Oral Answers to Questions

Debate between Kirsty Blackman and Andrea Leadsom

Thursday 24th March 2016 Commons Chamber

[Kirsty Blackman (Aberdeen North) (SNP)]

15. What steps she is taking to support oil and gas exploration and development.

[The Minister of State, Department of Energy and Climate Change (Andrea Leadsom)]

Last week, the Chancellor announced a £1 billion fiscal package to reduce the additional taxes historically imposed on the North sea as well as to introduce targeted measures to encourage investment in exploration, infrastructure and late-life assets. That builds on the Prime Minister’s January announcement of a £20 million package of new investment in exploration, innovation and skills; a new interministerial group; and funding for the £250 million Aberdeen city region deal.

[Kirsty Blackman]

I appreciate the Minister’s answer. Oil & Gas UK, the industry body, has said that we need a fourfold increase in exploration to ensure that the 20 billion barrels that are still there are recoverable. The extra funding for the seismic surveys has been most welcome and we appreciate it. Will the Minister expand a little on what other action the UK Government will take to increase the confidence in the industry and to encourage further exploration?

[Andrea Leadsom]

The industry is vital for the UK, and we will continue to support it in every way we can. I have already mentioned some of the measures. Perhaps I will just reiterate that, in setting up the Oil and Gas Authority on Sir Ian Wood’s recommendations, we are establishing an authority that is welcome by the industry, that will improve the economic recovery of the sector, and that will ensure that we do not move to early decommissioning, which is all very good news for the North sea sector.

Offshore Oil and Gas Industry

Debate between Kirsty Blackman and Andrea Leadsom

Thursday 3rd March 2016 Westminster Hall

[Andrea Leadsom]

I take that extremely personally. That is going to cost the hon. Gentleman chocolate raisins in our next debate—he knows what I mean. I am watching him very closely.

Like other Members, I was delighted that my hon. Friend the Exchequer Secretary to the Treasury was able to join us for much of the debate and hear the views of several Members on the needs of this important sector. The North sea is a mature basin, yet it is still meeting the equivalent of around 65% of the UK’s oil demand and 55% of its gas demand. As many Members have said, there is no doubt that oil and gas will remain central to the UK’s energy mix as we make the transition to a low-carbon economy in a cost-effective way for consumers, so investing in domestic oil and gas production is essential. It helps to reduce our reliance on energy imports and provides a significant input to our economy, supporting hundreds of thousands of jobs directly and indirectly.

As all speakers have pointed out, over the past year oil prices have continued to fall, dropping to below $30 a barrel earlier this year. The impact of the fall on the industry was reported last week in Oil & Gas UK’s annual activity survey, which also indicates that investment in new projects has fallen from approximately £8 billion a year over the past five years to an expected £1 billion in the coming year, and that the number of wells drilled to explore for new reserves is low. It is therefore vital that industry and Government step up and respond to the challenges facing the industry.

I assure all Members that the Government are committed in their support for the industry and have already made significant changes to the fiscal regime. In the March 2015 Budget, the Chancellor introduced a £1.3 billion package of reforms, including reductions to headline rates of tax, a new investment allowance and £20 million of funding for seismic surveys to support exploration. In fact, no other Government have made fiscal changes as extensive as the UK’s in response to falling oil prices. Both the Government and the Oil and Gas Authority will continue to listen to the industry’s views on further reforms in this area, but, as the Wood review made clear, fiscal changes are not the only solution to the issues the industry currently faces.

Several Members, including the right hon. Member for Tynemouth (Mr Campbell), spoke about the need for fiscal measures to be taken in the next Budget. I hope that he and others were reassured by the presence of my hon. Friend the Exchequer Secretary. The changes announced in the 2015 Budget were obviously significant. Several large projects have already gone ahead as a result of them, such as Maersk’s Culzean project—an investment of £3 billion in the UK, supporting 6,000 jobs—and BP’s eastern trough area project, which is a £670 million investment. In response to the March 2015 Budget package, the then CEO of Oil & Gas UK, Malcolm Webb, said:

“These measures send exactly the right signal to investors. They properly reflect the needs of this maturing oil and gas province and will allow the UK to compete internationally for investment.”

That is what we were setting out to achieve, and I think those measures were very well received.

Members have highlighted what the industry is asking for: that we address the remaining fiscal barriers to late-life activity; that we abolish the supplementary charge, or at least reduce it by 10%; that we bring the rate of the investment allowance for offshore expenditure in line with that for onshore expenditure; that we temporarily remove all special taxes from exploration, so that only basic corporation tax will apply for all discoveries made over the next five years for the whole life of the field; and that we introduce a Government loan guarantee.

The Government have been building on the evidence gathered at working groups that met over autumn 2015. The Treasury, supported by the OGA, is conducting internal analysis of the findings of the three workstreams on barriers to exploration, infrastructure access and new entrants for late-life assets. As usual, should the Chancellor make any decisions, the announcement and implementation of any changes to the tax regime will follow the fiscal policy-making process. I hope that that reassures Members, but they should understand that I cannot make any further comments. It is not a matter for me anyway, but the Budget is coming the week after next.

In addition to looking into and undertaking further fiscal reform, the Government are supporting the industry in a number of other ways. The OGA has been established as an independent regulator and asset steward for the UK continental shelf. The Energy Bill before Parliament will provide the OGA with the powers it needs to maximise the economic recovery of oil and gas from the continental shelf. The OGA is working with the industry to identify opportunities to reduce costs, and good progress has already been made, with Oil & Gas UK’s recent activity survey showing that production rose by 10% in 2015, while production costs fell by a third. That is an impressive achievement.

As the hon. Member for North Tyneside (Mary Glindon) pointed out, we have recently re-established the cross-party oil and gas group, and we are aiming to promote the competitiveness of the offshore fabrication sector. Our first meeting, in January, was very productive. I am grateful to my hon. Friend the Member for Waveney (Peter Aldous), the hon. Member for North Tyneside and other Members for their involvement in the forum. As the hon. Lady mentioned, our next meeting will be with fabricators, and we will be looking at new opportunities not only in the traditional oil and gas sector but outside it.

Supporting the industry’s supply chain is crucial at this time, as it is a vital and integral part of the UK oil and gas industry. As those Members who have constituents who work in the industry and others who themselves have worked in the industry will know, it has suffered job losses and revenues falling by around a quarter last year. We must acknowledge that. The hon. Member for Aberdeen North (Kirsty Blackman) asked whether enough is being done about job losses. I can tell her that in intergovernmental ministerial meetings, and particularly in the work I am doing with my right hon. Friend the Minister for Small Business, Industry and Enterprise, we are examining what more can be done to view the energy sector holistically to see how job losses in the oil and gas sector can be a win, not only for offshore and onshore wind but, for example, for the new nuclear efforts. We are looking at what more can be done to provide new opportunities in the energy sector.

Despite the low oil price and the downturn of work being contracted offshore, there are steps we can take to support our supply chain and put it in the best position to win contracts. The OGA is actively involved in promoting future success through its supply chain strategy and board, for which unlocking new investment and future work is a priority. The OGA is working closely with the Department for Business, Innovation and Skills and with industry to make sure that companies remain competitive. The Government are working to further develop mechanisms to provide greater transparency about upcoming business opportunities to companies in the supply chain.

I am delighted to be able to inform Members that over the past few days I have held meetings with several offshore wind developers to emphasise to them that I want to see them do more to make the industrialisation of the UK offshore wind supply chain happen. In particular, the industry needs to work collaboratively to deliver a UK jacket foundation solution and competitive UK tower solutions. Successful delivery of towers and jacket foundations will create opportunities for fabricators and enable people with the right skills to transfer across to the offshore wind sector.

In the past 48 hours, I have met a couple of developers, one of whom told me that they have been very successful in winning overseas offshore wind business by using onshore Aberdeen-based oil and gas consultants with expertise in engineering, if hon. Members can follow that tortuous thought process. Rather than using offshore wind consultants, wherever they are based, they are using the UK’s long-established expertise in onshore oil and gas to win overseas wind business. That is important, and we need to do more to promote that interesting opportunity.

I am working with my hon. Friend the Minister for Skills to develop a national college for wind energy to provide people with the right skills to work in the sector. I had a meeting yesterday with a number of hon. Members from across the House to talk about what more we can do to get it up and running. Retraining is required if we are to take the people who lose opportunities in the oil and gas sector into offshore and onshore wind and other renewables sectors. There is a big opportunity there.

The UK has a strong record on manufacturing jackets and topsides for offshore wind substations. The majority of those items are manufactured in the UK. Sembmarine SLP Ltd, which won a contract from Siemens Transmission and Distribution in 2014 to design, engineer, procure, project manage and construct its platform’s jacket substructure and topside, has begun fabrication. The offshore transformer station, which is being constructed at SLP’s yard at Lowestoft on the Suffolk coast, is providing work for up to 300 employers for the next 21 months. I encourage all hon. Members—I know they are already doing this—to work with Ministers, cross-party groups and the OGA to look at other opportunities in the energy sector, not only on direct workforce re-engagement but on supply chain opportunities. That is really important. The Government and the OGA are continuing to work with initiatives such as the Scottish energy jobs taskforce and the New Anglia local enterprise partnership to support those who have already, sadly, lost their jobs. We need to continue that work.

In addition to those measures, during his visit to Aberdeen in January, the Prime Minister announced a package of measures to support the industry, including £20 million of Government funding for a second round of new seismic surveys to unlock new exploration activity in the UK continental shelf, which is the lifeblood of the basin. That funding, together with the OGA’s flexible and pragmatic licensing strategy for frontier and mature acreage, is designed proactively to influence and incentivise exploration on the UKCS. To back genuine innovation, the data from those new surveys will be made publicly available and £1 million will be allocated to fund innovative uses of data to unlock new fields. That additional investment will help to accelerate the drilling of new wells, which will replenish our reserves and lead to new infrastructure projects.

In addition, £700,000 is to be invested in the development of world-class 3D visualisation facilities at the Lyell centre at Heriot-Watt University in Edinburgh. The appointment of a new oil and gas ambassador will help to ensure the best possible access for UK companies to markets overseas, promote the North sea around the world and boost inward investment. The new strategy to maximise the economic recovery of offshore oil and gas in the UK will, subject to the will of Parliament, come into force soon. I share the sense of urgency of my hon. Friend the Member for Waveney, who rightly pointed out that that needs to happen as soon as possible.

In addition to all those measures, Innovate UK is set to launch an energy game-changer, which will make £1.5 million available to encourage innovators, microbusinesses and small and medium-sized enterprises from outside the energy sector to come up with radical solutions and disruptive technologies in response to challenges set by the energy industry. The Natural Environment Research Council will also allocate an additional £1 million investment in the successful oil and gas centre for doctoral training, led by Heriot-Watt University in Edinburgh. Aberdeen University is another core partner. That further investment will enable the programme to be extended for another year and will take the total number of PhD students funded under the scheme to 120 by 2017.

The Government are committed to supporting regional development. Aberdeen is Europe’s energy capital, and has rightly received a package of investment through the Aberdeen city region deal, which included funding for an oil and gas technology centre that will help to strengthen the UK’s position as a global centre of expertise for offshore oil and gas and encourage future investment in the UK. However, that is not the only area that contributes to the industry. Although Scotland supports 45% of the UK’s oil and gas jobs, largely in and around Aberdeen, 55% are located in England, with concentrations in the south-east, the north-west, the west midlands and the north-east. Those areas all support thousands of highly skilled and well-paid jobs. I was very pleased that my hon. Friend the Minister for Housing and Planning was able to join us for part of the debate and that he lent his support for our doing all we can to ensure the success of the sector. It is crucial that we have a joined-up approach across the Government, the OGA, industry and the regions.

As my hon. Friend the Member for Waveney made clear, the southern North sea off the coast of the east of England is a vital part of our industry. For that reason, we are moving forward with our regional development plans. This year, the OGA will carry out an evaluation of the potential for transforming the southern North sea into an energy hub.

As many hon. Members pointed out, although the industry faces challenges, we must remember that there are still opportunities out there. It is definitely not all doom and gloom. As Sir Ian Wood pointed out recently, there is still a huge prize out there. There are still up to another 20 billion barrels of oil equivalent to recover, and 10 new developments will come online in the next two years, which will create much-needed jobs. There is a strong portfolio of new projects in the planning stage just waiting for an upturn in the oil price.

[Kirsty Blackman]

Sir Ian Wood also said recently that we needed drastic changes to the fiscal regime to ensure the oil and gas industry’s future.

[Andrea Leadsom]

I am grateful to the hon. Lady for reminding us of that. The Budget is coming up soon, and I am sure Ministers are listening to what she has to say.

Production on the UK continental shelf rose by 10% in 2015 to 1.64 million barrels of oil equivalent a day. Almost 43 billion barrels of oil equivalent has been recovered so far, and there are up to 20 billion barrels—about a third—to be recovered. The UK remains the second largest producer of oil in Europe after Norway, and the third largest producer of gas after Norway and the Netherlands. The UK remains in the top 25 of global producers of oil and gas—for oil we were 21st in 2014, and for gas we were 22nd in 2014—despite the decline in production in recent years. The opportunities remain, and we still have every chance of success.

Although we wish to avoid premature decommissioning, it is a big business opportunity for the future, and £1 billion is already being spent per year. Many suspended wells are waiting to be permanently abandoned. We hope to stimulate that market and, in doing so, provide a valuable market for the supply chain. The OGA will publish a UKCS decommissioning strategy that will enable the UK service sector to become a hub for decommissioning and help UK firms to be ready to capitalise on the huge opportunities that are coming in the years ahead. That will be supported by the National Environmental Research Council, which is also investing up to £1 million in a cohort of new projects to support the development of expertise in the UK on decommissioning and its environmental management. With that proactive approach, we seek to position the UK so that it can be an early mover in that emerging market and establish a highly competitive and capable new sector.

I am grateful to my hon. Friend the Member for Waveney and the hon. Members for North Tyneside and for Aberdeen North for bringing this important debate to the House. The discussion has been constructive and I have listened with enormous interest to what right hon. and hon. Members have had to say. I congratulate the hon. Members for Livingston (Hannah Bardell) and for West Aberdeenshire and Kincardine (Stuart Blair Donaldson), but particularly the hon. Member for Livingston. She has a huge amount of experience in the oil and gas sector and it was interesting to hear her contribution. The hon. Member for West Aberdeenshire and Kincardine spoke of the importance of oil and gas to Aberdeenshire, but their importance has also been made clear by Members representing other areas.

There is no doubt that the industry is facing particularly testing times, not only in the UK but globally. As I have outlined, the Government are working hard with the Oil and Gas Authority and the industry to provide the right support to this vital sector during the current oil price crisis. There is of course more to be done, and I assure right hon and hon. Members that the Government will continue to do all they can to support this great British industry during these challenging times.

Energy Bill [Lords]

Debate between Kirsty Blackman and Andrea Leadsom

Monday 18th January 2016 Commons Chamber

[The Minister of State, Department of Energy and Climate Change (Andrea Leadsom)]

It is a great pleasure to sum up a debate to which there have been many contributions, to which I shall try to do justice, on subjects ranging from oil and gas and wind to carbon budgets and climate change. It has been fascinating. I am glad that the hon. Members for Wigan (Lisa Nandy) and for Southampton, Test (Dr Whitehead) welcome the work that is being done to give more powers to the Oil and Gas Authority. I have a great deal of respect for, in particular, the hon. Member for Wigan, who takes a commercial approach to the issue. I am also glad to note that the Opposition spokesmen are keen for progress to be made in this regard.

I should point out to all Opposition Members that carbon capture and storage is part of the OGA’s mandate. The OGA issues carbon dioxide storage site licences, approves carbon dioxide storage permit applications, and approves the termination of storage site licences. In addition, when there are synergies between the oil and gas and CCS industries, we expect them to be exploited. For example, the OGA is considering the role of CCS in the technology and decommissioning strategies that they are developing. I hope that that gives all Opposition Members some comfort.

[Kirsty Blackman (Aberdeen North) (SNP)]

With the continuing job losses and increasing gloom in Aberdeen, I welcome the shift in rhetoric from Members on the Government Benches. Will the Minister reassure me that the UK Government will do as much as possible to support Aberdeen to continue to be as productive as possible for as long as possible?

[Andrea Leadsom]

I can assure the hon. Lady that that is exactly what this Energy Bill is all about, and I will come on to the comments made by her hon. Friends. To finish off my remarks to the Opposition Front Benchers, this closure of the onshore wind subsidy is a very clear Conservative manifesto commitment. No ifs and no buts; it is a very clear commitment. The then Minister with responsibility for energy, my right hon. Friend the Member for West Suffolk (Matthew Hancock), told the House of Commons on 6 March 2015:

“We have made it absolutely clear that we will remove onshore wind subsidies in the future, and that the current 10% that is in the pipeline for onshore wind is plenty.”—[Official Report, 6 March 2015; Vol. 593, c. 1227-28.]

This is a clear manifesto commitment.

I am glad that the Members who spoke for the SNP, the hon. Members for Aberdeen South (Callum McCaig) and for Coatbridge, Chryston and Bellshill (Philip Boswell), support the establishment of the OGA. I know that they want to see, as do I and the hon. Member for Aberdeen North (Kirsty Blackman), a thriving industry for home-grown oil and gas that supports the 375,000 jobs that we are looking to sustain. With their help, we will continue to do everything we can to support that, and we hope to be able to count on it. They have raised the issue of a subsidy-free CfD, and I can assure them that my Department is looking very closely at that.

The Government are totally focused on seeing through a long-term plan for secure, clean and affordable energy supplies for generations to come. As we set out in our manifesto, we will cut emissions as cost-effectively as possible while upgrading and expanding both base-load and intermittent sources of energy generation. That means ensuring we continue to support investment in UK energy sources, including supporting the North sea. It also means continuing to support the deployment of new renewables, but we have to achieve this in the most cost-effective way; we have to get the right balance between supporting new technology while then, as costs come down, being tough on subsidies to keep bills as low as possible. However, as we progressively decarbonise our economy, we will continue to need oil and gas for many decades to come, as so many Members have pointed out, and it is far better that the jobs and revenue are in the UK, reducing, where possible, our dependence on imports.

The Energy Bill is intended to enact our manifesto commitments in two key ways. The first is by continuing to support the development of North sea oil and gas by establishing the OGA as an independent regulator and steward. A number of Members have spoken very clearly on this area. My right hon. Friend the Member for Wokingham (John Redwood), and my hon. Friends the Members for Warrington South (David Mowat), for Waveney (Peter Aldous), for Wells (James Heappey), for Richmond (Yorks) (Rishi Sunak) and for Boston and Skegness (Matt Warman) all spoke very knowledgably about the vital importance of doing everything we can to sustain the North sea, not just for now but for the long-term future, recognising that we must cut the cost to consumers as far as possible, which means not continuing with subsidies for those technologies that are now well developed. My hon. Friend the Member for South Suffolk (James Cartlidge) specifically pointed out how lower oil prices right now are helping consumers, and I take this opportunity from the Dispatch Box to call on energy companies again to pass on that drop in oil prices wherever possible.

The hon. Member for Brighton, Pavilion (Caroline Lucas) made a somewhat extraordinary contribution. She effectively rejects the Energy Bill in its entirety and seems to want it to be a pick-and-mix Bill that covers absolutely every aspect of energy policy. I want to be very clear: what we are seeking to do is establish the OGA properly and implement our manifesto pledges on onshore wind. I had hoped that, for once, she would be pleased that, combined with the superb result to which my right hon. Friend the Secretary of State contributed in Paris, we are now absolutely focused on decarbonising at the lowest possible price to consumers, with all the implications that that has.

Oral Answers to Questions

Debate between Kirsty Blackman and Andrea Leadsom

Thursday 17th September 2015 Commons Chamber

[Kirsty Blackman (Aberdeen North) (SNP)]

17. Thank you, Mr Speaker. I am sorry; I was slightly thrown.I would appreciate it very much if the Minister would tell us what action the Government are taking to ensure that decommissioning is delayed for as long as possible. A total of 375,000 people are employed in the industry, directly and indirectly, and many of them are based in my city of Aberdeen.

[Andrea Leadsom]

You threw me as well, Mr Speaker, but I get the point.

I am entirely sympathetic to what the hon. Lady has said. We all agree on the need to avoid decommissioning for as long as possible. The OGA is working with operators throughout the supply chain to try to increase co-operation in relation to, for instance, supply ships, and to ensure that they share resources rather than saying, “That is mine, so you cannot have it.” A great deal of work is being done, but key to this will be looking at the long-term possibilities for new exploration. I hope the hon. Lady welcomes the new Culzean project near the Shetlands, which has just been given the go-ahead. That is a good example of what we can do if we all work together.