Future of the Oil and Gas Industry

David Duguid Excerpts

Thursday 14th March 2019 Westminster Hall

[Pete Wishart]

Absolutely. I was intrigued by the message from the Chancellor yesterday, when this was mentioned. Yes, there are huge opportunities for us. I think the hon. Gentleman will agree that it was mightily impressive to see the things that could come and how these skills could be applied and transferred. Perhaps the Minister can say what more work could be done to ensure that we get this. We would be grateful for any insight into the conversation he has been having with the sector on skills transfer.

The sector deal must bring forward proposals for how the sector will address its carbon footprint, both in the process of producing and extracting oil and gas, and by finding ways to reduce emissions from their use. The report received a mixed reaction from some environmental groups—I will put is as delicately as that. That surprised me, due to the range of recommendations we made and the care and diligence that we gave to shaping up some of the transition recommendations. We believe in a just transition and said as much in the report. We believe that if that is achieved, we will get to a new future—a green and transformative future for the sector.

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

I agree with the Chairman of the Committee, who is speaking very well about the report. We received criticisms from Friends of the Earth, for example, which said that there was no coverage of the impact of climate change. Does he agree that the organisation had clearly not got as far as chapter 6?

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

It is a pleasure to serve under your chairmanship, Mr Walker. As a member of the Scottish Affairs Committee, and as someone with 25 years’ experience of working in the oil and gas industry, I have taken a particular interest in this inquiry and very much welcome the report’s publication. Like all parts of north-east Scotland, my constituency has a deep relationship with the oil and gas sector. Many of my constituents work in the industry, as I did. The industry has helped bring prosperity to the area over the last half a century or so.

It is clear that the industry is moving into a new era, which is why the report is so important. While the industry is emerging from the downturn of the last few years, the medium to long term promises smaller reserve finds, reduced production rates, more decommissioning and the challenge of a wider transition towards a low-carbon economy. The prosperity of north-east Scotland relies on the industry making the most of this transition. The report makes a valuable contribution to the important debate on how we can achieve that. The industry has led the way in that debate, and its recognition of long-term risks and the need to address them will give many people confidence in the industry’s future.

It is worth recognising the work that many of the large oil and gas companies have been doing to encourage a transition towards low-carbon energies. They are often cast as cartoon villains in relation to climate change, but throughout the inquiry I have commended them for leading the way in the sector, and for taking climate change seriously. That commitment was exemplified by the creation in 2015 of the Oil and Gas Climate Change Initiative, initially made up of the BG Group, BP, Eni, Pemex, Reliance Industries, Repsol, Saudi Aramco, Shell, Statoil—now known as Equinor—and Total. Significantly, it was joined in the last year by American companies—Chevron, ExxonMobil and Occidental. Having worked for many of those companies as a member of staff, mostly for BP, and as a consultant for some of the others, I can confirm that that commitment to a low-carbon future is not just lip service.

The Committee’s report praises industry efforts such as Vision 2035 and the “maximising economic recovery” strategy, which aim to ensure that the industry continues to thrive in the medium to long term. As recommended in the report, I hope that the UK Government continue to listen to the call for an oil and gas sector deal to help the industry achieve those aims.

We need to use the next couple of decades to diversify the industry beyond just exploration and the production of hydrocarbons. Decommissioning technology and expertise will not only accelerate the reduction of decommissioning costs in the North sea but open up new export opportunities for the industry. Similarly, the subsea or underwater sector has great export potential, provided that we act quickly and do not fall behind other countries with expertise in this area, such as Brazil and Norway.

I am particularly pleased that the report recognises the potential of carbon capture, use and storage for the future of the industry. As the hon. Member for Perth and North Perthshire (Pete Wishart) mentioned, that is particularly important in my constituency. CCUS technology will be vital if we are to continue to use oil and gas in a low-carbon economy. In assets that have ceased or are due to cease production, decommissioned infrastructure can be converted to use for CCUS purposes. This report is certainly not the first time that that potential has been recognised. Banff and Buchan has been the location of previous proposals for CCUS projects, which were sadly deemed not viable at the time. I continue to believe that CCUS can be part of a great future for the energy sector in Banff and Buchan, provided that the right proposals come along.

I am particularly excited by the Acorn project by Pale Blue Dot. Unlike previous proposals, it focuses on the St Fergus gas terminal, which is the third-largest emissions site in Scotland. The St Fergus gas terminal is an attractive proposition because it is already linked by pipeline to the Grangemouth industrial complex. Unlike previous proposals, Acorn aims to achieve commercial viability by starting small and growing through additions to the core project later. Whereas a previous proposal for a CCUS power station at Peterhead would have cost about £1 billion, the cost of the initial Acorn project is estimated to be just £300 million.

I pay particular tribute to the Oil & Gas Technology Centre, run by Colette Cohen. Its vision is to become more about the technology than the oil and gas. The trade body, Oil & Gas UK, led by Deirdre Michie, provides a huge amount of co-ordination and expertise for the industry. Finally, the Oil and Gas Authority, run by Dr Andy Samuel, is an exemplar of how a UK Government body can be hugely effective when based closer to the action.

I look forward to the Minister’s response to the report and, in particular, the recommendations on the sector deal. The report’s tone and the industry’s approach are constructive and optimistic, so I hope that the UK Government’s response will be similarly constructive and encouraging. Together, we can build on the work already done, and take the necessary steps to help the oil and gas sector continue to contribute to the economy, not just for Aberdeen and north-east Scotland, but for the whole United Kingdom, sustainably and for decades to come.

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[Deidre Brock (Edinburgh North and Leith) (SNP)]

It is a pleasure to serve under your chairship, Mr Walker.

As has been mentioned, Scotland’s oil and gas industry is a world leader in many areas, health and safety being a notable one. Of course, we know the reason for that and we should pay our respects to the memory of the workers who have lost their lives in the industry, particularly in the Piper Alpha explosion and fire, but also in other incidents, including helicopter crashes, which the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) mentioned.

We should acknowledge that other workers have suffered serious injuries over the years while working in the industry. The safety record of North sea operations is better now, but that did not come easily or free of charge. The North sea industry has come a long way since its beginnings in the 1960s and the first gas from the Sea Gem rig, which gave us the first large-scale loss of life three months later. The industry has delivered substantial sums in wages, profits and taxes over the last half century, and it is incumbent on the Government to make a substantive contribution to decisions on the future of the industry, as the Committee’s report lays out.

That should include the transfer of skills to new industries, and it seems to me that renewable energy should be a major recipient of those transferred skills. Offshore wind farms and marine energy schemes would be ideal recipients of those skills. I recently had the privilege of visiting Nova Innovation, which is headquartered only a few hundred yards from my constituency office in Leith, and I was extremely impressed by the advances it is making and the pace of change in the offshore renewables industry. Nova leads the way in the tidal energy industry, and the Shetland tidal array looks like it may be at the leading edge of a new energy revolution. Just as Shetland was important in the development of the oil and gas industry, it may well be important in the development of the next energy industry.

While the Government are developing their future plan for the oil and gas industry, they really should be developing a parallel plan for the future of renewables that offers proper financial support for research and development and for connection to the grid. I have a bit of trouble having confidence in the UK Government to do that, however, given the record of past UK Governments when it comes to the North sea. Regulatory and taxation changes have come abruptly and swept in with very little consultation. Frankly, there is little in the current Government’s approach to legislating that gives me much hope of an alternative way of working.

[David Duguid]

Does the hon. Lady, my Committee colleague, agree with me and the testimony of witnesses that locating the Oil and Gas Authority, which is responsible for the regulations, in Aberdeen, close to the action, has already shown benefits and should show more in the future?

[Deidre Brock]

I agree that that was a definite point of progress and much to be welcomed, but the industry has been going for some 50 years, and some within it would argue that it was too little and almost too late. It is great that that came along, but much more can be done to support the industry.

As I mentioned with regard to improved support, I hope that the Government will surprise me, because the industry still has a lot to offer. The industry has plans to increase productivity so that in 16 years’ time it will be producing an additional £920 billion in revenue—not bad for an industry that we get told regularly is finished.

The scale of the contribution that the industry has made over the years is breathtaking. Scots will be aware of the famous, or infamous, McCrone report that was uncovered in 2005 by a friend of mine, Davie Hutchison, but written some years before he was born, in 1974. Professor McCrone was a UK Government civil servant at the time of writing, when he pointed out that the resources in the North sea were so enormous that they destroyed all the economic arguments against Scottish independence. Recently, Professor McCrone said that he regrets that the UK Government wasted that resource, frittering the income away, rather than investing in a sovereign wealth fund.

Furthermore, the McCrone report was written some years before the biggest discoveries in the North sea. Peak annual production did not come until 1999 and, as we have heard throughout the inquiry, new extraction techniques are increasing the potential recoverable resources even now. With another half century of extraction still possible, and new fields coming on stream in other areas, the industry has a long future yet. The Government need to step up to the plate.

One of the issues that has been mentioned is the protection of the environment and the development of serious carbon capture and storage proposals. Previous attempts to develop such schemes fell foul of Government inaction and broken promises. We need to see some serious commitment to making progress. I once heard about a pilot project, I think in Poland, where the carbon was captured and pressurised only to be driven a couple of hundred miles in tankers to the injection site, possibly defeating the purpose.

Some schemes that have been suggested before may well be capable of revival, and I am sure that more ideas would emerge when asked for. I hope that the Government will open the door to those ideas and help fund them, perhaps even hypothecating some of the revenue gleaned from the offshore industry, which should have gone into a sovereign wealth fund for Scots but is instead frittered away by successive UK Governments. The Government should consider doing a lot more for the environment with the resources brought in by the offshore industry. They could match the Saltire tidal energy challenge fund launched by the Scottish Government earlier this year, or reinstate the marine energy subsidy. If oil and gas were the energy choices in the second half of the 20th century, renewables will fill that role in the 21st century. We urgently need Government investment to make that industry a world leader.

The oil and gas industry is not dead yet, not by a long way. With at least as many years of exploitation left as we have already seen, there is still some way to go. The UK Government should sit down regularly with the industry to help plan the next half century. Vision 2035 is the industry view of the next few years; it would be good to see a UK Government vision or, better still, one agreed by the Government with the industry.

[Peter Aldous (Waveney) (Con)]

It is a pleasure to serve under your chairmanship, Mr Walker. I congratulate the Scottish Affairs Committee on producing this informative report and on securing the debate.

The oil and gas industry is extremely important in the north-east of Scotland, but it also has other clusters, although not quite as large, in the north-east of England and East Anglia, which I represent. I chair the British offshore oil and gas industry all-party parliamentary group. It is important to remember that the industry is a national one and that it has a supply chain that extends throughout the whole of the UK.

The industry has been, I would say, the British industrial success story of the past 55 years. The results of extracting hydrocarbons on the UK continental shelf have been the creation of thousands of well-paid good jobs, the generation of an enormous amount of money for Her Majesty’s Treasury, and the development of expertise that can be taken, and has been taken, all around the world. Go to Libya, the gulf of Mexico, Kazakhstan or China, and one hears Scottish, Geordie and East Anglian accents.

[David Duguid]

Following on from something the Chair of the Committee said in his opening remarks—I meant to say this in my speech—I have benefited from that skills transfer, having worked not in Libya but in some of those other places around the world where oil and gas are prevalent. Does the hon. Member for Waveney (Peter Aldous) agree that an important aspect of the sector deal, and the urgency of it, is to encourage the retention of those skills in this country in order to develop the technologies and innovations that we have discussed?

[Peter Aldous]

My hon. Friend is right. We have developed enormous expertise in the oil and gas sector which it is important to retain and build on. We are just beginning to see that in the offshore wind sector as well and, as I will come on to, the two are inextricably linked.

Yesterday was an important day for the industry. The APPG had its annual parliamentary reception, and those attending were in good heart and had a positive outlook for the future. We also had the Chancellor’s spring statement. Normally, the APPG lobbies Government hard coming up to annual Budgets and statements, but yesterday the Chancellor made no mention of the industry. I think that was mainly because he is keen for statements to be just that and not mini Budgets, but in many respects that was good news, because the industry wants a stable fiscal regime with no unforeseen, unpleasant or unhelpful surprises. That said, as we anticipate the autumn Budget, I suggest that we should all be back in top lobbying gear.

I acknowledge that we are now entering the second half of the contest—perhaps I should say challenge—of extracting oil and gas on the UKCS, but we should emphasise that this is not a sunset industry, as indeed colleagues in all parts of the Chamber have said. As in many matches, the best performances, goals and tries come in the second half. The industry has come through a great deal in recent years, but while challenges remain—in particular the low level of drilling activity and exploration—it is largely in a good place. Last year, significant final investment decisions were made on a number of major projects, production performance was strong, and unit operating costs had stabilised.

I shall highlight three areas in which the industry, the Oil and Gas Authority and the Government need to work together in the immediate future to maximise the sector’s potential for the benefit of all those who work in it and for the UK. First, attention needs to be given to strengthening the industry’s supply chain. Many companies’ revenues and margins are under extreme pressure, and increased collaboration and innovative contracting models are needed. If those are put in place, as a country we will be able to continue to compete for international investment, to provide security of energy supply, and to create and support highly skilled and fulfilling jobs.

Secondly, we need to build up expertise and create specialist hubs to carry out decommissioning. A good start has been made with the launch of the National Decommissioning Centre, but we must have it in mind that that is an enormous prize, not just on the UKCS—and, from my own perspective, most immediately in the southern North sea—but in basins all around the world.

Thirdly, the sector has made a good start in promoting and facilitating the transition to a low-carbon economy. Instead of the Danish oil and natural gas company and Statoil, we talk about Ørsted and Equinor. Gas has an important role to play in the transition to a low-carbon economy. In the southern North sea, the oil and gas and offshore wind sectors are collaborating on such innovative projects as gas to wire, which involves gas being generated into electricity offshore and transmitted to shore via spare capacity in the subsea cables that are used for the wind farms.

There are plenty of challenges, but my sense is that the industry is resurgent and brimful of ideas. With the right nurturing, promotion and collaboration, it can play a key role in the UK on the post-Brexit global stage.

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[Douglas Chapman]

My hon. Friend makes an excellent point. Norway’s population is very similar to Scotland’s and it has a similar ability make good from the resource it found on its doorstep. It now has the world’s largest sovereign wealth fund, yet in Scotland and the UK we have not put anything aside for future generations. That is a huge lost opportunity for the industry and the UK people.

[David Duguid]

We often hear about the Norwegian sovereign oil fund. Is the hon. Gentleman aware that the same fund is investing heavily in the UK market as we prepare to leave the European Union?

[Douglas Chapman]

That is a fantastic option that Norway has, but in the UK we do not have that wealth fund to decide how we will invest in the future. That makes a bit of a mockery of us. We have had all that wealth; Norway has done a huge amount with theirs, but we have taken ours off our balance sheet and spent it as it came in. We should have put some away for future generations.

Oral Answers to Questions

David Duguid Excerpts

Tuesday 16th October 2018 Commons Chamber

[Greg Clark]

It is quite the opposite, and I am surprised to hear the hon. Gentleman say that. If he has read the industrial strategy, he will know that the commitment to scale-up is very prominent. I made reference earlier to the Made Smarter Commission that Juergen Maier is leading. Its purpose is precisely to diffuse the technology that the bigger firms have to those that are growing and scaling up.

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

In this Green GB Week, will the Minister join me in recognising the work being done by the major oil and gas companies, through the oil and gas climate initiative? They are voluntarily making huge efforts and investments towards a lower carbon future.

[Claire Perry]

My hon. Friend is a strong defender of that industry, which is vital to the UK economy. He will know that those companies have set out their own pledges and that they have set out how they see world changing fundamentally. They are also investing heavily in the new technologies that they want to be part of the future.

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.

UK Oil and Gas Industry

David Duguid Excerpts

Thursday 19th April 2018 Westminster Hall

[Colin Clark]

I will not disagree, save that the principle is that that £330 billion was to the UK Treasury, which invested for many years throughout the United Kingdom. As the hon. Member for Stockton North will remind me, not only the original Scottish sector has oil, but the islands, the rest of the UK east coast and now the west coast of Scotland as well.

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

I wanted to make this point earlier; it came up in conversation with a Treasury Minister last year. We had to remind that Minister that oil and gas exist not only off the coast at Aberdeen, but all down the east coast, on the west coast, to the west of Shetland and the Northern Isles in general, off Morecambe bay and all around the UK. That is why we call it the UK continental shelf and not just the North sea.

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

It is a pleasure to serve under your chairmanship, Mr Sharma. I congratulate and thank my hon. Friend the Member for Gordon (Colin Clark) for securing this important debate. It is also a pleasure to follow my hon. Friend the Member for Waveney (Peter Aldous), the hon. Member for Aberdeen North (Kirsty Blackman) and, although he is no longer in his place, the interventions of the hon. Member for Stockton North (Alex Cunningham).

Before I was elected to this place last year, I myself spent 25 years working in the oil and gas industry, as many of our constituents still do. This is still a hugely significant sector for employment, as my hon. Friend the Member for Gordon mentioned. It still employs 300,000 people around the UK. Many of those people, from around the UK and, indeed, the rest of the world, have made their home in north-east Scotland. As a result, even with the downturn in recent years, unemployment in that part of the country is still very low, at about 1.2%. That sometimes creates an issue for businesses and industries in general when they wish to expand, but for local society it is a nice problem to have.

Many people rightly think of Aberdeen as the oil capital of Europe. I spent the best part of 10 years of my career working in Aberdeen—most of which while living there, but some while commuting from my hometown of Turriff, 35 miles away, where I grew up and where I returned to live after working overseas in the oil and gas industry in the countries of Azerbaijan and Angola. That illustrates the global nature of this industry and, as my hon. Friend the Member for Waveney finished by saying, reminding the world of the expertise that this country still has to offer and will continue to offer is very important.

Many people still commute to Aberdeen from around north-east Scotland. They commute from major towns in my constituency—Peterhead, Fraserburgh, Banff, Macduff and my own town of Turriff—as well as from everywhere in-between. In some cases, people travel up to 50 miles from around north-east Scotland to Aberdeen. Of course, in many occupations, which are often office or desk based, there can be the opportunity to work from home—a practice that is becoming more and more common, but which often relies on a dependable broadband signal: sadly, not always available in rural north-east Scotland or elsewhere around the country.

The idea of working from home has traditionally seemed strange or been difficult for some people to get their head around. The same thing applies to much of the “new” technology mentioned by my hon. Friend the Member for Gordon. In many cases, the technology itself is not particularly new; what has taken longer to change is the culture and behaviours required to get the most out of the technology.

For example, the technology to operate sophisticated offshore installations from onshore has existed since the Forties field came on-stream in the mid-1970s. In fact, it was originally designed to be run from onshore, but that was never quite made to work. Only in recent years has that technology been made to work practically and effectively. That illustrates the recent developments and the developments that we hope to see in the near future.

The oil and gas industry is a major employer in Banff and Buchan, as is the supply chain that supports it. Peterhead is famous as a fishing port, of course; hon. Members have no doubt heard me mention that many times before. However, it is also a major supply port for offshore oil and gas. The Forties oil pipeline, supplying 30% of the UK’s oil, comes ashore at Cruden Bay in my constituency. Also in my constituency is the St Fergus gas terminal, through which 25% of the UK’s gas is received. North sea gas also supplies the power station in Peterhead.

Peterhead power station was a proposed site for the development of carbon capture and storage, but of course one of the many reasons why that was, unfortunately, abandoned, was the absence of surrounding infrastructure. I am sorry that the hon. Member for Stockton North is not here to intervene at this point, because Teesside has the surrounding infrastructure that we do not necessarily have in north-east Scotland, unfortunately.

Peterhead is also the location of the Score Group headquarters. Score Group is one of the largest employers in my constituency—across the north-east of Scotland, indeed. It consists of 20 different companies across five continents and is one of the biggest employers of apprentices in the whole of Scotland.

The future of the oil and gas industry is positive, as many hon. Members have said, but there needs to be flexibility and openness to change. The Government have supported that, which is most welcome. Transferable tax history was highlighted by my hon. Friend the Member for Gordon. That was a great good-news story from last year’s Budget and shows how important it is that we continue to speak up for the oil and gas industry.

It is also great to see support for decommissioning, which is a growth industry with huge potential. As my hon. Friend mentioned, it is like the original installation to begin with, but in reverse. It is like manufacturing: the biggest and most expensive part of it is in the design and strategising. However, we do not need to go looking for the raw material. It is there and we know where it is. It is a great opportunity for Aberdeen, the north-east and the UK in general to become known as a global centre of excellence for decommissioning. I was pleased to hear Maersk recently announce that it is establishing a new, dedicated decommissioning company, with offices in Aberdeen, to make the most of the opportunities our North sea assets provide. That could be a great boost for the Aberdeenshire economy, with close to £40 billion in decommissioning projects up for grabs over the next eight years.

While decommissioning opportunities are inevitable from the more than 400 fields that have ceased—or will cease—production, the industry is far from dead. For example, I found out yesterday that 27% of BP’s new exploration is taking place in the North sea. I formerly worked for BP and I remember a time when BP felt that it was looking for the least expensive basins around the world to operate in. It had the economies of scale to be able to do that at a large scale. However, BP also always described the North sea and the UKCS as a whole as its own backyard. It is great to see it coming back. Unit operating costs have reduced significantly since 2014 from $30 a barrel equivalent to around $15 in 2017.

The UKCS is still one of the most expensive basins in the world to operate. However, investors and the industry are relatively comfortable investing in North sea oil and gas for other reasons, such as security, stability and access to some of the best, brightest and experienced talent in the industry. Other hon. Members have mentioned other aspects that make this basin more attractive to invest in and how we should make it as attractive as possible.

The Oil and Gas Technology Centre, partly funded by the Aberdeen city and region growth deal, is a great example of how the industry is coming together, not only to fix the inefficiencies and maximise recovery, but to transform the industry for tomorrow. Last year £37 million was co-invested in industry-led projects by the OGTC, with £22 million of that coming from industry partners—more than three times what had been originally expected when the OGTC was set up. Much of that contribution from industry partners has been in kind, as well as direct cash funding. The industry has provided resources such as personnel, as well as access to rigs and platforms for the important field trials to test and optimise the new technology.

The partnership between OGTC, Oil and Gas UK and the OGA—all of which have been mentioned—as well as the different operators and suppliers in the industry, would have been almost unthinkable not that long ago, in my experience. Since the recent downturn, the industry has experienced a modest, yet encouraging recovery, but the industry has been forced to look inwards and across, including across sectors such as renewables, which my hon. Friend the Member for Waveney mentioned. In my experience, there was always a need for greater collaboration across the industry and sectors. I am glad to say that this is becoming more evident.

I hope that mistakes made in previous recovery phases from previous downturn cycles are not repeated. Too often, we have not gone beyond seeing the green shoots, but when we are actually back in full recovery mode and the pendulum has swung right back to the triple-figure oil prices, we have gone back to the same old inefficient behaviours. Again, we are seeing more evidence that through recent collaboration and Government support, there is a lot less chance of that happening.

Partnering with the industry and bodies such as Oil and Gas UK and the OGA, the OGTC is looking to use the latest technology to transform the oil and gas industry for our low-carbon future. I would like to see the Government do all they can to support this transformation for tomorrow. I understand that the OGTC applied for the industrial strategy challenge fund, as mentioned by the hon. Member for Aberdeen North, as recently as yesterday. As she mentioned, we hear that decisions on that are not due until November, but I take this opportunity to encourage the Minister to look closely at what it is proposing and accelerate that decision, if at all possible. Even if only a decision of additional funding can be made well in advance of the funding being made available, it would allow planning and budgeting to take place in the nearer term.

In conclusion, I reiterate that the contribution of North sea oil and gas to our economy is not a spent force. Oil and Gas UK has predicted that hydrocarbons will still be providing two-thirds of the total primary energy by 2035. It represents a huge economic opportunity for the UK, particularly in Scotland, but requires industry and Governments to work together to foster the partnership and collaboration I have mentioned, and in many ways continue to develop new and innovative ways of thinking, not just new technology.

Finally, it should be noted—it has been already—that hydrocarbon exploitation is not just about providing energy, although that is an important factor. The UK Government are doing great work in reducing the amount of single-use plastic that the nation uses, but we still have a need for oil and gas as a feedstock for multi-use plastics in the foreseeable future.

--- Later in debate ---

[Alan Brown]

I will come to the management of the downturn, but I think the hon. Gentleman has helped to make the case for an independent Scotland, so I thank him for that. I was not going there; I would not have touched on an independent Scotland, but I thank him. I still stand by the fact that, in my opinion, the money was going to the UK Treasury and was not distributed to the areas that were generating the wealth.

Interestingly, when it comes to fracking, in 2015 the UK Government promised a shale wealth fund of up to £1 billion for the north of England where fracking is proposed. Perhaps that is a lesson learned. It reinforces the omission of not setting up an oil fund for the benefit particularly of Scotland and other areas of the UK that extract oil and gas.

In Scotland we became used over the years to the scare stories about oil running out before yet again we discovered new oilfields. If we want to talk about not seeing it as a stopgap measure, we obviously need to watch how politicians talk about oil reserves. I certainly appreciate that everyone in this room has been very positive about the reserves that are there, the amount that could still be extracted and the future of the industry. However, other politicians sometimes try to exploit the concept that oil is running out, and we need to be careful about that.

[David Duguid]

It should be recognised, as I tried to point out in my speech, that it is fair to say that the easiest oil and gas low-hanging fruit to get has been got. There is a future for oil and gas, but, as I said, we cannot use the same behaviours and technologies as before, which is why it is important for Governments and industry to pursue the developments in technology and changes in behaviour required in future to exploit what is left, which is not so easy to get as what came before.

[Alan Brown]

I do not disagree. Clearly, the industry has shown a lot of innovation over the years and will continue to do so, and obviously it needs to do so to get additional extraction. My hon. Friend the Member for Aberdeen North gave the example of partial decommissioning to allow the technology to be input for enhanced extraction. That is something that industry is looking at now, and I am sure it will continue to innovate.

We know that prices can be volatile; we have had to deal with that over the years. Oil bottomed out at just under $12 a barrel in 1997 before rising rapidly to $91 a barrel by 2008. That was under a UK Labour Government. If I go back to legacy issues, I wonder what happened with that money, because there was no way oil projections at that time were going to be based on the oil price increasing dramatically. It was such a windfall with that massive increase in price, but I do not think we have seen the benefits of that, either.

On the point made by the hon. Member for Banff and Buchan about managing the downturn, we have been consistently told that we need the broad shoulders of the UK, but if we look at the support that the UK Government have implemented in the past few years, the spring 2016 Budget reduced the supplementary charge back to 10%, which was a welcome measure. The Red Book predicted that that would cost £1 billion, and yet nearly three times that was given away in inheritance tax to millionaires. That shows skewed priorities.

In the spring 2017 Budget, there was nothing specific for the oil and gas industry, except one paragraph promising another discussion paper. However, it did confirm the lowering of corporation tax. Despite what everybody says about how it grows the economy and creates more tax, the Red Book predicted that that would cost the Treasury £24 billion over the lifetime of this Parliament. That was the Government’s Treasury prediction. Let us think what could be done with that £24 billion in terms of infrastructure investment or additional support for the oil and gas industry. In my opinion, it was a lost opportunity.

In the November 2017 Budget, a measure was introduced: transferable tax history. As my hon. Friend the Member for Aberdeen North said, that was genuinely welcome. It is predicted to bring an additional £70 million in revenue to the Treasury, so it was not a difficult decision. That decision supports industry, but it helps the Treasury, so it should have been taken long before. We are still awaiting the appointment of the oil and gas ambassador first promised by David Cameron in January 2016, so the Government really need to provide additional support for the industry.

Yesterday I raised this matter in the debate on industrial strategy. The oil and gas sector deal has been supported by every colleague here today, but I was disappointed that the ministerial response from the Despatch Box yesterday never mentioned the oil and gas industry or Scotland and did not pick up on the point that I had made, along with my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry). I hope today’s Minister will respond. I am sure she is working on the oil and gas sector deal and is positive about it, but it would be good to have that confirmation.

I must repeat my disappointment about the pulling of the CCS fund. That must be a lesson for the Government going forward because it scared the industry and scares away other people trying to make private investment. Again, the Minister has spoken positively about the future of CCS, so it would be good to hear her reinforce that when she sums up.

I appreciate time is moving on, Mr Sharma, so I will try to hurry up, but I want to mention another renewable energy project that has been developed at Grangemouth and would support the Grangemouth refinery: the Grangemouth renewable energy project, which has been successful in the CfD auction. Because it contains biomass, the whole premise of the project is based on securing renewable heat incentive funding as well. The UK Government are looking at retrospectively capping the amount of RHI funding available to projects to 250GWh. That would put the Grangemouth renewable energy project at risk, so I urge the Minister to reconsider, because the project is so innovative. It is a world leader, it would support the Grangemouth refinery, and it could develop industry for export and help grow the UK economy.

We have heard some impressive contributions. All have concluded that the oil and gas industry has a bright future, and I certainly echo that. I look forward to hearing the Government’s response.

Delivery Charges (Scotland)

David Duguid Excerpts

Wednesday 20th December 2017 Westminster Hall

[Bill Grant]

I do indeed agree with my hon. Friend about the equality—that is the key word—aspect of deliveries.

The term “remote” is open to interpretation. Could the issue be the centralisation of distribution hubs? Could the dispatch hubs look seriously at the bulky and excessive packaging for small items, where a ballpoint pen is delivered in a box the size of a shoebox, and thereby either increase the delivery capacity of their vehicles or permit the use of smaller, more fuel-efficient vehicles for rural, remote deliveries? Some company websites confirm that a surcharge is applied to remote location deliveries, with “remote” defined as highlands and islands, a postcode that is difficult to serve or a suburb or town that is distant and inaccessible or infrequently serviced. There is a whole range of excuses.

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

I thank my hon. Friend for giving way and congratulate my hon. Friend the Member for Moray (Douglas Ross) on securing this debate. As many of my colleagues on the Conservative side of the Chamber will remember, I have an issue with the word “remote”. Does my hon. Friend the Member for Ayr, Carrick and Cumnock (Bill Grant) agree that it is the lack of these services or the disproportionate removal of them that makes our rural areas remote?

[Bill Grant]

I fully agree, and we need to do more to secure the vibrancy of these remote locations.

Citizens Advice produced a short report entitled “The Postcode Penalty”. It was done a few years ago, and a number of the respondents to the survey were from my constituency in Ayr, Carrick and Cumnock. The report appeared to conclude that some online retailers are disadvantaging Scottish consumers. I think that we could extend that to consumers and our neighbours in Northern Ireland and those elsewhere in our United Kingdom. At that time, approximately 63% of retailers that charged extra for delivery to remote locations did not offer delivery by Royal Mail, which was referred to by the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney), as an alternative. It may be prudent to offer the customer this lower-cost and very trusted service.

I understand that it is a breach of consumer protection to add an additional charge after purchase, with the Consumer Protection (Distance Selling) Regulations 2000 providing that prior to the conclusion of a contract from distant sellers—that is, a transaction that is not done face to face—they are required to disclose delivery costs so that the purchaser is not caught unawares by what are, in some cases, very significant charges. However, such transparency does not detract from the often disproportionate and unfair charges for those who, for a variety of reasons, may not be free to choose or change where they live, and so become embroiled in this delivery postcode lottery.

It may be prudent to look at the proud founding principles of the Royal Mail, which was established in 1516. The introduction in May 1840 of the penny black postage stamp paved the way for the prepaid one-price-goes-anywhere postage system that we love and value in the UK today. This system applies—the hon. Gentleman will keep me right— to 30 million addresses in the United Kingdom, including 2.5 million addresses in Scotland. It is a six day a week service and caters for parcels up to 20 kg. Royal Mail’s sister company—this is like an advert for Royal Mail—Parcelforce Worldwide has a single Scotland-wide tariff for all mainland deliveries and has limited surcharges to highlands and islands contract customers only.

In closing, we must bear in mind the fact that in many cases rural incomes tend to be less than their city counterparts, and that surcharges are a financial burden on a limited income. I ask the Minister to strive to let us have some fairness and equality when it comes to delivery charges in rural areas.