Future of the Oil and Gas Industry

Douglas Chapman Excerpts

Thursday 14th March 2019 Westminster Hall

[Douglas Chapman (Dunfermline and West Fife) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Walker. I thank the Committee members and the witnesses for helping to reach the well-considered conclusions and recommendations, and I thank the Chair, my hon. Friend the Member for Perth and North Perthshire (Pete Wishart), for his push to consider matters of real significance to Scotland. If one sector has been a dominant industry in the political discourse of Scotland in the past 40 or 50 years, it has been oil and gas.

Today’s Scottish oil and gas sector is in a strong position. With up to 20 billion barrels of oil equivalent remaining, there is enough to sustain production for the next 20 years and beyond. Recent discoveries such as the Capercaillie and Achmelvich wells by BP, the huge and significant gas reserves west of Shetland and Clair Ridge, and Nexen’s phase two of developing the Buzzard field, demonstrate the significant untapped potential that this industry holds should we wish to exploit reserves.

Figures published in the last week by the Oil and Gas Authority forecast that 11.9 billion barrels will be extracted by 2050, up almost 50% from the estimated 8 billion barrels predicted just four years ago. That is why the Scottish Government are keen to do everything they can to support the industry and its workforce. In 2016, the Scottish Government launched a £12 million transition training fund to help oil workers retrain and make the most of their transferable skills to forge careers in other sectors. Some 4,000 applications have been approved, with training satisfaction at around 90%.

We have helped the Scottish supply chain to capitalise on an expanding decommissioning market that is forecast to reach £17 billion by 2025. The decommissioning challenge fund has offered grant funding of £3.1 million for projects focused on delivering innovative infrastructure improvements and technological advances in this area. As part of the Aberdeen city region deal, the SNP has committed £90 million over the next decade to support the Oil & Gas Technology Centre.

We are looking at an uplift of over £194 million in the enterprise and energy budget to support entrepreneurship, construction and productivity. That additional funding will contribute to an investment of almost £2.4 billion in enterprise and skills through our enterprise agencies and skills bodies.

The Scottish Government offer an impressive range of support for the industry. As we move forward, I hope the UK can step up to the plate and do more to support the industry as it moves into its next phases of production. However, successive Tory and Labour Governments have continually exploited the oil and gas industry for cash, with little regard for its future sustainability. They have been quite content to rake in a tax take of £350 billion from North sea revenues alone over the past 50 years. The Tories failed to deliver any real fiscal support when the sector was in depression after the oil price dropped. I hope that is a lesson learned. This is an extremely important sector for the future, and we need to support it to allow it to continue, maintain jobs and transition out of oil and gas into other areas.

[Deidre Brock]

On successive UK Governments’ management of the oil resource, I should say that in recent years Norway’s state-owned oil sector has generated many billions of pounds in Government revenue, while the UK has lost many. Does my hon. Friend agree that that points to a gross mismanagement of this valuable resource over many years by successive UK Governments?

[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.

[Ross Thomson]

I accept the hon. Gentleman’s point that there is no sovereign wealth fund in the UK, but the revenues generated from the oil and gas industry in the UK were used at the time to invest in what we enjoy now: hospitals and infrastructure. That money was used for huge investment in infrastructure that is still used today by people across the United Kingdom. In the 1970s, it was used to help lessen the costs of unemployment.

[Douglas Chapman]

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

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

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

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

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

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

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

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

[Mr Charles Walker (in the Chair)]

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

[Douglas Chapman]

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

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