Offshore Oil and Gas Industry

Stuart Blair Donaldson Excerpts

Thursday 3rd March 2016 Westminster Hall

[Stuart Blair Donaldson (West Aberdeenshire and Kincardine) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Walker.

What can I say that has not already been covered today? Many people who work in the oil and gas sector live in my constituency of West Aberdeenshire and Kincardine, and those in my constituency who do not work in the industry almost certainly have a family member who works in it. I have close friends and family who work in the industry, for Shell, KCA Deutag, Technip, Conoco, Total, Stena and shipbrokers attached to the industry, or even in Aberdeen harbour itself. I said in my maiden speech that I would argue for better support for the industry, and along with my colleagues from the north-east and my hon. Friend the Member for Livingston (Hannah Bardell) I have done so and will continue to do so.

The recent drop in oil prices that has been described today has had a big impact in the north-east. It has affected not only those working directly in the oil and gas sector but those working in hospitality, leisure, tourism, food and drink, and many more. At one time—indeed, very recently—in Aberdeen, it was said that it was cheaper to get a hotel room in the city at the weekend than it was during the week, because of the number of business people staying in Aberdeen during the week.

That is why I welcome the recent investment that has been made in Aberdeen city and shire through the city region deal, and additionally from the Scottish Government. I am particularly pleased about the money earmarked for key projects such as the Laurencekirk junction in my constituency and—to my further delight—for broadband infrastructure.

I also welcome the support that has been provided through the Energy Jobs Taskforce and the Transition Training Fund to those who have lost their jobs, which will allow oil and gas workers to retrain as teachers in STEM subjects—science, technology, engineering and maths. Local institutions in the north-east are also pitching in to lend their support to the sector, with unemployed oil workers being offered a 20% discount on energy-related postgraduate courses at Robert Gordon University.

It has been said that there is a moral imperative to help the oil and gas sector, and I agree with that. Oil and gas workers, particularly those who work offshore, have to spend weeks at a time away from their families, living in one of the most inhospitable places that I can think of. That puts considerable strain on families and communities. These workers have to take a survival course just to go on their commute to work and, as has been said by my hon. Friend the Member for Livingston, there are often accidents on those journeys.

Consequently, when we ask for support for the industry, we do so because we recognise the sacrifices that are made by the men and women who are on the rigs, day in and day out. We recognise their hard work, which has brought billions to the UK Treasury. So, when the industry faces hard times, as it does just now, it should be able to expect support from the UK Government to get it back on its feet and to restore confidence in it.

The oil and gas industry is incredibly innovative and entrepreneurial, with whole businesses in the supply chain being created out of simple solutions to all manner of problems faced by the industry. Last Friday, my hon. Friend the Member for Aberdeen North (Kirsty Blackman) and I visited an international company that started as an idea in a garden shed. It is that kind of company that make the oil and gas industry so unique and so important.

I cannot speak about the oil and gas industry in my constituency without mentioning Westhill, which is the global centre of excellence in subsea engineering. It is also known as “SURF City”, which refers to “subsea umbilicals, riders and flowlines”—I do not really know what that means either—and it also does a lot with remotely operated vehicles, as mentioned by my hon. Friend the Member for Livingston.

The subsea sector has pioneered game-changing technology and innovative thinking during the past 40 years. The theme for this year’s Subsea Expo was “Time for Transformation”, which aimed to recognise how the industry needs to change, including considering what can be done more simply and more effectively.

The last day of Subsea Expo was about encouraging young talent in the industry. Led by OPITO, which is the oil and gas skills body, the “Energise Your Future” campaign inspired secondary school students to engage with the oil and gas industry and find out more about the opportunities available within it. That campaign, along with initiatives such as the Energy Schools Challenge, allows young people to gain an insight into the industry, show off their general knowledge and get heard on the great Northsound 1.

Finally, the Industry Awareness Week, which will take place in Aberdeen in June, follows the Oil and Gas Authority’s call-to-action paper and allows young people aged 16 and over to engage with different areas of the oil and gas industry, showing the next generation the career choices that are available in the industry. As the oil and gas industry looks to become more innovative and efficient, it may be that it is the younger generation who will come up with the solutions to ensure that it survives and thrives.

[Mr Charles Walker (in the Chair)]

I call Mr McCaig to speak.

--- Later in debate ---

[Callum McCaig]

I agree wholeheartedly. The make-up of the North sea is different from what it was and what has gone past. As well as the innovation and expertise, there is also the infrastructure that is already there, as a number of Members have mentioned. Once that is gone, there are fields that will go from being marginal on the positive side to being marginal on the negative side or just entirely uneconomic.

Returning to the point I was making on the missed opportunities, every single barrel of oil that we do not produce from the North sea we will need to get from somewhere else. We import oil and gas, and we should not underestimate the importance that being an oil producer has for the UK’s balance of payments, which, frankly, are not great as it is. If we have to rely more on imported oil and gas for our supply, it will further exacerbate that issue. If we miss the opportunities to further develop and support the supply chain, the ability to provide the project management, skills, expertise and technology will go with it as oil and gas is exploited in other, perhaps more favourable basins. The prizes are clear: jobs, energy security and support for our balance of payments and exports. Those huge prizes are there, and if the industry is given the right support, they can and will be obtained.

The Prime Minister has talked about building a bridge to the future, and that is necessary and required. The same turn of phrase has been used by my colleague, the Scottish Government’s Energy Minister, Fergus Ewing. We have left a period of very high oil prices, but as day follows night, oil prices will go up. None of us can predict when that will be, but at least until now it has been the case that they have always gone back up again. The difference in supply and demand that we are talking about is not huge, but the impacts that that has over a sustained period of time change the price and make it far more volatile and far lower.

It is a curious situation, but Aberdeen is probably one of the few places in Europe where the local radio stations tell their listeners what the oil price is. At the end of every bulletin, the newsreader will say something like, “Oil trades at $36 a barrel”—folk are happy with $36 a barrel, because it is better than the $29 a barrel it was at. That is strange, and on the face of it that seems like a slightly useless snippet of information, but it signifies how important the industry is to the city that I am proud to represent.

What would a tax cut do? It would provide the clearest signal that the Government can offer that they believe in the future of oil and gas and will do everything they can to ensure that that future is realised as well as possible. We are talking about a multibillion pound investment in a platform 40 or 50 miles out into the North sea, and that is a significant investment. That investment is likely to have a lifespan well in excess of 20 years—potentially, it is 30 to 40 years. In the time that that field will be looking to make its money back, the oil price will go through many ups and downs, but when many international companies are looking across the globe at where to invest their ever-shrinking piles of capital—the oil industry globally is facing a crisis of investment—we need to be at the most competitive we can be. Part of that is the skills, innovation and expertise that I am absolutely certain we have, but that change in the headline rate of tax over the lifespan of a field can put the decision from being, “We do not proceed,” to, “Yes, let’s press the button and go ahead and develop this field.”

Reducing the headline rate of tax is the clearest single way that we can boost the efforts in exploration and in developing the fields that we know about, and it will provide the clearest way forward on the bridge to the future. It will require people to invest. Whether that is companies using the strength of their balance sheet—some are doing that, buying up other operators and such like—or whether it is borrowed money, if we can de-risk the investment decision as much as possible, there is a greater chance that someone will invest that money in the UK continental shelf, as opposed to one of the other basins.

[Stuart Blair Donaldson]

Does my hon. Friend agree with the assessment of Oil & Gas UK that to transform the basin, the UK continental shelf needs to become the most attractive mature oil and gas province in the world in which to do business? That is not just one of the most, but the most attractive place to do business.

[Callum McCaig]

I agree with my hon. Friend and Oil & Gas UK on that. The North sea, particularly at Aberdeen, benefits from being the best place to live to work in the oil and gas industry, but it needs to be the best place in terms of the assets and the tax regime.