Future of the Oil and Gas Industry

Ross Thomson Excerpts

Thursday 14th March 2019 Westminster Hall

[Ross Thomson (Aberdeen South) (Con)]

It is a pleasure to serve under your chairmanship, Mr Walker. I genuinely welcome the report and thank colleagues on the Scottish Affairs Committee not only for looking at this important issue, but for taking the time to come to Aberdeen—the heart of the UK’s oil and gas industry—to speak with representatives and hear the views of the industry on how we can move forward. That was much appreciated by the oil and gas companies there.

My constituents in Aberdeen South know better than most just how important the future of the oil and gas industry is and how difficult the past few years have been. The climb out of those difficult days has been long and not without challenges. I see those challenges every day when I speak with constituents and meet local businesses.

I was encouraged to hear the latest news from the OGA this week that North sea production reached a seven-year high last year. That shows that the sector still has huge potential to form an integral part of the UK’s energy mix and be a major source of high-value jobs across Scotland and the whole of the UK. Last week, I was pleased to welcome my right hon. Friend the Foreign Secretary to Aberdeen, where we met representatives from Oil & Gas UK at Aberdeen harbour. During his visit, the Foreign Secretary highlighted the huge opportunities that await oil and gas companies once we leave the European Union.

Balmoral Group, a company based in my constituency, specialises in subsea buoyancy, renewable energy products and engineering solutions. It employs 500 people and is highly dependent on the rapidly growing markets of west Africa, South America, and the gulf of Mexico. The company is clear that its opportunities for growth are truly global. Aberdeen is a global city, and oil and gas companies based in my constituency have an increasingly international outlook. The new technologies developed through the Oil & Gas Technology Centre show the great export potential that will place Aberdeen at the centre of supply chains reaching around the world into mature and emerging markets.

Oil & Gas UK’s Vision 2035 has the ambitious aim of doubling the supply chain’s share of the global market from 3.7% to 7.4% by 2035. Those new technologies will be key to achieving that goal. They will not just unlock the future potential of the UK continental shelf, but secure the future of companies throughout the sector, as they diversify their interests. I welcome the Government’s continued work with industry to invest in technology that maximises recovery, improves efficiencies and extends the life of the UK continental shelf, while boosting the potential for export growth.

From the day we arrived in Westminster, my colleagues and I have worked hard to secure much needed support for this vital industry. I remember vividly lobbying the Treasury at every opportunity, and we were successful in securing transferable tax history for the sector, which unblocked billions of pounds of investment. Maintaining certainty on tax relief and reducing barriers to investment will be crucial to attracting the investment that the sector requires to maximise economic recovery and secure the long-term future.

The UK’s position as a market leader at the centre of global supply chains rests on the industry and Government working hand in hand to attract talent and investment as the sector prepares to navigate the challenges and opportunities of the coming years. I welcome the report on the future of the oil and gas industry, as it sets out the case for a sector deal for the industry and calls on the Government to commit to securing the long-term future of this vital industry. I look forward to the Minister’s remarks on the progress of that sector deal.

The future of the oil and gas industry rests on innovation not only in extraction to ensure that we maximise recovery, but in decommissioning. Decommissioning represents not the end of the oil and gas industry, but a huge opportunity to use the expertise and talent of a globally focused industry to turn a liability into an opportunity. The UK will be the largest market for decommissioning spending over the next decade, and is placed at the forefront of a rapidly growing market. I welcome the report’s emphasis on the benefits of a sector deal to unlock the global potential of the oil and gas industry not just in my constituency, but in constituencies across the United Kingdom.

There is a lot of life left in the North sea, and a bright future for the oil and gas industry. Investment in new technologies and the growth of the sector at the centre of a global supply chain are key to grasping future opportunities. I welcome the report, which sets out how industry and Government can work together to secure that future.

--- Later in debate ---

[Douglas Chapman]

That is a fantastic option that Norway has, but in the UK we do not have that wealth fund to decide how we will invest in the future. That makes a bit of a mockery of us. We have had all that wealth; Norway has done a huge amount with theirs, but we have taken ours off our balance sheet and spent it as it came in. We should have put some away for future generations.

[Ross Thomson]

I accept the hon. Gentleman’s point that there is no sovereign wealth fund in the UK, but the revenues generated from the oil and gas industry in the UK were used at the time to invest in what we enjoy now: hospitals and infrastructure. That money was used for huge investment in infrastructure that is still used today by people across the United Kingdom. In the 1970s, it was used to help lessen the costs of unemployment.

[Douglas Chapman]

The UK Government has had a spend, spend, spend approach, but as I said, I would like us to put away much more of that wealth for future generations. Perhaps it is a bit late to do that now; we probably should have started doing it from the beginning. It is easy to say in hindsight, but it should have been part of the overall oil and gas strategy right from the start.

It was interesting to hear the Chancellor’s reply to my hon. Friend the Member for Aberdeen North (Kirsty Blackman) during the spring statement yesterday. He said:

“Scotland gets its share of…capital and resource, but precious little thanks do we ever hear from…the SNP Benches”.—[Official Report, 13 March 2019; Vol. 656, c. 360.]

The fact that £350 billion went into Treasury coffers but not a brass farthing went directly into the Scottish economy underlines the point made by my hon. Friend the Member for Edinburgh North and Leith (Deidre Brock) about what Scotland has got out of oil and gas. We could have had an awful lot more to benefit every man, woman and child in our country. The Chancellor’s concept of pooling and sharing is much different from mine.

I am grateful that the control, stewardship and the tax take will soon be back in Scotland’s hands—“stewardship” is the key word rather than “management”. I return to the eloquent point made by the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) on safety: if companies are being brought to the table to talk about how to license certain fields, surely that is a fantastic opportunity to talk about their responsibilities for trade union recognition, and the safety and security of people who work on rigs far out in the North sea.

Scotland does not underestimate the vital part the oil and gas sector plays in meeting our energy needs; as the Committee points out, it is forecast that two thirds of the UK’s primary energy needs will be met from the North sea until at least 2035. However, we must also appreciate that we need to transition to a low-energy, low-carbon economy. Our world-leading, export-oriented supply chain already plays a positive role in that respect by looking at ways to reduce its carbon footprint at every turn. Average emissions per unit of production on the UK continental shelf have fallen year on year since 2013, and total emissions have been in decline since their peak in 2000.

Our oil and gas industry is awash with highly skilled individuals in possession of world-leading expertise. The sector currently supports 283,000 jobs across the UK. We must seek to hold on to those workers to retain the value they add to our economy. As I said, the Scottish Government’s transition training fund has made good progress in that regard, facilitating training for many oil and gas workers to move into renewables such as tidal, onshore and offshore wind, wave power and solar. However, the UK Government’s decision to slash funding for the renewable energy sector does not give us much encouragement. In fact, it does exactly the opposite, removing opportunities for talented individuals to utilise their skills to develop new wind technology and other low-carbon technologies such as carbon capture and storage—not so much opportunity knocks as an opportunity lost.

Brexit looms large in many people’s minds. We stand at a Brexit crossroads, with freefall into no deal on one side and a car crash of a bad deal on the other. It is inevitable that business across the UK will suffer if we ever actually leave the EU, but the oil and gas industry is likely to be one of the hardest hit, due to its highly globalised nature. With approximately £61 billion of oil and gas-related goods traded with the rest of the world, the threat of tariffs looms over the industry. In a worst-case scenario where the UK reverted to World Trade Organisation rules with the EU and the rest of the world, the cost of trade would likely almost double to around £1.1 billion per annum, assuming trading behaviours remained unchanged.