Orders of the Day — Oil Supplies

Part of the debate – in the House of Commons at 12:00 am on 29th January 1974.

Alert me about debates like this

Photo of Mr Laurance Reed Mr Laurance Reed , Bolton East 12:00 am, 29th January 1974

The separation of opposing forces in the Sinai is a big step forward and should be welcomed, but we should be deluding ourselves if we were to suppose that this heralds an early settlement between Arab and Jew. The peace talks at Geneva are likely to be a long and drawn-out affair. Yet even if Dr. Kissinger could work some quick and magical cure for the political ills of the Middle East, it would not make much difference to the oil question. A crisis in energy has been building up for a number of years. The latest Israeli-Arab conflict simply brought matters to a head sooner than anybody expected.

The days of cheap and abundant energy are over, and we are launched on an era of shortages and high costs. Just how long this situation will last nobody seems able to say with certainty but it will last until new power sources can be brought on stream in sufficient strength to dislodge desert oil from its commanding position.

During these years the Arab world will exercise great political power and will use it for its own advantage at the expense of the industrial nations which for the most part are poorly endowed with energy resources. The oil weapon, which has been deployed to such effect once, can be used again—and for purposes quite unconnected with the Arab cause against Israel.

The quadrupling of oil prices has imposed a massive external debt on the developed world. I do not know what intelligence the Government have about OPEC's future intentions—Sheikh Yamani made some interesting remarks at the weekend, which were shot down by other Middle East oil producers—but I should have thought it on the cards that we shall see a further increase in prices during the current year. Certainly some oil companies expect this to happen.

At the current price it immediately becomes worth while to exploit alternatives such as offshore oil, tar sands and shale deposits. Unfortunately, none of these resources can be tapped very quickly. Until they become available the Arabs can charge virtually what they like for their oil and we shall be forced to pay.

An article in a recent edition of the Economist argued that the hidden hand of Adam Smith would soon get to work and in next to no time we should have a world-wide glut of energy on our hands. Such theoretical matters may appeal to the minds of abstract economists, but the practical difficulties involved in winning any of these resources suggest a time scale of 15 years before the West as a whole can hope to correct the situation.

The new prices will generate huge cash surpluses for the oil-producing States, and with every increase in the price there will be less and less incentive for them to restore production to former levels. Even if we can find some suitable outlet for these moneys, the Arab rulers remain concerned about the rate at which they are exhausting their oil, and would like to lock more of it in the ground as an investment for the future.

Oil has a greater value as a raw material for industry than as a fuel and, whatever the effect of nuclear power on energy prices in the future, I suspect that the value of oil as a raw material will not diminish as the years pass. If hoarding pays it could be prudent to work upon the assumption that there will be a continuing shortfall in supplies in relation to demand. No doubt in the short run supply difficulties can be overcome by leaving our salt on the ski slopes of St. Moritz but it is quite certain that the Arab world will never again automatically increase production in step with the growth targets we set ourselves in the West. From now on it will not be the gnomes of Zurich but the rulers of Arabia who will dictate the pace of our economic progress.

The domestic implications of this upheaval are so far reaching that we are still trying to fathom out what it all means. The true significance is only just beginning to penetrate the public consciousness. The Governor of the Bank of England has warned us of a decade of "relative austerity" with little scope for improvement in personal living standards. I would not quarrel with his assessment. For three or four years there will be little or no economic growth in our economy, prices will continue to move sharply ahead under the influence of Arab oil, and everybody in Britain, for the first time in many years, will experience a falling off in their standard of living. To be blunt, tomorrow will not be a better day.

During the past quarter century we have lived in the expectation that tomorrow will be a better day and hopes have been built very high on that assumption. So it is now necessary for us to lower our sights and show restraint and discipline in the demands we make. If we do not, then home-bred inflation will be added to inflation generated by Arab oil and other world prices. Expectations remain long after the prosperity which gave rise to them has ceased. It will be only too easy for us to slide into the maelstrom of hyper-inflation.

I suggest that the Government must ensure that the hardships are carried equally by all sections of the community and that there is a fairer sharing of accumulated wealth in Britain. It is one thing to have an incomes policy which holds people back from something they may still hope to obtain in the future. But it is quite a different thing to expect them to accept a lowering in their standard of life unless it is on a share-and-share-alike basis.

There can be no question now of returning to free collective bargaining. In conditions of no growth this would amount to an enforced redistribution of national wealth not according to any principles of social justice but through a random process in which the strong would devour the weak. The Government will also have to curb their own propensities to spend. Expansion in education, health and welfare services will have to be postponed and extravagant projects abandoned. Public funds must be diverted to develop national energy resources, particularly our offshore oil. That will be very costly both in terms of skilled manpower and of cash.

It is no comfort to know that other countries are in exactly the same boat. Some, indeed, are in worse shape. However, we can find consolation in the know ledge that Britain is one of the few industrial nations that can hope to become self-supporting in oil relatively quickly. Japan cannot do that and nor can Germany or France. Even America, despite its great potential, will find it hard to reverse its growing energy deficit. The full potential of oil on the United Kingdom Continental Shelf has still to be proved, but it is now as certain as it can be that enough will be found to satisfy all our own needs. The oil crisis, thanks to our Arab friends, has greatly enhanced the value of these assets. But it has also presented us with something of a dilemma. As an oil-consuming country we have an interest in keeping the price down but as an oil-producing country we may have an interest in pushing the price up.

Should we sell our oil to the highest bidder and reap the maximum benefits for the balance of payments, and huge dividends for the nation from the royalties and taxes charged on the profits? Or should we retain the oil exclusively for our own use, feed our industries with a relatively cheap fuel, and gain the edge over competitiors abroad who will continue to be dependent on Arab oil long after we have ceased to be?

The choice is not an easy one, and needs to be balanced against other international objectives. Nevertheless, it is difficult to believe that, after experiencing several years of austerity, people in Britain will be prepared to pay a price for their own oil that has been fixed by a producers' cartel in the Middle East. It is perhaps too soon to answer the question.

The immediate task is to secure our advantage. First, we must get the oil ashore as quickly as possible. The sooner it arrives, the sooner there will be an improvement in our balance of payments and a return to growth policies. I shall never understand why we had a licensing policy which encouraged the most rapid exploration of the shelf but no policy at all when it came to the delivery of the discovered oil ashore.

Secondly, we must accelerate the pace of exploration in areas to the west of Britain, where only four holes have been drilled to date, and draw up our licensing provisions accordingly. At this stage it is more important for us to unlock the oil in the ground than to unlock the vaults of the oil corporations by seeking to maximise revenues. Risks and costs will be higher in these waters than in the North Sea.

Thirdly, we must build up our own capabilities in offshore engineering. We are dangerously over-dependent on foreign know-how and technology. The energy crisis will give a tremendous boost to undersea oil exploration right across the globe, and many of the rigs currently under construction in foreign yards and destined for use in the North Sea may now never get here.

The United States Government have already set out to achieve self-sufficency by 1980. Bearing in mind that the bulk of offshore drilling capacity is owned and operated by United States companies, it is reasonable to suppose that the exploration programme on the American Continental Shelf will now receive priority. Of 27 rigs drilling in the North Sea last summer, BP owned one, Shell one, all the rest were American.

To achieve self-sufficiency by 1980 we should have to discover enough reserves to produce 200 million to 250 million tons a year. On the current success rate, this means that we shall need to drill a further 600 holes. Yet existing leasing agreements call for only a further 220 holes by 1978. This rate will have to be stepped up.

A rig is normally capable of drilling three holes per season, so we shall need the full-time services of 30 rigs at least. The most recent estimate of semi-submersible drilling rig capacity—made before the recent oil crisis—foresaw a world-wide shortage of 20 rigs by 1982. There are being built 11 semi-submersible rigs for use by United Kingdom opera tors, to come off the line by 1977.

The impact of going for self-sufficiency by 1980 goes far beyond the problem of finding the necessary drilling capacity. The whole approach to platform construction needs to be examined, as does the problem of using steel for line pipe. I doubt whether the Japanese will allow their crude oil to be used extravagantly for the extremely high specification steels so far supplied to the North Sea.

If we are to become self-sufficient in oil, it is clear that we need a major national effort in ocean technology, promoted by the State in conjunction with business enterprise and the universities. We cannot continue to justify the expenditure of hundreds of millions of pounds on fuel-hungry aircraft projects while spending next to nothing on research and development in sea-bed engineering, the technology upon which we now depend for our survival as an industrial Power.

Self-sufficiency in oil will radically transform our position from one of great weakness to one of exceptional influence and strength and by 1980 we could emerge as one of the strongest countries economically, overtaking Germany and Japan. Unhappily, this is today but an enviable prospect.

We might get some oil this year, we shall certainly get a little next year, but we shall not get oil in any volume until 1977–78. In the intervening years we shall face a test of parliamentary democracy, because we can be sure that people of extreme political disposition, as much of the Right as of the Left, will seek to exploit the situation to their own advantage, spread unrest and undermine established order. We must remember that the tension which exists in sections of United Kingdom industry today has arisen under conditions of steady economic progress. One wonders, therefore, just what it will be like when we have no growth and living standards are falling.

This is no time for compromise and retreat. We need a strong but just Government to see us safely through this period, and if national unity is to be preserved all the forces of democracy will have to be mobilised, because what will be challenged in this period is not an individual Government, an individual Prime Minister or an individual policy. What will be challenged is the authority of Parliament itself.