Future of the Oil and Gas Industry

Lord Harrington of Watford Excerpts

Thursday 14th March 2019 Westminster Hall

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

Certainly, Mr Walker. It is a great pleasure to serve under your chairmanship. The Chairman of the Scottish Affairs Committee referred to you as a distinguished member of the Panel of Chairs. The next time I appear in front of him in a different capacity, I will remind him of that, as it implies that he is less than distinguished. I am sure nobody could say that about him; in fact, Mr Walker, I think you would agree that the opposite is true.

I congratulate the Scottish Affairs Committee and its Chairman on bringing forward the report, which I have read. One never knows what happens with Committee reports behind the scenes—the whole idea, of course, is that that information is privileged to the Committee—but from what I can gather, the Committee is an exemplar in the way that its members work cross-party. With the greatest respect to the hon. Member for Dunfermline and West Fife (Douglas Chapman), the spokesman for the Scottish National party, most of the comments today were of a non-partisan nature. I will try to answer in that spirit.

Ministers in Westminster Hall debates either give a prepared speech—written by civil servants, then checked and rewritten by Ministers—or respond to comments; the difficulty is that so many comments were made today, and I disagree with so few of them, but I will absolutely do my best.

The former Prime Minister referred to this sector as the real jewel in the crown of the UK economy. Of course, I would refer to the former Prime Minister as the jewel in the crown, but he is not here to answer that. I briefly held the energy portfolio, but I am here today because there was a fight of a verbal nature between myself and the Minister for Energy and Clean Growth as to who should appear at this debate. I cover sector deals generally and she covers the oil and gas sector, but we are not both allowed to speak. I discussed the subject extensively with her and I am trying to speak for us both.

When I held the energy portfolio I went on a visit to Aberdeen, and I was amazed by the way the industry was fighting back from a real recession, if not depression, caused entirely by the reduction of the oil price on the international markets. I have not had any experience in oil and gas, but I realised that the cycle was similar to those in the mining sector that I had read about, though I have no experience in mining, either. Once skills disappear, it can be difficult to restart. In mining, as in oil rigs, some sites can become disused, and it is difficult to get them back into action. Exactly the opposite has happened; I was amazed by the way the oil and gas industry fought its way out of the recession, especially given that the core bit—the international commodity price of oil—is completely beyond its control.

To paraphrase some of the Brexit debate—the hon. Member for Dunfermline and West Fife brought Brexit into this, so I felt I should—the oil companies are market takers, rather than market makers. They cannot control the international oil price—the price of what they have to sell. At least, I assume they cannot; nothing I have read suggests that they can. The sector has changed itself into a lower-cost, more nimble industry, which is interesting. Some big companies found that difficult because of their high overheads, but other companies have come into the market, are more nimble and have new sources of cash. I found that fascinating.

On setting a regulatory environment in the oil and gas industry and funding for research and development—that funding can come about in different ways, including from Government—Government’s work has been absolutely brilliant. In these discussions, it is easy to criticise Governments generally, but please do not think I am making a party comment; any sensible Government would have done this. I am pleased to say that we have had a lot of sensible Governments in this country. My comments are not a reason for complacency, though; I hope hon. Members do not think that I am saying that.

I am completely ignoring the speech that I prepared because I was so excited by some of the things that were said. To an outside person, perhaps a reader of the Daily Mail, it may seem as if North sea oil is finished and the continental shelf is clapped out. The exact opposite seems to be the case. I am pleased that the report reiterates that, and that it has been confirmed by hon. Members. There is huge potential. I hope the Government are on top of it.

A formal response to the report will be made in the usual way. However, the major conclusion, as far as I can see, was that a sector deal—a really ambitious one—should be agreed. I absolutely share the Committee’s desire to support the sector; there is a close relationship there.

I will make one comment that might be politely critical, if it is possible to be politely critical, to the hon. Member for Edinburgh North and Leith (Deidre Brock) regarding what she said about the McCrone report. I know one should not talk about drinks party conversations, but I had the pleasure of meeting Gavin McCrone—I believe that is his name—once. I do not think it was quite a formal report. He was a well-respected adviser to different Scottish Secretaries of State, I seem to remember his telling me—if Gavin McCrone is the same person. The way the hon. Lady quoted him, if I may respectfully say so, was a little unfair to what has happened.

On sovereign wealth funds, Norway sounds really great—it is wonderful what it does; it invests billions of pounds all over the place—but it is a little bit selective to say that our money was squandered. First, as has been said, a lot of tax came from it. We have a big economy and a big population. It is not as though the money was spent somewhere else; it was spent for the benefit of everybody in the United Kingdom, so I do not accept the “squandering” point of view.

[Deidre Brock]

I think we will have to agree to disagree on the benefits or otherwise of sovereign wealth funds, but can I ask about the taxation situation and North sea oil revenues? In 2017, Norway taxed the Royal Dutch Shell company £4.6 billion, while the UK gave the company £176 million. Can the Minister talk a little bit about the implications of those figures? I find them quite staggering.

[Richard Harrington]

The hon. Lady has caught me unawares, because I am afraid tax is not one of my specialities; I apologise to her. I will find out about that, and if she would like me to write to her—or we could have a coffee together outwith this place—I would be happy to do so.

I should make some progress, because I am testing the patience of the Chair, and he wants two minutes left over. Trevor Garlick and the team have done a lot for the industry. He has brought a diverse sector together, which is the purpose of our sector deals; previously, most relationships between Government and companies seemed to be based on a few big companies that had very effective lobbying machines and knew the way the Government worked. In the oil and gas sector, he has helped to break that and has brought a lot of things forward.

The leadership has been very good, as have many of the work streams; we have five areas of focus in the report, but it seems to me that work on them is already being undertaken. For example, the National Decommissioning Centre has already been launched, with £38 million in funding. The Oil & Gas Technology Centre continues to lead on new technology and to support MER UK, which I was happy to visit in Aberdeen, on transformative technology. The work on exports that was mentioned is progressing well.

The work streams on other things that are part of Government policy, such as diversity and inclusion as well as CCUS, have developed very well. I was pleased that the Chancellor yesterday called for evidence to identify what more should be done to make Scotland and the UK a global hub for decommissioning, as the Chair of the Select Committee has talked about.

[Hugh Gaffney]

The Chancellor yesterday mentioned, if I can rephrase him, using less gas by 2025. The Minister is talking about decommissioning. Is that not a worry for the oil and gas sector?

[Richard Harrington]

If I were the hon. Gentleman, I would not worry about that. We are also asking how the sector can support the development of UK carbon capture, usage and storage infrastructure through the effective use of legacy assets. The focus on underwater engineering proposed by industry, as part of a phased approach, is welcome. We are a global leader in subsea engineering, a market forecast to grow exponentially, but competition is fierce.

I am responsible for sector deals generally, and I am very much looking forward to advancing these proposals. What impresses me most about the way this sector has developed is that with Mr Garlick’s work and the co-operation of many people in Government, Parliament and the industry, so many of these things are already happening. I am very impressed by that; I wish I could say that was true in other sectors that I have been involved in. I commend the Committee’s report, and I look forward to developing the points in it.

[Danielle Rowley (Midlothian) (Lab)]

The Minister is coming to the end of his remarks, but I worry that he has not touched on the issues raised by my hon. Friend the Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney). Can he outline how the Government will work with the workers in the industry and the unions?

[Richard Harrington]

The hon. Lady has brought up an excellent point. From what I have seen—I expect to be corrected by her or by the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) if I am incorrect—I feel that there is a lot of co-operation between companies and the union. However, I was very concerned by the points that the hon. Gentleman brought up about the survey from Robert Gordon University on the stress and everything else; that is of concern. While this is, I hope, a highly-paid industry, it is one where we must be very conscious of health and safety—not just the formal things to do with safety regulations, but things to do with the wellbeing of the workers in it. The hon. Member for Midlothian (Danielle Rowley) was correct to bring the question to my attention; I am sorry I had not answered it in the body of my speech. I will confine my remarks to that, and thank the Committee again for the work it has done.

[Mr Charles Walker (in the Chair)]

Mr Wishart, you have three minutes, 45 seconds, or thereabouts.