The difficulty about laying down a definitive energy policy is the speed with which the overall picture changes.
In the last few years the overall picture for us has been altered dramatically by two developments: first North Sea oil, and secondly the world energy crisis. Three years ago not a drop of commercial oil had been found in the United Kingdom portion of the Continental Shelf, and few would have guessed that in the space of 10 days this year no less than three oilfields would be confirmed.
The speed of change has been so great that I still find most people in this country believe that those finds amount to no more than 10 per cent. or perhaps 12 per cent. of our total requirements, and I have the impression that a large number of my parliamentary colleagues, who should be better informed, believe the same. In fact, the Department's own estimate is that by 1980 or the early 1980s Britain will be producing at least 70 million tons of oil per year, and perhaps as much as 120 million tons a year.
Those official figures err on the side of caution, and I understand and accept the reasons why that must be so, but those who do not occupy positions of officialdom can perhaps be a little more bold. The official figures, it is important to note, do not include any estimate of what reserves there may be in those parts of the British Continental Shelf that remain undesignated and, since these include some areas of quite exceptional promise in the English Channel and to the West of Scotland, including the Rockall/Hatton basin, it seems that there is a strong probability that Britain will eventually become independent of foreign supplies, and possibly a significant exporter as well.
But let us suppose that that forecast is too optimistic and incorrect. We still cannot forget our huge coal reserves. The value of coal is relative, and, if we are to have to pay about five dollars a barrel for our oil by 1980, what is so much dirt in the ground today will be gold in our hands tomorrow.
"Crisis" seems to be too strong a word to use in relation to current world energy problems. There are ample world energy reserves if we are thinking in absolute terms. What we have today is an imbalance between supply and demand which may last for 12 or 15 years before nuclear power and other forms of energy come into their own. As we know, the situation has been created primarily because of the end of America's self-reliance on energy. I understand that about half of her oil requirements will have to come from the Middle East in the 1980s. Apparently, tar sands and shale deposits are not adequate to make up the deficiency, and it is considered that Communist sources, if there are any, are too risky and that nuclear power cannot close the gap for America until the 1990s. Thus, for a decade or more the United States will be dependent upon external sources and her freedom of manoeuvre will be considerably circumscribed.
I understand that Western Europe as a whole can expect the demand for energy to double, and in Japan to treble. Of course, this means that the Western world's balance of payments will go from bad to worse. The cost of oil imports to Western Europe could be as much as 35 billion dollars per annum and America's annual deficit for oil imports around 25 billion dollars per annum. The competition for petroleum between America, Europe and Japan will create considerable international problems and complications.
On the other hand, we can expect those in the Arab world to exploit their new bargaining strength to the full and they will wax exceeding fat on the profits. One estimate given to me is that their total surplus in one year could be around 70 billion dollars. Fears have been expressed about the possibility that they will use these huge surpluses for political ends. Whatever they may do on the political front, it seems to me certain that before very long they will decide to save their money, not in the banks but by locking their oil in the ground as an investment for the future. If that happens, it will precipitate an earlier and even greater international energy problem.
In this situation it seems to me that Britain occupies a unique position because we look like being the only major industrial country in the West that will be entirely self-supporting in energy, and certainly there will be no balance of payments problems for us. It is very difficult to know precisely what the effect on the balance of payments will be because it depends on what the world price of oil will be, but there have been suggestions that it will be as high as £1,500 million per annum.
Though we shall find ourselves in a position of comfort—an enviable position—we shall also find ourselves in something of a predicament because, as a member of an energy deficit bloc, we shall have an interest in keeping the cost of energy down, but as a major producer of energy we shall also have an interest in seeing the price go higher.
World prices will be determined not by the cost of producing oil, gas or coal but by the demand/supply situation and the political complications which result. One very definite possibility which presents itself is that we could isolate ourselves completely from world energy costs, feed our industries with cheap fuel and undercut all our major industrial competitors who will be struggling to hold down their export prices as energy costs go through the roof. Needless to say, such a policy would set up very severe strains inside the European Economic Community and presumably would run counter to the declared aim of political unity.
Nevertheless, it would be foolish not to recognise that any Government of 1980 would be under an immense temptation to do it, price rises having the effect that they do on the fortunes of political parties. The alternative, of course, would be to let our oil be sold at the price established by the Arab monopolists, so deriving the maximum financial returns in royalties, taxes and profits. Either way, however, we look as though we shall do exceptionally well.
It is far too early to say which way we should play this. Anyway, there are factors to be taken into account far beyond the realms of energy policy. As I said at the beginning, it is very difficult to lay down any hard and fast rules about energy policy when the picture is changing so quickly, and at this stage I do not think I could identify more than three strategic aims of policy.
First, we should continue to explore at maximum speed for possible fuels in this country—for oil, gas and coal. It is only when we have an accurate inventory of our total reserves that we can possibly decide how rapidly we can afford to exhaust those capital resources, what should be the contribution of coal, of oil or of gas to our total energy budget and where they are best used, how much should be sold abroad and how much held at home.
The second strategic aim is that we must strive to hold down costs by improving extractive technology for hydrocarbons under sea and on land and by finding new ways of making the most efficient and effective use of the energy by eliminating waste in use.
Third, we must recognise that hydrocarbons are finite and that the boom that is created by these new discoveries will last no more than 20 or 25 years. We must therefore have an eye for the future and invest now in research and development which will enable us to harness new forms of energy which are either inexhaustible or relatively so.