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.

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[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.

Carbon Capture and Storage

Ross Thomson Excerpts

Thursday 19th October 2017 Westminster Hall

[Peter Aldous (Waveney) (Con)]

It is a pleasure to serve under your chairmanship, Sir David. I congratulate my hon. Friend the Member for Middlesbrough South and East Cleveland (Mr Clarke) on securing this debate. His timing is spot on, given the publication last week of the clean growth strategy.

We last held a debate in this Chamber on carbon capture and storage on 24 January. From my perspective, the outcome of that debate was disappointing, but nine months on, I believe that we are in a much better place. A framework is beginning to emerge within which carbon capture and storage in the UK can become a major industry, and we are learning lessons from the aborted second CCS competition.

I believe that the Government are studying closely the proposals in the noble Lord Oxburgh’s report of September 2016. I was on his advisory committee, which heard the evidence, drafted and approved the report, and I believe that it is a good blueprint for the future. We see carbon capture and storage as fitting in well with the 10 pillars of the Government’s industrial strategy; it ticks all the boxes. Finally, the publication last week of the clean growth strategy provides the much-needed road map that business is looking for in order to invest time and money in carbon capture and storage.

Invariably in debates such as this, Back-Bench MPs have an ask of the Government, which we look to the Minister to take on board and respond to. However, from my own perspective, with the publication of the clean growth strategy last week, the Government have, to a large degree, shot my fox. I shall briefly set out the case for CCS and why it is so important that it is at the heart of the UK’s industrial strategy.

The UK has legally binding commitments, set out in the Climate Change Act 2008, to reduce carbon emissions by a minimum of 80% from 1990 levels by 2050. As the Intergovernmental Panel on Climate Change and the Committee on Climate Change have both pointed out, if we do not deploy CCS, it will be very difficult to meet that target cost-effectively.

The UK has a unique selling point that means we should be at the vanguard of the CCS movement. It is the thing that most colleagues in this room have in common, in that our constituencies adjoin it: the North sea. I believe that your seat also adjoins it, Sir David. In the North sea and the UK continental shelf, the UK has its own large, safe and secure offshore CO₂ storage vessel, in the rocks deep beneath UK territorial waters. It provides us with the least-cost form of storage on an industrial scale. Over the past 50 years, as a result of the development of the North sea oil and gas industry, the UK has acquired enormous expertise and experience that can be harnessed to deliver CCS.

[Ross Thomson (Aberdeen South) (Con)]

Will my hon. Friend join me in acknowledging and welcoming that the University of Aberdeen has world-leading experts at the forefront of research into carbon capture and utilisation? It is reflected in the fact that Aberdeen was the only UK university whose entry into the Carbon XPRIZE was accepted. It is developing technology to help create a solution to the damage that CO₂ can cause, such as using what is left as materials for furniture and so on. Does he welcome and acknowledge that?

[Peter Aldous]

Yes, I do. I am happy to acknowledge it. We have enormous, significant expertise across the UK. I am sure that all of us in this Chamber can highlight institutions in or near our constituencies that can and should put us at the vanguard of the low-carbon economy and its global development over the next few years.

As I was saying, the UK has acquired enormous expertise and experience in the oil and gas sector, which can be used to deliver CCS, create jobs and—most importantly for the Government—generate revenue for the Exchequer. However, as the hon. Member for Redcar (Anna Turley) highlighted, time is of the essence. We need to get on with it. As a result of the lower oil prices that have prevailed for the past three years, the North sea is going through a period of transition and restructuring. We must move quickly to use assets that otherwise might be prematurely decommissioned.

As we have heard, CCS has an important role to play in delivering growth across the whole UK and in bringing jobs to coastal communities, which in recent years have faced particular challenges with the decline of traditional industries. There are areas where clusters of energy-intensive industries are based—such as Scotland and the north-east on Teesside, as the hon. Member for Redcar highlighted—which could benefit significantly from CCS. That might not be the exact situation in my own constituency, but we have businesses in East Anglia that are part of the North sea supply chain, whether in oil and gas or in the emerging offshore wind sector, and that would benefit from the development of CCS.

The industrial strategy highlights the importance to the UK of cultivating world-leading sectors and being global pioneers in industries in which we have an advantage. CCS is one of those industries. We have the resources and the skills. It is an industry in which we can not only secure inward investment but, in due course, create significant export opportunities, building on the expertise that my hon. Friend the Member for Aberdeen South (Ross Thomson) mentioned a minute ago.

On the resources and skills required for CCS, Norway is a country with which we have a great deal in common.

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[Alan Brown]

Yes, I welcome that collaboration and announcement. The hon. Gentleman made a joke about being parochial for his area and his constituency, but surprisingly I am not going to be that parochial. I would like to see all these projects develop, with local areas across the United Kingdom benefiting.

The hon. Gentleman talked about taking tiny steps forward. We need to take much bigger leaps forward—this is where I turn to the gloomy aspect that my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey touched on—but we have taken backward steps. The Minister might not like hearing this, but it is important, and it has got us to where we are just now. Pulling the plug on the Peterhead project cost the Peterhead area 600 jobs, but it has the much wider implication that it dented investor confidence. The Government need to take action to recover that confidence and find ways to get private investment going forward.

In 2014, before the Scottish referendum, we were told by the Better Together campaign that only the broad shoulders of the United Kingdom could cope with a reduction in the oil price. Since then, we have sadly seen a reduction in the oil price, but we have not seen enough support from those broad shoulders. That is why the pulling of the project at Peterhead was a further blow to the oil and gas industry in that area of Scotland. That project could have been the perfect fillip.

[Ross Thomson]

Does the hon. Gentleman accept that the White Paper on independence was wrong when it talked about the proceeds from oil and that the Deputy First Minister John Swinney was wrong when he said that there would be a second oil boom? As we are talking about U-turns, will the hon. Gentleman join me in calling on the First Minister to perform a U-turn on scrapping the energy jobs taskforce, because that is needed to support jobs in Aberdeen?

[Alan Brown]

I thank the hon. Gentleman for that intervention and for talking down the oil and gas industry in his area. Yes, the Scottish Government’s predictions in the White Paper had the future price of oil wrong—just like the UK Government and the Office for National Statistics had it wrong. The Scottish Government were somewhere between the two. We were not the only ones who got it wrong; economists got it wrong too. We admit that we got it wrong, but it is why the SNP has long argued for an oil fund, because that would have helped to smooth the trough that came. I am happy to acknowledge that point and put it on the record.

Returning to where I was going to go, the decision to pull the plug on Peterhead had wider implications for investor confidence. It has been acknowledged and was repeated in the clean growth strategy that risk was an issue with these projects, but in the previous competition the real risk was the White Rose project, where the contractors involved could not apportion risk between themselves properly and could not provide a compliant bid. In the Peterhead project, Shell was able to manage the risk. The Government need to review that and find out why Shell said it could manage the risk and provide a compliant bid. That has important implications going forward.

The National Audit Office report compiled after that decision confirmed that a total of £168 million was spent on the two CCS competitions with no tangible research and development outcomes to show for it. The Government may suggest that the contractors or personnel involved in the projects developed some expertise, but there is no guarantee that they will be involved in future projects. There is a risk that they will take their expertise elsewhere. That is why we need to go forward quickly. Following the decision on Peterhead, there has been the withdrawal of funding for onshore wind and solar power, which has caused problems in those sectors, leading to a 95% drop in expenditure on renewables. There is a clear pattern, and I highlight that to remind the Government that investor confidence is low and it must be stimulated. They need to find a way forward.

The Government can find ways forward to manage risk. In the Thames tideway project, they underwrote risk to the value of £5 billion. Hinkley Point C had bonds of £2 billion underwritten, not to mention the fact that the National Audit Office estimates that the project will cost £30 billion. We must remember that, unlike the other contracts for difference awards, Hinkley has a 35-year lifespan and not the standard 15. It is clear that where there is Government will, there is a way. They need to find that will and way for carbon capture and storage. The hon. Member for Waveney talked about the Oxburgh report, which highlights that CCS can deliver an estimated strike price rate of £85 per megawatt-hour. That compares favourably with £92 per megawatt-hour for Hinkley.

Other Members have highlighted the estimate of the Committee on Climate Change that CCS could halve the cost of meeting the 2050 carbon reduction target. In that respect, I welcome the clean growth strategy, which the Government brought forward last week. As I said at the time, however, the strategy gives mixed messages. It states that CCS will be deployed subject to cost reductions, but we need clarity. What are the Government’s cost expectations and what is the expected trajectory once the initial project is up and running? We need to remember how that compares with the “sign at all costs” attitude taken towards Hinkley. The Government also need to state clearly how they expect CCS to be paid for. Members from Teesside have highlighted the need to find a suitable and robust payment mechanism that gives value for money.

I welcome the Government’s statement in the clean growth strategy that they

“will work with the ongoing initiatives in Teesside, Merseyside, South Wales and”—

importantly from our perspective—“Grangemouth”. However, they need to clarify what “work with” means. What is the real level of support that they will provide? It needs to be more than working with or providing token support. As my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey highlighted, the St Fergus project in the north-east of Scotland is being supported by the Scottish Government and EU funding. When it comes to EU funding, what future funding are the UK Government going to allocate beyond the 2020 horizon? How do they see collaborative working going forward?

Due to the abrupt pulling of the previous competition, at great cost to the public purse, not only was the National Audit Office report undertaken, but the Public Accounts Committee also undertook an investigation. It made a number of recommendations; hopefully the Minister will advise us on how the Government will take them forward. First, the Committee recommended that the Government

“set out in its Industrial Strategy the role that CCS can play”.

I am not sure that there is enough detail in the industrial strategy on that yet. The next recommendation was that

“By the end of 2017, the Department should quantify and publish the impact across the whole economy of delays”

to CCS and of its not having been implemented yet. The Committee recommended that an

“Emissions Reduction Plan should set out a clear, joined-up strategy for deploying CCS”.

It also said that the Government need to look at different risk options for energy policies, that the Treasury should buy into the emissions reduction plan at the outset and that there is a need for less Treasury interference—the Department for Business, Energy and Industrial Strategy must actually make the decisions, rather than the Treasury intervening.

I hope that the Minister will respond to that, and advise whether the carbon capture, utilisation and storage cost challenge taskforce that is to be put forward will consider those aspects. I welcome the setting up of that taskforce. Will she also confirm how experts will be selected and incorporated into the taskforce, and what the terms of reference from the Government will be?

It is laudable that the clean growth strategy reiterates that we want to see the implementation of CCS. As the hon. Member for Stockton North (Alex Cunningham) asked, what does large-scale CCS in the 2030s mean, what is the pathway to that, and what projects do we need to see on board before then? The mention of supporting hydrogen production is also laudable; that is certainly a good way forward. I would also highlight the fact that Scotia Gas Networks is looking to run demonstration trials up in Scotland, to see how that will work in a domestic setting.

It is laudable to say that the UK aims to be a global leader, but to be a global leader we need to lead from the front. We need financial commitment, drive and determination, and we need to see a clear way forward soon. I look forward to hearing the Minister’s response.