North Sea Oil and Gas (Employment)

Mike Weir Excerpts

Tuesday 20th January 2015 Westminster Hall

[Mr Mike Weir (Angus) (SNP)]

I congratulate the hon. Member for Aberdeen North (Mr Doran) on securing this timely debate.

Despite current difficulties, the North sea oil and gas industry remains vital for Scotland—north-east Scotland, in particular. The industry makes a huge contribution not only to the Scottish economy, but to the economy of the whole UK: since its inception, it has contributed more than £300 billion in taxation to the Treasury. We have built a world-class industrial cluster in the North sea, and we now export the skills and services required to support it around the world.

In my constituency, for example, many people work in the oil and gas industry, increasingly not only in the North sea, but in various parts of central Asia, Africa and the far east. Many companies in Angus are also part of the supply chain for the North sea industry. The low level of oil and gas prices and the difficulties that that is causing are obviously of great concern. Clearly, we have experienced such falls in prices before; the previous time it happened was as recently as 2009, when the price plunged from $144 to $40 a barrel. Nevertheless, the current low price is of concern, and action must be taken to ensure that the industry is assisted through such a turbulent period.

Despite the rather dramatic headlines in some newspapers and other media reports, the North sea oil and gas sector continues to have a bright future. Indeed, when I spoke to BP about the job losses that it announced last week, it emphasised that it remained committed to the North sea, with the Kinnoull field coming on stream and the Clair field due to continue operations well into the 2050s. We should not, therefore, get too downhearted about what is going on. Immediate action is needed, however, to ensure that employment and exploration continue.

[Sir Robert Smith]

We need to realise that we face quite a large challenge. There is an undercurrent of jobs going, and that is not necessarily being reported. Contracts are being lost, especially by subcontractors, but that does not necessarily show up straight away in unemployment figures.

[Mr Weir]

I accept that. This is going on throughout the industry—in direct employment and among subcontractors.

Within their limited powers in this area, the Scottish Government have taken action. The First Minister has announced a new taskforce to focus on supporting jobs across the energy sector, with an initial emphasis on the oil and gas sector, and to secure an employer apprentice guarantee, under which firms would commit to taking on apprentices facing redundancy to ensure that they completed their training. That commitment would be supported by the Adopt an Apprentice recruitment incentive—currently, there is a one-off grant of £2,000, which is to be increased to £5,000—and by Skills Development Scotland staff.

If we are to protect Scotland’s vital oil and gas sector, however, the UK Government, specifically the Treasury, need to step up to the plate and to make immediate tax changes. We have already called on them to take urgent action to support investment and exploration. The Scottish Government have consistently called for measures to be implemented without delay, including an investment allowance to provide support for the development of fields that incur higher costs. That would support technically challenging, high-cost fields and sustain future investment. Professor Alex Kemp, a respected oil economist at Aberdeen university, estimates that an investment allowance could increase investment by £20 billion to £36 billion to 2050 and boost production by 1.2 billion to 2.2 billion barrels. Scottish Government estimates suggest that it could support between 14,000 and 26,000 jobs per year across the UK.

The Scottish Government have also called for a reversal of the increase in the supplementary charge implemented by the UK Government in 2011. The high overall tax burden faced by the sector is damaging its international competitiveness. The supplementary charge was increased by 12% in 2011, and the 2% cut announced so far does not go far enough in the current context of falling prices. Professor Kemp estimates that a reversal would increase production to 2050 by 500 million barrels and boost investment by £7 billion. Scottish Government analysis suggests that such a move could support up to 5,600 jobs per year across the UK.

In addition, the Scottish Government have called for the introduction of an exploration tax credit to help increase levels of exploration and sustain future production. As most of us are aware, levels of exploration in the North sea are low, which will inevitably reduce future discoveries. An exploration tax credit would help to increase exploration and, in turn, sustain future production. A similar approach was adopted in Norway in 2005. In the three years following its introduction, the number of exploration and appraisal wells drilled in the Norwegian North sea increased fourfold.

We have previously highlighted and backed industry concerns about the speed with which the new Oil and Gas Authority is being established, and we have called for appropriate resourcing of the new OGA to be put in place swiftly. The industry is concerned that the investment allowance the Chancellor is expected to announce in the March Budget will not be nearly enough at current oil prices, and we share that concern.

It has also become evident that an early commitment to reduce the supplementary charge rate would have the benefit of instilling confidence in operators and the sector, while discouraging premature decommissioning, which is obviously important for future work in the North sea. To significantly enhance the industry’s long-term competitiveness, we have recommended that, at the very least, the industry requires a reversal of the supplementary charge increase implemented by the Government in 2011.

That substantial package of measures should be announced without delay to safeguard investment, jobs and the long-term sustainability of the North sea. If it is not forthcoming, UK Government policy on the industry will be found seriously wanting once again. Despite what other Members say, reform of the fiscal regime must not wait until the Budget, but must be implemented now, and that should include a commitment from the UK Government to a substantial reduction in the supplementary charge rate.

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

I have a genuine question on a point of interest. Is Scottish Enterprise putting together a taskforce at this time? I understand what the hon. Gentleman says about the fiscal measures that may be needed, but what is Scottish Enterprise doing right now in terms of practical help on the ground?

[Mr Weir]

I have already referred to that; the hon. Gentleman should listen a bit more carefully. I did mention the First Minister’s announcement about what the Scottish Government were doing.

The Scottish Government have endorsed the findings of Sir Ian Wood’s review on maximising recovery on the UK continental shelf and particularly his recommendation of a stronger, more effective regulatory body, and so, too, did the UK Government. We welcomed the long-awaited announcement of the appointment of the OGA’s chief executive. However, it is imperative that progress is much quicker so that we can start to reap the benefits that an effective, well resourced authority has the potential to bring the industry and the nation.

[John Robertson]

Has the hon. Gentleman taken into consideration the fact that the Saudi Arabians and the Russians have enormous resources in this field, which we are trying to maintain? If they wish to keep undercutting us, the policy he outlines will become useless.

[Mr Weir]

In a way, I am surprised by that comment from the hon. Gentleman, because it seems to be a counsel of despair. We must do what we can to keep our industry going. Unfortunately, we cannot influence what the Saudis or anybody else do with their oil prices. As far as we can, however, we must take the action necessary in the UK to make sure that the North sea industry, and particularly the employment that it provides, survives.

Even if the Saudis do try to do what the hon. Gentleman says, they cannot do it for ever. At some point, oil prices will start to come up again; indeed, the International Energy Agency has predicted—obviously, this is only a prediction—that the price will probably return to about $80 a barrel in the current year. We will have to wait and see whether that happens and, if so, how fast.

The OGA is particularly important, given the pressures being felt by the industry. The Scottish Government were pleased to see Aberdeen confirmed as the location for the OGA’s headquarters in June, and the suggestion that there will be an increase from 59 to 145 full-time equivalent staff by 2019 is welcome, because it might help to address the serious understaffing identified in Sir Ian Wood’s review.

The challenge is to ensure that the appropriate level of expertise and knowledge is secured, but it is critical, given present circumstances, that appropriate resourcing is put in place swiftly at the new OGA, with the correct level of industry experience and expertise. Industry is clearly concerned about delays in the process. As Malcolm Webb, the head of Oil & Gas UK, has pointed out, it looks as if it will take until summer 2016 before all the processes involved in setting up the OGA are completed. I agree that that is far too long, and I would appreciate an explanation from the Minister of why the process is taking so long and what action will be taken to speed it up.

The Wood review must be implemented effectively and with increased speed and resources, in the light of the growing challenges facing the industry. On the website Energy Voice, on 6 January, Malcolm Webb said:

“Years of confused and confusing energy policy, not helped by a revolving door approach to the appointment of ministers (we’ve seen a total of 35 different Energy and Treasury Ministers given responsibility for our industry in the last 14 years), have raised serious questions about our politicians’ awareness and understanding of this industry and its vital importance to the UK economy.”

I agree, and the UK Government need to take urgent action to assist the industry at this difficult time.