Oil and Gas Industry

Lord Harrington of Watford Excerpts

Tuesday 9th October 2018 Westminster Hall

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Richard Harrington)]

It is a great pleasure to serve under your chairmanship, Mr Hollobone. Indeed, I congratulate you on the discipline that you have brought to these proceedings, although curtailing the shadow Minister, the hon. Member for Southampton, Test (Dr Whitehead), to 10 minutes is a clear infringement of his human rights and of the normal way he behaves. In fact, some would say that it is a crime against humanity that his erudition, which is never known to be brief, was curtailed. I look forward to hearing him, as I did today, on many other occasions.

I genuinely congratulate the hon. Member for Falkirk (John Mc Nally) on not just securing the debate, but the thoughtful way in which he made his contribution. That sums up today’s debate. There is general consensus, and I hope hon. Members do not think I am saying this out of complacency, but the fact is that, as the hon. Member for Aberdeen North (Kirsty Blackman) said, most things to do with oil and gas are done on the basis of consensus. I wish there was the same attitude towards other debates in which I have the pleasure of speaking.

When I became Energy Minister, one of my first visits, in August of last year, was to Aberdeen—several hon. Members were with me that day—where I met industry leaders and visited Robert Gordon University to see the dynamic advanced response training simulator. That is relevant today because of the comments from the hon. Member for Falkirk about Piper Alpha. I saw a lot of the virtual reality equipment there, and I felt that I was actually on a rig. Everything was about health and safety and preventing the kind of incidents that happened at Piper Alpha. It is a tribute to the area that academia, industry and Government work together. I was most impressed by what I saw.

I understand the hon. Gentleman’s constituency interest because of the Grangemouth industrial site, which I visited as an A-level economics student in 1975—many hon. Members here were not born then, and some of their parents were probably only just born. However, I do remember the industrial site; I remember the scale of it. I think of it when I hear figures such as 8% of Scotland’s manufacturing base and 4% of GDP; I will never forget that visit, so I do understand the issue, and so do the Government.

In a very thoughtful speech, the shadow Minister expressed how important oil and gas are for the UK economy. I am not paid to promote the shadow Minister; I just cannot help but compliment him at various times. He talked about the mutual vision for the future. In fact, I kept looking up at him and seeing him reading from a document with blue print, which I thought was a Conservative party document, as the colour appeared to be the same, but which I then realised was, of course, “Vision 2035”, the authors of which at least had a good idea of which colour it should be in. But it does show no complacency; the serious point is that it does show a vision for the future, from what many people, out of ignorance, believe is a clapped-out former industry—they think that because they remember the boom days. One has only to visit it to realise that that is far from the case.

The upstream industry alone supports more than 250,000 jobs. Then there is the supply chain, supported by the sector, in key clusters all over the country. The hon. Member for Strangford (Jim Shannon), who has been at every single Westminster Hall debate I have ever spoken in, contributed extremely well. He mentioned the importance for Northern Ireland of the supply chain. I am very pleased to say that it is a United Kingdom supply chain and is not restricted to the specific area that many hon. Members have spoken about today.

The hon. Member for Aberdeen North mentioned Brexit, which came up in a few of the contributions. I do not take it lightly, I assure you, Mr Hollobone—none of us does. Many of the good things that have happened in the past couple of years have happened in a time when things have been written off because of Brexit, but I want to say to the hon. Lady and others that the Government fully understand the need for frictionless trade, on which the oil and gas industry has long depended, whether in the movement of goods, services or people. I assure her and other interested Members that my Department has made that matter very clear to other parts of Government—it is our job to do that, and we have. We are fully aware that the sector has paid more than £330 billion in revenue to the Treasury, which is phenomenal. I know of no other single sector that has been as beneficial to the Government over the past half-century.

The end-use facility mentioned by my hon. Friend the Member for Waveney (Peter Aldous) and by the hon. Member for Falkirk relates to customs procedures. I assure Members that Her Majesty’s Revenue and Customs continues to discuss with the sector the possibility of future mitigations being available, and which ones. The issue is complex, and I cannot claim to understand the full detail.

Since 2014, it is fair to say that the industry has had a torrid time as a result of the collapse in the price of oil. From that point of view, I am pleased that the price has gone up, but what I realised on my visit to Aberdeen was that, despite the decimation of the industry and its contraction—a statement of fact about the number of employees and so on, as was explained to me—good things resulted as well, such as some new technologies.

I remain optimistic for the future. I feel that the tripartite approach between the OGA, industry and Government, which hon. Members mentioned, is particularly important. I am pleased that, since its establishment, an extra 3.7 billion barrels have been forecast, and production has risen by 16% since 2014 figures, with a reduction in the production costs. The issue was forced by what happened to the price, but those cost reductions will remain and be improved on.

Optimism is returning to the North sea. My hon. Friend the Member for Gordon (Colin Clark) mentioned the amount of mergers and acquisition activity over the past couple of years—about $8 billion-worth last year—with some significant investment involving new players to the basin. Divestment by some of the supermajors does not mean that they are losing interest; it is part of the natural order of a mature basin, with newer, smaller companies coming in. Shell is investing in new frontier areas, and BP’s development is moving well. There is huge potential.

To determine the industry’s potential, we obviously need responsibly regulated exploration, and the Government support that. There are a lot of challenges, and we understand that. The Government all realise that exploring and drilling for the upper reaches of the remaining resources is more difficult than doing so for the original resources—that is a statement of fact—and the measures that we have put in place since 2014 will contribute significantly towards that.

The focus of the debate is on the future. My hon. Friend the Member for Ayr, Carrick and Cumnock (Bill Grant) asked me to comment on the IPCC report, and our clean growth strategy is clear. We are focused on meeting our Paris agreement climate change targets, and we have asked the Committee on Climate Change for advice on our targets in the light of the new evidence.

Whatever happens, oil and gas will be part of the energy mix for decades to come. We know that we have to reduce demand to meet our climate targets, but this industry has a lot going for it. Gas can play an important role, and so can oil. My Department’s main interest will be to continue the security of the energy supply, which means that we have not seen the end of hydrocarbons.

I am running out of time, and I will do my best to talk briefly about the sector deals mentioned by several hon. Members. One of my responsibilities is the implementation of sector deals. We have had a lot of discussion with the industry, and I am confident that these will proceed. As my hon. Friend the Member for Banff and Buchan (David Duguid) pointed out, this is an ambitious sector deal to support the industry’s “Vision 2035”. We have not yet reached the final stage of the process, we will do so quite soon. It is a question of assessing the value for money of the amount of contribution expected in the deal from Government, which takes more time than people think.

This is a complex industry with a great future. My hon. Friend the Member for Banff and Buchan said that it is an industry with a lot going on, and we know that the Government, the industry and the Members who have spoken today will be an important part of its future.

[Dr Whitehead]

On a point of order, Mr Hollobone. I may have misled the Chamber inadvertently by quoting a statistic erroneously. On the estimates for natural gas usage in 2035, the figure should be 59 megatonnes of oil equivalent and not 29, as I believe I said in my speech.