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Oil and Gas Authority: Remit

Volume 816: debated on Thursday 2 December 2021


Asked by

To ask Her Majesty’s Government what plans they have to align the remit of the Oil and Gas Authority from seeking the “maximum economic recovery” of North Sea oil and gas, to meeting the United Kingdom’s net-zero emissions commitments.

My Lords, even though renewable electricity capacity has grown five-fold since 2010, oil and gas are still essential for our energy needs and are vital to the production of many everyday essentials such as medicines, plastics, cosmetics and household appliances. They will remain so in declining amounts, even in a net-zero world. It is therefore essential that we have a managed transition away from fossil fuels, as set out in our landmark North Sea Transition Deal.

My Lords, the concentration of carbon dioxide in the global atmosphere stands at an unprecedented 417 parts per million. At the very least, we have to stop exploration for new fields. The truth is that the UK is the most profitable country in the world for large offshore oil and gas projects thanks to our MER policy. Companies can offset all spending on exploration against tax, as well as receiving millions of pounds in direct grants. What plans do the Government have to phase out such inefficient subsidies, as required by the Glasgow climate pact?

As the noble Baroness knows, we have some of the most ambitious climate targets of any major economy in the western world and we are committed to net zero; indeed, it is a legal obligation. However, we will still need declining amounts of oil and gas, and the choice we face is whether we wish to use that produced domestically or to import it. In every scenario set out by the reductions, we will still have a requirement for petroleum products.

I congratulate the Government on their ambitious climate targets, but can my noble friend tell the House what proportion of the oil that will be extracted from the Cambo development is likely to be exported under current scenarios, as there seems to be little domestic demand for the heavy crude oil that Cambo and other future oilfields will produce? This seems more about exporting than about domestic energy security, and, in that context, some extra taxation on production would anticipate some of the future taxpayer costs that might arise if these oilfields end up being unable to export in a future scenario of other countries having to reduce their oil imports.

No decision has yet been made regarding the proposed Cambo field. The export market for oil and gas produced from Cambo is purely a commercial matter dictated by the market, the quality of oil and the different refinery capabilities. But, as I said, even with continued development, we expect the UK to remain a net importer of both oil and gas throughout the transition period when following the Climate Change Committee’s balanced net-zero pathway.

My Lords, HMRC estimates that decommissioning will cost the taxpayer £18.3 billion over the next few decades. Oil and gas companies can claim tax back on all decommissioning as well as R&D, as the noble Baroness, Lady Sheehan, pointed out. We also have one of the lowest tax burdens for oil and gas in the world. Shell paid $1.8 billion in tax to Norway last year, but the UK gave it $99.1 million towards decommissioning costs. What has happened to the polluter pays principle? After all, the oil companies have made a lot of money and trashed our planet, and now we are going to help them continue to make money in order to transition to a better future.

It remains the case that the petroleum sector is a net payer of taxes to the UK Exchequer. I frankly do not understand the argument that we should stop all production in the North Sea and instead import those materials that we will continue to need in every scenario. We would be declining to give ourselves the revenue and spending extra to import those same products.

My Lords, a global poll of energy workers showed that more than half want to leave the fossil fuel industry. What are the Government doing to support these workers in the UK to ensure that there is a fair and just transition both for them and for their communities?

That is a very good question, and this is why we have our world-leading oil and gas sector transition deal, the North Sea Transition Deal. We are committed to it, with the support of all the oil and gas companies, to precisely bring about that happy state of affairs so that workers can transition to working in the clean economy.

My Lords, speaking last month, Tim Eggar, the chairman of the Oil and Gas Authority, was bullish when referencing future offshore licensing rounds in the UK. He said:

“Let’s be clear, there is no current ban on exploration and licensing”—

and, of course, he is right. On the other hand, the International Energy Agency—the global expert on energy stats—is equally unequivocal that the development of any new gas or oil field is incompatible with net zero by 2050. Perhaps the Minister could help us here and confirm what his department’s objectives will be with regard to future licensing. Will it adhere to IEA advice, aim for net zero and end future exploration, or will it go along with the oil industry and keep on drilling?

We will go along with our net-zero commitment. I do not know how many times I have to repeat this for the benefit of the Liberal Democrats, but under all of the climate change scenarios, including that towards net zero, we will remain a net importer of oil and gas during that period. The choice that faces us is whether we wish to import them or produce them domestically and gain the tax revenues from that. I really cannot see why this is such a difficult concept for the Liberal Democrats to grasp.

My Lords, the Minister surely must know that the target of net zero means reduced consumption; whether it is produced in this country or imported, it is still our consumption. How is that compatible with the Oil and Gas Authority’s target of “maximum economic recovery” of oil from the North Sea? Bearing in mind that it takes so long to commission and decommission North Sea oil and gas plants, is it not about time that the Oil and Gas Authority changed its target now to give it time to achieve net-zero carbon when it is due?

I actually agree with the first part of the noble Lord’s question that production from the North Sea is on a declining pathway. Our usage is, of course, on a declining pathway as we transition to net zero.

My Lords, I declare an interest as set out in the register. Would it not be helpful to explain even more clearly to the public that none of the needed energy decarbonisation or transition is going to happen smoothly without a proper back-up of swing suppliers and fuel sources? Unless there is a prudent level of continued investment in fossil fuel sources, we will see many more of the violent fuel and energy price spikes we have now, which cause considerable stress and hardship for millions of households experiencing this every day and threaten our national security.

I know my noble friend speaks with great authority on this as a former Energy Minister himself, and I agree with him. Of course, the ultimate solution to the problem of high gas prices is to use less of it. Indeed, we are doing that, and we are continuing to develop our renewable sources. We have one of the largest productions of renewable sources in the western world. However, fossil fuel generation, such as unabated gas-fired generation, currently plays an important role in keeping Britain’s electricity system secure and stable. The development of clean energy technologies means that it will be used less frequently in future, but it will still be required.

My Lords, I declare my interests as set out in the register. I think it is the Minister, rather than the Liberal Democrats, who may be failing to grasp the implications of the Government’s own policy. But is the Minister aware that if warming is kept to well below 2 degrees in line with the Paris Agreement, new oilfields such as Cambo will become stranded assets? In the light of that, will the Government ensure that the risks that such stranded assets pose to financial stability are properly reflected in increased capital adequacy requirements for those institutions that continue to finance them?

We have a role in the licensing of future developments, but whether to proceed with them is, of course, a commercial decision for the operators concerned. I am sure they will bear the noble Lord’s comments in mind. I am sure many of the big companies would not wish to end up with stranded assets either.

I am sure the Minister will say that it is right that we await the Oil and Gas Authority’s scrutiny report looking into the proposed Cambo oil and gas field. But surely it never made sense for the Government to consider progressing with the plans, especially in the run-up to COP 26 and now post COP. I reiterate: will the Government listen to the science and, starting with Cambo, help workers and industry wind down production of oil and gas in the North Sea?

The noble Baroness answers her own question—indeed, I would say, “Let’s wait for the decision of OPRED before we make any final observations about this.” But, as I mentioned to her colleague earlier, at the same time we are proceeding with our ground-breaking North Sea Transition Deal to ensure exactly what she asks: to help workers to transition away from these industries in the future.