Future of the Oil and Gas Industry

Jim Shannon Excerpts

Thursday 14th March 2019 Westminster Hall

[Pete Wishart (Perth and North Perthshire) (SNP)]

I beg to move,

That this House has considered the Sixth Report of the Scottish Affairs Committee, The future of the oil and gas industry, HC 996.

It is a pleasure to serve under such a distinguished member of the Panel of Chairs today, Mr Walker. I am grateful to see so many members of the Scottish Affairs Committee in their places and ready to go for this very important debate.

The Scottish Affairs Committee decided to hold an inquiry into oil and gas because of the unprecedented uncertainty caused to the sector by the dramatic fall in oil prices at the end of the last decade. We were interested in assessing how—or indeed whether—the sector had recovered and in better understanding the contemporary issues in the industry and how new innovations and interventions had played out.

Critically, we wanted to explore the readiness of the sector for transition and decarbonisation. We also wanted to look at its preparedness for diversification of the skills acquired over 40 years of production and development in the North sea.

We are, as always, grateful to the many people who gave evidence and contributed to our inquiry, and for the support we received from the sector. We held six evidence sessions and received more than 30 written submissions to the inquiry. We are particularly grateful to the Oil & Gas Technology Centre in the constituency of the hon. Member for Aberdeen South (Ross Thomson), which hosted one of our evidence sessions and kindly lent us their premises to launch the report a few short weeks ago.

I should say first that the sector is in a reasonably good place. The resilience shown by our oil and gas industry in the face of such turbulence is to be commended. The tenacity that has been shown by the workforce and others involved in the industry is something we all recognised, and which has supported the sustainable recovery that has been put in place in the past few years. There remains a strong and positive future for Scotland’s oil and gas sector, and the opportunities of a just transition to a decarbonised future are there to be grabbed.

Scotland remains at the forefront of the global oil and gas industry, which contributed £9.2 billion to the Scottish economy in 2017 and supports 135,000 jobs in Scotland. Only this week, the Oil and Gas Authority predicted that 11.9 billion barrels will be extracted by 2050—a hike of almost 50% from the forecast four years ago of 8 billion barrels. That shows an industry and a sector in a reasonably healthy condition.

More than that, Scotland’s oil and gas is central to the UK’s energy security. It is forecast that two thirds of the UK’s primary energy needs will be met by oil and gas until at least 2035.

[Jim Shannon (Strangford) (DUP)]

The hon. Gentleman is speaking of the benefits to the United Kingdom of Great Britain and Northern Ireland. I have some constituents who depend on the Scottish oil and gas sector for their employment. The skills that they have learned are not specific to Scotland—they are for everyone. Does the report acknowledge that all regions of the United Kingdom benefit from the Scottish oil and gas sector and it is therefore good for everyone?

[Pete Wishart]

The hon. Gentleman is of course absolutely right—this is a UK-wide industry, which has a footprint in most nations of the United Kingdom. Practically every region of England has some link to the supply chain serving the oil and gas industry across the UK. He is absolutely right to remind us that this is a UK-wide industry and one that we should all be very proud of, whether we are in Northern Ireland or in rural Perthshire.

It will not surprise hon. Members, however, that the inquiry found that the sector is still facing unprecedented challenges. Fluctuation in the oil price has hit companies with extreme uncertainty, particularly those working in the supply chain, while the rate of new well exploration has nose-dived. At the same time, the industry needs to properly prepare for the decline in production that will inevitably happen, to ensure that the economic benefits and highly skilled jobs the sector has acquired in and brought to Scotland are not lost.

The industry also has to find new ways to reduce its carbon footprint and use its skills and engineering knowledge to help develop low-carbon and renewable technologies. That is no small task, and those challenges are at the heart of the Committee’s report. We address how the Government should support the industry while it gets ready for production to decline. How do we meet the UK’s energy needs, of which oil and gas will remain a major component, while meeting our climate change obligations?

We believe that the best way for the Government to support the industry through those challenges is to agree an ambitious sector deal. A sector deal backed by a combined investment of £176 million from industry and the Government could deliver £110 billion for the UK economy, with particular benefits for Scotland and the north-east of Scotland. The funding would support three centres of excellence, focused on transformational technology, underwater innovation and decommissioning.

When the Minister for Energy and Clean Growth, the right hon. Member for Devizes (Claire Perry), appeared before the Committee in December, she said that she was not able to go into the detail of the deal, which we totally accepted given that the Government were still to properly design it and come forward with what would happen. She said that progress would be announced in weeks, not months. It is not many months since December, but it is certainly weeks. I know the Energy Minister could not join us today because of other pressing business, but we are fortunate to have the Minister responsible for sector deals with us. Perhaps he can update us on the progress and shape of the sector deals.

I am certain that any delay will, of course, be down to the Government’s taking very seriously the recommendations in our report, and designing the deal around some of the very useful recommendations that we made—that the sector deal is forward-thinking and sets up the industry to meet the challenges of climate change, decommissioning and of the industry’s future beyond the UK continental shelf head on, rather than focusing on the usual support for maximisation of production in the short term. The days of short-termism in the North sea are over. Long-term planning and strategic thinking is required, and those are the priorities for the deal that the report outlines.

I will explain the detail a little further. First, a sector deal must capitalise on the opportunities arising from decommissioning. The North sea is not only going to be the first major basin to go through large-scale decommissioning; without doubt, it is also one of the most challenging environments anywhere in the world for decommissioning. As one of the witnesses said to us in an evidence session, if we can decommission a rig in the North sea, we can decommission a rig anywhere in the world. Scotland has an unmissable opportunity to export its decommissioning knowledge to the rest of the world and the Committee has therefore called for the sector deal to be accompanied by a Government decommissioning export strategy to anchor a global decommissioning industry in the north-east of Scotland.

The sector deal also needs to deliver on reducing the cost of decommissioning. We were surprised when we heard the range of estimates of the cost of decommissioning—the gulf between the lowest and highest point was quite extraordinary. We need to see that cost reduced for UK taxpayers, because half of the decommissioning cost will still be met through the Treasury and by taxpayers through tax relief.

The sector must find ways to transfer its unique expertise to other sectors of the economy so that the jobs are not lost when oil production stops. One of the most impressive features—I think all members of the Committee recognised this when we were taking evidence for the report—is the range of skills available to us from North sea exploration. The skills acquired over four decades of production are among the most impressive to be found in the oil and gas sector anywhere in the world. It is absolutely imperative that the skills, expertise, talent and energy that have been built up in the sector are not lost as we move towards decommissioning and the ending of production.

We heard that there is no end to the opportunities available if we get decommissioning right. Sectors including aerospace, data analytics, marine and offshore engineering, digital manufacturing, satellite technology and offshore wind are all open for skills and technology transfer. We were particularly taken by the opportunities in the renewable sector, and we call for the sector deal to contain specific and measurable proposals for how it will improve skill and technology transfer to the sector. Scotland gained by acquiring North sea oil. It is questionable whether we secured the benefits of discovering North sea oil; we must not lose any benefits of what happens next with renewable technology. The skills acquired in the North sea are perfectly fitted, and could be adapted, for use in renewable energy.

--- Later in debate ---

[Pete Wishart]

Absolutely. When the report came out, all of us on the Committee were quite surprised by the scale of the response. I do not think there was a true examination of what we had in the report. We say in it that a transition is required, but it has to come from a position of strength. We cannot do anything that would compromise our ability to have a viable and sustainable sector that is in a position to carry out the just transition that environmental groups are looking for.

[Jim Shannon]

The hon. Gentleman is being very generous with interventions. One of the things that I noticed in the report was the impact on fisheries. The Scottish Fishermen’s Federation referred to the retention in the seas of artificial rigs and so on, which might disadvantage the local fishing community. What consideration did the report give to that?

[Pete Wishart]

I was not going to mention this, but it was a fascinating feature of the report; I am really grateful that the hon. Gentleman has drawn my attention to it. We took a lot of time speaking to environmental groups, particularly some of the wildlife groups, about sustainable fisheries. There was a suggestion of switching from rigs to reef: to leave the infrastructure in place as a magnet and attraction for wildlife and fish species.

We received very mixed evidence on that. One group told us that in the gulf of Mexico, where this project had been initiated, people had to drag the reefs off the seabed, take it onshore to clean it, and then put it back again. One recommendation in our report is that the environmental groups have to decide among themselves about the best way forward. We encourage that debate among our friends in environmental sustainability groups, and I am grateful to the hon. Gentleman for raising the issue.

We were struck by the importance of carbon capture technology for the long-term future of the industry. The Committee on Climate Change told us that without this technology, decarbonisation of the sector will happen much more slowly and be more costly. This is one area where the Government are ahead of the industry, having announced £45 million of funding for carbon capture innovation, with more potentially available from industrial strategy funds. I know that particularly pleases the hon. Member for Banff and Buchan (David Duguid), because most of that investment will be in his constituency. It is right that it should be, because of the infrastructure that exists there.

We believe that the industry needs to step up its contribution in this area, and that the sector deal must contain a detailed proposal from the industry on how it will support the development of carbon capture technology and how that progress can be measured. The oil and gas sector has a bright future ahead of it.