Energy Infrastructure (UK Supply Chain)

Jim Shannon Excerpts

Tuesday 26th March 2013 Commons Chamber

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Gentleman for giving me permission before the debate to intervene and for bringing this important subject to the Floor of the House. He referred to the benefit to the whole of the United Kingdom of Great Britain and Northern Ireland. He will be aware that the Belfast shipyard builds wind turbines for land and sea. Will that shipyard be able to get some of this work?

[Peter Aldous]

Although I am concentrating on the North sea, the supply chain for the offshore work extends right the way around the country, both in the oil and gas sector and the offshore wind sector. I am also extremely conscious of the work that DONG Energy and ScottishPower have done and the investment they have made in Belfast.

In short, we need to strive to maximise the British content of UK energy infrastructure projects. At present, there are concerns that we are not meeting this challenge. Some two years ago, the Thanet wind farm was completed, with less than 20% of the £900 million of investment going to UK firms. Although companies such as ScottishPower and DONG Energy are aware of the need to maximise the UK content of contracts, we are some distance from achieving the Offshore Wind Developers Forum’s target of 50% UK content for UK offshore wind farms.

The problem is more serious in the oil and gas sector. In last year’s Budget, the Chancellor announced significant incentives for opening up marginal North sea fields and decommissioning. These initiatives are to be applauded, and North sea investment this year is now at its highest and most extensive for 30 years, but the problem is that contracts worth more than £10 billion are being placed overseas, while in the past two years only 7% of North sea platforms have been made in the UK. In other words, British taxpayers’ money is being used to create jobs in other countries.

The Nexen Golden Eagle project was awarded to Lamprell of Dubai, the BP Clair Ridge project to Hyundai Heavy Industries of Korea, and Statoil’s Mariner project to Daewoo of Korea and Dragados of Spain. I name just three contracts, but there are more. If some of these contracts had been awarded to British yards, they would have helped secure thousands of jobs and strengthened the UK’s supply chain, which as I have said extends across much of the UK. In the past two years, contracts for a total of 200,000 tonnes of fabrication structures have been awarded outside the UK, representing a loss to the country of 18,600 direct man years of jobs.

Some people may say, “Tough luck. Why should we pursue protectionist policies propping up uncompetitive UK firms?” But that is not the case: these businesses are competitive and innovative and have highly skilled and dedicated work forces. If we do not allow them to compete on a level playing field with companies from other countries, there is a danger that the yards will simply disappear. That will not only hit hard those areas of the country with above average levels of unemployment, but it will have a serious knock-on effect on the offshore wind sector, as those businesses are well placed to help build offshore wind farms.

There is, therefore, a need for the UK to have a local content policy when granting such contracts. The reason given for not having such a policy is that it would contravene EU competition regulations, but if that is the case, why is the UK the only oil and gas province in the world that does not have a local content policy? Why should licences granted on the UK continental shelf not contain a clause requiring free and fair provision for British companies in the procurement process?

The UK Government should apply pressure at national and EU level to ensure that UK companies are not disadvantaged when competing for overseas contracts. Sembmarine SLP, based in Lowestoft in my constituency, advises that in its experience, when it competes for projects in Norwegian, Dutch, German and French waters it has practically no chance of winning owing to blatant protectionism. In the offshore wind sector, Seajacks, based in the constituency of my hon. Friend the Member for Great Yarmouth (Brandon Lewis), points out that the French Government have explicitly stated that they intend to award licences for offshore wind sites to bidders favouring the French supply chain. British companies are not looking for favouritism or trade barriers; they are seeking a level playing field. I urge the Minister, together with his colleagues in the Department for Business, Innovation and Skills and the Treasury, to do all he can to help achieve that.

The Government could take other long-term measures to strengthen the UK supply chain. Indeed, they have put in place a number of initiatives, for which I thank and commend them. In the time left I shall briefly run through what else needs to be done to ensure that UK-based businesses are in the best possible place to secure contracts.

First is electricity market reform. At present, the Energy Bill is the most important game in town, and if we get it right it will provide the stable long-term policy environment that is required to attract supply chain investment. I believe that we are moving in the right direction. A £7.6 billion package has been provided for investment in renewable energy, and although the Bill’s provisions are complicated, it should provide the certainty, confidence and credibility that investors are looking for in UK energy policy. Timeliness is vital. It is important to investors that draft strike prices are published in the second quarter of this year and that the Bill receives Royal Assent by the end of the year.

I commend the Minister on being receptive to amendments to improve the Bill, and I am grateful to him for considering my proposals, which are designed to strengthen the supply chain. The elephant in the room is, of course, the 2030 decarbonisation target. I shall not dwell on that as I know it will be debated in the Chamber in much detail and with much passion in the coming weeks; indeed, it could be the subject of an Adjournment debate. I will say, however, that it is unfortunate that the issue has become a bit of a political football, and when the matter is considered I ask the Government to look behind any political positioning and decide what is best for Britain, and particularly the development of the UK energy supply chain. My views on the matter are determined by what industry and investors tell me, and it is important that we listen to them.

Secondly, the Government have put in place a number of measures to strengthen the supply chain. In Lowestoft and Great Yarmouth there is an enterprise zone, and the two ports have centre of renewable engineering—CORE—status. Those measures are proving helpful in promoting the area, but as the Minister heard from the Norfolk and Suffolk delegation he met last month, more could be done to ensure that we fully realise the potential of the great opportunity in front of us.

The problem that Yarmouth and Lowestoft face as a CORE is that of six COREs in England, only it and Sheerness do not have assisted area status. I believe that if all six COREs enjoyed the benefit of assisted area status, it would be particularly advantageous, both nationally and internationally, in seeking to promote the UK. It would help Lowestoft and Yarmouth to compete against our fiercest competitors from the low countries on the other side of the North sea.

I am also mindful that the UK ports fund, which is designed to help the establishment of offshore wind manufacturing, is only available in assisted areas. I am advised that at present this fund is largely unspent. If Lowestoft and Yarmouth were given assisted area status, the two ports could access the fund to carry out work that would stimulate jobs and investment in renewable offshore engineering.

The advanced manufacturing supply chain initiative is proving beneficial in stimulating investment in manufacturing-related jobs and growth. However, the current minimum threshold of £1 million for investment from the fund appears to be holding businesses back from making applications. It would thus be helpful if the Department of Energy and Climate Change could liaise with the Department for Business, Innovation and Skills to see whether the threshold could be lowered either for individual businesses or for smaller scale projects. This would be helpful to businesses from across the manufacturing sector and to those looking to support energy projects.

I apologise if it appears that I have a shopping list, as I am mindful that the Minister may tell me that the shelves are bare. I would emphasise, however, that a thriving supply chain can be a key driver in reducing costs in the offshore wind sector, which is vital to establishing the industry on a sustainable, long-term footing.

Thirdly, investing in skills and people is of paramount importance. The UK needs to improve its skills base to serve the large demand that will come from the North sea in the next few years with regard to the oil and gas and wind sectors. If we do not do that, businesses will source that expertise from other countries.

I commend the Government for promoting apprenticeships. Indeed, the Minister himself played an important role in that work in a previous life. I also pay special tribute to Lowestoft college which, although not a large further education college, has realised the huge potential in the energy sector and invested a considerable amount of resources in providing facilities and putting on courses with the energy industry’s needs in mind.

There are a number of different ways and proposals as to how best to invest in skills for the offshore industry. I do not propose to go through these or, indeed, to pick a winner. Suffice to say that it is important that the necessary skills centres should be located near offshore engineering ports. This way we can create the world’s leading pool of offshore engineering skills here in the UK.

The Offshore Renewable Energy Catapult centre proposed by the Technology Strategy Board will be located in Glasgow, and the north-east and will have an important role to play. I was concerned that it would not be a truly national centre of excellence, but those worries have been allayed and I know that organisations in Lowestoft such as OrbisEnergy and the Centre for Environment, Fisheries and Aquaculture Science look forward to working with the centre in the coming months.

Fourthly, improving our outdated infrastructure is important if we are to make the most of these opportunities. The Government’s broadband initiative is welcome, though it is vital that the procurement process proceed smoothly and quickly.

In Lowestoft, conscious of the opportunities that will arise for funding through the single pot, which will be administered by the New Anglia local enterprise partnership, a prospectus of the transport infrastructure we need, both in the town and serving it, was published last week. Working together with the LEP, the councils and businesses, the town will strive to put in place the infrastructure needed to attract businesses to the area.

In conclusion, renewing the country’s energy infrastructure over the next 20 years provides a great opportunity to create a world-class industry that will provide the growth for which the country is so desperately searching. Much good work has been done, but I am concerned that as matters stand we are in danger of not making the best of the opportunity and we could, in effect, be exporting its benefits to other countries.

There is a need to provide businesses with both long-term certainty and a level playing field. This is a once in a lifetime opportunity and, in the words of Lord Heseltine, we must

“leave no stone unturned in pursuit of growth.”