Thursday 19 April 2018
[Mr Virendra Sharma in the Chair]
UK Oil and Gas Industry
I beg to move,
That this House has considered the UK oil and gas industry.
It is a pleasure to serve under your chairmanship, Mr Sharma, and I thank the Backbench Business Committee for granting me this debate. I am grateful to hon. Members for attending on such a glorious, hot day—it is particularly lovely and warm in this room. It is difficult to sell the oil and gas industry on quite such a hot day, but I am assuming that the air conditioning is running on electricity.
Oil and gas is a massive part of the UK economy. Since 1964, 44 billion barrels have been produced, resulting in £330 billion of production taxes for the Exchequer. The supply chain has an annual value of £30 billion, and every 1 billion barrels of oil are worth £50 billion to the UK economy.
Geographically, the oil and gas industry is centred in the north-east of Scotland, and it has a huge impact on my constituency of Gordon, north-west of Aberdeen, where there are, remarkably, 233 oil-related companies. My hon. Friend the Member for Aberdeen South (Ross Thomson) cannot be here due to illness, but his constituency and those of Aberdeen North, Banff and Buchan, Moray, West Aberdeenshire and Kincardine, and Angus to the south, are also very involved. The industry is spread throughout the rest of the United Kingdom but has a particularly large footprint in Scotland. Some 59 UK constituencies have a major oil and gas presence, from the northern isles, Shetland and Orkney, all the way down the east coast. Apart from Aberdeen, major industrial cities such as Dundee, Glasgow, Newcastle, Hull, Norwich—to name just a few—are very involved in the industry. It employs more than 300,000 highly paid, highly trained people, with internationally employable skills. People from all over the UK work in the sector. It is a truly national industry linking every part of the UK.
At its peak, tens of thousands of offshore workers were transiting through Aberdeen International airport, which is in my constituency. They came from many destinations, such as Liverpool, Manchester, Humberside, Portsmouth, Norwich, Newcastle, Southampton, Exeter, East Midlands, Birmingham, Bristol—that is not naming them all—and the south-east of England, as well as from further afield, including Dublin and Belfast and with connections to Norway, Holland and the rest of Europe.
This is a global industry—the UK at its best. Only this week I discovered that Mozambique has the third biggest discovery of gas in the world and Scottish companies have been involved by the Department for International Trade.
I congratulate the hon. Gentleman on securing this important issue. I am sorry that there are not more people here to discuss it, and that I have to leave before the end. He did not mention Teesside, which is of course the real centre of the oil industry. We have enjoyed a great partnership with colleagues in Aberdeen. Some £5 million of capital investment in new fields in the continental shelf is expected this year. Is he aware that companies that employ contractors are having extreme difficulties in recruiting people with the necessary skills for the new jobs now being created? Does he agree that the Government need to do more to improve the skills base to ensure that British workers can work on these British fields?
The hon. Gentleman makes a very constructive intervention. There were 460,000 people working in the oil and gas industry; there are now nearer 300,000. With the amount of redundancies and people laid off in the industry, we might have expected that unemployment in the north-east of Scotland and on the rest of the east coast would have gone up sharply, but these are highly skilled people with highly transferable skills, and many companies that I visit in my constituency are already reporting a skills shortage, which is a concern that I am sure the Minister will mention.
It is very important that our universities and colleges engage with what the industry wants. One of the criticisms I heard recently was that there is not enough training in digitalisation for engineers. One company, Aker Solutions, a Norwegian company with a large base in Aberdeen, is recruiting from Mumbai because those engineers are trained in digitalisation. It is a serious worry for me that training and recruitment are not matching up.
Returning to my point about Mozambique, DIT had companies from Aberdeen and the north-east looking at the opportunities out there. There was also the Israeli ambassador’s lunch the other day—there are now huge finds of gas in the Mediterranean. Skills in the United Kingdom, particularly in the north-east, for example in directional drilling, will play a very big part in that.
I want to focus on the importance of the industry—its longevity, future and strategic importance—as well as Government involvement and the moral questions that surround the sector. The industry has come through some very tough years. As I said, employment in the sector has dropped from 460,000 to 300,000, but most of those people have been employed elsewhere. Employment has held up well, as people have also been employed overseas. Although there has been a downturn in the oil price, the amount of oil being produced pretty well holds up, so the number of people involved may simply move to another part of the world.
By early 2016 the price had declined by 75% in 18 months, so the industry withstood an enormous price shock, as opposed to a demand shock. Other basins stepped up production to maintain market share, most notably the middle east and OPEC. There have since been OPEC cuts and caps, which are helping to provide some sort of cost stability. We are seeing the price move nearer to $70, which starts to make the UK continental shelf much more profitable, or at least more able to cover its costs.
The main point to make today is that this is not a dying industry. Production will decline from the peak of 4.5 million barrels in 1999-2000—it is now down to about 1.5 million barrels—but it is still an incredibly important industry for this country.
Would my hon. Friend agree that oil and gas is not a transitional industry on the journey through to a decarbonised world? There are many industries and many people who will be using oil and gas as an energy source, and for other reasons, for many years to come.
I thank my hon. Friend for that point. I am a member of the Environmental Audit Committee, which took evidence from Lord Turner, the former chairman of the Committee on Climate Change. I asked him how long he saw oil and gas being a major source of energy, heat and power, and he said at least into the next century, which is well over 80 years. He went on to say that in terms of an industrial raw material, we just do not know—we could be looking at hundreds of years. It is important that we realise that we probably cannot bring all the hydrocarbons we have to the surface, but that we certainly have to use them better and in a much cleaner way. I know that is a big consideration, particularly in the City of London.
I want to reassure my hon. Friend that I, the Government and many industry commentators absolutely see a role for oil and gas in the mix going forward, with a shift towards gas. Technologies such as carbon capture and storage, which I have had the great pleasure of debating with the hon. Member for Stockton North (Alex Cunningham), my hon. Friend the Member for Waveney (Peter Aldous) and others in this House, are part of the way to extend the industry’s life even further. The Government are committed to gas—it is not just me; it is other international parties as well—but finding ways that can help us take carbon out to keep the energy supply flowing is also part of that mix.
I thank the Minister for that intervention. It is very important that we are careful that this industry is not demonised and is not seen as something of the past. It is a constructive industry and it is important that we do not suggest it is a stopgap until we move on to something else. We have to recognise its importance. How we use hydrocarbons responsibly is something we have to get right for generations to come, while reflecting on how we have got it wrong in the past.
There is also the legacy industry from the parts of the industry that have changed. A huge decommissioning industry is growing up. Does the hon. Gentleman agree that contracts around decommissioning should be subject to even greater regulation in order to protect not just the environment but the interests of British workers who need to train to carry out this decommissioning work, which could create thousands of jobs for Teesside?
The hon. Gentleman must have read my mind, because I am coming on to decommissioning. It is interesting that Hartlepool has already set itself up to take the topsides of rigs. That is pretty remarkable, because I remember that when I was standing for another election back in 2015 I was told that large vessels come and take the topside off, and then take it away to Turkey or the middle east to be broken up. I was told that, apart from a bit sub-sea, decommissioning was not going to be done in the UK. I am delighted that we are going to carry out decommissioning. This is about how ambitious we are to be involved in it. There are huge opportunities.
There is the opportunity not just to decommission the rigs, but to bring them in, reconfigure them and put them back out on to the Dogger Bank to provide platforms for the people servicing the offshore wind industry. Would the hon. Gentleman support that?
That is a very valuable point, and I know that the Oil & Gas Technology Centre in Aberdeen is looking at that. The initial idea was that everything would have to be taken down to the seabed, including the concrete installations on the bottom of the seabed. The industry is starting to look at the opportunities. The Oil & Gas Technology Centre is particularly active in thinking about what we can use again and what has significant value. There is a real opportunity with renewables, whether solar or turbines.
The current estimates put the total decommissioning spend at about £60 billion, but the Oil and Gas Authority is targeting a 35% reduction in that cost. Decommissioning has a big effect on the Exchequer, so it is important that we come up with an efficient way of doing it. Companies such as Well-Safe Solutions, based in West Aberdeenshire and Kincardine, are coming up with industry excellence to ensure that we do not learn new lessons every single time we do this. We want as much of the decommissioning industry to be in the United Kingdom. Apart from anything else, morally we should do as much decommissioning in this country as we can safely and in a way that fulfils what we want to do. We should not simply offshore our responsibility to developing countries.
Although there are opportunities for the UK supply chain, it is important to know how much of the cake we will get and what our ambition is. The biggest part of the decommissioning spend is the technical side—the technology and the design. We are already well positioned to do that in the north-east and the rest of the country.
The ambition of the industry, and the vision of people such as Sir Ian Wood, is to extend the North sea’s life with small-pool and late-life development. The industry can report growth; it is showing resilience. Oil & Gas UK’s “Business Outlook” report, released on 20 March, said that more new investment is expected in 2018 than in the past three years, so things are starting to tick up. Production in 2018 is set to increase by 5%, making it 20% higher than it was five years ago. That is resilience; the industry is not going backwards. Unit operating costs, which were a huge problem in the North sea and got completely out of hand, are now down to about $14 or $15 per barrel, compared with a barrel price of $70. That is not the total cost, but it means that we are now internationally competitive, which is very important.
The supply chain is still under enormous pressure, but revenues will stabilise in 2018. Cash flow and, most importantly, profitability remain a challenge. The service sector is telling companies in the oil and gas sector that they are being squeezed far too much. The problem is that if the tier 1s and tier 2s put them out of business, they will not be there for tomorrow, and that will be an economic disadvantage to the country.
More exploration is needed to realise the basin’s full potential. Transferable tax history, delivered by the Chancellor last year, is expected to remove barriers to late-life investment. The problem was that the tax advantages that a tier 1 company built up may have prevented other investors from getting involved in the oil industry, because they are unable to use the decommissioning tax breaks. That is very important, and it demonstrates the UK Exchequer’s broad shoulders.
Maximising the potential of existing fields is key to sustaining production at current levels to 2050. Oil & Gas UK estimates that
“between 12 and 16 oil and gas developments could get the go-ahead this year”—
as the hon. Member for Stockton North (Alex Cunningham) said—
“unlocking investment of around £5 billion.”
It goes on to say:
“That’s more than the new oil and gas field approvals sanctioned over the last three years combined and promises a much-needed business boost for the supply chain”.
It is important that the supply chain starts to negotiate contracts that will sustain it into the future. There is excess capacity, and if the oil producers squeeze too hard we could see a depletion in the number of people involved, and in the long term that will be very bad news.
Norway is always cited as an example. Exploration is tax-deductible in the Norwegian sector, and there are vast reserves. However, when companies find oil, they pay up to 78% tax, compared with the UK sector, for which it can be 20%. The industry reports that the greenfield and major brownfield developments set to be approved this year could yield more than 450 million barrels of oil and gas over time, although that still falls short of the level required to sustain long-term production at current levels.
We cannot underestimate this; the industry is not out of the woods. Oil & Gas UK said:
“The project landscape for 2018 is the healthiest the industry has seen…greater exploration success and maximising the potential within existing assets are essential for the future”.
Oil & Gas UK is not pulling its punches. It is saying that we see green shoots in the industry, but if this does not happen they could dampen back down. Oil and gas companies make decisions about investing money, and they are very tough about where they do that. They will invest in the UK continental shelf if it is the right place, but if there is somewhere better to invest, they will do that. It is important that the UK continental shelf remains fiscally one of the best places to produce oil. We must applaud the sector, because it has learned to be leaner. The UK continental shelf is more efficient, and optimism is returning to the sector.
To blow the trumpet of the north-east for a minute—there are several north-east MPs here—
The hon. Gentleman means north-east Scotland. We use “the north-east” to refer to north-east England.
Quite right. I mean the generic north-east.
The north-east of Scotland has 7% of the population, but 15% of the Scottish economy. I am sure that the hon. Member for Aberdeen North (Kirsty Blackman) will agree that it is the engine room of the Scottish economy. The policies of Her Majesty’s Government and the Scottish Government must encourage companies to thrive, and not be damaging. The cost of living in the north-east of Scotland is higher—house prices were driven up by the boom years, so we have the highest council tax bills—and employers feel penalised by what they see to be very high business rates. The empty business property rates have unfortunately backfired and are encouraging landlords to take buildings down. It is important that we invest in the north-east of Scotland—this is a plea to this place as much as it is to Holyrood—and that the money we raise there is spent there.
Over the lifetime of this Parliament, as much as £500 million of extra rates will be raised in the north-east of Scotland. My plea is that we spend that money in the north-east of Scotland, whether on roads, schools, hospitals or other facilities. It is important that we make the north-east of Scotland not only the right place to invest, but the right place to live. If somebody flies in from Houston or comes up from London or Europe, they have to come to somewhere they really want to live, so it is important that we invest in the area.
Does my hon. Friend agree that there is a general feeling in the north-east of Scotland that the region has been undervalued and underfunded by Governments over the past few years?
Yes, but many parts of the country feel they are underinvested in. The engine room of the Scottish economy is taxed that much more than other areas—if we do not invest in it, we risk killing the golden goose. That is the important thing. I am not saying that other areas are not deserving; I am saying that if we do not invest in the north-east of Scotland and the surrounding area, it will not be an attractive place to live, and it will be very difficult to attract people to work there.
Does the hon. Gentleman agree that the same concepts apply to the £330 billion of oil revenues that came to the Westminster Parliament?
I will not disagree, save that the principle is that that £330 billion was to the UK Treasury, which invested for many years throughout the United Kingdom. As the hon. Member for Stockton North will remind me, not only the original Scottish sector has oil, but the islands, the rest of the UK east coast and now the west coast of Scotland as well.
I wanted to make this point earlier; it came up in conversation with a Treasury Minister last year. We had to remind that Minister that oil and gas exist not only off the coast at Aberdeen, but all down the east coast, on the west coast, to the west of Shetland and the Northern Isles in general, off Morecambe bay and all around the UK. That is why we call it the UK continental shelf and not just the North sea.
Will my hon. Friend give way?
I wanted to do two things, briefly: first, I remind everyone of the wonderful page 218 of the industrial strategy, which shows the productivity gains that the industry has delivered to the north-east—productivity gains driven by a UK Government-wide fiscal policy that supported the industry through the 1970s and ’80s. Secondly, I remind hon. Members that the carboniferous formation that has delivered the offshore extraction has also allowed us to explore, in a sensible, environmentally safe and robust way, onshore extraction of such incredibly valuable resources. The formation runs underneath us as well.
I thank Members for that plethora of interventions—it is good that everyone is so interested on such a hot day.
As I was saying, this is an enormously important industry, which has been the bedrock of the manufacturing industry of the United Kingdom. That is why Her Majesty’s Government have invested in it and made this country one of the best places fiscally to produce oil and gas. With the transferable tax history, the UK Government have delivered a massive incentive to invest—other Members campaigned for that for some time. However, it is important that the companies now investing in the industry understand their future responsibilities and that the companies that invested in the past, which have already had the tax benefit, realise that they still have a responsibility.
Fiscal policy makes the UK continental shelf one of the best places to produce oil and gas, and the low corporation tax of the United Kingdom means that the bigger part of the industry, the service sector, is well compensated when operating in the UK. To produce more revenue and grow the whole economy is what we are trying to do. For “business sector” read “jobs”, because employment in the oil and gas industry is picking up, and there is a huge spin-off from the industry. It has been reported that more than half of the companies surveyed expect employee numbers to rise this year. That is a big change.
The north-east of Scotland and the rest of the country involved in oil and gas have seen numbers heavily depleted. As we discussed in a Westminster Hall debate on social mobility a few weeks ago, some businesses are reporting difficulties in recruiting people with certain skills and competencies. That is a worry; perhaps our technical colleges and universities are not producing enough. I had not realised that that could be the case—I expected that Robert Gordon University in Aberdeen or Aberdeen University would be completely focused on the oil and gas industry, but there is already concern about skills shortages.
The oil and gas industry reminds me of the space programme in the US in the 1960s: when oil was $120 a barrel, the industry could not spend money fast enough—probably throughout the entire world, but particularly in the UK continental shelf. Since the oil price has dipped, the industry has obviously pulled back from training, which is probably the reason for our skills shortage. We saw a massive dip in training, although it is beginning to pick up again. Government should do everything possible to encourage training and investment in training, because the industry will continue to be important.
In the north-east we have the highest concentration of technicians and engineers in the United Kingdom—in both north-easts—and all sides can recognise that that is hugely valuable all over the UK. It is also important at the Oil and Gas Technical Centre that STEM—science, technology, engineering and maths—learning is an important part of what the oil industry offers.
Recently, the Aberdeen and Grampian chamber of commerce carried out an industry survey including employment and attitudes. I shall give a few of the numbers because it is important for us to understand where the industry is. The picture is a mixed one, but 80% of firms believe the industry has hit the bottom of the cycle and is now starting to go back up. That means we will start to see investment again—and we are. Fifty-four per cent. of the companies expected to be growing, which is very important, because we are clearly coming out of what was a major recession.
Companies also predicted that they will grow new opportunities, as came up in an earlier intervention by the hon. Member for Stockton North. I visited Sparrows, which builds complex cranes. It had a £10 million order for cranes to put on turbine platforms, to lift parts on and off: 105 of those automated cranes at between £50,000 and £100,000 each. That is a huge investment, and there is the industry diversifying out. More than 80% of companies expected to be involved in decommissioning, where the spend will probably be about £40 billion—that is not to be sniffed at and will sustain an engineering industry for a long time. Many sectors in the United Kingdom would like a £40 billion investment.
On Brexit specifically, the survey covered the issue of recruiting talent in future. The figures are worth mentioning: 47% of the companies surveyed believe that there will be no effect; and 33% were worried. I accept absolutely that we have to get immigration right because this industry employs such highly skilled people.
The Oil and Gas Technology Centre, funded by the city region deal to the tune of £180 million, combines academic research, including that of Aberdeen and Robert Gordon Universities, and industry to create value: to unlock the potential of the UK continental shelf, to anchor the supply chain in the north-east—predominantly the north-east of Scotland, in this case—and to create a culture of innovation that attracts industry and academia. The centre is trying to bring all that together.
For a long time, the oil and gas industry operated in silos, with independent commercial organisations. Sir Ian Wood, with one organisation, has been brilliant at encouraging companies to come together. I have to say—I am sure that all Members involved would agree—that the basing of the Oil and Gas Authority in Aberdeen has been an enormous success. I would be delighted were other Ministries to consider basing anything related to oil and gas in Aberdeen as well.
I thank the hon. Gentleman for giving way again and for indulging me so thoroughly, because I have to leave the debate early. He has made a comprehensive case for investment in skills, innovation and development, but there is also the matter of the workforce. For example, workforce confidence in helicopter transport has diminished considerably in recent times. Since 2009 there have been 65 rescues and 33 deaths involving the Super Puma model. Does he agree that confidence in offshore transport needs to be rebuilt? The Government ought to consider and implement a public inquiry to help build that confidence again—that it is still safe to get in a helicopter to fly offshore.
That was a valuable intervention. Recently, the British offshore oil and gas industry all-party parliamentary group met Airbus and the unions involved. There is obviously significant concern about the Airbus 225, also known as the Super Puma. At the moment, the Sikorsky S-92 is the main workhorse in the North sea. The problem is that if the 92 were grounded for any technical reason, or if there was any other reason to keep that helicopter on the ground for a week or two to check something, the industry would close down. Commercially, Airbus obviously wants to see the 225 come back in, and that is very much an issue for the Department for Transport. It is important for us to have confidence, because there is no other way to supply oil rigs.
When we had a visit from the Secretary of State for Transport, one or two of his advisers said, “This is brilliant, flying out in a helicopter.” I said, “How do you think they get back and forward?” The journey cannot be done by boat; it can take two and a half hours to fly offshore on a helicopter. Helicopters are important to the future of the oil and gas industry, so I accept the hon. Gentleman’s suggestion that we must restore the confidence of people who work offshore.
Does the hon. Gentleman agree that part of that could be an open and transparent public inquiry? Everyone would be able to see, which would instil the level of confidence that workers are demanding.
Also, the trade unions and their representatives have to be very careful that they base what they are saying on science, not anecdotal evidence. I have heard one or two things said that made me very worried; I will not say that it was scaremongering, but they undermined people’s confidence in what is absolutely essential. The people who work in the oil and gas industry do not want to see helicopters grounded; they want to be safe and they want to be confident about how they get back and forward from the rigs.
I would like to mention two projects by the Oil & Gas Technology Centre. It has a great ambition for an underwater innovation centre, which is very important to the sub-sea sector. That is a very big part of the constituency of my hon. Friend the Member for West Aberdeenshire and Kincardine (Andrew Bowie), who is no longer in his place. It is also about to create the newly announced decommissioning centre in Newborough, in my constituency, which is trying to be the centre of decommissioning technology and ability, so that the UK plays a key part in it and we do not move it elsewhere.
In monetary terms, Vision 2035 aims to create £1 trillion of revenue over the period to 2035 only. The Oil and Gas Authority has a potential upper level of 20 billion barrels of oil, and that expectation is based on barely a quarter of what there could be. We want to see the supply chain double to £500 billion over that period. That is an absolutely enormous part of the UK economy paying tax, contributing and investing in people. Through collaboration, the maximum economic recovery that has been developed by the industry could provide £400 billion. Again, that is just up to 2035. The collaborative effort between Her Majesty’s Government and the Scottish Government, shows that when we work together, businesses and jobs benefit. That is pretty well what all our constituents would expect us to do.
The private sector is beginning to have tremendous confidence again in the oil and gas industry. In 2017, there was a staggering $8 billion of merger and acquisition activity in the sector; Chrysaor invested $3.8 billion to purchase Shell assets, and that was before transferable tax history. There was also activity in the supply chain that included Wood Group and Amec, which together are to become a FTSE 100 company, and GE and Baker Hughes, which plan to float on the New York Stock Exchange. They are mammoth businesses investing in a lot of people. The variety, size and type of M and A deals last year signal confidence in the UK continental shelf.
We live in a free market economy where Government must create the right conditions for growth, which is why we are today to address the Minister. Anti-business rhetoric of demonising job creators, overregulation or punitive taxes all damage growth, as does demonising hydrocarbons by suggesting that they are somehow a thing of the past that we should not be getting involved in. Achieving inward investment requires a dynamic economy with flexible labour laws, hence our historically low unemployment. High taxes destroy investment and job opportunities.
Government must be very conscious of what they are doing. We need to grow the whole economy, not just take more slices out of bits of it. Past Conservative Governments have made mistakes on that very point, particularly in the oil and gas industry. Deirdre Michie said:
“We need more exploration if we are to get close to recovering the three to up to nine billion barrels”
Whenever we speak of oil, the figures are absolutely enormous, as is its economic impact: as I said earlier, 1 billion barrels of oil is £50 billion of contribution to the economy.
The UK has signed up to significant carbon reduction. Hydrocarbon production is presented by parts of the media and politicians in this place—I have heard them on many occasions—as part of the problem. Renewables have become a large part of electricity production, but there is twice as much energy transferred by the gas ring than there is by electricity because, apart from on a hot day like this, this is a country that needs heating in our homes. Natural gas produces half the greenhouse gases that coal does. The UK continental shelf industry is part of the solution, not the problem. Each and every one of us gets up in the Chamber as often as we can to remind people that the industry is a very valuable part of the economy.
As the Minister mentioned, the Oil & Gas Technology Centre sees the future being hydrogen and carbon focused, with unmanned facilities and reusable structures. Already, BP in the Quad 204 is putting into practice subsea automated structures and vessels, as opposed to rigs. This is a rapidly changing industry—we are changing skills.
I would like to mention a Government elsewhere with a lot of Scots people who moved there many years ago: New Zealand has announced that it will not allow any new offshore development. They are simply offsetting their responsibilities to overseas. They are somehow going to oversee their responsibility for energy, so they are just moving it to a different jurisdiction, where they will have no idea what the ethical and safe practices will be. That is simply pushing away their responsibilities.
Oil and gas are part of the transition, but they are part of our economy, potentially for centuries. It is an incredibly important raw material. As somebody said to me, “You don’t make electric vehicles with wood”—not yet at least. Hydrocarbons, oil and gas and plastics are a major part of those industries. I want people to remember that it is our throwaway culture that polluted our seas, not the existence of hydrocarbons. Already, the UK has slashed emissions by transferring to gas.
I heard recently in a Committee that some would suggest that oil and gas should not be part of the so-called ethical pension funds, should not be considered for green finance, and that somehow we should just turn off the taps and stop using hydrocarbons. Not only is that unrealistic, it is a fairy tale and completely luddite. Hydrocarbons have driven the industrial and green revolution. We would not be where we are if it were not for our use of hydrocarbons. That does not mean that we did not mistakes.
Life would be a lot harsher and the population would be a fraction of what it is. I worry when environmentalists say that, because I wonder whether they are basically saying that there are too many people on this planet and we cannot sustain them. I do not quite know how they will work out which economies should carry on developing and using hydrocarbons, and which developing and third-world economies will somehow be deprived of the development that the western world has enjoyed. Oil and gas has been pivotal in transforming the carbon intensity of the power sector, with cost-effective emission reductions achieved through a significant switch from coal to gas.
I would like to briefly mention fracking, without being overtly political. Everybody should remember that hydraulic fractioning of rock formations has been used in the North sea for 30 years. It has been done very safely and under the jurisdiction of Governments of various parties, who have been very careful how it is delivered. I do not really want it to get into the general narrative that somehow that is not safe, because that would suggest that what we are doing offshore, perhaps thousands of feet below the rigs, is not safe.
Well construction and the UK continental shelf has been absolutely at the top of the industry. Directional drilling and hydraulic fractioning has been developed in the North sea, so we should not just discount it. I ask the Scottish National party and the Scottish Government to remember that there is a science and a very good background to what we have done in the North sea. However, I respect the right of communities to say that they do not want onshore fracking. I also respect the right of communities to say they do not want onshore wind. But let us be frank: it is about nimbyism. They do not want it in their backyards. That is what it is about, rather than a denigration of the science and technology of those sectors.
Deidre Michie said recently:
“As we move to a lower-carbon economy, the UK needs to meet as much of its domestic demand for oil and gas from indigenous resources”.
I would like to thank UK Oil and Gas, Deidre Michie, the Oil and Gas Authority, the Oil & Gas Technology Centre, and also local organisations and companies that have fed into what we are speaking about. We can see the importance and scope of the industry, which has the potential to produce more than £1 trillion of revenue for the Scottish economy and to all economies of the north-east and the rest of the UK continental shelf. That is absolutely enormous.
The industry has longevity and huge strategic importance. Particularly at these times in the world, when we consider where our energy is coming from, our own gas supplies are of incredible importance and we should be investing in them, if for no other reason than to give us energy security. We must remember that the basin still employs 300,000 people in highly paid and highly technical jobs that drive other areas of research in the economy.
Will the Department for Business, Energy and Industrial Strategy ensure that we have an energy policy that recognises that, on the Department’s own figures, oil and gas will still provide two thirds of total primary energy by 2035? Oil and gas must be a vital component of that policy, which should consider affordability, security of supply and environmental sustainability.
I assume that the hon. Gentleman also supports the call for an oil and gas sector deal as part of the industrial strategy.
The hon. Gentleman must have read my speech—ah, there is a camera behind me! Yes, there should also be a sector deal focused on transformational technology, underwater engineering and decommissioning that drives technology with spin-outs to the wider economy. That is so important with regard to STEM subjects alone. It worries me that young people—students and kids who are still at school—say, “Has the oil and gas industry got any future?” One young man said to me that he was going to work in the car industry, building cars with steering wheels. I said, “Nobody will be driving them in 10 years’ time, but we’ll still need oil and gas, so I would stick to the oil and gas sector.”
My third ask of the Department is to support the high-tech and highly productive supply chain, which has the potential to double its share of the global services market. I ask Departments more broadly to ensure that the UK continental shelf remains fiscally competitive and that we have UK frameworks that strengthen the UK internal market, which is essential to oil and gas.
BEIS has long supported the industry, and we appreciate that one of the Minister’s first visits in her current post was to Aberdeen.
It was my first visit.
It was her first visit. She clearly recognises the importance of the sector. Given her unique position, which covers energy and clean growth, I am sure she agrees that natural gas in particular has played a transformational role in reducing greenhouse gases, and I look forward to her continued support.
It is a delight to have the opportunity to speak in this debate. It is always good to have a debate focused on oil and gas; we have not had enough of them recently. I am also delighted to be in Westminster Hall—I feel like I have not been here for some time—and I am thankful for the air conditioning, which is incredibly useful today.
I will not spend an awful lot of time disagreeing with my constituency neighbour, the hon. Member for Gordon (Colin Clark), because I agree with most of what he said, but I will start with a slight disagreement about helicopters. I agree with what the hon. Member for Stockton North (Alex Cunningham) said about people’s nervousness. We and the companies involved ask people to undertake dangerous helicopter journeys just to go to work. In conversations with Airbus and other organisations involved with the helicopters, I have said, “It is not me you have to convince that the aircraft are safe; it is the people who are asked to fly on them.” To do that, those organisations need to have as many conversations and answer as many questions as possible. That is the only way they will possibly regain the confidence of people in the industry.
On that basis, does the hon. Lady support my call for a public inquiry so that we have full transparency about exactly what happened and what is being done to rebuild confidence in particular models, which are still yet to come back into service?
I appreciate the hon. Gentleman’s question. To be perfectly honest, I am not clear that an inquiry is widely called for; an awful lot of information has been published. If lots of individuals from my constituency and from the industry more widely asked me for such an inquiry, I absolutely would look at that. I am not saying no, but that is not something that people generally have asked me for. They have looked at the evidence that has been published so far and taken decisions on that basis.
I will talk first about the oil and gas industry in general, although obviously I will speak particularly from the perspective of the north-east of Scotland, as Members would expect of an Aberdonian. I will talk about where we have come from, where we are and where we will go with the industry, and about how to get to those places. As I said, some of my asks are not dissimilar to those of the hon. Member for Gordon.
We were in a situation where the industry was overspending significantly. When it was told that it could have a widget today for £400 or tomorrow for £4, it chose to have it today for £400. There was an awful lot of fat in the system. Now the industry is able to make more profit at $60 a barrel than it was at $120 a barrel, just because it has slimmed down a lot of those costs. One of the most important things for us to do is to capture that—to ensure that, whatever we do, we do not lose the gains we have made.
We have undoubtedly been through an incredibly painful period. We have had an awful lot of pain and suffering in the north-east of Scotland. I get that. A number of people have found alternative jobs—they have been supported in that by various organisations; the Scottish Government have put a lot of effort into that—but some have not. We do not want to forget that there are people who still have not got through the pain of having to go through a redundancy process. We need to remember that and ensure that, whatever we do, we do not set ourselves up for another fall like the one we had. That is really important.
We had a very competitive system, in which companies were unable to work together or point in the same direction. Local authorities were not particularly good at that, either. What really brought local authorities, the business society and civic society in all of Aberdeen city, Aberdeenshire and the north-east of Scotland together was the bidding process for the city deal. Working together on that was really important. I am pleased that we got a city deal. Anyone who has read anything I have said about the deal will know that I was unhappy about how low level it was—I would have liked significantly more money for my city, and I am not sure that many people in the north-east of Scotland would disagree—but the process was very beneficial, as was the direction that the city and the shire took. I hope that we keep hold of that.
The hon. Lady is gracious in giving way. Does she worry that there is a perception that the north-east of Scotland is relatively wealthy and therefore will take care of itself, and that sometimes that affects investment in the region?
I certainly worry that the city deal that was signed was looked at on a different basis from some other city deals. The Scottish Government have put in significant additional funding to the city deal, particularly recognising the issues with infrastructure. I was pleased to hear the hon. Gentleman talk about looking at additional infrastructure projects and so on. The Aberdeen western peripheral route will make incredibly positive changes. No one can wait for it to come—I think we are expecting it in the autumn. It will be hugely positive and will make a big difference, and I think that it will help encourage people to come to the north-east.
Let me turn to where we are now. Companies are working together like never before. I was at the forefront of calling for changes to transferable tax history, but other parties supported them; the Conservative party was behind the call, too. I very much appreciated the Chancellor making those changes in last year’s Budget. I would have preferred them to happen more quickly, but we cannot have everything. We are looking forward to their implementation later this year. I could not be clearer about how important they are, and I am sure the Government recognise that.
Just for a bit of information, if a big company owns a number of rigs and one of them is nearing the end of its life, the company has a choice: it could put a lot of work, capacity and people into that installation to try to get the maximum recovery from it, or it could say, “Look, this is not a priority for us. We are focusing on other things.” That is completely understandable, but the transferable tax history allows a new company—a new player in the market—to take over that asset to ensure that the maximum recovery is made from it. That is really positive, and I am pleased that it has happened. That is a helpful measure in terms of maximum economic recovery, which we are fully behind.
Where are we going? I was pleased to hear the hon. Member for Gordon mention Vision 2035, because it is incredibly important and people do not talk about it enough. It is the vision for the future of the Oil and Gas Authority, which so far seems to be doing a good job. It focuses in particular on the north-east of Scotland, but also on the wider industry across the whole of the United Kingdom. Vision 2035 is about ensuring that we get maximum economic recovery, extract oil and gas from the small pools and have a supply chain that is anchored—particularly in the north-east of Scotland—so that once we get to the stage when no oil and gas is coming out of the North sea, everyone will know that the very best supply-chain companies for oil and gas are in the north-east of Scotland and parts of the wider United Kingdom. Then, rather than seeing those companies lifted and based in the US or other countries, they could continue to sell their expertise, with a tax take continuing to come in and be spent here—preferably in Scotland.
We must anchor the supply chain now for the future, and there are a few ways to do that. In relation to small businesses, all too often such businesses in oil and gas come up with a great concept, start working on it, grow the business to a point and then they are sold. I get that that is a way forward for some, but both the Scottish and UK Governments are beginning to ensure that if such companies have the potential to grow, they do not get sold and their concept lost within a bigger international company but can access the finance they need to anchor themselves and have that next step of growth, whether that is through beginning to export or ensuring that their intellectual property is turned into something real that can be sold. That is really important for the supply chain, rather than seeing companies sold on to somebody else who may not pay as much tax here because they are not a wholly owned United Kingdom company.
On maximising economic recovery and exploration, even though we have a super-mature basin we should still be doing exploration; there is more that we can do. I think someone from Statoil said to me, “You’re most likely to find oil and gas somewhere you have already found oil and gas.” We should do exploration in those areas. We have better ways of surveying now than ever before, and of trawling through and understanding the data from that surveying, which will be important going forward. Anything the UK Government can do to ensure that exploration continues, even in a super-mature basin, would be welcome.
I am really enjoying hearing another perspective from the hon. Lady’s fine city. Could I put on record that I am a little mystified about the Scottish Government’s decision to refuse to allow exploration for gas onshore when we know it is there because it is a geologically identical strata? Ultimately, the same operators would be looking to extract it. We can do it safely and in an environmentally secure manner, because that is what we do in Britain, as we have done demonstrably in the North sea basin. I find that an ideological rather than a practical decision.
What Governments do in any decision is look for best value—the good things and bad things that would come out of it. The Scottish Government and Scottish Parliament decided that fracking will not happen onshore in Scotland, and it is within that Parliament’s rights to take that decision.
Will the hon. Lady give way?
In a moment.
Order. The Minister will get a chance to respond to the debate, and I would appreciate it if she would—
I am trying to keep us awake.
I will send you another bottle of water.
Thank you, Mr Sharma. In terms of ideological decisions, the onshore wind decision, taken on a blanket basis across the whole United Kingdom, could be applied flexibly to Scotland, and we would very much like that. There would still need to be a planning process, but it would be great if the blanket ban was not there.
Almost 50% of turbine applications called into Holyrood to the reporter are then given permission. The hon. Lady just said that the Scottish Government have decided not to allow fracking—as I said in my speech, I think it is nimbyism, frankly, but fair enough, because that is their right—but if local communities and local councils say—
Order. The hon. Member for Aberdeen North (Kirsty Blackman) is not responsible for the Scottish Government. Rather than directing questions to the Scottish Government through her, it is better to ask her a relevant question.
Thank you, Mr Sharma. I will keep my question to the hon. Lady. Does she agree that there is a contrast between the two positions? Can one give permission for turbines that people do not necessarily want in their local community when one may not believe in having fracking in Scotland? Perhaps she does believe in having fracking onshore.
I do not believe in having fracking onshore in Scotland, and I am sure the hon. Gentleman would not expect that. The benefits of fracking are not as big as they are made out to be. Were it to be allowed, it would bring very little in the way of jobs or tax take, and the loss to our communities and the upheaval caused in them would be so significant that it would not balance out those jobs and tax take.
I am incredibly pleased to hear the Minister talk so positively about carbon capture and storage. What happened previously in relation to that was a train wreck—it was horrendous. It was awful how the rug was pulled from under it; I could not be clearer in my condemnation. I recognise that it was not the Minister’s responsibility at the time and I do not blame her in any way for that. I am pleased that she is being so positive.
We need to ensure that, whatever we do on decommissioning decisions and changes to allowances made by the OGA, we do not prejudice future carbon capture and storage opportunities. For example, we should not prematurely decommission a pipeline that could be useful for carbon capture and storage. As we do not yet have a full grasp of what carbon capture and storage technology will look like, it is very difficult for such decisions to be made. However, I ask that whatever is looked at is considered carefully in those terms and that carbon capture and storage is considered when any decommissioning decision is made. Any decision on any of that needs to be made very carefully.
I am also of the opinion that decommissioning, if done right, can bring some jobs and some revenue. However, I do not think it will be the biggest windfall in the entire world. I appreciate the action that the UK Government have taken on decommissioning through the OGA, and I also appreciate what the Scottish Government are doing through the decommissioning challenge fund. All those things are positive.
When I spoke to the Oil & Gas Technology Centre, which I will move on to in a moment, it said something interesting about decommissioning. On some rigs, there is an ability to do enhanced extraction techniques, but it is not possible to do them because of all the stuff on the rig that is doing the current extraction techniques. There is a need for a level of enabling decommissioning; taking off some of the widgets currently on the platform in order to put on new widgets so that the platform can be used to do things, but with different technology on it. There are smart things we can do on decommissioning that will ensure that we have jobs, but also that we have a positive way forward and get the maximum economic recovery out of the North sea.
The issue of STEM, which the hon. Member for Gordon mentioned, is important. I have been concerned as an Aberdonian, feeling the pain and seeing the changes and the negative atmosphere in the city, that we would have a situation in which young people would come through school saying, “No, I don’t want to go into oil and gas,” exactly as he said. The Oil & Gas Technology Centre is encouraging young people to get into STEM. Aberdeen Science Centre is doing similarly cool things to encourage STEM, and so is TechFest, which takes place every autumn. Those are all positive things that are supporting young people into STEM.
We do not have the same problems with the numbers of engineers that the north-east of England does—I have previously been told that it is much more difficult in the north-east of England to find some of the engineering skills that are required, but I could be wrong. That is something we could probably work together on quite positively, sharing the information and the positive things we have been doing on that, to ensure that best practice is shared and lots of people are encouraged into engineering.
As the hon. Member for Gordon said, some of the digitisation skills are important. One of the things I talked about with the Oil & Gas Technology Centre was the transferable skills that people get from studying something such as gaming, with the advanced interfaces they use, and how the virtual reality that can be created from that is incredibly positive and useful.
I have a couple more things to say—I am probably beginning to try your patience, Mr Sharma—and a couple of specific asks for the Minister. First, there is the oil and gas sector deal. I know that she is probably being heavily lobbied on that, but it could not be more important for the industry. We recognise that the Government have been working with the industry on that, and we look forward to that coming through.
Secondly, on the industrial strategy challenge fund, I understand that the bids for wave 3 closed at some point this week. Concern has been raised with me about the length of time the decision-making process will take. That is not so much the time in which funding will come through, but the decision-making process. If no shortlist is created until November, and we are looking at having a shortlist at some point late this year, no decision will be taken until a bit later than that. In reality, the chance that people can employ people and get up and running at the beginning of April next year becomes slimmer and slimmer. The quicker the decision can be taken—not necessarily the quicker the funding can come through—the better for projects being ready to go as soon as possible.
There are a couple more challenges. It is the case that Brexit is a challenge for the industry and that varying suggestions have come out about how much Brexit could cost the industry. I am still concerned about how visas are operating. I do not think the current situation works particularly well. I make a plea for post-study work visas to be brought back for the University of Aberdeen and Robert Gordon University. That would be a huge positive change for us. I know that the pilot took place in three universities in England and has been broadened out slightly, but it still has not come to the two universities in my city, and it would be incredibly positive for our industry.
On another specific offshore industry-type issue, I had a constituent come to me recently who is an EU citizen, but is not eligible to apply for the right to remain because he has spent so much time out of the country working for his oil and gas job that he cannot fulfil the residence requirements. He is a high earner, he pays tax and he is a good contributor to our city, and I am concerned that in these individual cases the Home Office’s policies are obstructive to ensuring that those highly-skilled people are able to stay in our city. That is a specific plea.
I have one last specific plea for the oil and gas industry. I have requested a meeting with the Financial Secretary of the Treasury and I hope that will happen in the near future. There is a major issue brewing around customs, because there is something called the shipwork end-use relief that is heavily used by oil and gas operators. Basically, it is a customs relief that occurs for stuff that is going offshore; the stuff is not eligible for the same customs fees that it currently would be, because it is going offshore. I received reassurance from the Financial Secretary that that would continue to be applied post-Brexit, but the action that Her Majesty’s Revenue and Customs is taking contradicts that.
There is a similar issue on manifests. Currently, paper manifests are okay for making a customs declaration, but we are looking at moving to a situation where electronic manifests are required. I understand that is because of changes in EU rules, but post-Brexit, the Taxation (Cross-Border Trade) Bill is not the same as the EU customs code, so they will possibly be able to revert to paper manifests, but we are not clear. There is an awful lack of clarity around that, and I am concerned that what the Financial Secretary is saying and what HMRC is saying are not the same.
That is becoming really important, because the changes have to be made in the early summer of this year. Companies are gearing up to make changes on the basis of HMRC guidance that is being contradicted by the Financial Secretary. Any assistance that can be given to ensure that those meetings take place and that clarity is given to companies would be incredibly useful.
The industry is in a good place, which is surprising after everything it has been through. There is a positive future. One of the amazing things it is doing is focusing on decarbonisation. That seems a bizarre thing for the oil and gas industry to do, but it has more of a need to do it, and more of a responsibility to do it, because it is the oil and gas industry. I am pleased that that has been written into what the Oil & Gas Technology Centre is doing, and that all the oil and gas companies, working together in ways they never have before, are positive about looking toward decarbonisation.
There is a positive future for the oil and gas industry. We must get it right. We must continue to encourage companies, we must continue to support and work with organisations such as the Oil & Gas Technology Centre and, when industry bodies and companies come to us and say, “This specific issue is a blockage,” we must look at those specific blockages and ensure that we do what we can to get rid of them, listen to industry and make the changes that are required.
It is a pleasure to serve under your chairmanship, Mr Sharma. I congratulate my hon. Friend the Member for Gordon (Colin Clark) on securing the debate, and it is an honour and a privilege to follow the hon. Member for Aberdeen North (Kirsty Blackman).
In the last four years, the oil and gas industry in the North sea has come under considerable pressure, and tens of thousands of jobs have been lost. The industry has adapted and, while challenges remain, it continues to be a vital component part of the UK’s economic base. It still supports hundreds of thousands of jobs and delivers more than half the nation’s oil and gas. There are up to 20 billion barrels of oil and gas still to recover, and the UK supply chain continues to be a world leader, with unrivalled experience in maximising economic recovery from a mature base. The industry makes a consistent contribution of around £1 billion per annum in tax revenues, and the wider tax contribution from across the supply chain is immense.
The Vision 2035 document confirms that the extraction of oil and gas on the UKCS is not a sunset industry. It has a vital role to play in adding to the UK’s energy security, ensuring a smooth transition to a low-carbon economy and creating highly skilled jobs that we can take around the world.
I will first provide a short overview on the national outlook, its successes in the face of adversity and the immediate challenges that need to be addressed. I shall then focus on the southern North sea off the East Anglian coast, where there are specific and exciting opportunities, although work is required if their potential is to be fully realised for the benefit of both the local and national economies.
I am mindful that, in the southern North sea, different energy sectors operate side by side, cheek by jowl—particularly gas, offshore wind and electricity transmission. I pose the question: should they come together and work as one? I am perhaps running before I can walk in saying that, but I will outline a scenario for how those sectors can work more collaboratively for the benefit of industry, people and the places from which those people come.
Notwithstanding the considerable pressures that the industry has faced in recent years, and while in many respects it is still battered and bruised, it is generally in a good place and there is exciting potential ahead of us. In 2017, UK upstream deals exceeded £8 billion. The UKCS production remains stable, despite some start-up delays and unplanned outages. Average unit operating costs have halved, from around $30 per barrel equivalent in 2014 to $15 in 2017. There were at least five exploration successes last year, with a combined discovery of 350 billion barrels equivalent. Around £5.5 billion of post-tax cash flow was generated on the UKCS—more than in any other year since 2011.
There is considerable potential to build on those successes this year, with at least 12 new developments, worth around £5 billion of capital investment, expected to be sanctioned, and with production forecast to increase by 5%. Set against that backdrop, 62% of supply chain companies surveyed by Oil & Gas UK have a positive outlook for 2018. That said, considerable challenges must be addressed if that potential is to be realised. Just 94 wells were opened up on the UKCS in 2017—the smallest number since 1973. Development drilling has fallen by around 45% in the past two years, with supply chain revenues falling by more than £10 billion from 2014. Despite the cost improvements for the supply chain, average EBITDA—earnings before interest, taxes, depreciation and amortisation—fell by £1.7 billion from 2014-16. Moreover, cash flow continues to be a major concern.
Even if all the fields discovered last year were developed, the reserve replacement ratio of 0.6 is not enough to sustain production. The fall in investment from 2014-17 means that production decline is likely to increase in the early 2020s. Sustaining efficiency gains is vital if the basin is to continue to attract investment. Moreover, it is important to improve exploration success and the commercial viability of existing discoveries.
A particular challenge that the industry faces, which we have heard about quite a lot today, is to reinvigorate the supply chain and to make it more resilient. It is important that we tackle this task; not to do so would be irresponsible. A strong supply chain will help sustain the industry and will open up significant export opportunities. Operators need to work more collaboratively with their supply chain businesses—sharing information, encouraging innovation and looking at new working practices. Addressing this challenge should be part of the sector deal, and the Oil and Gas Authority and the Government should work with the industry to help promote a new approach to collaborative supply chain working. Much can be learned from other industries, such as car manufacturing in the north-east and the west midlands.
Since 2012, the Government have generally worked well and closely with the sector, improving the fiscal regime and thereby helping to attract inward investment. That will continue as the driving investment programme is delivered. However, while Government policy is supportive, a number of decisions by HMRC—as the hon. Member for Aberdeen North touched on—have been taken without full and proper consideration of the impact on the oil and gas industry.
A particular example, as the hon. Lady mentioned, is HMRC’s decision in January to end long-standing exemptions for shipwork end-use relief from July of this year. For the oil and gas sector, this exemption—known as CIP33—provides relief from customs duties for equipment that is destined to be used in offshore installations, such as spare parts. The decision was taken at short notice, with no consultation with the industry.
The other thing that particularly concerned me about this was that I received a letter from the Financial Secretary to the Treasury that directly contradicts the decision taken by HMRC, which confused the issue further. The two appear to be giving totally different guidelines on this. It would be great to have clarity.
I thank the hon. Lady for reinforcing that point. It is difficult to attract investment, and the Government have worked very hard to make this basin one of the most attractive in the world to invest in, but these sort of noises coming out of HMRC reverberate around the world. A solution needs to be found very quickly.
While much of the industry’s focus in recent decades has been on Scotland, when exploration started on the UKCS in 1960s it did so in the southern North sea. That area is now on the verge of a renaissance, with the opportunity of reinventing itself as an all-energy basin, which, with the right policies in place, can play a significant role in the UK’s future energy strategy.
The southern North sea is at a critical juncture. For more than 50 years, the basin has developed and delivered strong gas production through a diverse network of offshore platforms, pipelines and onshore terminals. The basin has been well exploited, and the opportunity to identify and develop large, landmark discoveries is increasingly limited. There is potential with both marginal pools and tight gas, but they are increasingly expensive and complex to access, the technical and commercial risks are high and opportunities can often be quickly disregarded as uneconomic.
The challenge for the southern North sea is now to search for innovative business and technical solutions. This challenge is made more difficult by depressed commodity prices, aging infrastructure and increasing unit transportation costs, as production from existing developments continues to decline. The selection of projects is based on their ability to have a big impact, their prospect of success and the potential to achieve it within a reasonable timescale.
There are currently five priorities in the southern North sea. The first is to realise the full potential of decommissioning opportunities for the benefit of the East Anglian region, which I will come on to in more detail in a moment. The second is to unlock potential tight gas developments. The third is to realise the full potential of the synergies between renewables and oil and gas. The fourth, in the light of Brexit, is to find the best way to work across borders with the Dutch sector. The final one is to minimise production losses due to salting.
It is estimated that 40 platforms in the southern North sea are to be decommissioned by 2022; as I said, it is the oldest part of the basin. That business is worth several billion pounds, with significant job safeguarding and enormous earnings potential for the East Anglian region. However, there is a real and present danger that we will lose much of that work to our European neighbours, where port infrastructures have received investment from their Governments.
East Anglia does not have a level playing field on which to compete with our main competitors in the southern North sea—as I said, on the other side of the sea. Locally, the councils, the New Anglia local enterprise partnership and other supporting agencies, such as the East of England Energy Group, stand ready to support the industry, but there is a need for central Government to get involved and back them if we are to realise for the region the full potential of that significant opportunity.
We need a decommissioning challenge fund similar to that in Scotland, to help to establish a cluster of expertise, as is happening in Dundee with the Tay cities deal. We need to have an aspirational UK local content policy, as already happens with offshore wind. That would help to ensure a return to UK plc, as the Government are already funding between 50% and 75% of UK decommissioning. It would focus operators’ attention on using the local supply chain and would help to support the supply chain action plans that have recently been introduced for decommissioning projects. As I said, EEEGR is willing—it is indeed eager—to lead and to host a taskforce to spearhead that initiative. It would be match-funded by other local agencies, although it would need funding from central Government to establish and then help to maintain it.
The other opportunity in the southern North sea with exciting potential is closer collaboration and working between the oil and gas, offshore wind and offshore transmission sectors. If that can be achieved, a significant contribution can be made to addressing the UK’s ongoing energy trilemma of keeping costs to consumers affordable, ensuring security of supply and smoothing the transition to a low-carbon economy. We need to integrate energy production activities—for example, in respect of oil, gas and electricity—and share common infrastructure for distributing energy. Doing that will achieve significant economic benefits. The co-location of gas-powered electricity generation with gas production hubs would help to maximise the economic recovery from gas fields. The better utilisation of common infrastructure would improve the economic value of both the associated renewable and the hydrocarbon production assets. Collaboration between those sectors is slowly improving and could be accelerated by facilitating and enabling Government policies.
Two main issues are inhibiting more effective collaboration between the sectors. First, the regulatory regimes are quite separate; some of the regulators are not used to working together and they have different policy objectives. Secondly, cross-sector collaboration is not incentivised, as Government policy is highly sectorised.
A possible starting point for improving the situation and promoting cross-sector collaboration would be consideration of the UKCS as an energy basin, rather than a series of separate energy sectors. That integration could be the specific responsibility of the Department for Business, Energy and Industrial Strategy, albeit delivered through parties such as the OGA, National Grid, Ofgem and the Planning Inspectorate.
The three sectors would also benefit from incentives to work more collaboratively. Sector deals provide an opportunity to make it more attractive for the different sectors to work together, at both the developmental and the operational stages. That could include financial support for cross-sector innovation, improved regulatory cohesion, facilitating the movement of workforce skills between the sectors, and research and development. It may well be that a pilot could be set up for such innovative cross-sector working in the North sea. I would welcome the opportunity to discuss that with my right hon. Friend the Minister, along with industry representatives.
During the past 50 years, oil and gas extraction on the UKCS has brought enormous benefits to the UK. It has created hundreds of thousands of well-paid, highly skilled jobs, attracted significant inward investment from all over the globe and provided a huge annual dividend to the Exchequer. The past four years have probably been the most difficult in the basin’s life, yet notwithstanding a great deal of pain and personal anguish, it has come through this tough period in better shape than could reasonably have been hoped for and is ready to continue to play a full and leading role in the post-Brexit economy.
Since 2012, the Government have given the industry a very fair hearing and backed it, both fiscally and with the creation of the Oil and Gas Authority. Exciting opportunities lie ahead. It is important that the spirit of co-operation in the oil and gas supply chain continues, improves and, as I have outlined, extends to cross-sector working. It is said that if you go to any oil and gas basin around the world, you will hear Scottish, Geordie, Suffolk and Norfolk accents. We must ensure that that continues for at least 50 or—dare I say it?—100 more years.
It is a pleasure to serve under your chairmanship, Mr Sharma. I congratulate and thank my hon. Friend the Member for Gordon (Colin Clark) for securing this important debate. It is also a pleasure to follow my hon. Friend the Member for Waveney (Peter Aldous), the hon. Member for Aberdeen North (Kirsty Blackman) and, although he is no longer in his place, the interventions of the hon. Member for Stockton North (Alex Cunningham).
Before I was elected to this place last year, I myself spent 25 years working in the oil and gas industry, as many of our constituents still do. This is still a hugely significant sector for employment, as my hon. Friend the Member for Gordon mentioned. It still employs 300,000 people around the UK. Many of those people, from around the UK and, indeed, the rest of the world, have made their home in north-east Scotland. As a result, even with the downturn in recent years, unemployment in that part of the country is still very low, at about 1.2%. That sometimes creates an issue for businesses and industries in general when they wish to expand, but for local society it is a nice problem to have.
Many people rightly think of Aberdeen as the oil capital of Europe. I spent the best part of 10 years of my career working in Aberdeen—most of which while living there, but some while commuting from my hometown of Turriff, 35 miles away, where I grew up and where I returned to live after working overseas in the oil and gas industry in the countries of Azerbaijan and Angola. That illustrates the global nature of this industry and, as my hon. Friend the Member for Waveney finished by saying, reminding the world of the expertise that this country still has to offer and will continue to offer is very important.
Many people still commute to Aberdeen from around north-east Scotland. They commute from major towns in my constituency—Peterhead, Fraserburgh, Banff, Macduff and my own town of Turriff—as well as from everywhere in-between. In some cases, people travel up to 50 miles from around north-east Scotland to Aberdeen. Of course, in many occupations, which are often office or desk based, there can be the opportunity to work from home—a practice that is becoming more and more common, but which often relies on a dependable broadband signal: sadly, not always available in rural north-east Scotland or elsewhere around the country.
The idea of working from home has traditionally seemed strange or been difficult for some people to get their head around. The same thing applies to much of the “new” technology mentioned by my hon. Friend the Member for Gordon. In many cases, the technology itself is not particularly new; what has taken longer to change is the culture and behaviours required to get the most out of the technology.
For example, the technology to operate sophisticated offshore installations from onshore has existed since the Forties field came on-stream in the mid-1970s. In fact, it was originally designed to be run from onshore, but that was never quite made to work. Only in recent years has that technology been made to work practically and effectively. That illustrates the recent developments and the developments that we hope to see in the near future.
The oil and gas industry is a major employer in Banff and Buchan, as is the supply chain that supports it. Peterhead is famous as a fishing port, of course; hon. Members have no doubt heard me mention that many times before. However, it is also a major supply port for offshore oil and gas. The Forties oil pipeline, supplying 30% of the UK’s oil, comes ashore at Cruden Bay in my constituency. Also in my constituency is the St Fergus gas terminal, through which 25% of the UK’s gas is received. North sea gas also supplies the power station in Peterhead.
Peterhead power station was a proposed site for the development of carbon capture and storage, but of course one of the many reasons why that was, unfortunately, abandoned, was the absence of surrounding infrastructure. I am sorry that the hon. Member for Stockton North is not here to intervene at this point, because Teesside has the surrounding infrastructure that we do not necessarily have in north-east Scotland, unfortunately.
Peterhead is also the location of the Score Group headquarters. Score Group is one of the largest employers in my constituency—across the north-east of Scotland, indeed. It consists of 20 different companies across five continents and is one of the biggest employers of apprentices in the whole of Scotland.
The future of the oil and gas industry is positive, as many hon. Members have said, but there needs to be flexibility and openness to change. The Government have supported that, which is most welcome. Transferable tax history was highlighted by my hon. Friend the Member for Gordon. That was a great good-news story from last year’s Budget and shows how important it is that we continue to speak up for the oil and gas industry.
It is also great to see support for decommissioning, which is a growth industry with huge potential. As my hon. Friend mentioned, it is like the original installation to begin with, but in reverse. It is like manufacturing: the biggest and most expensive part of it is in the design and strategising. However, we do not need to go looking for the raw material. It is there and we know where it is. It is a great opportunity for Aberdeen, the north-east and the UK in general to become known as a global centre of excellence for decommissioning. I was pleased to hear Maersk recently announce that it is establishing a new, dedicated decommissioning company, with offices in Aberdeen, to make the most of the opportunities our North sea assets provide. That could be a great boost for the Aberdeenshire economy, with close to £40 billion in decommissioning projects up for grabs over the next eight years.
While decommissioning opportunities are inevitable from the more than 400 fields that have ceased—or will cease—production, the industry is far from dead. For example, I found out yesterday that 27% of BP’s new exploration is taking place in the North sea. I formerly worked for BP and I remember a time when BP felt that it was looking for the least expensive basins around the world to operate in. It had the economies of scale to be able to do that at a large scale. However, BP also always described the North sea and the UKCS as a whole as its own backyard. It is great to see it coming back. Unit operating costs have reduced significantly since 2014 from $30 a barrel equivalent to around $15 in 2017.
The UKCS is still one of the most expensive basins in the world to operate. However, investors and the industry are relatively comfortable investing in North sea oil and gas for other reasons, such as security, stability and access to some of the best, brightest and experienced talent in the industry. Other hon. Members have mentioned other aspects that make this basin more attractive to invest in and how we should make it as attractive as possible.
The Oil and Gas Technology Centre, partly funded by the Aberdeen city and region growth deal, is a great example of how the industry is coming together, not only to fix the inefficiencies and maximise recovery, but to transform the industry for tomorrow. Last year £37 million was co-invested in industry-led projects by the OGTC, with £22 million of that coming from industry partners—more than three times what had been originally expected when the OGTC was set up. Much of that contribution from industry partners has been in kind, as well as direct cash funding. The industry has provided resources such as personnel, as well as access to rigs and platforms for the important field trials to test and optimise the new technology.
The partnership between OGTC, Oil & Gas UK and the OGA—all of which have been mentioned—as well as the different operators and suppliers in the industry, would have been almost unthinkable not that long ago, in my experience. Since the recent downturn, the industry has experienced a modest, yet encouraging recovery, but the industry has been forced to look inwards and across, including across sectors such as renewables, which my hon. Friend the Member for Waveney (Peter Aldous) mentioned. In my experience, there was always a need for greater collaboration across the industry and sectors. I am glad to say that this is becoming more evident.
I hope that mistakes made in previous recovery phases from previous downturn cycles are not repeated. Too often, we have not gone beyond seeing the green shoots, but when we are actually back in full recovery mode and the pendulum has swung right back to the triple-figure oil prices, we have gone back to the same old inefficient behaviours. Again, we are seeing more evidence that through recent collaboration and Government support, there is a lot less chance of that happening.
Partnering with the industry and bodies such as Oil & Gas UK and the OGA, the OGTC is looking to use the latest technology to transform the oil and gas industry for our low-carbon future. I would like to see the Government do all they can to support this transformation for tomorrow. I understand that the OGTC applied for the industrial strategy challenge fund, as mentioned by the hon. Member for Aberdeen North (Kirsty Blackman), as recently as yesterday. As she mentioned, we hear that decisions on that are not due until November, but I take this opportunity to encourage the Minister to look closely at what it is proposing and accelerate that decision, if at all possible. Even if only a decision of additional funding can be made well in advance of the funding being made available, it would allow planning and budgeting to take place in the nearer term.
In conclusion, I reiterate that the contribution of North sea oil and gas to our economy is not a spent force. Oil & Gas UK has predicted that hydrocarbons will still be providing two-thirds of the total primary energy by 2035. It represents a huge economic opportunity for the UK, particularly in Scotland, but requires industry and Governments to work together to foster the partnership and collaboration I have mentioned, and in many ways continue to develop new and innovative ways of thinking, not just new technology.
Finally, it should be noted—it has been already—that hydrocarbon exploitation is not just about providing energy, although that is an important factor. The UK Government are doing great work in reducing the amount of single-use plastic that the nation uses, but we still have a need for oil and gas as a feedstock for multi-use plastics in the foreseeable future.
It is a pleasure to serve under your chairmanship, Mr Sharma. I congratulate the hon. Member for Gordon (Colin Clark) on securing this debate and thank the Backbench Business Committee for granting it. There have been only three speeches by Back Benchers and several interventions by the hon. Member for Stockton North (Alex Cunningham). Perhaps it would have been better if more people could have been here to participate; I suspect that the fact that it is Thursday afternoon has something to do with it. However, the good thing is that that has allowed much more informed speeches to be delivered, without time constraints. That is to the benefit of what we have heard today. I never seem to get the luxury of speaking from the Back Bench without a time limit and not having to use my red pen.
First, we heard from the hon. Member for Gordon. There was not much that my hon. Friend the Member for Aberdeen North (Kirsty Blackman) and I would disagree with. Typically for a Westminster Hall debate, everybody spoke in unison about the importance of this sector and its bright future. However, I do not think the hon. Member for Gordon had to defend himself for using the phrase “the north-east”. He should not have to stand up and clarify that he meant the north-east of Scotland. If he wants to call it the north-east, he should stick with that and not defend himself.
The hon. Gentleman mentioned that there are 233 companies in his constituency alone working in the oil and gas industry. That is a fantastic statistic, which shows the importance of the sector to his constituency and the wider Aberdeenshire area. He correctly said that the oil and gas industry should not be seen as a stopgap measure while we decarbonise the economy and that it still has a bright future. I echo that sentiment. He highlighted the resilience of the industry, which is why it still has that bright future.
The hon. Gentleman also mentioned the skills gap and the need for training, so I am sure he will welcome the fact that the Scottish National party provided an apprenticeship guarantee while the industry was going through a hard time, as well as a £12.5 billion innovation fund. He and my hon. Friend the Member for Aberdeen North both mentioned the issue that people leaving school and looking into future careers might be concerned about moving into the industry. I echo what they said: there needs to be a drive for the educational understanding that there is still a bright future—an engineering future, with actual opportunities. That is true not just in the UK, but in other countries, as we heard from the hon. Member for Banff and Buchan (David Duguid), who undertook employment abroad and saw the different cultures and experiences that that brings.
My hon. Friend the Member for Aberdeen North and I disagree with the hon. Member for Gordon on fracking. I also clearly support the SNP Government’s taking the decision to ban fracking. It must be remembered that it was done on a cross-party basis. The Labour party and the Lib Dem party support it, and on a wider basis the Green party supports it as well. The hon. Gentleman said that our position is nimbyism, but I would suggest that it is not. The fracking ban has widespread public support in Scotland, and lobby groups elsewhere in the UK would like to see fracking banned. That is before it comes to their doorsteps, if it even does, so that is not nimbyism—it is about people who have concerns about fracking.
I understand that there are some similarities between fracking and the technologies used in the offshore oil industry, as the Minister highlighted, but they are not completely the same; I got a briefing paper from the Library when a constituent raised concerns about why we were banning fracking while still allowing offshore extraction. There are differences. The modern fracking technology was developed from 1999 onwards in Texas—that shows it is different from the offshore technology; they were developed at different times. Interestingly, it was developed in Texas, but Texas has now banned fracking. That tells us that there are widespread concerns across the world. The Minister said this is ideological, but it is not. The Scottish Government took an evidence-based decision, and they stand by it.
My hon. Friend the Member for Aberdeen North agreed with most things that the hon. Member for Gordon said. She highlighted that one aspect we have seen with the dip in the oil price is that the fat in the system has been trimmed out, and that that needs to be captured. The hon. Member for Banff and Buchan touched on that as well, while also speaking about the work of the Oil & Gas Technology Centre.
My hon. Friend, like other hon. Members, highlighted the importance of Vision 2035 and of allowing developing companies to grow further and to retain their expertise and investment in the UK, rather than being sold off. That is a very important point. The hon. Member for Waveney (Peter Aldous) spoke about resilience in the supply chain. Helping these companies to grow would clearly help the supply chain and the industry’s sustainability.
My hon. Friend finished with what she said were a couple of asks of the Minister. I am a wee bit concerned that, as our economy spokesman, she miscounted the number of asks. It was more than couple! I counted that she asked for: support for a sector deal for the oil and gas industry, which every other hon. Member mentioned; the challenge fund decision; post-study work visas; and consideration of the right to stay regarding the residence of some people who are working abroad. She also highlighted the issue with customs. I think that was more than two asks, but I support her in them.
The hon. Member for Waveney said that there are still half a billion barrels to recover. He highlighted the importance of Vision 2035, and that there has been a drop in development drilling. We need to ensure that picks up for the future. He supported the sector deal and understandably focused on the East Anglian coast and what he called the “southern North sea”. It was a thoughtful contribution regarding the possible collaboration between the different sectors—oil and gas, offshore wind and transmission—and the co-location for generation. That should certainly be looked at. I like the concept of seeing that area as an energy basin and a resource. I would support that.
It was good to hear that the hon. Member for Banff and Buchan has experience of working in the industry. There is nothing better than parliamentarians who can share expertise and insider knowledge of an industry to help to do policy development in a more informed manner. He touched on Peterhead power station in his constituency and said that one of the issues with the carbon capture scheme was not having the surrounding infrastructure. To me, that suggests a policy deficiency. Allowing the development of a potential carbon capture and storage scheme in that location and then pulling the plug without getting to the end, capturing the knowledge and developing the technology that could be applied elsewhere, is a weakness of the Government. They should reflect on that. He highlighted the benefits of not returning to inefficient working practices. I am sure the industry wants to ensure it does not do that.
As other hon. Members have said, there is no doubt that oil and gas has been a success story for both Scotland and the wider UK. There has been a long history with onshore oil. It was first discovered and extracted in Scotland in 1851. Then in 1896, England discovered natural gas. I would just like to point out that, yet again, Scotland was ahead of the curve when it came to hydrocarbons. In fact, fracking was invented in Scotland. Towards the end of the 19th century, fracking was undertaken in the firth of Forth; but we have seen the light and changed our ways, and I support the Scottish Government’s ban.
I will concentrate my remarks on the offshore oil industry in the North sea and Aberdeen area. It has been developed since the 1960s and has been a great success story, which has turned Aberdeen into a global city. It has provided well-paid careers for people and has allowed many, such as the hon. Member for Banff and Buchan, to seek adventures and opportunities abroad. It has also allowed Scottish and UK companies to develop their expertise here and then move abroad. They then develop that expertise abroad, which channels money and resources back to the UK.
The oil and gas industry has been so successful that it has generated approximately £330 billion in production tax alone for the UK Treasury. However, at this point I will bring a bit more negativity to the debate. Some of that money has been frittered away. We do not have the legacy from it that we should. Aberdeen’s infrastructure is a case in point.
My hon. Friend mentioned the construction of the western bypass. That could have been done years ago. We could have channelled some of this money into that years ago. If I was to start with a blank sheet of paper and plan how to exploit the natural resources of the North sea using Aberdeen as a hub, a motorway network extending to Aberdeen would be built. That is money going to the Treasury that could be spent better. I am sure that Members from the north-east of England would say the same. The motorway network up the north-east of England took too long to develop. Meanwhile, while oil was generating significant money, we built the channel tunnel to France and a high-speed rail link from London to the channel tunnel. Yet the infrastructure in the north of England and in Scotland was sadly lacking. There was a deficiency, with the money going to the Treasury but not being distributed across the UK.
We should also have had an oil fund. The answer to that request has been a consistent no from the UK Government. Yet Norway’s oil fund, which was started in only 1990, sits at £780 billion. That is a fantastic legacy. Norway is also using and investing it wisely. It has the highest proportion of electric vehicles in Europe. It has invested massively in the renewables sector. It is decarbonising the economy while still wisely managing its oil and gas resources. That is forward planning that the UK Government could still do. We need to look at that.
The hon. Gentleman has to recognise that the population of Norway is 3 million, 4 million or 5 million people. He also has to recognise that the economy is significantly smaller. The whole of the United Kingdom—the different parts of it—has benefited from the moneys that we have made from the North sea. Those have been invested, predominantly economically, and have paid for the downturns while the British economy was not doing so well. I think that it is a bit unfair to make that contrast. Blessed Norway has almost twice the reserves that we have, so there is a contrast in terms of population and investment.
I will come to the management of the downturn, but I think the hon. Gentleman has helped to make the case for an independent Scotland, so I thank him for that. I was not going there; I would not have touched on an independent Scotland, but I thank him. I still stand by the fact that, in my opinion, the money was going to the UK Treasury and was not distributed to the areas that were generating the wealth.
Interestingly, when it comes to fracking, in 2015 the UK Government promised a shale wealth fund of up to £1 billion for the north of England where fracking is proposed. Perhaps that is a lesson learned. It reinforces the omission of not setting up an oil fund for the benefit particularly of Scotland and other areas of the UK that extract oil and gas.
In Scotland we became used over the years to the scare stories about oil running out before yet again we discovered new oilfields. If we want to talk about not seeing it as a stopgap measure, we obviously need to watch how politicians talk about oil reserves. I certainly appreciate that everyone in this room has been very positive about the reserves that are there, the amount that could still be extracted and the future of the industry. However, other politicians sometimes try to exploit the concept that oil is running out, and we need to be careful about that.
It should be recognised, as I tried to point out in my speech, that it is fair to say that the easiest oil and gas low-hanging fruit to get has been got. There is a future for oil and gas, but, as I said, we cannot use the same behaviours and technologies as before, which is why it is important for Governments and industry to pursue the developments in technology and changes in behaviour required in future to exploit what is left, which is not so easy to get as what came before.
I do not disagree. Clearly, the industry has shown a lot of innovation over the years and will continue to do so, and obviously it needs to do so to get additional extraction. My hon. Friend the Member for Aberdeen North gave the example of partial decommissioning to allow the technology to be input for enhanced extraction. That is something that industry is looking at now, and I am sure it will continue to innovate.
We know that prices can be volatile; we have had to deal with that over the years. Oil bottomed out at just under $12 a barrel in 1997 before rising rapidly to $91 a barrel by 2008. That was under a UK Labour Government. If I go back to legacy issues, I wonder what happened with that money, because there was no way oil projections at that time were going to be based on the oil price increasing dramatically. It was such a windfall with that massive increase in price, but I do not think we have seen the benefits of that, either.
On the point made by the hon. Member for Banff and Buchan about managing the downturn, we have been consistently told that we need the broad shoulders of the UK, but if we look at the support that the UK Government have implemented in the past few years, the spring 2016 Budget reduced the supplementary charge back to 10%, which was a welcome measure. The Red Book predicted that that would cost £1 billion, and yet nearly three times that was given away in inheritance tax to millionaires. That shows skewed priorities.
In the spring 2017 Budget, there was nothing specific for the oil and gas industry, except one paragraph promising another discussion paper. However, it did confirm the lowering of corporation tax. Despite what everybody says about how it grows the economy and creates more tax, the Red Book predicted that that would cost the Treasury £24 billion over the lifetime of this Parliament. That was the Government’s Treasury prediction. Let us think what could be done with that £24 billion in terms of infrastructure investment or additional support for the oil and gas industry. In my opinion, it was a lost opportunity.
In the November 2017 Budget, a measure was introduced: transferable tax history. As my hon. Friend the Member for Aberdeen North said, that was genuinely welcome. It is predicted to bring an additional £70 million in revenue to the Treasury, so it was not a difficult decision. That decision supports industry, but it helps the Treasury, so it should have been taken long before. We are still awaiting the appointment of the oil and gas ambassador first promised by David Cameron in January 2016, so the Government really need to provide additional support for the industry.
Yesterday I raised this matter in the debate on industrial strategy. The oil and gas sector deal has been supported by every colleague here today, but I was disappointed that the ministerial response from the Despatch Box yesterday never mentioned the oil and gas industry or Scotland and did not pick up on the point that I had made, along with my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry). I hope today’s Minister will respond. I am sure she is working on the oil and gas sector deal and is positive about it, but it would be good to have that confirmation.
I must repeat my disappointment about the pulling of the CCS fund. That must be a lesson for the Government going forward because it scared the industry and scares away other people trying to make private investment. Again, the Minister has spoken positively about the future of CCS, so it would be good to hear her reinforce that when she sums up.
I appreciate time is moving on, Mr Sharma, so I will try to hurry up, but I want to mention another renewable energy project that has been developed at Grangemouth and would support the Grangemouth refinery: the Grangemouth renewable energy project, which has been successful in the CfD auction. Because it contains biomass, the whole premise of the project is based on securing renewable heat incentive funding as well. The UK Government are looking at retrospectively capping the amount of RHI funding available to projects to 250GWh. That would put the Grangemouth renewable energy project at risk, so I urge the Minister to reconsider, because the project is so innovative. It is a world leader, it would support the Grangemouth refinery, and it could develop industry for export and help grow the UK economy.
We have heard some impressive contributions. All have concluded that the oil and gas industry has a bright future, and I certainly echo that. I look forward to hearing the Government’s response.
I concur with the hon. Member for Kilmarnock and Loudoun (Alan Brown) and congratulate the hon. Member for Gordon (Colin Clark) on securing the debate, which has been informed and thoughtful, with excellent contributions. Although we have had a not overwhelming turnout this afternoon, as the Minister reminded me on a previous occasion, there are still two speeches to go, so I hope that my contribution will be up there with those who have already spoken this afternoon.
On where the oil and gas industry is right now, I heartily concur with hon. Members that the outlook at the moment looks much better than had been thought possible a few years ago. Indeed, looking at Oil and Gas UK’s “Business Outlook” for 2018, there are substantially more greens and yellows than there have been for a long time, particularly in relation to production, new field approvals, liquids production, capital expenditure and so on. That is a credit to the way in which the industry has cut its costs, increased its efficiency and got itself much better organised in terms of what will be a very different future for the UK continental shelf than has been the case in the past. That change in approach heralds a brighter future not only for 2018, but for a longer period, because of the change in approach. As the hon. Member for Banff and Buchan (David Duguid) reminded us, the circumstances will not be characterised by, to put it bluntly, hoping for another Brent find.
The future is going to be different. It is, as the hon. Member for Aberdeen North (Kirsty Blackman) said, going to be about looking at small pools, at how exploration can advance without there being a bonanza of new fields, and at consolidation of what already exists. As the hon. Lady and the hon. Member for Banff and Buchan reminded us, it is also a question of decommissioning, and how thoughtfully we go about the process. Oil and gas is not an industry where we can just talk about various spending estimates—£35 billion, £50 billion, or whatever. There is a question of decommissioning in such a way that the process for the possible future exploitation of small pools is maintained, rather than taking all the infrastructure away and feeling bad when it comes to getting on with things subsequently because, lo and behold, the infrastructure that could help is gone. The emergence of the OGA and the success that it has already had is an important element in getting some of those issues right for the future, with a greater sense of co-ordination and understanding within the process in the next period.
In other circumstances I might have said that the hon. Member for Aberdeen North had stolen a lot of what I was thinking of saying, but I know it is a coincidence because anyone who knows my office will also know that I am the only person who knows where my notes are, among the huge pile of papers. Nevertheless, she has articulated many of the themes that I wanted to talk about, particularly how we can ensure that the UK continental shelf has a bright future not just because of oil and gas but beyond them. That includes what we are doing to ensure that carbon capture and storage can be advanced. I believe that could happen in the UKCS, not just with a UK repository but also possibly, in the future, a European one. That would also mean being very careful about what was done in decommissioning, to facilitate rather than downgrade that future industry.
The hon. Member for Waveney (Peter Aldous)—I keep wanting to call him my hon. Friend, but convention in this place does not quite allow me to go that far—made a thoughtful contribution. He will know from the various Committees and other bodies that we have both been on that the opportunity for carbon capture and storage in different forms of gas use has the potential to be important for the future of the UKCS. His suggestion that we can see the UKCS as an entity for energy as a whole was an important thought, and I hope that we shall pursue it. Indeed, my actual hon. Friend the Member for Stockton North (Alex Cunningham) mentioned that there are other practical things to be done by way of decommissioning to produce not just opportunity but infrastructure for industries of the future in the North sea.
I want to give the hon. Member for Gordon an assurance. I do not think it was deliberate, but he chanced on a characterisation of some of those who consider the climate change debate to be an imperative in considering the future of oil and gas in the North sea—that those people would suggest that oil and gas should not have a bright future there. That is not the case. I regard the climate change imperative as encompassing all that we do in connection with energy, as I think does the Minister. However, that does not mean there is not a long-term need for oil or gas; there is a need for both. The question is not whether we have the need, but what we do with the stuff once we have got it, and what sort of responsibility we take for its subsequent use.
An example, which the hon. Member for Waveney will well recall, is the future arrangements that we might have for decarbonising the gas system. One way might be to develop a hydrogen gas economy—a green gas economy—for heating our homes. The cheapest and most efficient way to produce the necessary hydrogen would be through a steam methane reforming system, and that of course needs gas. We can envisage circumstances in which we would take gas from the North sea and make hydrogen from it—possibly in the Teesside cluster that my hon. Friend the Member for Stockton North described—and, to make sure that it would be climate-efficient, the process would need CCS as well. The carbon captured in the hydrogen-making process would be put back into the North sea repositories, which would have been saved by efficiency in the decommissioning process. By a variety of devices, we could have different ways of using what we had, to secure a bright future for the North sea, but it would not necessarily be the bright future that we envisaged hitherto.
It is important to be clear about our intentions for what we extract from the North sea—that what we use should be domestically sourced as far as possible. That would be good news for the UK as a whole, but we would also have the wider responsibility of the climate change imperative behind us. We need to think through what we will do with our North sea products and, on that basis, how we shall sustain the industries that have served the UK so well in the past 40 years or so. I am not one of those who says, “The North sea is finished; it is a mature basin.” There is quite a lot more to get out of that basin. We must do that in rather different ways, with rather different responsibilities, but provided we take that approach the bright future for the North sea and the oil and gas industry there is assured. I hope that we can work together on achieving that in the coming years.
Thank you for your chairmanship, Mr Sharma. I also thank the members of the Backbench Business Committee and its Clerks, who have provided us with an opportunity for an excellent debate. I agree that this was a quality debate, not a quantity one, and perhaps if we had more of those we should all be the better for it. I heartily congratulate my hon. Friend the Member for Gordon (Colin Clark)—and he is a friend—on securing the debate, and on an exemplary speech. It was thoughtful, detailed, clear and extremely well informed. Clearly he and other hon. Members in the Chamber have a strong constituency interest, and we debate the issue frequently because we are all passionate about the oil and gas industry and agree about the great value that it brings to the local and national economies.
I asked for and was able to keep the oil and gas brief when I became the Minister for Energy and Clean Growth because I think it is an integral part of the transition to a lower-carbon economy, as well as an enormous provider of productive employment and benefits to the economy, historically and in the future. It was striking to hear the comments of my hon. Friend the Member for Waveney (Peter Aldous), who perfectly combines those two interests, given his chairmanship of the all-party parliamentary group for renewable and sustainable energy and his frequent strong support for the industry.
We also heard excellent speeches from the hon. Member for Aberdeen North (Kirsty Blackman), who cares passionately about the issue and speaks up for it frequently; from my hon. Friend the Member for Banff and Buchan (David Duguid), who I was delighted to hear, because it is always wonderful to hear from somebody who actually knows what they are talking about—we all know what we are talking about, but some of us know more than others—from the hon. Member for Kilmarnock and Loudoun (Alan Brown), who gave a typically doughty defence of Scottish independence and managed to slip in some telling points that I will respond to; and from the hon. Member for Southampton, Test (Dr Whitehead), who I seem to spend a lot of time debating such matters with.
I will not detain hon. Members too long, because it is a lovely sunny afternoon, but I will make a couple of important points. I and the Government fully recognise the importance of the industry to the UK, historically, currently and in the future. It has been an enormous provider of revenue to the Treasury, of centres of excellence in terms of innovation, and of hundreds of thousands of jobs.
It is striking that in the past few years, we have stopped talking about the industry as a declining force, and started to talk again about the opportunities for it in the North sea and other areas. We have now realised that we can integrate those fuels into a lower-carbon economy. There are also incredible opportunities, such as decommissioning, which we in the UK can own as the world faces the same questions about the future of the industry.
There are encouraging estimates of what is left. Vision 2035 has led industry to say that there are between 10 billion and 20 billion barrels of oil equivalent left in the continental shelf, which could be worth up to £1 trillion. If we continue to responsibly explore and extract those hydrocarbons, use them in the most economically effective and responsible way, and work on decarbonisation, there is a great opportunity for north-east Scotland and the whole of the United Kingdom.
The challenge of the security of supply has been interesting in the past few months. The beast from the east, the changes to storage facilities in the UK and the discussions about diplomatic relations with other major gas-producing nations have led to conversations about the security of supply that we have not heard in the past few years.
In fact, indigenous gas production meets 46% of our gas demand and contributes to the balance of trade. We are clear that we have robust gas security for the future, but we may be able to increase the effective extraction of gas from the UK. I do not want to make the debate about hydraulic extraction, but I am convinced that we must soberly test the science, as we are doing through the exploratory phrase, to understand the size of the opportunity and whether it can be extracted, not in a wild west, Texan sense—that is not how we do business in the North sea base or anywhere else—but in the most environmentally responsible manner in the world. We want to test that. We have to be clear that that makes an important contribution to our energy security and our future economic prosperity.
As has been mentioned, I jumped on a plane as soon as I could and went straight up to Aberdeen—I did not drive up the motorway network, because it was not there, and it would have been a long way from Devizes even if it was. Aberdeen is a wonderful city and an amazing place to visit. Looking at the productivity map of the UK, the contribution that fishing, originally, and now this extraction have delivered is clear.
It was heartening to sit down with people from the Oil and Gas Technology Centre at the Oil and Gas Authority and talk to them about what they have been through. It has been a very tough time. They would say that they perhaps took decisions a little hastily—unfortunately, there have been job losses in the local economy—but as a result of going through that trial, the industry is in a better place than ever. It has the resilience to face any future changes in oil prices and an understanding of what it needs to do to build a more sustainable supply chain, and the co-investment that is coming together around the technology institute is very exciting.
It was also heartening to talk to the people from the OGTC about operational decisions, such as how they pulled together through the Forties pipeline interruption to deliver that back on stream more quickly. Of course they will always be competing, but the recognition of what co-working can mean is incredibly impressive.
The OGA has been a driving force for that. I pay tribute to its work, and to that of the offshore petroleum regulator for environment and decommissioning, which never gets enough credit. It is a superb operation with lots of civil servants from the Department for Business, Energy and Industrial Strategy working extremely hard and doing a very good job of regulating and ensuring the safety of the industry. We are aware of the painful losses that have been suffered and we are determined to work together to make the industry more resilient.
Hon. Members have spoken about the uptick in mergers and acquisitions activity, some of which predated the transferable tax history. I am told by industry that that has been such an important part of getting assets out of the hands of those for whom it might not be economically effective to extract, because they have global interests, and putting them into the hands of smaller operators.
Related to that, there has been an interesting surge in technological investment in things such as reusable tiebacks that enable companies to extract reserves in a more nimble way. That innovation and technology is really exciting. It is excellent that those lobbied-for tax changes, which were passed by a Conservative Government, are delivering. As the hon. Member for Aberdeen North said, there is renewed investment in innovation and drilling—people are getting out there and exploring.
Some of those changes will unfortunately lead to further restructuring and there may be job losses. We all want to build up a healthy ecosystem for the industry that will extend to a broader region and offer additional employment opportunities, particularly in new technology.
The Wood review, which we commissioned, suggested that we should establish a strong independent regulator. That is working well. We are committed to the driving investment principles that have underpinned that success, and we now have a globally competitive tax regime, which places the UKCS in the top quartile globally in terms of post-tax returns.
In total, the Government have provided £2.3 billion of fiscal support to the sector so far. We also committed another £40 million for new seismic acquisition, which has been managed by the OGA, and we co-funded the Oil and Gas Technology Centre through the Aberdeen city deal. I echo the point that the hon. Member for Aberdeen North made about that; it was a brilliant example of co-working. When we put aside our national, local and political boundaries, it is incredible what we can deliver in local areas. That has been a real success.
In response to the debate, I will announce three further things. First, I understand the comments about an ultra-deep water port, which we talked about in our manifesto. We are immediately commissioning a UK-wide scoping study, which will work closely with my Scottish Government counterparts, because they have kicked off a piece of work in Scotland and we want to ensure that we incorporate it. It is important that we look across the UK. If we can get an ultra-deep water port that is economically effective, it could have a material impact on our ability to attract decommissioning business.
Secondly, not for the first time, I listened with concern to the issues about helicopter safety. I understand that it is the only way for people to commute to work, as my hon. Friend the Member for Gordon said. I will write to the Civil Aviation Authority to ask it for reassurance that the measures it introduced on helicopter safety are working, and for what further assurances it can give.
Thirdly, on the issue that the hon. Member for Aberdeen North and others raised about customs treatment, I will instruct my officials to seek clarity immediately from their Treasury colleagues and to write to the industry and to all hon. Members present by the end of the month, so there can be no lack of clarity about what is required.
We have talked a lot about the industrial strategy. Trevor Garlick has done a fantastic job in getting the sector together and pulling together a series of interesting proposals. As I have said before, we must not define a Government’s willingness to work with an industry on the basis of there being a big-bang sector deal landing on people’s desks. Much of the financial and fiscal support that we have given to the sector is part of a broader sector partnership that we are committed to taking forward. However, there are some very interesting specific proposals in that deal. One that strikes me is for the decommissioning opportunity, which I am very keen to explore quickly and to bring forward. The House has my commitment that we will do that.
I believe we all share the view that environmentally rigorous extraction of oil and more particularly gas, and the use of that fuel, absolutely has a place in our low-carbon transitions. Our current assumptions are that we will continue to use gas. I understand the question of carbon capture and storage; we have debated it before and I will not run through the debate again. I will only say that we now have private sector partners with very deep pockets who are prepared collectively to invest in that technology through the oil and gas climate initiative; we did not have such partners before.
We also understand that we not only need to decarbonise generation; we also have to put that work within a cluster, so that dealing with industrial emissions can be put into the same infrastructure and framework. There are only five places in the world where CCS plants associated with generation are running purely on subsidy alone, which is effectively what we have been asking for. The other 16 places rely on enhanced oil recovery as a revenue source. Even the Norwegians, who have the sovereign wealth fund that we have talked about, find it very difficult to get pure subsidy for CCS through their Parliament. That is why I have set up the carbon capture council, which is headed by the best brains, including some of our friends from north of the border, to try to work out how we improve the technology in a cost-effective way. What is the irreducible core of cost and risk that Government have to take in order to move this technology forward?
The CCS cost reduction task force is specifically looking at cost reduction proposals and also committed £100 million for innovation, because without that technology we will not decarbonise either generation or industrial emissions, and I want us to lead on CCS.
In conclusion, this is a vital—
I thank the Minister for giving way, especially when she is just winding up. I raised the Grangemouth renewable energy project and the possible application of a retrospective cap on the amount of renewable heat incentive money that the project can claim. Is that something that she can reconsider? We do not want to put this project in jeopardy.
I would be very grateful if the hon. Gentleman wrote to me about that, so that I can consider that question and give him a more detailed reply. By the way, if I have missed out any points that were raised during the debate, Members should please feel free to raise them with me and I will try to respond to them.
It has been wonderful to have this debate on such a sunny day. It is 18°C in Aberdeen—I have just checked—so it is a slightly more balmy place than usual for people to head home to. This has been a really fantastic opportunity to reiterate all of our collective support for this industry, which has delivered so much, not only to the north-east of Scotland but to the United Kingdom. I want people to be in no doubt that we are committed to making sure that, yes, we do the economic extraction—I think that I have described it as being down to the last drop—but that we also think carefully about how we use this fuel in a low-carbon economy, and make the appropriate investments in the future. And once again, I commend my hon. Friend the Member for Gordon for raising this matter in the House.
Thank you very much, Mr Chairman, for calling me to wind up.
I am delighted that a few of us managed to come along on such a hot day; usually, in anything above 10°C, the Scots melt. We have managed to hold things together today.
The hon. Member for Aberdeen North (Kirsty Blackman) spoke about helicopters, as did the hon. Member for Stockton North (Alex Cunningham), and I was glad to hear what the Minister said about that issue.
My hon. Friend the Member for West Aberdeenshire and Kincardine (Andrew Bowie) realises the longevity of hydrocarbons, which is important to his constituency and to many of our constituencies.
The hon. Member for Aberdeen North also discussed the city region deal, which has been very important, and the Oil and Gas Authority, which has been very successful to date. We also spoke about carbon capture and storage opportunities. And she is quite right that we have to be very strategic about the infrastructure.
My hon. Friend the Member for Waveney (Peter Aldous) spoke strongly for the opportunities in the southern North sea, and as the chairman of the all-party parliamentary group on the offshore oil and gas industry, he is living proof that this is a national industry.
Back in the days when my hon. Friend the Member for Banff and Buchan (David Duguid) had a real job in the oil and gas industry, he made a contribution to the industry, and Banff and Buchan, where so much of the oil and gas is brought on shore, also makes a real contribution.
I very much appreciate the support for the industry from the Scottish National party Front-Bench spokes- person, from the hon. Member for Kilmarnock and Loudoun (Alan Brown), and from the hon. Member for Southampton, Test (Dr Whitehead), who spoke for Her Majesty’s official Opposition. I am glad of the support for domestic production of oil and gas, which can be part of the solution for protecting the environment.
Also, I thank the Minister for her input to and support for the industry in her dual role for energy and clean growth; it is tremendous that oil and gas are part of her responsibility. We must be clear that we can protect the environment while developing hydrocarbons.
The oil and gas industry is growing, it needs inward investment and I appreciate the support both of the Government and of Members here. It has been a great pleasure working under your chairmanship, Mr Sharma; thank you very much.
Question put and agreed to.
That this House has considered the UK oil and gas industry.