Westminster Hall debate on UK Oil and Gas Industry - Feb 25
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Andrew Bowie (West Aberdeenshire and Kincardine) (Con) I beg
to move, That this House has considered the UK oil and gas
industry. It is a pleasure to have you in the Chair, Mr Robertson,
for this important and timely debate. It is important because the
oil and gas industry is a major employer and a major contributor to
the Exchequer, and its success is vital to the economic growth of
not just my constituency but all those represented in the Chamber
and indeed the...Request free trial
Andrew Bowie (West Aberdeenshire and
Kincardine) (Con) That this House has considered the UK oil and gas industry. It is a pleasure to have you in the Chair, Mr Robertson, for this important and timely debate. It is important because the oil and gas industry is a major employer and a major contributor to the Exchequer, and its success is vital to the economic growth of not just my constituency but all those represented in the Chamber and indeed the entire country. It is timely because never before has an industry—indeed, a country—faced such challenges, had to react to such quick-changing expectations and move at such speed alongside an ever-evolving debate about our future energy needs and how we address the UK’s contribution to anthropogenic climate change. It was nearly two years ago, in April 2018, that the last debate on the UK’s oil and gas industry was held in this place, led by my former colleague and constituency neighbour, the former MP for Gordon, Colin Clark, and responded to by the then Minister for Energy and Clean Growth, the former MP for Devizes, the right hon. Claire Perry—how times change! When I read that debate in Hansard at the weekend, what really struck me was how little reference there was to climate change: in fact, the phrase was used just four times. There was little comment from anyone on how the UK and indeed the world needed firm, ambitious action to reduce our climate emissions. That is remarkable, given that but a year later, in May 2019, the UK Committee on Climate Change recommended a target of net zero carbon emissions by 2050. A month after that, the then Prime Minister Theresa May committed the UK to that target and, a month after that, on 27 June, the United Kingdom passed legislation committing us to net zero by 2050, making us the first, and as yet only, major economy to do that. I bet that no one in the Chamber for that debate two years ago—or here for this one—foresaw the speed of that change. No one could have envisaged Her Majesty’s Government committing to such an ambitious and challenging target. Likewise, I bet that nobody could have ever imagined the chief executive officer of BP saying, as Bernard Looney did last week, that “The world’s carbon budget is finite and running out fast. We need a rapid transition to net zero…We all want energy that is reliable and affordable, but that is no longer enough…It must also be cleaner.” He went on to say: “This will certainly be a challenge, but also a tremendous opportunity. It is clear to me, and to our stakeholders, that for BP to play our part and serve our purpose, we have to change. And we want to change. This is the right thing for the world”. He did that as he unveiled BP’s commitment to be a net zero company by 2050. Perhaps we should have foreseen such a speech from one of the world’s largest and the UK’s most successful companies, engaged in the extraction of fossil fuels and with a long history in the North sea; the UK oil and gas industry has, throughout its history, had to battle for its success, be that through economic slumps, environmental challenges, tragedy offshore or simply the difficulties that arise from extracting oil and gas from under the North sea. The industry has had to fight, develop, innovate, experiment and persevere to maintain its continued success. I know, from talking with men and women across the industry at all levels, that it stands ready to do all that again as it plays its part in our future energy mix, leading the way as we transition to net zero.
Jamie Stone (Caithness, Sutherland and
Easter Ross) (LD) More recently, we have assembled wind turbines in the Nigg yard in Easter Ross, which now make up the Beatrice field. The hon. Member talks of reaching targets—surely offshore wind farms such as the Beatrice farm off the coast of Caithness and Sutherland are the way forward.
Andrew Bowie I represent a constituency in the north-east of Scotland: West Aberdeenshire and Kincardine—a part of the world synonymous with the oil and gas industry. According to the House of Commons Library, some 151,000 people are employed directly by the oil and gas industry across the UK. Of course, in reality, the number is much higher than that: Oil & Gas UK puts the figure at about 270,000, with many support, engineering, technology and even legal recruitment and accounting companies involved, engaged and reliant on a thriving oil and gas sector. Nowhere is that more apparent than in the north-east of Scotland. More than 68% of all direct employment in UK oil and gas is in Scotland and more than 80% of that is in the north-east of Scotland, in and around Aberdeen. In Westhill, I have the privilege to represent the subsea capital of the world, with more subsea engineering companies per square mile than any other place on the planet. At Badentoy business park in Portlethen, at Blackburn, in the neighbouring constituencies of Aberdeen North, Aberdeen South, Angus and Gordon, and further north along the Banff and Buchan coastline—and even further north than that, in Caithness—there are hundreds of companies employing thousands of people engaged in every imaginable aspect of work in and for the oil and gas industry.
Alex Cunningham (Stockton North) (Lab)
Andrew Bowie It would be wrong to think of this solely as a north-east of Scotland industry; that has been demonstrated by the hon. Member for Stockton North (Alex Cunningham), whose constituency is in Teesside. This is a UK industry—indeed, a global one—that has contributed over £330 billion to the British economy, supports hundreds of thousands of jobs across the United Kingdom and has a supply chain worth nearly £30 billion, stretching into every nation, region and community across our islands, servicing both domestic activities and exporting almost £12 billion of goods and services to other basins around the world. Globally, we see British energy companies engaged in work in Mozambique, where, with UK Government support, we are exploiting one of the largest and most recently discovered natural gas fields in the world. In the gulf of Mexico, in the Persian Gulf across the middle east and into the Mediterranean, from Vietnam to Australia, western Africa and the south Atlantic—all those places and more, we find people trained in using technology invented in and working for companies with bases in the United Kingdom. However, the industry is not without its challenges. It is still emerging from one of the deepest and most sustained downturns in its history. The oil price crash of 2014 to 2016 saw an oil price drop of 70%, which had a huge effect on the industry, particularly in the north-east of Scotland, with many people retraining and leaving the industry altogether. Many of the smaller support companies struggled to survive; some did not. Some, particularly in the supply chain, are not out of the woods yet, but, as I said, resilience, inventiveness and ingenuity are bywords for the oil and gas industry in the United Kingdom and, alongside UK Government support to the tune of £2.3 billion, including investment in the Oil & Gas Technology Centre and the global underwater hub, the industry is confident about its future. We need it to be, for it is from this industry that the skills, technology and investment will come if we are to maximise economic recovery from the basin and reach our target of net zero carbon emissions by 2050. Many people who do not know the industry—or, indeed, the people in it—might expect it to be averse, even hostile, to the Government’s climate change targets, but nothing could be further from the truth. One need only speak, as I have in recent weeks, to companies such as Total, BP or Equinor, the people at the Oil & Gas Innovation Centre, the technologists and engineers of the Oil & Gas Technology Centre, and the industry body itself, Oil and Gas UK, to learn that the industry is not only not averse to the challenge, but actively embracing it. I recommend the ambitious industry plan Roadmap 2035 to anyone who doubts the industry’s commitment to leading the way, embracing the change and engaging with the challenge as we strive towards net zero, committing the UK continental shelf to be a net zero basin by 2050. That will, of course, require significant investment and new technology, but it cannot happen in a vacuum and the industry cannot do it by itself. It is committed to developing carbon capture and storage, making it work and making it affordable. That needs to happen. According to the Committee on Climate change, some 175 million tonnes of CO2 a year will have to be stored and captured in the UK alone by 2050 if we are even to come close to meeting our targets.
Alex Cunningham
Andrew Bowie
Alan Brown (Kilmarnock and Loudoun)
(SNP) On the vital need to develop carbon capture and storage, does the hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) agree that the UK Government cannot pick just one project? At least a few clusters must be given the go-ahead in the forthcoming couple of years.
Andrew Bowie
Alex Cunningham
Andrew Bowie
Alex Cunningham
Andrew Bowie
David Duguid (Banff and Buchan) (Con)
Andrew Bowie We also need the Government to commit to supporting the industry as it exploits the opportunities that it has through the expansion of hydrogen as a key element in the energy mix. According to research, 30% of the UK’s gas supply can be replaced with hydrogen without any modification of domestic appliances, which is quite incredible. Scaling up investment in the creation of hydrogen from natural gas is crucial and shows the importance of natural gas to our future energy requirements as we move forward. I am sure that the Minister will confirm later that all those commitments and more will be outlined in the Government’s forthcoming, soon to be unveiled and long-awaited oil and gas sector deal. All those advances, however, and all the optimism for the future—embracing the challenge of net zero, investment in new technologies, maintenance of an indigenous energy production sector here in the United Kingdom, investing in British talent and maintaining and creating British jobs—are dependent on one thing: fiscal stability in the North sea.
Alex Cunningham
Andrew Bowie As I was saying, to do any of what I have been describing, we need fiscal stability in the North sea. The North sea is at present one of the most attractive mature basins in the world in which to invest. That is largely because of the long-term and fiscally sensible approach that the Treasury has taken to the industry in recent years. With a Budget but days away, I urge the Government to avoid any abrupt action—any change in the tax regime—that would undermine investment in an industry that is not only embarking on its biggest and most challenging transition in history but still recovering from the shock of the downturn of 2014 to 2016. We need the oil and gas industry to be a success. We need to maximise economic recovery and support the companies that are investing in our low-carbon future. We need to maintain a local supply chain, local capability and, ultimately, local jobs. The message from this Chamber and this Parliament, and, indeed, from Government, should be that we support the oil and gas industry in the United Kingdom—that it is an industry that we should champion and be proud of, that we understand, and will invest in and work with, as we ensure the North sea’s attractiveness to investors through the maintenance of a steady and sensible fiscal regime for many years to come. It is the industry and the sector from which will come the talent, the ideas and the investment in technologies that are key to addressing the real issues of our age. It is up to us as legislators to support it.
Mr Laurence Robertson (in the Chair) 9.47 am
Jim Shannon (Strangford) (DUP) We may not get the direct effect of having oilfields or rigs off the coast of Northern Ireland, but people from my constituency and from across Northern Ireland are involved in the work in the North sea. I am always mindful of that, which is why I want to make a contribution to the debate. The industry is important to the economy and to the future of the entire United Kingdom of Great Britain and Northern Ireland, so I am pleased we are discussing it today. It is always better when we have the four regions together working as one for the benefit of all. Quite clearly that can happen in this case. Things have massively changed in the United Kingdom in past years. Having been a net exporter of oil and gas, we are now a net importer. As always, I thank the Library for its succinct briefing, which makes it clear where we stand. Oil and gas made up 75% of the energy supplied in the United Kingdom in 2018. Net imports made up 13% of the oil that the UK used, with the remainder coming from domestic production. Net imports of natural gas were 50% of UK supply. The majority of oil—77% of final consumption—is refined for use in transport. Just over one third of the UK’s total gas is used for domestic heating, and just under one third for electricity generation. The UK is also a net importer of petroleum products, such as petrol, diesel and heating oils. The oil and gas industry, both onshore and offshore, employs 31,000 people directly and a further 121,000 in relevant supply chains in the United Kingdom. Right across the United Kingdom of Great Britain and Northern Ireland, we all benefit from the oil and gas industry, and we have constituents who make a contribution to this very important sector and industry. According to estimates from the industry body Oil & Gas UK, overall employment in the industry has fallen by 35% since 2013. In 2016-17, Government revenues from oil and gas production were £1.2 billion, which was a slight increase on previous years, but overall tax revenue from oil and gas has declined sharply over the past decade. Again, we look forward to the Minister’s response on that point. We have a massive need for oil and gas to meet our energy and transport needs, and we must future-proof how we meet them, to be less reliant on other nations and to be self-sufficient. How do we do that? That is what the hon. Gentleman referred to. I often point to the energy that is all around us, which, if harnessed correctly, can meet our needs. I know it is not oil and gas, but it is energy. I think specifically of the SeaGen current turbine that was in Strangford lough in my constituency. At one stage, it had the capacity to supply one of my major towns with electricity. There were issues with SeaGen as it came to the end of its life, but the fact remains that there is potential there for us to become less reliant on overseas production and more reliant on what God has given us: a reliable, twice-daily tide and strong undersea currents.
Mr Gregory Campbell (East Londonderry)
(DUP)
Jim Shannon While none of us advocates for endless money’s being poured into research project after research project, the fact is that, for us to understand how best to meet energy needs, we must do the research. That leads me to the issue of exploratory fracking. There are obvious concerns about the impact that that has on the surroundings, and it is clear that we need to know what the impact would be before we could even consider implementing fracking. I remain unconvinced of its safety. People are divided on whether fracking is good for the economy, the rural community or people, and there are concerns. Back in 2016 I asked a question of the Minister then in place—not the Minister who is here today, by the way: “To ask the Secretary of State for Communities and Local Government, if he will update national and planning policies to (a) account for shale operations and (b) introduce buffer zones between shale developments and local communities.” At the time, I was not entirely convinced by the ministerial reply: “The National Planning Policy Framework and supporting guidance sets out a comprehensive approach to planning for shale gas extraction in England.” We had a potential shale exploration outside Larne in East Antrim. That did not go anywhere, because the opposition from people close by was very clear, but we need to find a balance in the process. The reply continued: “Planning guidance includes the use of buffer zones in the determination of planning applications for hydrocarbon extraction, including from shale. This states that above ground separation distances are acceptable in specific circumstances where it is clear that, based on site specific assessments and other forms of mitigation measures (such as working scheme design and landscaping), a certain distance is required between the boundary of the minerals site and the adjacent development.” We must try to develop a balance between meeting our constituents’ high demand for energy and the need to address climate change, which the hon. Member for West Aberdeenshire and Kincardine referred to in his contribution—we cannot ignore that either. We are committed to the target of net zero carbon by 2045, and many organisations have signed up to it; the National Farmers Union has signed up to it and has come up with some great ideas on how to achieve it. We must ensure that we can deliver our own energy needs in a way that means we are not dependent on others. I close with this point: it is clear that we have a duty of care to our constituents to protect their environment, but also to secure future energy provision. That is a very delicate balance, which needs to be carefully considered. I look forward to understanding more from the Government and the Minister about their plans for finding and sustaining that delicate balance. 9.55 am
John Howell (Henley) (Con) Earlier in my career I was involved with the oil and gas sector as a taxation expert, dealing with the taxation of oil and gas companies. I echo the point made by my hon. Friend the Member for West Aberdeenshire and Kincardine (Andrew Bowie) that, in the Budget that is coming up, there should be no changes that rock the oil and gas industry. We do not need to throw bricks at an industry that is already doing so much to help with the net zero carbon targets that we are trying to achieve. The context is the enormous decline in revenues from the oil and gas sector. Back in 2008-09, revenues were at something like £13 billion; they are now down to just over £1 billion. That is a colossal collapse, and we need to do something to encourage the oil and gas sector and to help it survive. The sector also needs more capital investment. Capital investment has fallen to one of the lowest levels in history and is now down to about £5 billion a year. That is coupled with a decline in drilling and an increase in the rate of decommissioning costs to almost £2 billion, which is quite a large increase—I see that the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) is about to intervene on me.
Jamie Stone
John Howell The figures have already been quoted for the number of people employed in the oil and gas sector in the UK. Just over 30,000 are employed full time, but in the supply chain, which is the most important part and which I want to concentrate on, the number is close to 150,000. That is a phenomenal number of people to have to deal with. I have been, and still am, the Prime Minister’s trade envoy to Nigeria. The link here is in the Aberdeen sector of the supply chain, which I have been involved with, to try to get people to go to Nigeria. Why should they be interested in Nigeria? The skills that we have in Aberdeen are just the sort required to set the Nigerian oil and gas sector on the right course. Historically, a huge amount of the income from that sector has not even reached the Ministry of Finance; it has got nowhere near—it has simply been diverted. When so much of the industry is essentially black market, it is difficult to get efficiency, but we have all the expertise in Aberdeen and other places throughout the UK to be able to bring that.
Kirsty Blackman (Aberdeen North) (SNP)
John Howell This is all about getting better control, including over the net zero target set in not only the UK but globally as well, and our ability to see that target gain traction through what we do and the investments that we make. For somewhere like Nigeria, the ability to get to a net zero approach in the oil and gas sector at the moment is quite low. Again, the expertise that we have here is crucial to getting to that. My hon. Friend the Member for West Aberdeenshire and Kincardine mentioned two elements of that—carbon capture and storage and hydrogen production. The relevance of this to my constituency, which may seem a long way from Aberdeen and the companies I am talking about, is that Invesco, in my constituency, has a great interest in helping to fund hydrogen production as part of the energy mix here. The other link to my constituency is a former Member and Minister, Tim Eggar, the chairman of the Oil and Gas Authority. I draw the House’s attention to a recent speech in which he made important comments on how the industry could move towards a much better net zero target. This man knows the industry extremely well and has worked in it for much of his life, and I hold his comments in full. If we keep in mind those remarks about how we are helping the oil and gas sector to stay profitable and to get out and sell its expertise around the world, that will keep us in good stead for the future. 10.04 am
Stephen Flynn (Aberdeen South)
(SNP) That trend exists right across the north-east of Scotland: quite frankly, there is not a family or individual who does not know someone directly linked to the oil and gas sector or indirectly linked through the enormous supply chain that we heard about. The effect and influence of the North sea oil and gas sector in the north-east of Scotland is something to behold, and we rightly debate it today. The industry impacts not only the north-east of Scotland and Aberdeen, but the entirety of Scotland and, indeed, this United Kingdom, through the skills and expertise that it puts forward and the economic benefit that it brings to these islands. That is an incredibly important topic that I will come to. As we heard from the hon. Gentleman, as the Government move towards the Budget, we need stability—everyone in the oil and gas sector at this moment in time craves continued stability. As we heard, the crash had a devastating impact on the lives of so many people. Frankly, the city is still recovering; house prices and the like are still significantly below where they were prior to the crash. That, obviously, had an impact on so many individuals, so we need stability within the tax regime. I certainly hope the Minister will be able to provide clarity about that. However, this discussion should not only be about stability and the here and now; it also has to be about what the future entails for the oil and gas sector. As we heard—and rightly so—we want a net zero future for Scotland and the United Kingdom, and it is vital for all our future prosperity that we get to that point sooner rather than later. Perhaps the best way in which that could be achieved, certainly from my perspective, is through harnessing some of the economic gain from the oil and gas sector. The Office for Budget Responsibility estimates that roughly £8.5 billion of revenue from the sector will be incoming in the years up to 2022. We should take some of that money—roughly 12%; £1 billion—and reinvest it into cities such as Aberdeen, to protect the workforce going forward as we make that transition. It should be a sustainable transition that reflects the fact that the industry has an incredibly important role to play in all our collective futures. Simply turning off the tap will not work, but we can ring-fence that money to protect cities such as Aberdeen, where energy is the key industry and where jobs are on the line. I sincerely hope that the Minister will be forthcoming in agreeing to such remarks. Obviously, we have heard a lot about an oil and gas sector deal. I have heard questions in the Chamber about it and we saw it in the Conservative manifesto; in fact, we have heard it talked about for a number of years now, although I have yet to see any substantive detail. The Minister has the opportunity today to clarify the detail, including what will be in an oil and gas sector deal and whether it will include actions, rather than just a few words in a manifesto. Hopefully, within the sector deal the Minister will take forward the proposal that I just suggested. It was overwhelmingly supported by the people of Scotland in the general election in December, as a key tenet of the Scottish National party manifesto. It will not have missed the gaze of Government Members that the SNP did extremely well in that election, based on that manifesto commitment. Indeed, there were changes in some seats, including that of my hon. Friend the Member for Gordon (Richard Thomson). I will labour the point: we have an opportunity to ring-fence some of the income. We have, of course, heard words from the UK Government over many decades about how they will seek to protect the oil and gas industry, yet when we look across the North sea at Norway—enviously—we see a nation with a trillion-dollar oil and gas fund while we have nothing. It is perhaps too late to introduce an oil and gas fund, but it is not too late to ring-fence some of the income that will be generated, to protect the future prosperity of cities such as Aberdeen and, indeed, other energy hotspots throughout Scotland and the United Kingdom. The issue is important because, as I have said, we need to make an energy transition. We heard earlier about BP wanting to make a rapid transition. I have had the opportunity to meet with BP, Shell and Equinor in recent weeks—since the election—to hear about what they are seeking to do to overcome the challenges that face them and, indeed, all of us. Equinor, I think, is heavily involved in the likes of the high wind turbine off the coast of the UK, which is a fantastic initiative. As an Aberdonian—I point out that I am an adopted Aberdonian, but an Aberdonian none the less, before my hon. Friend the Member for Aberdeen North (Kirsty Blackman) says anything—I will labour the point that just off the coast of our city is the Vattenfall development. That single development has the energy capacity to provide for 88,000 homes, the entire population of Aberdeen. It is brilliant not just because it is able to do that; it has the added bonus of annoying the President of the United States, whose golf course has apparently been impacted. Aberdeen is of course an oil and gas city, but, as I just mentioned, the Vattenfall development is off the coast and we are also a leader in hydrogen technology, which has a role to play as we seek to move into a more sustainable future. I am very fortunate in living extremely close to one of the hydrogen developments in Aberdeen, and I know that if we seek to build on that industry, it can be successful. I hope that the Minister, as he sums up the debate, will refer to the hydrogen industry with regard to where the future of the UK lies in terms of an energy transition. My final comment is about what the hon. Member for Henley (John Howell) said about skills and harnessing them. I congratulate him on the work that he has done, which I am sure has benefited my city and my constituents. We need to harness skills, not just for export but to allow the sustainable transition to take place in the oil and gas sector. If we are to have a sustainable future, we need the expertise of individuals who have managed to build the oil and gas sector to transfer over and to lead that renewable future. We cannot have a sustainable future without the oil and gas sector; the people behind it have to be at the forefront. 10.12 am
Peter Aldous (Waveney) (Con) The oil and gas industry has been an integral part of the East Anglian economy for more than 50 years. Until recently, the industry’s sole focus was on maximising recovery from the UK continental shelf. That has changed as we set about decarbonising the economy and delivering on our legally binding target to reach net zero greenhouse gas emissions by 2050. Oil & Gas UK has published “Roadmap 2035: A blueprint for net-zero”, which outlines the role that the industry will play in a net zero future. It is very welcome that the industry recognises the difficult and enormous challenge that we face, not just in the UK but all around the world. It is important that the industry steps up to the plate and plays a lead role in delivering the transformation. It should continually ask itself, “Can we do more? Can we do better?” At the same time, it is important for the Government and policy makers to work with the industry, acknowledging the key role that oil and gas played in the UK economy in the second part of the 20th century and continues to play in the 21st century. We must not unfairly stigmatise the industry and those who work in it, but should recognise that they are part of the solution and not the problem.
Alex Cunningham
Peter Aldous
David Duguid
Peter Aldous I shall briefly highlight what I see as the future features of the UK oil and gas industry. First, it has an ongoing key role to play in the country’s energy security. The demand for petrochemicals will be with us for some time. It makes sense for that to be supplied, as much as possible, from our own resources, in as carbon neutral a manner as possible. Secondly, the industry must be a bridge to a low-carbon future, promoting the use of gas, hydrogen and carbon capture, utilisation and storage. As the Committee on Climate Change has highlighted, the latter has a pivotal role to play if we are to achieve—and hopefully better—the 2050 zero carbon target. It is welcome that the Government recognise that, have published the CCUS action plan and have committed £50 million of innovation funding to drive down the costs. Thirdly, the oil and gas industry has an important role to play in collaborating and working with its counterparts in offshore renewables. The skills required are in many respects transferable. Such work is already taking place, with both oil and gas and offshore wind learning from each other and with opportunities emerging to pioneer inter-sector training and currency certifications. Gas-to-wire technology and gas platform electrification, powered by offshore wind, are emerging as new advances that provide additional resilience in supply, while assisting in decarbonising traditional methods of generation. Fourthly and finally, it is vital that we do not forget the enormous amount of work that needs to be done in decommissioning oil and gas assets on the UKCS. In the southern North sea—that is what I am interested in, but it is a very small part of the basin—late-life and decommissioning expenditure is forecast at about £4.4 billion for the period up to 2027. That amounts to an average spend of about £445 million. It is important that we have a policy framework and investment strategy that ensures we secure as much of that work as possible for the UK and for East Anglian businesses. For the oil and gas industry to deliver on those opportunities, Government and industry must work together. That will be done best through an oil and gas sector deal, which was included in the Conservative manifesto in the general election. I look forward to the Minister updating us on its preparation. I request, as have others, an assurance that the Government recognise the need for ongoing fiscal stability in the forthcoming Budget. I conclude with a point that I have made during many debates on the oil and gas industry, in Westminster Hall and the main Chamber. One of the best features of the industry is the UK’s ability to export skills and expertise, learnt on the UKCS, all around the world. In any oil and gas basin around the world, one can hear Scottish, Geordie, Norfolk and Suffolk accents. We must ensure that that remains the case, with the UK leading the world in the transition to and delivery of low-carbon energy. 10.21 am
Kirsty Blackman (Aberdeen North) (SNP) Previous debates on this issue have generally come in the run-up to a Budget, to try to make clear the asks of the oil and gas sector in the Budget. We were particularly successful around transferable tax history where we all worked together to push the Government to ensure that it was put in place so that new players could come into the oil and gas fields. That was incredibly useful and a good opportunity for us to work together. We do not agree on everything, but we all feel strongly—I think everybody in this room feels strongly—that we should move towards a sector deal. If the Minister cannot give us full details of the sector deal, it would be helpful if he could at least let us know the timeline for announcements on it. The issue has been hanging around for a long time, and the industry has been waiting quite some time to hear what will happen. The more certainty the industry has on the timeline, the better. In the last debate on this issue, I mentioned Vision 2035, which has been followed by Roadmap 2035, both of which are about ensuring we move towards net zero while continuing to have a successful oil and gas sector in the UK for many years. We spoke about the importing of oil and gas to the UK to meet our energy needs, and that is a concern for a number of reasons. There is a carbon cost to importing oil and gas, because of the ships or however it gets here. There is also an additional carbon cost in its extraction. If we are moving to net zero extraction under Vision 2035 in the UK, we will ensure that as little carbon as possible is expended in the extraction process, but other countries that extract oil and gas may not be so far along that route, so there may be a differential in the carbon costs of extraction. If the Government intend to import more oil and gas in the future, I ask that they look closely at where we are getting it from and at the related carbon cost. We cannot say it is not our problem because it is being extracted somewhere else, so it is somebody else’s problem; that is not how this works. If we are using that oil and gas, we need to own up to the carbon created in its extraction. That is incredibly important. Vision 2035 and Roadmap 2035 also focus on the supply chain. Our supply chain is phenomenal. It is recognised as the gold standard across the world in several areas, but particularly safety. On safety, the UK continental shelf is absolutely up there—it is tip-top. Everybody does everything they can to ensure the highest possible levels of safety. If our supply chain is going to continue exporting around the world, we need to export that safety culture too. That relates not only to any oil and gas we import, but to ensuring that we lead the way on improving safety around the world. We can also export our capability to move towards net zero extraction to ensure that we level up places around the world that extract oil and gas, and reduce the amount of carbon they create during the extraction process. We can be real world leaders not only, as I mentioned last time, in working in a super-mature basin, which we already are, but in exporting our safety culture and net zero culture in the extraction process. Carbon capture and storage has been spoken about a number of times. Like many others, I am still sore about the previous Government’s pulling of carbon capture and storage. While that was not done by this Government, there is a concern, and it is difficult for the Government to build trust in this place. I am pleased the Government have moved forward with commitments to carbon capture and storage. It is incredibly important that the UK Government support a number of carbon capture and storage clusters, as mentioned by my hon. Friend the Member for Kilmarnock and Loudoun (Alan Brown), and ensure they get off the ground as quickly as possible, with real projects that work, so that we can be world leaders in exporting our expertise in carbon capture and storage to the world and assisting the world by storing its carbon. If we have surplus capacity in, for example, the Acorn system, once it is up and running, we should store carbon from countries around the world and charge them to do so. That is a great way for us to make additional revenue. I hope that we will do what we can, and the Government will do what they can, to ensure that CCS gets off the ground and gets working as quickly as possible, and that the Government make it unequivocally clear that they support CCS and will not pull the rug out from under it again. We cannot afford to do that; we cannot afford to look at a net zero future without carbon capture and storage. We must make those moves. Moving away from oil and gas at some point in the future means that we will need a transition in place. It means we will have to utilise the expertise in our industry to better harness our renewable capability. Those who work in subsea technologies, mostly in the constituency of the hon. Member for West Aberdeenshire and Kincardine, have a massive amount of expertise that can be utilised for tidal, wave and offshore wind power. We must ensure that we utilise those skills and transfer them to these emerging industries, and that those industries are made viable in the UK. If it requires Government support to kick-start them, that is fine with me. We will get to the stage where are exporting that expertise as well—we are good at exporting things. In Scotland, we have the capacity to have lots more floating offshore wind and lots more offshore wind in general, but also lots more onshore wind. Again, we can utilise the skills we have. I urge the Government to reconsider whether they will have contract for difference support rounds for onshore wind and solar. We strongly feel that we can do more in that space in Scotland. About 75% of our electricity in 2018 was generated from renewable sources. We want to do better than that, but we can only do better if the Government reconsider their position on CfD support. We will continue to push strongly on that. As I mentioned, there is a significant issue with visas for my constituents. In Aberdeen, we have people from the UK. The next nationality is Polish. I understand that the next is Romanian, and the next one after that is Nigerian. We have a significant percentage of Nigerians living in Aberdeen, and it is incredibly difficult for them to get visas, whether that is to work, to come as contractors or just to get their mum to come over to see their graduation. The knock-back in visitor visa numbers is significant. When the Government look at their new visa system, I urge them to think carefully about ensuring that we can access the expertise we need and that Nigeria and other Commonwealth countries, in particular, can access the expertise they need by having a flow of people between the two countries. Brexit is also an issue in relation to visas. A significant number of people in the oil and gas industry are from the EU, and we need to ensure they can continue to move freely between the EU and Scotland. For example, Total has a presence in Aberdeen, and many people move between there and France. That movement needs to continue. Lastly, on a just transition and net zero, my hon. Friend the Member for Aberdeen South (Stephen Flynn) mentioned that we want to ring-fence oil and gas revenues to ensure that we are moving towards net zero. That is not about changing the tax regime, but about hypothecating that tax. During the Budget process, we do not have the opportunity to make amendments to say that that is what we want. During the estimates process, there is not the opportunity to make amendments to ask for hypothecation to happen. However, we can press strongly and say that that is what we want to happen. We want the money to be ring-fenced so that we can move towards net zero. We ask that 12% of the revenue is ring-fenced for places such as Aberdeen, Falkirk and Shetland, which rely heavily on oil and gas and will need assistance to make a just transition. My constituency has one of the highest numbers of public sector workers of any constituency in the UK. There are two council headquarters, a major teaching hospital and a university in my constituency. For people working in the public sector, providing support in order that we have a successful oil and gas industry, issues such as housing costs have been significant. When we move towards the transition period and there is a reduction in oil and gas, I do not want the people who have not worked in that industry, and who have found it incredibly difficult to scrape by living in such an expensive city, to be hit again. I want the entire city to be assisted in the transition process, and all the people in Aberdeen and Aberdeenshire, not just those who work in oil and gas, to be helped to access the services they need and housing they can afford. That goes for Moray, Banffshire and other places. The just transition needs to happen for people working in oil and gas, but also for our city and region as a whole. 10.32 am
Dr Alan Whitehead (Southampton, Test)
(Lab) Cynics have mentioned that such debates are called on the cusp of a Budget to talk about why the oil and gas industry should have lots more support from Government. However, it is significant that the hon. Member for West Aberdeenshire and Kincardine did not talk just about that. I concur with the sentiment expressed around the Chamber that the Government should not continue to treat the oil and gas industry as a cash cow, as has happened on previous occasions. The industry has come out of a difficult period and is recovering, but it still has enormous challenges ahead and needs considerable support in the next phase of its development. That support will be of a different nature to that needed hitherto, because of the context mentioned by the hon. Gentleman: climate emergency, climate change and the challenge of net zero. Those issues suffuse our considerations of the future of the oil and gas industry. Our considerations therefore need to be sober and varied in reach. For example, the North sea basin is a highly mature basin from which 43 billion barrels of oil have been extracted, and it is estimated that there are about 10 billion barrels left. There will probably not be any new oilfield discoveries in the North sea. However, a large number of small pools have been found. They remain unexploited and have not been developed for various economic reasons. The sector should perhaps concentrate on those in the future. The gains in efficiency in the industry in recent years, and the net reduction in carbon intensity of production, suggests that small pool extraction could be a viable proposition in the not-too-distant future. The infrastructure already in the North sea needs to be available for small pool extraction, rather than being taken away and decommissioned, and then having to be recommissioned for those small pools to be developed. Decommissioning is another enormous industry that the North sea oil and gas community can benefit from, not just in the North sea but worldwide. We can export the decommissioning expertise we have in the UK to projects elsewhere in the world. In the North sea, some 250 platforms, 10,000 km of pipelines and 50,000 wells are to be decommissioned. That is an enormous industry that needs to be taken forward solidly over the next period, notwithstanding the need to retain some structure for small pools and the other major potential industry, which is carbon capture and storage. A number of hon. Members, including my hon. Friend the Member for Stockton North (Alex Cunningham), mentioned the possibility—indeed, I think, the absolute necessity—of developing not just carbon capture and storage capacity, but carbon capture and storage nodes. That would mean we could develop entire chain arrangements of CCS, from inland to nodes and out to the North sea, and that we could get involved in the production of hydrogen. All those exciting developments could provide an enormous and bright future for the North sea oil and gas industry. There should be better collaboration between the oil and gas industry and the offshore wind industry to look at the necessary skills, infrastructure and supply chains, so that the similar technologies involved can be better developed, which would be in the UK’s interests. In the context of climate change, we need to recognise not only that there is going to be a different future for North sea oil and gas, but that oil and gas will be needed in different forms in the UK over a long period. We are not simply going to dispense with oil and gas. All sorts of applications need oil and gas. For example, the production of hydrogen over the next period will conceivably substantially involve steam-methane reformation from gas. Even if we are bringing hydrogen forward with CCS, that will be a substantial part of the process. We therefore cannot say that there will be no oil and gas in the future in the UK, but the projections by the Department for Business, Energy and Industrial Strategy on the amount of oil and gas we are going to use show a substantial decline up to 2035. That is the period of Oil & Gas UK’s Vision 2035. I very much commend to hon. Members its approach to changing the nature of the oil and gas industry to be climate change-facing, as far as developments are concerned. We then have the prospect, as the hon. Member for Strangford (Jim Shannon) mentioned, of seeking self-sufficiency in a declining market for UK oil and gas products. That would be centred on those different uses for oil and gas, and it seems to me to be an essential part of the future of the oil and gas industry. That is what a bright future looks like. My final thought is that the sooner we get a sector deal for the industry that recognises those imperatives and those particular ways forward, and that produces stability for the sector in the context of those changes, the better off we will be.
Stephen Flynn
Dr Whitehead As a veteran of these debates—I am sure the hon. Member for Aberdeen North will recall this—I remember Richard Harrington, the then Minister, saying in October 2018 that we were at “the final stage of the process”.—[Official Report, 9 October 2018; Vol. 647, c. 22WH.] He said that we would be at the end of the process soon. In the debate in March 2019 on sector deals, he said: “I am very much looking forward to advancing these proposals.”—[Official Report, 14 March 2019; Vol. 656, c. 222WH.] We received a knock-back shortly after that, when the Government said they did not think it was such a good idea to have a sector deal after the Select Committee had produced its report. Then, the Conservative manifesto stated that there would be a sector deal after all. I look forward to hearing from the Minister whether there is a sector deal in the pipeline, so to speak, in the way we are talking about this morning. If there is, when will that sector deal come out of the end of the pipeline and secure the industry for the future, in the way that every Member in this Chamber would want? The Minister could greatly advance our discussion—I am sure he will—by putting those points on the table today. 10.43 am
The Minister for Business, Energy and Clean Growth (Kwasi Kwarteng)
Alan Brown
Kwasi Kwarteng My hon. Friend the Member for West Aberdeenshire and Kincardine used a phrase that struck me: “quick-changing expectations”. That is clearly what has happened. Where we are today is very different from where we were when we had the debate in April 2018 and where we were even last year. Some people have kindly observed that we have a new Government. We had a general election at the end of 2019, and we now have a new Government with a new mandate who are very much concerned with this issue. Oil and gas is an important sector not only for energy security but, crucially, for the economy and jobs. It has contributed something like £340 billion in production taxes over the past six decades, and it has added £570 billion of gross value added to the economy since 1990. Many speakers in the debate observed that in excess of 250,000 jobs across the UK are dependent on the sector, so there is no question but that the oil and gas sector is vital. However, we have to deal with the conditions that we find ourselves in. As the hon. Member for Southampton, Test (Dr Whitehead) pointed out, the UK continental shelf is now a highly mature basin. We are looking to reduce our fossil fuel use, which is inevitable, given that in June 2019 we made the very significant commitment to achieve net zero carbon by 2050. It is important to stress that, as of today, we are the only nation in the world—certainly among the advanced economies—that has enshrined that aspiration in law, meaning that it is no longer an aspiration but the law of the land to reach that target by 2050. One very useful phrase that came out of the debate and that we need to think about was from my hon. Friend the Member for Waveney (Peter Aldous), who suggested that the oil and gas industry could act as “a bridge” to a low-carbon future. That is exactly the right sentiment and expresses succinctly how the Government think about the sector and our future as a low-carbon economy.
Alan Brown
Kwasi Kwarteng Let us be clear where we are today. Currently, 70% of primary energy demand in the UK is met by oil or gas. Some 85% of houses—I suspect this includes the houses, apartments and dwellings of most people in this room—rely on gas central heating. The Committee on Climate Change has said that there will be a continued need for oil and gas as we make our transition to net zero emissions. That is extremely important, and on that basis I would like to talk about some of the announcements we have made, particularly in regard to carbon capture, usage and storage. We made a public commitment in the Conservative manifesto to invest £800 million in carbon capture, usage and storage. It could not be clearer than that. I am very hopeful that we will be able to make a significant announcement along those lines in the Budget, to honour our manifesto commitment. It is important for my Department. However, Members will appreciate that I am not the Chancellor of the Exchequer, and that the Budget is a matter for him and the Treasury. In a former capacity, I served as the parliamentary private secretary to the Chancellor of the Exchequer for 18 months, which in the context of the political climate was a very long time.
Kirsty Blackman
Kwasi Kwarteng I assure the hon. Lady that I am as committed, if not more so, than my predecessor to landing the technology, because it is crucial. The net zero carbon legislation was passed in June 2019, and within three weeks I was the Energy Minister, so it has really shaped my entire experience of the portfolio. For most of my predecessor’s tenure, we still had the 80% reduction target. It is now a much more serious and pressing concern, and I hope that we will be able to deliver on that commitment. In our next debate on oil and gas, I hope we will be able to say that we have CCUS investment and potential clusters. On the point made by the hon. Member for Kilmarnock and Loudoun (Alan Brown), it seems to me that if we are going to commit large amounts of capital to CCUS, there will be more than one cluster. There is a debate about where those clusters and that deployment of capital will take place, but my understanding is that if we are going to commit that capital, it will not be in just one area. It is not just about CCUS. The net zero strategy encompasses a wide range of technologies. We committed in the manifesto to 40 GW of offshore wind capacity, which is a huge step from our previous 30 GW commitment. It is a very ambitious commitment, and there will be challenges in meeting it, but I am convinced that the industry, in co-operation with Government, will be able to do so. We have also committed to £9.2 billion to improve the energy efficiency of homes. We are particularly concerned about fuel poverty.
Stephen Flynn
Kwasi Kwarteng The hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) made some interesting remarks regarding the hydrogen economy. For experts and people like ourselves who are interested in such subjects, it is difficult to see how we can have CCUS without hydrogen production, as they are linked. The chemical processes that lead to carbon capture also produce hydrogen, so any movement in the development of CCUS—any investment in improving capacity—will, I think, be a boon to the nascent hydrogen industry. That is one of the most exciting areas of my job. We are potentially at the beginning of a new industry in this country, and hydrogen generates a great deal of interest, debate and excitement in the sector.
David Duguid
Kwasi Kwarteng A lot has been said about the oil and gas sector deal. I am not bound by any promises made by previous Governments, but I assure Members that we are committed to an oil and gas sector deal in the course of this Parliament. It would be premature of me to go into details, because those are precisely what we are negotiating. I look forward, hopefully as Energy Minister, to being able to celebrate and launch the deal.
Peter Aldous rose—
Kirsty Blackman
Kwasi Kwarteng
Peter Aldous rose— 10.58 am
Andrew Bowie The industry obviously faces challenges, but it is embracing the challenge of reaching net zero by 2050. Its commitment to being a net zero basin is world leading; we have not heard that from any other industry around the world. The Government must work with the industry to face its challenges, not least on visa issues. The hon. Member for Aberdeen North (Kirsty Blackman) talked about the visa problems in Aberdeen, but in Aberdeenshire, and especially in Portlethen, where we have a large Nigerian diaspora, I too have seen issues occur because of visas. I am delighted to hear that the Government are committed to CCUS. I would have been even more delighted to hear a more detailed timeline for when we might see the oil and gas sector deal, but we live in hope, and we will be watching with bated breath for it to be very soon. Question put and agreed to. Resolved, That this House has considered the UK oil and gas industry. |