Asked by
To ask Her Majesty’s Government what assessment they have made of
the changes in global oil markets and the implications of those
changes for (1) trade, (2) addressing climate change, and (3)
international security.
The Question was considered in a Virtual Proceeding via video
call.
(Con)
My Lords, I beg leave to ask the Question standing in my name on
the Order Paper and draw attention to my interests as listed in
the register.
The Parliamentary Under-Secretary of State, Department for
Business, Energy and Industrial Strategy () (Con)
The global Covid-19 pandemic has resulted in unprecedented falls
in demand in global energy markets and increased market
volatility. The Government are closely monitoring developments
and assessing the implications, including for the UK’s oil and
gas sector and for climate change, with an emphasis on the
importance of a clean, resilient recovery and international
security. In doing so, we are in regular contact with
international partners.
I thank my noble friend for that reply. Does he agree that, with
the average spot price of crude oil now around $25 to $30, having
been down to almost zero the other day in the US, we are back at
about the same cost per barrel as in 1970, which at that time was
about $3 to $4, before the rise of OPEC? Is it not likely to stay
that way, given the worldwide supply surplus, together with the
huge demand reductions that he has just referred to? Do the
Government see this as a good prospect? Could relatively cheap
energy and low petrol prices help post-Covid economic recovery
and maybe clip Mr Putin’s wings as well, or are there some
dangerous costs and disadvantages, such as a further blow to the
North Sea and the transformation to green energy being made a lot
more difficult?
As my noble friend has implied, there are of course advantages
and disadvantages. Around 11% to 13% of our domestic oil demand
and around 47% of domestic gas demand are currently met through
domestic hydrocarbon reduction. Any significant impact on oil
production and prices would lead to an increased reliance on
imports and therefore a loss of revenues from the North Sea. Of
course, there are benefits as well—certainly regarding motoring
costs and so on.
(Non-Afl)
My Lords, the Minister will recognise that there is a perverse
logic in that low oil prices reduce incentives for companies to
move to cleaner technology. Will he consider the case for a
higher carbon tax price or a tax as part of the future carbon
pricing system to counter the slump in the oil markets and to
retain pressure for green growth?
Of course, the UK already levies two carbon prices on fossil
fuels, both through the European Emissions Trading Scheme and
with a separate carbon price support mechanism. Over the summer
of 2019 we consulted on options for long-term carbon pricing and
we intend to publish a reply shortly.
(Con)
My Lords, I refer to my interests as declared in the register.
The oil markets have responded positively to the latest OPEC
agreement, but does my noble friend agree that high on the list
for the Government’s investment strategy will need to be an
urgent and supportive top-down, bottom-up review of the UK’s oil
and gas industry, including those involved in decommissioning?
We understand that this is a troubling time for this vital sector
for the economy. We are in regular contact with the industry. It
is taking advantage of our unprecedented financial recovery
packages and we will continue to monitor the situation.
(CB)
My Lords, as the economy picks up following the Covid-19
pandemic, the UK, with its considerable technical knowledge, has
an opportunity to lead the world in producing sustainable energy.
The Minister referred to contacts with other countries. Can he
say a little more about those contacts, which will help to ensure
that we benefit from this extraordinary situation?
As well as maintaining contacts with other countries, we invest
considerable funds in helping countries in the transition and in
promoting their domestic carbon reduction targets. The noble
Baroness makes an important point and we will keep that in mind.
(Lab)
My Lords, oil was trading at over $34 a barrel for West Texas
Intermediate and $32 for Brent Crude by early Monday—up from a
month ago, but 50% less than at the beginning of the year. The
impact on fracking has been huge. There are fewer rigs now
operating in the USA—some 600 or so less than at the beginning of
the shale revolution. Low prices and market volatility have
serious implications for countries that rely on oil exports,
with, I believe, considerable impact on global security. The
volatility also strengthens the need for the UK to speed up
development of nuclear elements of our electrical energy supply.
Can the Minister tell me when Hinkley Point C and the next new
nuclear power station after that will be connected to the grid,
and confirm that work continues despite the Wuhan virus?
The noble Lord is right to draw attention to the implications for
international security from low prices and the impact that it
will have on producing countries. We will continue to monitor the
situation closely. We believe in a diverse energy supply in the
UK, including nuclear. I cannot yet give him a specific date, but
we will want to get the new nuclear power station on stream as
quickly as possible.
(LD)
Can the Minister assure us that the Government will resist the
siren voices of those proffering a false choice between action to
tackle climate change and action to rebuild the economy? Will he
confirm the Government’s commitment to net zero by 2050 and that
they will urgently establish schemes to promote a job-rich green
recovery?
I can agree with all the points that the noble Lord has made. We
are committed to our 2050 target and we are committed to a green
and resilient recovery.
(Con)
How will we help the Arab world to adjust, particularly our
friends in Saudi Arabia and Qatar? Alongside that, as far as the
UK is concerned, does Covid-19, on top of these changes, mean
that domestically we will have to reappraise the rate at which we
can implement climate change policies?
Our 2050 targets are now legally binding. We are committed to
them and do not believe that there is any need to review them. We
believe that we can continue with those targets and prioritise
economic recovery at the same time; we do not believe that they
are mutually exclusive.
(CB)
My Lords, as Nigeria, Africa’s biggest country, seeks $7 billion
of emergency funding from the IMF to offset the crash in oil
prices—from which Nigeria receives 70% of its revenue—what
assessment have we made of the effects of the crash on the
economy and social cohesion of Nigeria and of how we might use
some of the £800,000 which the UK gives Nigeria every day in
overseas aid to help it address the deep-seated structural
problems and reliance on oil exposed by Covid-19?
The noble Lord makes an extremely good and valid point. The
Foreign Office and the Department for International Development
will be closely monitoring the situation. We have a close
affinity with people in Nigeria and we will do all that we can to
help them; he will be aware of our very large aid budget in that
country.
(Lab)
The one constant in the oil market is increasing volatility and
falling demand as the world economy has to move towards
zero-carbon systems. Realising this, large oil companies will
need to accelerate zero-carbon plans to diversify their
portfolios away from oil without causing redundancies. Given the
climate challenge, what are Her Majesty’s Government now doing to
encourage this?
The noble Lord is right. Companies across all sectors will be
vital in our work to meet our 2050 net-zero targets. We want all
business leaders in all sectors to make ambitious emissions
reduction plans to help meet the commitments that we have set out
under the Paris agreement.
(LD)
Given oil-related job losses and the likely continuing reduced
oil demand, will the Government promote faster repurposing of UK
oil-related industries, especially in the light of the EU
revisiting the idea of building champion industries through joint
state aid?
We want to encourage those industries to diversify as quickly as
possible. Many are doing so and have already announced plans,
but, ultimately, of course, this will be market led with
government incentives being provided; we are doing that.
(Lab)
At the time of the Scottish independence referendum, oil was
running at over $100 a barrel. Given the steep fall in the price
of oil, what estimates, if any, have the Government made of the
present state of the Scottish economy with respect to strengths
or fragility?
The noble Lord makes a powerful point. The independence plans of
the SNP have been thrown into disarray by the low oil price—we
all know the economic forecasts it made at the time. We are of
course in close contact and collaboration with the Scottish
Government on all these matters. We will continue to assist and
help them in their plans going forward.
