Offshore Energy Industry

Frank Doran Excerpts

Tuesday 13th July 2010 Westminster Hall

[Mr Frank Doran (Aberdeen North) (Lab)]

I congratulate my neighbour—I was about to say my right hon. Friend but that would have been a mistake, given his recent political aberration—the right hon. Member for Gordon (Malcolm Bruce) on putting such a strong case. I do not demur from anything that he said. It is important to put out the message that the future for the oil and gas industry is positive. As he rightly says, there is a view that there is a sharp decline in North sea oil and gas, but that is not the case. The decline is shallow and slow, and it is in all our interests to ensure that it remains so. At the same time, the oil industry in Aberdeen is changing its profile, as it has been doing for some years. All of us who represent the area, including the right hon. Gentleman, travel between Aberdeen and London every week, usually by plane, and we see people who travel to every part of the globe. The subsea industry, which is based mainly in Aberdeen but has important centres in Teesside and Southampton, now wins about 60% of worldwide contracts in subsea technology. It is playing a huge part in the rescue operation in the gulf of Mexico. That is the future: exporting our technology and skills, but maintaining our important pace in the North sea.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

Before my hon. Friend gets into the main body of his remarks, and given that he has just touched on the gulf of Mexico disaster, does he share my concern about the information that has come out in written answers—not from the Minister’s Department, but from Work and Pensions Minister with responsibility for the Health and Safety Executive—that Transocean, the operators of the rig at the heart of the gulf of Mexico disaster, has seen some 100 safety incidents in the past three years on its 10 UK rigs? Does not that indicate that the health and safety inspection of those 10 rigs in the UK needs to be speeded up?

[Mr Doran]

My hon. Friend, while representing the well-known oil province of Harrow West, has done a huge amount of important work in this area. He makes a valuable point, and I will say a little about the problems in the drilling industry because it is the last area in the North sea with a frontier mentality. The rest of the industry has made great progress, but I am afraid that the drillers are still in John Wayne territory.

Most of the key economic points and very strong regional points have already been made by the right hon. Member for Gordon, but as this is an industry that both he and I have spent much of our parliamentary life working with, examining and considering, there are three crucial areas of infrastructure that I want to discuss: the kit that is in the North sea—the platforms, the pipelines, the wells and the vessels that service the industry—the people in the industry, because they are a key part of the infrastructure; and the Government at every level. I shall try not to duplicate any of the right hon. Gentleman’s points, but if I do, I hope that they will reinforce what he said.

As I said, we have a huge amount of infrastructure in the North sea. Most of it is ageing and needs to be carefully maintained, but that does not always happen. One of the key problems in the North sea oil and gas industry is the fact that the price of the product is based on worldwide prices and we have no control over it. I remember a time in the mid-1980s when the price dropped almost overnight from $32 a barrel to $8. The North sea industry was devastated. Virtually every job and every piece of investment stopped, and the price stayed low for quite a while. I have always put the fact that I was elected as a Labour MP in a constituency that had always, apart from one occasion in the 1960s, been a Conservative seat down to the fact that the then Government were being punished for that collapse in the oil prices. It had a huge impact, as some 50,000 jobs were lost overnight.

The problems continued into the late 1980s and early 1990s, and then we saw a price rise. In the late 1990s, however, there was another drop in the price. Recently, the price rocketed, going up to slightly more than $100 a barrel two or three years ago. We have now achieved a degree of stability—and tax stability, I hope—with the price standing at about $75 a barrel, which is good for the industry. The money should be in place to ensure that assets are properly maintained.

I raise that point because at certain points over the life of the industry—the last 40-odd years—there were times when the infrastructure was not properly maintained. The classic case is the Piper Alpha disaster, which had its 22nd anniversary last week. If we consider the history of the particular platform that led to the disaster, which was well spelled out in the Cullen report, it is quite clear that a lack of maintenance was one of the key issues. There was a whole host of issues including a water deluge system in which none of the valves worked because they had become clogged up with gunge, and a lack of a proper permit-to-work system. Once the people in the oil industry got over the shock that a disaster on that scale could happen on the platforms that they had built, they said that it could have happened to any one of at least a dozen platforms—many platforms were in the same condition. However, good things come out of every disaster, and the good thing in this case was that the Cullen report established a safety system that is now the template for safety in not just the oil and gas industry, but the rest of industry. It set a goal-setting system rather than a tick-box system, and we have made progress.

It is important to record that over the past four or five years, there have been some difficulties. I have spoken both in this Chamber and in the main Chamber about the KP3 report, which was an attempt by the Health and Safety Executive offshore division to look at the integrity of our assets in the North sea. The report found that the industry was wanting. It identified some very serious problems to which the industry was forced to respond. I will not go through the detail of the report now, as I have done so before and it is not necessary to do so again now, but it is important to record that the industry responded well, as the review that was carried out a couple of years later showed.

There are still difficulties, however. The HSE recently released figures showing that a significant number of enforcement notices were still being issued. A total of 446 safety regulations have been broken by more than 30 companies since 2006. Some of those breaches of safety regulations were minor, but I know that some were not so minor.

The period covered by those figures includes the period when the KP3 report was being put together. Nevertheless, we need to keep underlining and reinforcing the importance of the safety regime to ensure that the industry continues to maintain our assets in the North sea. The health and safety of the work force is crucial. We saw the devastating effect of the Piper Alpha disaster on not only the companies involved, but the whole industry. The same thing is now happening in the gulf of Mexico. There is nothing quite as expensive as an accident. It is extremely important that we remember that maintenance is cheap compared with the cost of an accident.

There are huge opportunities in the industry. The right hon. Member for Gordon rightly talked about the spin-off benefits for the renewables industry, and it is important that we recognise the value of those benefits. I do not think that a renewables industry on the scale that we need will be possible without strong Government support, so I hope that this Government will continue to give the support that was provided by the previous Government. The same goes for other sectors related to the North sea sector, such as carbon capture and storage. The production of a commercial working product in that sector will also require significant Government support.

In addition, we have the huge opportunity of the west of Shetland project—in fact, there is not one such project but a number of projects. Those projects will become much more feasible because of the support that was given through the tax system by the previous Government to the Laggan project, which I hope the current Government will continue. The pipeline that will be built as part of the project will be the key part of the infrastructure that will make many other projects possible, so it is important that Government support continues.

I want to move on to discuss the people involved in the industry. The work force in the North sea are highly skilled, but there are still huge skills shortages. The work force is also ageing. Although it took the industry a long time, it now has an established oil and gas training school: the offshore petroleum industry training organisation based in Portlethen, which is just south of Aberdeen. OPITO has probably become the benchmark for safety regimes, training and safety, and other related skills in the whole world. There is not an oil regime in the world with which OPITO is not involved. It sets safety standards and provides the support that is necessary for companies, particularly those operating in the more remote parts of the world such as the west of Africa and Asia, to have proper, modern safety systems, as well as other systems that support the industry.

We must remember that the North sea is a very dangerous area. While the right hon. Member for Gordon was speaking, I quickly drew up a list of disasters—and they were disasters—in the North sea: the Alexander Kielland disaster; the Piper Alpha disaster; the Ocean Odyssey disaster; the Brent Alpha disaster; and the helicopter disasters, including the Chinook disaster, the Cormorant disaster, the Morecambe bay helicopter crash and the Super Puma disaster in April 2009. They caused huge loss of life across the board.

Safety has improved immeasurably since the Piper Alpha disaster, however, and the industry has made a huge improvement in safety, including by working through its agency, Step Change. Recently, it has also recognised the importance of the work force.

[Malcolm Bruce]

Does the hon. Gentleman acknowledge that one of the reductions in safety has been due to greater automation of offshore activity? That greater automation has meant that more of the industry’s activity is supported onshore, but that has actually increased the pressure on the onshore infrastructure for the very same reason.

[Mr Doran]

The right hon. Gentleman is absolutely right. Nevertheless, there are many reasons for the improvements in safety that have occurred. I think that the most important reason has been the dramatic change in the industry’s attitude. We must constantly be vigilant, which is why we depend on the HSE. Its KP3 report was a wake-up call. The safety of working on platforms has certainly improved dramatically, although there are still issues about helicopters.

The oil and gas industry has realised the importance of engagement with the work force. A key part of the HSE’s review of the KP3 report was a careful examination of worker involvement in the North sea oil and gas industry, which involved working with both the industry and the unions.

A huge step forward was taken when the industry set up its helicopter task group to look at the Super Puma helicopter disaster 15 months ago. Three trade union officials from Aberdeen were involved in that task group, which examined a lot more than the accident itself. It looked at the causes of the accident, worked out what the problems were, reached conclusions and made recommendations. In addition, it looked at issues that had concerned people such as the right hon. Member for Gordon and me for years.

For example, there was concern about the lack of radar in the North sea oil and gas industry. When the Minister was about to make an offshore trip—I know that it was not his first such trip—I told him one of my scary stories about trying to get on to an oil platform in very thick fog in the middle of the North sea. It took us three attempts to get on to the platform. That was not the best experience of my life, but the people who work in the North sea have to make such trips every week when they go out to the platforms and then come back in. However, progress will be made, such as by providing radar and improving the lighting on platforms. The helicopter task group went much further than looking only at the Super Puma disaster and I think that everybody in the industry welcomed the report that it produced. In addition, the Oil Spill Prevention and Response Advisory Group has been set up to tackle the consequences for the North Sea, if there are any, of an oil spill similar to the one that is happening now in the gulf of Mexico. The trade unions are involved in OSPRAG, too.

The Minister cheered me up immensely two or three weeks ago after we had heard the statement from the Secretary of State for Energy and Climate Change on the oil spill in the gulf of Mexico and the action that he was taking in relation to the North sea. After that statement, the Minister said to me, “I’m going up to Aberdeen next week and I’d like to meet the trade unions.” I must say that after the 20-odd years—with a slight break in the middle—that I have been a Member of Parliament, a Conservative Minister saying such a thing shows that there has been a change everywhere. If this Government recognise the importance of the trade unions, particularly in the area of North sea safety, I welcome that wholeheartedly. I know that the Minister had a good meeting with trade union officials in Aberdeen.

The other key part of the infrastructure is the Government. I have seen a massive change in the Government’s approach to the industry. When I was first elected to Parliament in 1987, there was a Department of Energy, which was responsible for both production and safety. However, it was quite clear that the Department did not work, and I must say that we did not need the Piper Alpha disaster to tell us that, although it underlined the fact in spades. Of course, one of the key recommendations of Lord Cullen’s inquiry into the Piper Alpha disaster was that responsibility for checking safety should be passed to the HSE.

At that time, I was appointed to the Front Bench as part of the then shadow Energy team with responsibility for the oil and gas industry. I spent four years shadowing two Ministers: Peter Morrison and Colin Moynihan. Given that and subsequent experience, I have no doubt that the Government in those days saw the industry as a cash cow for raising money, which was one reason why the focus on safety was not as strong as it should have been.

When my party was elected to government in 1997, I do not think that the position changed—the attitude was the same. I remember many battles with Treasury Ministers in 1997 and 1998 when they were reviewing oil taxation and seriously considering increasing the tax on the oil industry. A windfall tax had been levied on the banks, which some of us cheered, and similar measures were being proposed for the oil industry. Those of us who were involved in that campaign recognised that the industry had gone through a sustained period of low prices and that increasing taxes would be the wrong thing to do.

Thankfully, the then Chancellor, who was one of the most dyed-in-the-wool proponents of the tax—I remember a difficult meeting with him—ultimately accepted that we were right, and a Government review decided that the tax regime should not be changed. The tax was increased when prices improved and again, if I remember correctly, during the next Parliament. However, the industry’s position was much more secure by that time, and it was recognised during the 1990s that taking money out of the North sea was wrong.

One result of that, as the right hon. Member for Gordon mentioned, was that the Revenue became more involved in the oil industry task group pilot. That was a fundamental change, because at the time the Treasury saw itself as completely separate from the industry. It had some knowledge of how the industry operated, but did not concern itself with the day-to-day stuff. Sending an observer from Her Majesty’s Revenue and Customs to the pilot meetings fundamentally changed the Government’s attitude to the oil and gas industry. It is now accepted that it is crucial to encourage inward investment in the North sea and to consider how the oil companies spend their money. The right hon. Gentleman rightly discussed the significant sums that will, we hope, be invested this year and next year in the North sea, and the revenue benefit to the Government as a result of that investment.

It is crucial that we continue to bring in new blood. The right hon. Gentleman mentioned Apache, which had never been in the North sea, having concentrated mainly on America and the middle east. Apache came over and bought the massive Forties field. It made it work and is now a major player. When BP was not prepared to invest any more, Apache made things work.

Another crucial thing that the previous Government did was to improve tax reliefs for new entrants to drilling. Before that, drilling, exploration and appraisal costs were allowable only against previous profits. If a company had no previous profits because it had not been in the North sea, it got no tax relief.

I hope that the important changes that have been made, mainly in the past 10 years, will be carried forward by this Government. It is important that we continue to encourage investment in infrastructure and in new fields, although they tend to be smaller. We must also ensure that we encourage new entrants to the North sea, and the tax regime is fundamental in that respect.

I will briefly raise two burning issues that do not get a lot of attention. The first is that we still have a skills problem. A major factor is that we depend hugely on immigrant labour in the North sea. In the main, such immigrants are highly skilled. Two or three years ago, I spoke to a major company that had brought 1,500 skilled engineers over from the Philippines. They had not come as cheap labour; they were essential to the company’s summer maintenance programme. Agreements were reached with the union to pay them the rate for the job, and after it was completed, they went back to the Philippines to do their normal jobs. However, I am hearing about more and more problems in my surgery, although they have nothing to do with the new Government as they have been building up for some years. The smaller companies in the supply chain are finding it particularly difficult to bring people in, while the universities have the same problem. Two universities now operate worldwide to bring in students, particularly from Africa—the students take a first degree in Nigeria or Ghana and then come to Aberdeen to do their master’s degree—but now even Government-sponsored students are finding it difficult to enter the country. That is a serious problem.

Finally—I have probably spoken for a lot longer than I should have—although the Department of Energy and Climate Change is now responsible for the energy industry, who looks after the oil and gas industry as a business? There is a sense in the industry that it has been abandoned by the Department for Business, Innovation and Skills, previously the Department of Trade and Industry, and that the Government are no longer focusing on the industry as a business. Will the Minister say a little about that that important issue, which relates to not the industry’s place in the energy industry, but its status as a business like any other?

[Mr Mike Hancock (in the Chair)]

As no other Back Bencher wishes to catch my eye before I invite the Front Benchers to respond, I call Emily Thornberry.

--- Later in debate ---

[Charles Hendry]

My understanding is that that is the case that has been put to the Treasury by the Scottish Executive, and that they want access to more of that funding to facilitate such investment. Clearly, these are details that have to be sorted out, but I am very encouraged indeed that the Treasury is keen to approach that with an open mind.

[Mr Doran]

My understanding is that the money is not passed to the Scottish Executive because they have consistently failed to put forward projects on which to spend the money.

[Charles Hendry]

As I say, there is much devil in the detail in these matters and the Treasury is taking forward the discussions. I am, however, encouraged by the approach taken in general.

About 45% of all the UK’s oil and gas-related jobs are in Scotland, and many, as we have heard, are in Aberdeen. I know from my own experience how committed that work force is. I was there most recently just a few weeks ago, and went through the helicopter training exercise. They decided that they should not yet dunk me in the water, that perhaps I was too new a Minister. I am not sure that any Minister has gone through the dunking process, and I have made a rather rash commitment to be the first. It is incredibly important that as policy makers we understand how the industry addresses these issues, and, as far as we are concerned, there should be no short cuts on safety. The visit brought home the great measures that have been put in place since the helicopter tragedies, to ensure that we have the toughest safety standards in the helicopter transportation that operates there. I went out to the Beryl platform, which I was particularly keen to see because it is an old platform still operated by its original operators, but drilling again for new reserves. It is a very good example of how, after some decades of operation, there is still much life and activity.

We travelled nearly 200 miles from Aberdeen airport to the rig, passing over two structures that had human life on them, and the very often incredible isolation and the bravery of the people who work there also came home to me very clearly. I travelled out there on a nice June day, when there was a little ripple in the water, and I cannot imagine what it would be like in a cold February gale. The landing spot for the helicopter looked small enough in those conditions. The hon. Member for Aberdeen North talked about making several attempts to land when he went out there some time ago. It really brings home to us the courage, the expertise and the global skill set that we have in the North sea, something to which we should always pay tribute.

I am certainly always willing to talk to the trade unions on these matters. Safety is not an issue for industry versus workers. There is a great recognition that for the industry, it is absolutely critical for everybody, every business and every organisation working with it. I will always be keen to find reasons to talk to the people who represent that work force.

Our approach to North sea regulation is among the most robust in the world, and our record there is strong, but the tragedy in the gulf of Mexico has to give us pause for thought. As we move into deeper waters west of Scotland, there is every reason to increase our vigilance. We have announced that we will double the number of annual inspections and increase by one half the number of inspectors. There is the inevitable time span before they are recruited, but the process is already under way.

Right hon. and hon. Members should be in no doubt that, if there is evidence from the reviews of the gulf of Mexico tragedy that requires us again to improve security and health and safety measures, we will do so. We are determined that the safety regime in the North sea will be the toughest operating anywhere. I am pleased that we will do that in partnership with the industry. The Oil Spill Prevention and Response Advisory Group is an industry-led initiative that does critical work in looking at these issues, just as it looked at the measures necessary to improve safety after the tragedies involving helicopters. We are very much in debt to it for its leadership in ensuring that we introduce measures in this area. Again, I welcome the role that the trade unions play in ensuring that workers’ voices are heard and represented.

There has been discussion about other ways in which the North sea can be a global centre for international excellence in energy infrastructure. Foremost among those will be offshore wind. We recognise that the United Kingdom is now a global leader in offshore wind, but much needs to be done if we are to meet the targets that have been set. The aspirations are high, and a great deal more has to happen if we are to get the right investment and infrastructure in place to achieve them. Some £15 billion of new investment is required in transmission assets to connect offshore wind farms to the onshore grid.

I am determined that we roll out the programme in a more structured way. Again, the Government want an approach that focuses on the problems, so we will look at where there are barriers to investment. We see working constructively and jointly with the industry as the best way to get around those issues.

My right hon. Friend spoke about the need for more ships, which are critical to this work. With the number of ships available in the world at present, we simply cannot put in place the number of turbines necessary to meet the aspirations. Grid infrastructure and connectivity will be fundamental to that.

The hon. Member for Islington South and Finsbury asked why the announcement has been delayed. There was every opportunity for the previous Government to make an announcement. Not only was there a little letter in a drawer which said that there was no money left, but there was a big pile of paper labelled, “Too difficult to think about.” There is a range of complexities, and different views from different sectors of the industry. We have been actively looking at the full range of grid and transmission issues with a view to announcing a decision in the near future. We absolutely understand that these are critical issues for the industry, and we are determined to give early clarity.