborative effort.

As for any downturn in activity, the Oil and Gas Authority estimates that £400 billion is still to come from the North sea through collaborative action. Chrysaor, a private equity-backed organisation, invested £3.8 billion to buy Shell assets. Wood Group bought Amec, to be a FTSE 100 company. General Electric and Baker Hughes have merged their oil and gas, which is going to float on the New York stock exchange. There is not a lack of activity because of Brexit—far from it. The size and type of mergers and acquisitions deals last year signalled confidence in the UK continental shelf. The sector needs fiscal stability and I agree with other Members that that is a message we are sending, loud and clear, to HM Treasury. Businesses are not seeking to exit the UK continental shelf, which is still seen as a strategically important basin. SNP claims of a Brexit downturn simply do not ring true. They should look at the money and where it is being invested. In the past couple of days, I and colleagues visited Wood Group, an £11 billion organisation only 6% of whose business is in the North sea, because it is a dynamic company investing further afield. As to oil and gas being something of the past, let us remember that it is our throwaway culture, not the hydrocarbons, polluting the sea.

Oil and gas have been pivotal in transforming the carbon intensity of the power sector, as has been mentioned. Let us get to the nub of things. Higher taxes in Scotland will encourage companies to register and operate from outwith Scotland, damaging its tax base. Punitive business rates in the north-east are costing jobs. Having visited 90 north-east firms related to oil and gas, I have not heard anyone speak about Brexit. Every single one has mentioned business rates. Both Scotland’s Governments need to get their shoulder to the wheel and drive the industry forward.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank my hon. Friend the Member for Falkirk (John Mc Nally) for obtaining the debate. The timing is good, as other Members have mentioned, given that we are in the run-up to the Budget.

I want to talk first about Brexit, which several colleagues from throughout the House have mentioned. The economic report put out by Oil & Gas UK makes the point that 7% of the offshore workforce are from EU countries and refers to the fact that before Bulgaria joined the EU it took four days for goods to come from there to Aberdeen to be used in the oil and gas industry, but that they were routinely held up for an additional week because of customs controls. If we do not have a customs union deal that allows for those goods to come through the border without being held up for a week, it will cause problems for our supply chain companies and for the wider industry. A fifth of people living in Aberdeen were not born in the UK. We have done immensely well at attracting immigration, which has been good for our industry. It is a huge concern that that might be less easy after Brexit, particularly if the immigration plans mentioned at the Conservative party conference go through and we end up in a situation where very few immigrants are allowed to come to the UK. That would cause a real problem for my city and for the oil and gas industry as a whole.

The hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) set out particularly clearly the requirement for a stable taxation regime for the oil and gas industry. One of the points most often raised with me is that if there is a story in the Financial Times about the possibility of the Treasury increasing, or massively changing, tax in relation to oil and gas, that story alone causes a problem for the industry—it makes a dent. We need a clear commitment from the Chancellor in the Budget to stability and predictability in the taxation regime.

[Colin Clark]

We were both at the same meeting when the Exchequer Secretary to the Treasury came up. I think it was the myth being peddled that did the damage—he clarified it from the Treasury. Does the hon. Lady agree?

[Kirsty Blackman]

I do not disagree at all. I understood that that was a private meeting, so I did not want to talk about what that Minister said during it, but it would be good if the Chancellor could make a clear statement in the Budget. I agree that it was the myth, rather than any statement by the Treasury, that caused the problem. I am sorry; I thought I had been clear on that point.

There are other asks for the Budget. I have not heard anyone on the Opposition Benches being negative about transferable tax history. I apologise to the hon. Member for Gordon (Colin Clark), but I was calling for that in March 2016, which was more than a year before he was elected. We have consistently called for changes in the taxation regime for late-life assets. I have made the case for that on many occasions, and I am pleased that it may be coming through—we hope it will. It is a good example of the industry working together. Things have happened a bit more slowly than I would have liked, but the industry worked well with Government, and the conversation went well about trying to make the tax regime work from the point of view of both the Government and the industry.

The importance of transferable tax history is because of what happens when assets at the end of their life are transferred to another company. Something that belongs to a big company with many different onshore installations will probably not be its No. 1 priority, but if it belongs to a new entrant and is all that it is concentrating on, it will be a priority. That is why transferable tax history is so important for maximising economic recovery.

The point about end-use relief is a good one. My hon. Friend the Member for Falkirk and the hon. Member for Waveney (Peter Aldous) both mentioned it. Whatever happens, it is vital that the Government should speak to the industry about the best way to make the change work, if there is to be a change, and that as much notice as possible should be given of changes to end-use relief. We nearly had a big disaster in July, with the pulling of end-use relief. It is clear that that cannot happen. The industry and the Government need to continue to speak to each other to make it work better.

The final Budget matter I want to speak about is the sector deal. If the Chancellor could announce progress on that it would be phenomenal—excellent. I would be really pleased. If not, it would be good to know when a commitment is likely. My impression from speaking to those in the industry who worked on the deal is that they feel they worked together incredibly well on it. They feel that the proposal that has been put forward to the Government reflects the industry’s needs and requirements, so it would be positive if the Government brought it forward sooner rather than later.

I want to talk about “Vision 2035” and focus on the subject of the debate—the future of the oil and gas industry. I will not talk much about the industry downstream—I apologise to anyone involved in it—because I represent Aberdeen and because my hon. Friend the Member for Falkirk, who represents Grangemouth, and the hon. Member for Waveney have spoken about that important aspect of the industry. “Vision 2035” is the Oil & Gas Authority’s vision for securing the supply chain and the oil and gas industry in the north-east of Scotland to ensure that, in 2035, it still makes money for the Treasury, supports our local economy and provides jobs in the local area. That will happen only if the Government provide support now, including the stable fiscal regime that we spoke about earlier and support for the supply chain. They must talk positively about the industry, consider its asks, and make changes if need be.

The North sea field is a late-life asset—it is incredibly mature. It was one of the first fields in the world to reach that level of maturity, so our engineers who go out there are doing incredibly innovative things. They are working on enhanced oil recovery, bringing in tech in the supply chain, and using longer tiebacks so that small pools can be exploited. It is groundbreaking, world-leading stuff; this is the first time some of it has been done. If we get the technology right, we will be able to export it around the world even when there is no oil and gas in the North sea, but we must ensure that those companies stay anchored in the north-east of Scotland and the wider area.

The hon. Member for Gordon mentioned how many oil and gas companies he has in his constituency. I am sure he has more than I do, but I have the services that support those companies—two local authorities, the hospital and all the other vital things that the industry requires. As the hon. Member for West Aberdeenshire and Kincardine said, it is hon. Members from the north-east of Scotland and those who represent constituencies with oil and gas industries who come to speak in debates like this. I have taken part in many such debates in my time as a parliamentarian, and it is interesting that we and Conservative Members are largely asking for the same things: transferable tax history, the sector deal and support for the Oil & Gas Technology Centre, which is doing absolutely phenomenal work. Previously, we were asking for the Aberdeen city deal. We are calling for the same things because we all go out there and speak to people who work in the oil and gas industry, and the companies involved in it. We ask them what they need, and they say pretty consistently that the most important things are stability and predictability.

Support for exploration is also hugely important just now. Anything that can be done to encourage exploration and help big projects be signed off will be incredibly important. More big projects have been signed off in the past year than in the previous couple of years, which is hugely welcome news, but we need them to keep coming through the pipeline so that we can secure the future economic benefit.

Hon. Members in the Chamber largely speak with one voice and have the same asks for the oil and gas industry, but I sometimes feel like we do not make as much headway with Ministers in the Department for Business, Energy and Industrial Strategy and the Treasury as we could. I hope that the Minister hears everything we are asking for. We are all calling for the same things, because we are reflecting the voice of the industry. I would very much appreciate it if he would ask the Chancellor to make a clear commitment to a stable fiscal regime in the Budget.