North Sea Oil and Gas (Employment)

Thomas Docherty Excerpts

Tuesday 20th January 2015 Westminster Hall

[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.

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

It is a pleasure to serve under your chairmanship once more, Mr Streeter. I draw Members’ attention to my entry in the Register of Members’ Financial Interests, as I believe in clarity. I received some hospitality from ExxonMobil last year.

I have a strong constituency interest, because not only is FMC Technologies a major employer in my constituency, but in the neighbouring seat, represented so ably by my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), is Mossmorran. I want primarily to talk briefly about them. However, I want to pick up on the point ably made by my hon. Friend the Member for Dumfries and Galloway (Mr Brown): Members may be interested in the fact that today the executive director of the International Energy Agency, Maria van der Hoeven, has been quoted as saying that there can be no expectation of a quick fix on oil prices—that the situation we face is a long-term one. Therefore, my hon. Friend the Member for Aberdeen North (Mr Doran) is right to draw the conclusion that we need to move away from Governments blaming each other and work together to achieve a sustainable future for the industry, across the United Kingdom and more specifically for interests in the North sea.

I have mentioned two companies working in West Fife and the points made by my hon. Friend the Member for Glasgow North West (John Robertson) are right: there is, rightly, a great deal of focus on the north-east of Scotland, but we should not forget that across Scotland and the United Kingdom the North sea industries are significant employers. To take FMC Technologies as an example, it employs 1,000 people across Scotland, a couple of hundred of whom are based at two sites in Dunfermline in my constituency. It has going on for 250,000 square feet of fabrication plant and engineering facilities in Dunfermline and it supplies the North sea market, among many others. It is located in West Fife because of the ready access it provides through the port facilities at Forth Ports and elsewhere, so the company can send around the world.

The company is fortunate in that it has a diverse market share and operates right around the world, so the North sea is not its critical life-support system, but without doubt it will be facing challenging times in the coming weeks, and I will seek to provide whatever assistance I can. However, my hon. Friend the Member for Glasgow North West was absolutely right to remember the knock-on effect that such industries can have in the communities where they are based.

[Mrs Mary Glindon (North Tyneside) (Lab)]

Specifically on that point, which has been made by others, that is also the case for places such as Tyneside and the north-east of England, where there are fabrication companies such as OGN. It is currently providing 2,000 jobs, but they will dry up next year. There is bound to be a massive knock-on effect across the whole of Britain. Our region has the highest unemployment rate and cannot afford to lose more jobs. Does my hon. Friend agree?

[Thomas Docherty]

My hon. Friend is absolutely right to highlight the diversification of interests in this important sector across the United Kingdom. These are highly skilled engineering jobs, which are highly regarded and greatly sought after. She is also right that such jobs are particularly sought after in areas of relatively high unemployment. I used to work in the nuclear industry, and I was based in what was then part of the constituency of my hon. Friend the Member for Dumfries and Galloway and is now in the Minister’s constituency. Unlike in the south-west of England, where the engineering and scientific industries were in competition with other companies, there was almost a monopoly on the work force in places such as Dumfries and Galloway. To an extent it is the same in the north-east of England and the north-east of Scotland, where there is not the same diversification in jobs. It is important that the two Governments recognise their responsibility to work together.

[John Robertson]

I was in Belfast yesterday, right beside where Harland and Wolff used to be. There are some oil rigs sitting there that are now being fitted out because the contracts are signed, but what will happen to the companies that have invested in that kind of industry if we do not start getting work back in the North sea?

[Thomas Docherty]

I could not agree more with my hon. Friend. That is why I was genuinely asking the hon. Member for Angus (Mr Weir) what practical steps Scottish Enterprise will be taking. Many of us have had a slightly cynical or bitter experience of Scottish Enterprise as being great at putting out the initial press release, but when it comes to taking tangible, practical measures to help communities—I do not need to tell my hon. Friend the Member for Dumfries and Galloway or the Minister this—it comes into such situations with great promises but 10 years later everyone is scratching their heads and looking for the diversification it is supposed to have delivered.

I am conscious of the time and the important contributions that will be made by the two Front Benchers. On the other issue I mentioned, Mosmorran plant, which sits just over the border with the constituency of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath, is celebrating its 30th anniversary this year. Natural gas is brought ashore at St Fergus, primarily from the Brent field and from the Goldeneye field in the North sea, and is brought down from there in a pipeline that is about 140 miles long—my calculation might be slightly off—to Mossmorran, where it is split. The ethane goes across from the Shell plant to the ExxonMobil part of the plant, where it is heated to 800° so that it can be cracked, to use the scientific term, and turned into ethylene. Of course, ethylene is a daily part of our lives, as it used in a huge variety of products—perhaps even in the cups we are using today.

That work sustains jobs for more than 200 people, many of whom are my constituents. They will be looking to see that when we talk about long-term sustainability for the oil and gas industry we make sure that those crucial scientific jobs, which are also highly sought after, often by graduates—in both Parliaments we talk so much about encouraging those sorts of jobs—are protected. We need to see genuine substantive steps to do that for the sake of our constituents and their families. I hope that the two Governments will set point scoring aside and get on with standing up for all of our communities, whether they be in Aberdeen, Glasgow, my own area of Fife or across the border.