North Sea Gas

– in the House of Commons at 12:00 am on 4th February 1966.

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Photo of Mr Frederick Lee Mr Frederick Lee , Newton 12:00 am, 4th February 1966

I made a statement on 21st December about the prospects of the supply of gas from the field in the North Sea which British Petroleum holds on licence. Despite the setback arising from the grievous loss of the "Sea Gem", British Petroleum remains confident of the feasibility of the programme I then indicated. I am glad to tell the House that the Gas Council and the British Petroleum Company have now arrived at an agreement.

It is in the interests of the country and of the gas industry that North Sea gas should be exploited and made available on shore as rapidly as possible. In view of this, I gave assistance and advice to both parties in composing the ultimate differences between them. As a result of the agreement now concluded, the preparatory work can go forward with all speed so that full use may be made of the summer period this year for operations, including the pipe-laying at sea.

With the permission of both parties I disclose to the House the main features of the arrangements between them. The company undertakes to deliver and the council to accept at least 50 million cubic feet a day for 15 years from the commencement of the supply. The company will use its best endeavours to increase output to 100 million cubic feet a day during the first three years of supply, and will offer these additional supplies to the Gas Council, which undertakes to receive them on a prearranged programme.

The agreed price is 5d. a therm, but this is valid only up to an average of 100 million cubic feet a day and for a period of three years from 1st July, 1967, or the date of the commencement of the guaranteed supply, whichever is the earlier. Above the stipulated quantity in the first three years, and for all supplies beyond the first three years, the price will be for renegotiation.

The agreement also contemplates the possibility of further increasing the quantity of gas to be delivered up to 200 million cubic feet a day. British Petroleum will from the outset, and at its own risk, provide a marine pipe capable of carrying 200 million cubic feet a day and the Gas Council will make at least equivalent provision on land.

In view of the potential importance to our economy of North Sea gas, both in terms of quantity and price, and in view of the fact that my statutory obligations under Section 9 of the Continental Shelf Act, 1964, could become engaged later, I think it necessary to stress certain features of the arrangement between the council and the company.

As far as price is concerned, this is a limited and temporary arrangement; and the agreed price is lower than actual import prices already being paid, and competitive with the price of authenticated offers of comparable gas in comparable quantities from overseas.

The eventual economics and costs of production of North Sea gas cannot at present be measured: they will depend on the number of failures, the total quantity of gas obtained and the number of producing wells required to obtain it, the distance from the shore and many other factors. We must all hope that much larger quantities will be found than the minimum mentioned above and that the price can be significantly below the level adopted temporarily in this first case.

Photo of Mr Patrick McNair-Wilson Mr Patrick McNair-Wilson , Lewisham West

Will the right hon. Gentleman accept, since the previous Administration were quick to encourage the exploration of fuel resources lying under the North Sea, that we welcome his statement? I have two questions to put to him. First, the statement refers to the date, 1st July, 1967, "or the date of commencement of…supply, whichever is the earlier". Is he able to tell us in any detail whether a new date is being arrived at?

Secondly, will he give an assurance that he will keep the price closely under review? Of course, the price must reflect the initial capital charges and commercial good sense, but we hope that the discovery of what we hope will be plentiful supplies of energy so close to our shores will also be reflected in the price.

Photo of Mr Frederick Lee Mr Frederick Lee , Newton

I cannot make any further statement now about timing. As the hon. Gentleman knows, there is a time scale, which begins on a certain date. I have nothing to add to that at the moment. He understands, I know, that this is a purely temporary arrangement. It was essential, given the situation as it exists. It will expire at the end of the three-year period, after which there will be a complete renegotiation of the price, when the economics of the situation will then have become far clearer.

Photo of Mr George Mackie Mr George Mackie , Caithness and Sutherland

Is the right hon. Gentleman able to say whether North Sea gas will be available for next winter? He stressed that he wants pipe-laying operations to go on during the summer period. No doubt he will ensure that the maximum possible supply is piped before the cold snap next November.

Photo of Mr Frederick Lee Mr Frederick Lee , Newton

In a statement I made some time ago I referred to 1967–68. We are convinced that a great deal of the work in getting the pipeline laid must be done next summer. It is, therefore, splendid that the two parties have agreed now and that they can go ahead with their operations. It is not only a question of B.P. laying pipes at sea. The Gas Council must lay down piping inland as well. I do not withdraw anything about the time factor that I mentioned in my previous statement.

Photo of Mr Henry Hynd Mr Henry Hynd , Accrington

What effect will this have on the coal industry? Gas is already being produced by other methods. Will this mean a speeding up of pit closures?

Photo of Mr Frederick Lee Mr Frederick Lee , Newton

Not necessarily. The full quantity to be obtained is as yet unknown. I have given the figures for the guarantee which B.P. feels it can give at this stage. The quantities I have announced, although very important to us, would not make a very significant difference to any other type of fuel. Quantities of North Sea gas would have to be far greater than this before it would mean any reduction in any other type of fuel. The announcement already made about pit closures stands and is not in any way affected by this statement.

Mr. Fletcher-Cooke:

Is the right hon. Gentleman aware that the number of important Government statements made on a Friday has increased, is increasing, and ought to be diminished?

On the substance of this important statement, will the right hon. Gentleman confirm that this is really an agreement for three years certain only, that there is really no machinery in the agreement for securing an arbitrated price for the future, and that, of course, three years is an important period? In the interests of speed, will the right hon. Gentleman accept congratulations on these difficult negotiations?

Photo of Mr Frederick Lee Mr Frederick Lee , Newton

On the hon. and learned Gentleman's first point, perhaps we can combine to make Fridays more important than in the past.

Secondly, a great deal of hard work has gone on, including, as he intimated, bringing the two parties together. The officers of my Department have done a great job of work. We are happy to be able to make this announcement today.

Mr. Gresham Cooke:

Would not the right hon. Gentleman agree that there is still a great deal more drilling to be done in summer to prove this find? If that is so, is it not likely that no laying of pipes could really begin until summer 1968?

Photo of Mr Frederick Lee Mr Frederick Lee , Newton

I would not accept that at all. The hon. Gentleman will recall that, after the initial hole had been drilled, B.P. was quite confident that it had found gas in commercial quantities. Then there was the unfortunate accident to "Sea Gem," which stopped drilling a little further. Nevertheless, B.P. is confident that it can keep to the time schedule. I think that the hon. Gentleman is wrong. B.P. believes that it has gas in commercial quantities and is sure that it can keep to the time-table that I have announced.