Oil and Gas Industry

David Duguid Excerpts

Tuesday 9th October 2018 Westminster Hall

[David Duguid (Banff and Buchan) (Con)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for Falkirk (John Mc Nally) on securing this important debate. As many colleagues know, before I was elected to this place, I spent 25 years working in the oil and gas industry, as many of my constituents still do. The industry is still a major employer in my constituency, as is the supply chain that supports it.

Almost half the UK’s oil and gas makes landfall by pipeline in my constituency. The Forties pipeline system, which has been mentioned, comes ashore just outside the coastal village of Cruden Bay and carries about 30% of the UK’s oil. St Fergus, a few miles up the coast, is the location of the St Fergus gas terminal, through which 25% of the UK’s gas is imported through three different pipelines. St Fergus is also the site of a new project currently being developed for carbon capture and storage—a technology that has already been mentioned.

A little further south is the slightly lesser known city of Aberdeen, which many know as the oil capital of Europe, and rightly so. Many people from my constituency and from all around the north-east of Scotland commute to Aberdeen, heading not only to the worksites and offices in and around Aberdeen, in the constituencies of my hon. Friends the Members for West Aberdeenshire and Kincardine (Andrew Bowie) and for Gordon (Colin Clark), who I am sure we will hear from, but offshore, to and from the world’s busiest commercial heliport at Dyce.

At the start of the downturn in 2014, more than 460,000 jobs in the UK depended on the oil and gas sector. Throughout 2015 and 2016, the number fell steadily, reaching 280,000 in 2017, with about 40% in Scotland and 60% in the rest of the UK. As we approach the end of 2018, the sector is seeing a cautious increase in employment for the first time since the start of the downturn. I say “cautious” because we have been in this situation before, going through the cycle of a high oil price followed by a crash in revenue and knee-jerk cost-cutting measures, followed by an equally impulsive return to wasteful spending when oil prices recover. I am encouraged by conversations I have had with oil companies in Aberdeen and with Oil & Gas UK and the Oil & Gas Authority, based in Aberdeen, because it feels as though lessons have been learned from the past. However, time will tell. Will the Minister take that into account in his response?

Even before the downturn in 2014, it was long realised that many of the wasteful and inefficient practices were not sustainable. The report by Sir Ian Wood in 2014 made a range of recommendations, including a joint Government and industry strategy for maximising economic recovery, or MER, and the creation of a new arm’s length body charged with the effective stewardship and regulation of UK continental shelf hydrocarbon recovery and with maximising collaboration across the industry. The new arm’s length body, the Oil & Gas Authority, working with industry, developed the MER UK strategy. Under the strategy, a range of taskforces have already delivered huge value: an additional 2.8 billion barrels of oil equivalent to be produced by 2050, in comparison with pre-Wood report baseline forecasts; average unit lifting costs reduced from £19 per barrel to £12 per barrel in 2017; and production efficiency increased from 65% in 2014 to 73% two years later. There is still a lot of upside there to be had.

Through Oil & Gas UK’s “Vision 2035”, it is estimated that the industry could generate £920 billion of revenue to the UK economy. By 2035, two thirds of the UK’s primary energy is predicted to still be produced from oil and gas, with 60% coming from our own UK resources. Renewable sources of energy will and must continue to grow over that time, but they will not be able to meet the full demand.

MER is a strategy that can co-exist with a low-carbon agenda. As efficiencies improve, fossil fuels are burned more cleanly, CO2 can be captured, stored and used to help enhance oil recovery, and the full transition away from oil and gas may actually be extended while still meeting climate change targets.

In summary, the future of the oil and gas industry is positive, but there needs to be flexibility and openness to change. We have seen support for this from the Government, which is very welcome. Transferable tax history was a great good news story from last year’s Budget and shows how important it is that Members of Parliament, especially those representing constituencies in the north-east of Scotland, speak up for the oil and gas industry. According to Oil & Gas UK, TTH is one of a range of policies that can help the industry realise up to £30 billion of future investment opportunities.

I will conclude by asking the Minister to provide, if possible, an update on the decision on the sector deal that has been mentioned. That would be most welcome.