Offshore Petroleum Licensing Bill

Lord Bruce of Bennachie Excerpts

2nd reading
Tuesday 26th March 2024 Lords Chamber

[Lord Bruce of Bennachie (LD)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Young, with her very long credibility and experience in environmental protection. I am interested in some of the points she made; if they do come to amendments, I think we could work together.

I feel that, in some ways, I might be holding the ring in this debate. The whole transition to net zero is incredibly complicated and the energy mix is incredibly complicated. Many people seem to me to reduce it to a binary choice, in a very difficult way.

I declare a political and economic interest, if not a personal one. I have no financial stake in the oil and gas industry, but I have lived for over 50 years in the north-east of Scotland and represented it for many years, and have monitored the industry closely for more than 50 years. I have seen what it has achieved. As the Minister said, it has made a huge contribution to this country economically—jobs, balance of payments and technical innovation—of which we should be proud, while facing very great challenges. There have been mistakes, yes, and disasters on occasion, but also fantastic achievements, and it still has a lot to give. I agree with much of the analysis of the Minister’s introduction, but I do not see the value of the Bill at all—I will develop that point a little later.

Living as I do in the north-east of Scotland, the people I meet absolutely accept that this is a declining industry and that we have to move towards net zero. However, they are hurt and resentful that they are demonised as part of the problem, when they actually delivered what people wanted for the last 50 years, and believe they can help deliver what people want for the next 50 years, if they have the time and space to make that transition in an orderly and reasonable fashion. Quite a lot of the things that are green, and which we wish to have and which are happening fast, are still not happening fast enough to move us away from fossil fuel as quickly as some people think we can or would wish—all the projections make that absolutely clear.

It is still quite a significant industry, worth over £20 billion to the economy—it is not entirely clear because it spreads wide. Directly and indirectly, the figure is around 200,000 jobs, thousands of which are in the north-east of Scotland but the majority of which, believe it or not, are in England. We deliver a third of the subsea technology in the world, and it is an £8 billion to £10 billion industry.

New exploration and development, even if it is allowed to go forward, will not reverse the decline—that decline is inevitable and historic—but it will slow it. However, halting licences will unnecessarily accelerate the decline. It is not about new oil fields; very often it is about tying back existing reserves to the existing infra- structure, which can then be upgraded and decarbonised in the process, so that you are actually cleaning it up as well as getting the benefit of the revenue. As has been said, all the forecasts to and through achieving net zero include oil and gas in the mix. Obviously, the UK has been a net importer for 20 years, and we will import more and more, whatever happens in the future. The faster we build up renewables the better. In the process of doing that, we will naturally suppress oil demand, because people can switch to the alternatives, but it will not eliminate it.

The Minister made a reasonably rational statement, but it did not justify the case for the Bill. The Government are putting out very confused messages, claiming that we are doing really well on climate change but then saying that we need to issue more licences, which, as I said, the industry does not really feel the need for. The industry wants to know that, as and when needed, on a case-by-case basis and where it is appropriate, it will be considered and allowed for. We have never had to have an annual licence; it has just been done on a case-by-case basis, as and when needed. My position is that the Bill is unnecessary, and I do not think it is wise to have a policy of saying that there will be no more licences. The circumstances may well dictate that, rationally, some licences will be required. It is sensible to leave some space for that.

In addition, the Government have—this is not a slight confusion—in a separate decision, pushed back the date for electric cars by five years. Whether you think it is a good or bad idea, the message it sends is that we are in favour of addressing climate change but in an Augustinian way—not just yet. We need to be a little clearer about what we are doing.

We also need to recognise that baseload electricity is a challenge. Some green campaigners say that nuclear is the answer, and it may be the only alternative. I have never had a visceral objection to nuclear, but my experience of monitoring the nuclear industry is that it takes a hell of a long time, costs a hell of a lot, and creates a waste problem that is costly and intractable. On the other hand, I am not sure what the alternative is. It is difficult to see—I do not see it—any projections for 10 or 15 years from now where we are not still generating electricity with gas. It makes sense not to get rid of it faster than we have to, when we are still importing it anyway.

We have another issue, with offshore wind. I happened to fly in from Finland on Saturday, over massive offshore installations as you come to the shore of the UK. It is impressive, but I hear that there are problems with getting connections and landfall. It is no good generating the wind if you cannot get it into the system. We need to address those problems, and fast.

We need to make the investment, and we need to do it as fast as we can, and we need to recognise that climate change is real and probably accelerating. The people who say that we should have no licences, but that we are not shutting down production and are happy to allow any licences that have been granted to continue, seem a little inconsistent. If you are happy to accept them, why would you stop them? I think I have made the point that we need a sensible, balanced approach.

It is interesting to ask which of the oil and gas-producing countries in the world are operating a planned reduction of commercially viable production? The answer is only those that have not got very much. Norway certainly is not; Norway has made it clear that it will produce all the oil and gas that it can. That is not surprising, as it has one big customer just desperate for it, and that is where most of our gas is coming from. I do not see why we should swap Norwegian gas for UK gas when we need both, but that is the reality.

The sector will continue to decline, but, from meeting people in the industry and attending their various events, I know that every company in the supply chain that I meet is increasingly focusing their attention on developing renewable technology. They see it as the future, and they want to be part of the future. They tell me that they are transferring their expertise into that sector and using the revenue they get from oil and gas in the short run to fund it, and that if that revenue chokes off faster, their ability to fund the transition will be lower.

I would be perfectly happy—maybe this could be an amendment—to make it a condition of licensing that operators must ensure that a proportion of their profits is invested in UK renewable technology. They might also be required to demonstrate that they can contribute to lowering energy costs or the cost of living. I am in favour of making the industry contribute more, but I am not in favour of artificially depressing it and leaving us, potentially, risking supply gaps and cost overruns.

We export most of our oil to the Netherlands for refining, and there exists an argument that, because we export it, we should not bother to produce it. I can remember the 1970 election, when one bad month of balance of payments led to a change of Government. Nobody seems to care about the balance of payments any more, but what of the idea that £15 billion-worth of exports should just be discarded? As the noble Lord, Lord Lilley, to be fair, acknowledged, we pay for the imported product, to some extent, by the exports that we make. It is disingenuous to suggest that, because we export it, it has no value to our economy. That goes against normal economics.

We need to focus on how we can get the industry and the public to adopt renewable technologies as fast as possible, and to harness the energies across the energy sector—including oil and gas—towards that, while recognising that managing the transition requires neither a ridiculous stoking up of oil and gas exploration nor an unnecessarily rapid depression of oil and gas. It is naturally declining, and the industry, left to its own devices, will diminish, because it is not there to be invested.

The Bill creates the wrong signal and is completely unnecessary. The industry does not want it, but rather wants recognition that it is part of the solution and should not simply be demonised as being the cause of the problem. That is not a good way to treat an industry that has been the backbone of our economy for 50 years.

Offshore Petroleum Licensing Bill

Lord Bruce of Bennachie Excerpts

Committee stage
Tuesday 23rd April 2024 Grand Committee

I spend much of my life having to deal with people who think about climate change in that way. They do not believe in climate change because they prefer it not to be happening. I agree with that second half, but it is happening and we have to act on it. Damage to the seabed is happening and we have to act on it. Proposals to extend and exploit more in the North Sea will damage more. Let us be serious. Let us not allow this to be passed over because it is just more convenient not to know.

[Lord Bruce of Bennachie (LD)]

My Lords, I rise to speak briefly to this group of amendments. Noble Lords will know that I have spent pretty much all my adult life in the north-east of Scotland and have seen the North Sea oil and gas industry pretty much from its inception right through to where we are today. It is a declining industry, as the right reverend Prelate rightly said, and it will continue to decline whatever we do. The question is: how quickly, and how will it impact the transition?

Turning to Amendment 1, on flaring, as far as I understand it from the transition authority, all new developments that are approved will be zero flaring, so, in a sense, the amendment is already being tested. I do not have a problem with it, but I think that is the case. I accept that the desire to reduce or eliminate flaring on existing fields leaves a tension as to timescale. It would be good if it could be speeded up, and the transition authority should be encouraged to make that happen, but it is not quite as easy as people say, because it has implications for the physical operation of platforms. However, I do not think it is a wrong aspiration.

On Amendment 2, on green skills, we should absolutely be developing them. However, the point I hear every day in the north-east of Scotland is that we are producing oil and gas and it is going to decline, but its revenue, technology and supply chain are all being redeployed to the transition. If we do not have that revenue, our ability to redeploy will be slowed down or stopped, and that is a real factor.

There is huge enthusiasm in the north-east of Scotland for the rapidest transition we can make. Indeed, just this week, one of the largest offshore wind farms in the world has been announced, off Peterhead. This is an investment of £3 billion in 35 turbines and potentially hundreds of jobs; there is huge enthusiasm for that. A lot of that will be going to companies in the oil and gas supply chain. The really important thing here is to get the balance right. If we accelerate it too quickly, that supply chain will disappear. The faster we bring in the investment in offshore, the faster we can make the transition, but it is really important to get the balance right. That is the debate the north-east of Scotland wishes to happen nationally.

That is one of the reasons why I support my noble friend’s amendment to replace “must” with “may”. As I said at Second Reading, the Bill is not necessary because we can issue licences whenever we like, and it has been up to the transition authority to determine whether that may be the case. To those who say that we should not have any more licences, I do not mean to be patronising at all, but some understanding of the North Sea reveals that there are sometimes requirements to bring things on stream in order to facilitate decommissioning, as well extending the life of existing infrastructure. Saying that it is not going to be done at all will probably almost immediately lead to a situation in which the practicalities mean that it makes more sense. So, there should be that discretion. However, the onus should be put on the transition authority to do that only if it believes it is necessary in order to achieve the transition in an orderly and efficient manner. That is essentially why the amendment makes practical sense.

Investing half the profits in renewables is a good idea. I am not sure whether one should be quite as specific as that; however, the reality is that the companies I talk to are investing increasingly in renewable energy because they can see that oil and gas is a declining asset. They know, as the noble Lord, Lord Deben, knows, that every projection for oil and gas through to net zero still has oil and gas in the mix.

So, oil and gas will be around. There is a sensible question to be asked: why should it not be ours, rather than importing it, as long as we can do that in the most efficient and least environmentally damaging way? I accept that it has an impact. In the process, we can ensure that the transition from the oil and gas industry to the renewables industry enables the jobs, the technology and the companies to be smoothly part of it. There is a real flight of investment from the UK in this sector right now, because of a combination of uncertainty—the Labour Party’s policy does not encourage people—and the Government’s confusing people, I have to say to the Minister. On the one hand, we have a Bill that says, let us have an annual licensing round; yet, on the other hand, we are saying that we are going to tax the industry to the nth degree.

Frankly, a lot of the companies are saying that the UK does not seem like a decent investment. For those in this room who are not keen on the North Sea, that may make them all happy but there are consequences. It is a successful major industry and a significant part of our economy. It is one of our high technologies. We are the world-leading experts in subsea technology. About one third of the market is UK-based, driven by what we do in the North Sea. To throw all that away, if we do things too quickly, would be a criminal waste of talent and resource, and would be an economic self-wound. We can do this properly and right, in an orderly fashion, or we can try to reverse it, which is foolish and will not work, or we can accelerate it at a level that would be damaging and destructive.

These amendments set the balance, I hope. We can make sure that if we are going to manage this transition and the decline in the North Sea, it is done in a way that respects the contribution that the people who have developed this industry over the past 40 years have given and can give. It would also allow us to develop the new technologies at a pace that will create a viable industry quickly, without causing a huge dip in economic activity and unemployment, which can be avoided.

[Lord Moynihan (Con)]

My Lords, my interests are set out in the register. The noble Lord, Lord Bruce, did not quite do himself a service by saying that he was there at the start 50 years ago; I am sure it is little bit less than that. I was very much involved some 35 years ago as Minister for Energy, at the time when this whole question started. There was extensive gas flaring in those days and no value was associated with gas. Therefore, the environmental impact was appalling and we wanted to assess it, especially when it came to the central North Sea. The southern North Sea had yet to be moved forward. The northern North Sea had far less of a problem of associated gas, but the central North Sea fields were very much in the context of what we are discussing.

I echo many of the comments of the noble Lord, Lord Bruce, about these amendments, in particular Amendment 1, which I want to address. The important points he has raised go to the comments of my noble friend Lord Deben. All new developments absolutely should be planned on the basis of zero routine flaring and venting. That is the case, as of today. I hope that the Minister can echo that point, because that is substantively what the amendment seeks to achieve.

My second point is that it is not wise to put equal weight on the environmental impact of venting and flaring. Venting is far worse. Methane is about 30 times more damaging to the environment than CO₂, which comes, effectively, from the flaring process. However, both are recognised by everyone who works in the oil and gas sector, particularly the supply and service sector, as practices we should end. There is a clear, unequivocal decision by government and by everyone working in the sector that we should bring these practices to an end by 2030.

The question is one of timing. As I read it—I may be wrong—the amendment is really about whether, two years on from the Bill receiving Royal Assent, we start the process as though it is 2026 rather than 2030. There is merit in considering that in detail, but we should also look at the industry’s capacity to retrofit by that timetable. It may be possible, but my research shows that it is quite difficult, and we would have to move from the current voluntary system. To be fair, that system has worked well. Progress has already been made in reducing flaring. It is down by some 50% since 2018 and we can get the rest of it removed by 2030.

The question is: should that be accelerated? In fairness, I think that is what the noble Baroness, Lady Hayman, is putting to us today—that this amendment, if passed, would not affect the new developments that are already being planned, on the basis that there was zero routine flaring and venting, but would accelerate the timetable for the rest of the platforms. My question to the Minister concerns that timetable and speeding it up. Do he and the Government believe, and can they demonstrate, that the voluntary-based momentum that needs to accelerate —the industry recognises that it must accelerate in order to achieve the 2030 deadline—is better or worse than a slower, compliance-based mechanism, which would require a complete infrastructure from government to achieve the sort of timetable that is set out in this amendment? That is the real question. By the way, the amendment is not precise because it will depend on when the secondary legislation is introduced before Parliament, so it might be implemented quite close to the 2030s or in the late 2020s.

--- Later in debate ---

[Lord Bruce of Bennachie (LD)]

I share the frustration of many people that we produce our own oil and gas but base it on world market prices, and there is no immediate direct benefit to the consumer. I understand the reasoning behind it, but the public feel very frustrated: if we are oil and gas producers, there should be a direct economic benefit. Can the Government be a bit more creative and imaginative? They would argue that during the height of the crisis, they effectively used excess taxes to cut consumer bills, but is there a way in which to build in a formula that might have a more long-term connection that would be of some benefit?

It is also fair to say that I reject the argument that because we export a lot of the oil and gas, we do not really need it and therefore should not produce it. Of course, balance of payments do matter. The reality is that we have always exported a very substantial amount of our oil production and we import it back in refined products—more so than we did, because we no longer have the capacity to refine. Nevertheless, one pays for the other, but that is not immediately apparent. It is equally true that if we are producing our own oil and gas, and it is profitable, there is tax accruing to the Government which presumably funds public services or other tax cuts that could be directly connected to the consumer if the Government were prepared to be creative.

It is a perfectly reasonable proposition to ask why, if we are maintaining our oil and gas production, we cannot give a direct benefit to the consumer from that. I acknowledge that there are real benefits. Those who suggest that because we go for the world economic price there is no benefit ignore the balance of payment effect and the taxation effect. I am sorry that the noble Lord, Lord Deben, is not in his place because in a Committee exchange I asked him why, if oil and gas is part of the mix, right to and through net zero, we would not maintain some of our own production, if we can do it sensibly, efficiently and rationally while we are accelerating the transition? His reply was that we should set an example to the world, that plenty of other people produce oil and gas and we can import it. I found that extraordinary and irresponsible. If we are going to use it anyway—there is a further group of amendments that relate to the carbon base of our gas, for example—we know perfectly well that domestic gas has a much lower carbon footprint than imported gas, certainly liquid gas.

It is naive to suggest that there are no real benefits from producing oil and gas. There is a real economic benefit, but I tease the Government to say that it might be interesting if they could find a way of making a direct connection that people could feel in their cost of living, specifically in their fuel bills. People would find that an extra justification for maintaining what we are trying to do.

[Lord Kerr of Kinlochard (CB)]

I intervene briefly to express a little scepticism about Amendments 5 and 17. I declare an interest because I used to be deputy chairman of Shell for a time. I think the answer to the very fair question of the noble Lord, Lord Bruce, is that we cannot, unless we nationalise the companies or direct their sales, because they will sell at the market price. I do not think that the condition that Amendments 5 and 17 would impose will ever be met. We will never be able clearly to demonstrate that prices and the cost of living would be lower X many years out. First, one cannot be clear. It takes five, seven or eight years for a project to come into production and guessing prices and the cost of living that far ahead, as I saw at Shell, is not an exact science. It is difficult to do “clearly”—the wording in the amendment.

Secondly, I am not clear whether this third test is a cumulative condition, like the carbon intensity test and the net importer test. If it is cumulative, then no licenses will be issued at all, because that will never be able to be proved.

I am afraid that, for the same reasons, my scepticism also extends to the net importer test. I do not understand the Bill. We are setting out a perfectly reasonable set of propositions for a nationalised industry, but if you want the North Sea to be developed as it is now, or for the development to continue as it is now, run by commercial companies, then the commercial companies will sell at the world price. They will not allocate a little bit to you at a better price so that you can satisfy your tests; in particular, a cost of living test. It does not work like that. I am making everybody in the room angry, because I do not really agree with Amendments 5 and 17, and I do not actually agree with the Bill when it comes to the net importer test.