North Sea Gas

– in the House of Commons at 12:00 am on 19th December 1980.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Waddington.]

Photo of Mr Dick Douglas Mr Dick Douglas , Dunfermline 9:35 am, 19th December 1980

Thank you, Mr. Speaker, for the opportunity to debate this subject at this time of the year. In a way, it is a Christmas present to be able to address the House on it.

I turn directly to the Minister of State's statement in a written answer on Wednesday 17 December about the gas gathering system. At first glance it seemed reasonable, but I think that the Minister will agree that it raises more questions than it answers.

The statement in no way attempts to quantify the issue. There is an amazing absence of statistical data. We are not told the level of the natural gas liquids available, nor is there any attempt to assess in cost-benefit analysis terms the national economic advantage of the proposed arrangements. One cannot avoid the distinct impression that the Government's oil and gas policy, while appearing to judge the issue in terms of maximum benefit to Britain's economy, is in reality trying to maximise the revenues flowing into the Exchequer so as to underpin the tottering Tory regime. In the absence of a statistical approach, no one on the Opposition Benches can do better than hazard enlightened guesses.

What would be the best arrangement for the British economy? While I have a great regard for the Minister of State, Department of Energy, I must say that he should have a great deal more respect for the House—I hope that he will give me his attention—and show a little more understanding of our position than simply to deal with this complicated issue on the basis of a written answer to the hon. Member for Sheffield, Hallam (Mr. Osborn), who is conspicuous by his absence today. The hon. Gentleman showed such great interest that he tabled a question for written answer but has not appeared when the issue is being discussed in the House. The whole business of Members allowing themselves to be used in that way should be examined by the Procedure Committee. It is disrespectful to the House that Members should allow themselves to be used by the Government so that the Government can give ostensible regard to the House while in reality ignoring it.

I wish to deal with what I consider to be the enlightened guesses about the maximum economic advantage to Britain. Some time ago the Minister and the Secretary of State were good enough to meet a deputation of my hon. Friends the Members for Kirkcaldy (Mr. Gourlay) and Fife, Central) (Mr. Hamilton) and myself, together with representatives of the Fife region and the Kirkcaldy and Dunfermline districts, to discuss the issue. While we agreed that there might be a case, after the gases had been landed at St. Fergus, for some of the other natural gas liquids, fraction C3 and above—I am sorry to speak in shorthand chemical terms—going around the corner to Nigg Bay, there was no case whatsoever for any of the ethane going round the corner. As far as we can gather, the Government accept that view. However, the statement leaves the options open to put ethane round the corner to Nigg Bay at a later stage.

In the absence of statistical data, we have to ask whether the Secretary of State expects the supply of ethane to exceed the joint capacity of the crackers at Mossmorran and the refurbished or altered crackers at Grangemouth and Teesside. If so, what is the basis for that assertion? Does he think that at some stage in the 1990s we shall need another world-scale cracker in the United Kingdom? If that is the case, what is the basis for arguing that it ought to be sited on the Cromarty Firth? Is it not equally arguable that it could be sited somewhere down the line, either in North-East Scotland or elsewhere? Those are questions which the statement leaves unanswered.

I turn to the other fractions. On what basis can the Secretary of State argue, bearing in mind the capacity of the NGL facility at Mossmorran, that he ought to make provision for any of the other fractions going round the corner at present? The opportunity at Mossmorran could be to increase capacity there.

One topic that is not discussed, but which it is important to discuss, is safety factors. If we take two lines, as is proposed—an NGL line and an ethane line—down to Mossmorran, will that make the position safer and will it expedite planning matters?

I come to the crucial role of the BNOC and British Gas. Under participation and, I assume, some equity arrangements, the BNOC and British Gas might have access, notionally again because we have no statistical data, to between 50 and 60 per cent. of total gas liquids. They are in a key position. Why is it not possible for both corporations to come together and operate the system jointly, either onshore or offshore or both? The only restraining feature seems to be related to the Government's obsession with the public sector borrowing requirement. The Minister shakes his head. Perhaps the restraining feature is the opposition of the oil companies.

There would be a mess of warring competition if we did not have the BNOC in its key position. Even the Government recognise that. The BNOC reduces the warring factions. The Secretary of State says that the Government will expect the sharing of the spoils to be determined on a strictly commercial basis. Mr. Philip Shelbourne agrees with that view. He wants the corporation to act commercially—after it is put in a privileged position.

The views of Mr. Shelbourne seem to suggest that the payment of £50,000 a year to Professor Walters is wasted. We get the same stupid, narrow, monetary echoes from Mr. Shelbourne, who knows a lot about banking and law but seems to know little about the oil industry and nothing about socio-economic factors. If we allow the oil companies to bid for important, valuable national assets on a commercial basis, who will look after the national interest in terms of infrastructure, jobs and the level of unemployment?

If Dow Chemicals is the biggest bidder, will we allow the gases to go to Nigg Bay or wherever the company wishes to take them and forget unemployment in central Scotland or on Teesside and all the infrastructure that has been provided there? I suggest that Mr. Shelbourne and others ought to have another look at that matter.

Arms-length deals are one thing, but, to be fair to the oil companies, they do not know in detail the supply of the gases or the terms of ownership of control of the gas lines. To give the BNOC the aura of a commercial entity yet to restrict it from going downstream is economic and industrial nonsense. How can the Government say that they expect issues to be determined commercially but say to the BNOC "Do you not think that you ought to participate in joint ventures downstream?" How can they justify that, when they say that the corporation will act commercially? It is another indication of the Government's general doctrinaire stupidity.

I turn to the bona fides of the parties. I have some rules of thumb in dealing with oil companies and their personnel. First, I recognise their capability to employ the best brains. Secondly, because of that, their personnel are invariably devoted to the interests of the companies. If the Government are to squeeze them in the national interest, they must have some instruments available to achieve that end.

Companies with assets and a track record here are more amenable to such an approach. I am sure that the Minister agrees. Without saying that the hon. Gentleman has leaned on companies too much, we know that there have been some benefits to the United Kingdom economy recently that we would not have achieved if the companies had not had a track record and an asset base here. How do the Government judge the bona fides of companies such as Dow Chemicals and Highland Hydrocarbons? I am the last person to begrudge the Highland area of Scotland economic development, but is it realistic to put our trust for such development into the hands of such companies? The track record of Dow Chemicals internationally, and particularly its promise to do certain things for the Spanish economy, does not lead me to believe that we should have a lot of faith in the company in Scotland.

I hope that the Minister will comment on dealing with the Norwegians on their gas finds. I know that these are delicate matters of discussion and that the posture of British Gas is important. The Opposition are not privy to the negotiations or explanations, and we should welcome further information if the Minister can provide it, but it is important to recognise that there would be an enormous bonus in terms of downstream petrochemical development to the United Kingdom if an agreement could be arrived at with the Norwegians, certainly for Statfjord gas. I understand that the Minister has had good relations with the previous oil Minister and the new Minister in Norway.

If we are to embark on the £1 billion development, at current prices, how much will come in job terms and material and equipment terms to the United Kingdom? I trust that the Minister will bend his efforts to secure the best result for us.

My hon. Friend the Member for Fife, Central is in the Chamber. He represents an area of high unemployment in Cowdenbeath. We in Fife look for the economic advantages of the cracker and NGL plant at Mossmorran and the terminal at Braefoot Bay. We are not unmindful of the safety factors; it is not jobs at all costs. We are also mindful of the effort that the local authority in Fife has made to secure that base.

We want assurances from the Minister that nothing in the Government's decisions will endanger the long-term viability of that plant. If we can ensure its long-term viability, the spin-offs will come to central Scotland. There may be some argument among some Scottish Members, though not from me, because there will also be a spin-off to Teesside. I should welcome assurances from the Minister on those matters.

Photo of Mr Ian Wrigglesworth Mr Ian Wrigglesworth , Teesside Thornaby 9:50 am, 19th December 1980

I congratulate my hon. Friend the Member for Dunfermline (Mr. Douglas) on providing the opportunity for this debate on a matter of great importance, not only to areas directly affected, to which I shall refer, but to the whole national economy. I also congratulate him on the way in which he has analysed the problem, particularly from the Scottish point of view but also from the national point of view.

My interest, of course, is in the position of Teesside, where we have very substantial petrochemical plant. The industry is the second largest employer of labour in the area and, naturally, we are anxious that its use should be maximised and that it should continue to be a successful part of our own economy and of the national economy.

For that reason, all of us on Teesside—I am sure that this applies equally to the people of Grangemouth and Mossmorran—wish to see the feedstock that is to become available from the gas gathering scheme being made available as quickly as possible to the under-used capacity that already exists in those areas. On Teesside, over the past year, two of the crackers at ICI Wilton have been closed down for some of the time and operating at only about 40 per cent. of capacity. The area has a dreadful unemployment problem—a rate of 14.4 per cent. overall, rising to 16·2 per cent. for male workers. More than 23,000 people are unemployed. In the past week it has been announced that a further 3,700 people will be put out of work at the British Steel Corporation on Teesside. That will increase the level of unemployment even more.

In the light of that situation and of over-capacity throughout the country, it seems ludicrous to be pressing ahead on making provision for new capacity in the North of Scotland when the potential of our existing plants is not being fully used. The existing plants, and our British companies also—this is probably the most important aspect—need security of supply of their feedstock. The situation will be ludicrous if they have to rely upon the supply of feedstock from all other parts of the world when we have on our doorstep a feedstock which they cannot use but which from the point of view of the national interest they should be able to use.

We have had representations in the House from various industries—not least the fibres industry—which have been in difficulty in recent times because of the cheap feedstock enjoyed by competitors, particularly in the United States. On visits to the United States over the past two or three years, I have on every occasion made representations to Senators and Congressmen on the Hill in Washington to seek a more reasonable and competitive position for feedstock supplies to their petrochemical industry. But they have not responded to that plea. As a result, industry after industry in this country is being damaged by the uncompetitive prices that they are forced to charge by comparison with the cheap prices that the American companies can charge because of their low feedstock prices.

In those circumstances, and against that background of over-capacity and of cheap feedstock available to competitors, it would be quite wrong of the Government not to press ahead with the utmost speed to provide the pipeline from St. Fergus down to Mossmorran, Grangemouth and Teesside, so that existing capacity may be used to the full and that there will be security of supply and a more competitive situation for our existing plants and our existing British companies.

I therefore appeal to the Minister this morning not to support the plans to provide extra capacity in the North of Scotland but to press ahead with the pipeline to the South with the utmost speed. The capacity is there to use the feedstock. If the pipeline can be provided in the next few years, it will ensure the security of employment of existing employees in the industry. It will provide security for the firms in the future and increased employment in the years to come.

One could not be considering this at a worse time in terms of unemployment. I therefore hope that the Minister will respond to the appeals of those of us who have existing capacity in our areas and thus ensure that the jobs at present there are secured and that growth will come in the future.

Photo of Mr Willie Hamilton Mr Willie Hamilton , Central Fife 9:55 am, 19th December 1980

I shall be brief. Historic decisons are being made, have been made and will be made on these matters. These decisions are of critical importance, not just locally but nationally. I believe that if we get this right we can lead the whole of Europe in petrochemicals. The stakes are no less than that. The Minister will recall that when the Fife authorities came to see him and the Secretary of State some weeks ago, we agreed that some compromise arrangement would be acceptable to us. If we got the ethane going south we would not mind, and we would certainly support the provision of certain facilities in the Nigg area, despite the fact that the Minister might be accused of plugging his constituency line—I think that he and we must face that. But this is far too important a decision to take on narrow considerations of that kind.

We in Fife are very excited by the prospect of Mossmorran and of the ethane coming south. We are very much concerned with the spin-off arising from this project and the creation of what we hope will be long-term jobs. Of course there are risks involved in the project, but as a mining community Fife has lived with risks all its life. Therefore, while we are naturally concerned, this is not an inhibiting factor to the extent that we would not want the project.

I do not know what time schedule the Minister has in mind. Perhaps he could give us a little more detail about the time schedule for developments in his area. The Fife authorities made the case very strongly about provision of the infrastructure, as it were—education, housing facilities and so on. Although additional facilities will need to be provided in his area, that should be no insuperable objection to some provision in his area. I therefore hope that we shall not be accused of being intensely parochial in this matter. We very much appreciate the importance of the project within the context of regional policy.

My hon. Friend the Member for Thornaby (Mr. Wrigglesworth) is quite right to plug his area. That area is very hard pressed. So is ours. But so, in its own way, is that of the Minister of State. In that context, I congratulate him on what seems to me to be a reasonable compromise at the moment. I hope that he will continue the good work.

Photo of Mr Hamish Gray Mr Hamish Gray , Ross and Cromarty 9:59 am, 19th December 1980

I join with others in congratulating the hon. Member for Dunfermline (Mr. Douglas) on giving the House the opportunity to discuss this very important matter. I also congratulate him, despite his strong constituency interest, on the very moderate way in which he put his case this morning. I realise that to some extent we perhaps shot his fox by making a statement earlier in the week. Clearly, he applied for this Adjournment debate not knowing that that statement would be made. Therefore, I am still grateful to him for giving us the chance to talk about it now.

The hon. Gentleman dealt with the matter at some length in asking for statistics. In a short debate such as this I shall not go into great detail about the volumes that might be available, but at the outset I draw the hon. Gentleman's attention to the quantities given in Department of Energy paper No. 44, published in June 1980. BGC-Mobil, for example, forecast all liquids coming ashore at 1,659,000 tonnes, of which 647,000 tonnes would be ethane. It estimates that by 1990–91 a total of 3,398,000 tonnes could be expected, of which 1,325,000 tonnes would be ethane. Onshore and offshore estimates are also given in paper No. 44.

The offshore gas reserves are increasingly precious resources, and the Government are determined to make the most of the asset and to avoid the wasteful flaring of gas. It is significant that within the past year we have managed to halve the flaring of gas in the North Sea, but even that is not enough.

The Government welcome the report of BGC-Mobil, published in June, which recommended that a new offshore gas pipeline system should be built. We believe that that gas gathering system should be built as quickly as possible, and we therefore invited Mobil, BP and the BGC, together with a financial adviser, to form an organising group. That group has done a lot of detailed work in carrying on the project and formulating recommendations on organisation and finance.

The organising group submitted an interim report at the end of October. It described progress and confirmed that the target of getting the gas ashore by 1984–85 could be achieved. The report made recommendations in two key areas—organisation and finance, and the onshore distribution of natural gas liquids.

On organisation and finance, the group recommended that it should work towards an interim pipeline company, to be formed by 31 March 1981. We agreed with this, and work has proceeded on that basis. An information document has been prepared, and has been sent to producers and large customers, to determine the basis on which they would participate in the company. At the same time, the Bank of Scotland is discussing interim financing with potential lead banks. These arrangements are designed to permit construction to proceed with all speed, pending finalisation of the long-term financial agreements. Meanwhile, work is being financed by BGC-Mobil and BP through joint venture arrangements.

I now want to deal with the principal question that was raised by the hon. Gentleman and which was also commented upon by the hon. Member for Thornaby (Mr. Wrigglesworth), who, I acknowledge, has a strong constituency interest in this matter. I am also grateful to the hon. Member for Fife, Central (Mr. Hamilton) for taking part in the debate and putting forward the case for his region.

The disposing of the gases onshore is a complex question. First, the dry gas for the British Gas Corporation must be separated from the total rich gas stream. That will be done at St. Fergus. That process will leave a mixture of natural gas liquids, consisting of ethane, propane and butane, and natural gasoline. This mixture is almost unusable without further treatment, and fractionation to separate it into its components will be necessary.

The organising group has recommended that this process takes place in two stages. As the St. Fergus terminal will anyway have to include a facility to remove the ethane from the natural gas liquids in case of emergency, that facility should be used permanently to provide a separate stream of methane—a gas that is an extremely valuable petrochemical feedstock. The rest of the NGL stream should be taken to Nigg Bay and fractionated there. Means must also be provided to ship out the propane, butane and natural gasoline, although it is possible that certain quantities of those may be of interest in downstream development at Nigg. The organising group has recommended that preparatory work, route surveys and so on should be started for a pipeline to take the ethane south to Mossmorran, Grangemouth and a link to Teesside, while consideration should also be given to a pipeline to Nigg Bay.

Photo of Mr Dick Douglas Mr Dick Douglas , Dunfermline

The important issue is that there is no provision to bring any of the of other C3s which come ashore from this fourth link down the line to Mossmorran. Is that what the Minister is really saying?

Photo of Mr Hamish Gray Mr Hamish Gray , Ross and Cromarty

No. That is not exactly what I am saying. I am describing the recommendation of the organising group, which we accept in the meantime. But there is no reason why certain of these at some future time should not come south.

My right hon. Friend the Secretary of State has accepted that the organising group should plan on the lines recommended, which, I think, implies some expectation that such planning is unlikely to be completely wasted. However, he has made it clear that the pattern of disposal will be determined by commercial negotiatons. I know that many people have been pressing us for a firm decision on the pattern of disposal in advance of such negotiations. Certainly, over the past month newspapers have been full of suggestions that the Government have decided in favour of one group of contenders or another. However, anyone can claim that he wants ethane. The validation necessary to decide the pattern of disposal can come only when these claimants start to put their money where their mouths are—in other words, when they start to give commitments on such matters as price and penalties if they are unable to take the ethane that they requested. In order to obtain those commitments, commercial negotiations are obviously essential.

The Government have now cleared the air for those negotiations to commence. There is a need for fast progress so that the location of the onshore facilities can be quickly decided. With about 40 licensees involved in the production of the natural gas liquids from the first dozen fields expected to be tied to the new line, there would be too much risk of delay amid confusion if the negotiations were left solely to the licensees. We needed, so to speak, to create a wholesaler who could bring together enough of the material to make sales commitments that would justify a particular pattern. The BNOC—with its participation options—and British Gas provide that quantity and will be co-operating closely in the disposal of the arrangements.

I tend to think that the hon. Member for Dunfermline must have been looking at my speech before coming into the Chamber, because I seem to be enunciating exactly what he has been suggesting.

There is not enough ethane currently identified to satisfy all the claims from the various contenders in the mid–1980s. Therefore, some of those claims cannot immediately be satisfied. We have instructed the corporations in the negotiations to seek to maximise not just their commercial benefit but the national economic benefit, recognising the importance of petrochemical activity based on these natural gas liquids.

Photo of Mr Ian Wrigglesworth Mr Ian Wrigglesworth , Teesside Thornaby

I am pleased to hear what the Minister said about the role of the BNOC and British Gas. Can he clarify their role? Why both, and how will they both fit in?

Photo of Mr Hamish Gray Mr Hamish Gray , Ross and Cromarty

By virtue of its participation agreements, the BNOC will have access to a substantial quantity—in the region of 50 per cent. The British Gas Corporation will also have access to a certain amount—in the region of 5 per cent. or 6 per cent.—so that between them they have a substantial interest. We therefore felt it reasonable to ask the two corporations to combine in their role as wholesaler. Obviously, the lead in respect of the natural gas liquids will be taken by the BNOC, and the BGC will take the lead in respect of dry gas.

In the few minutes that are left, it may be useful if I outline the progress that has been made so far. The leading organisation group that we have set up is making very good progress. BP is assuming responsibility for the offshore work and the British Gas Corporation for the onshore work, with Mobil providing technical expertise in both areas. Onshore, the British Gas Corporation has received outline planning consent for construction of the terminal at St. Fergus and for the construction of plant on land to be reclaimed at Nigg Bay. Land at St. Fergus on which the terminal is to be built has been acquired, and a design study for the terminal is already well under way.

Various contracts will shortly be let in connection with the preliminary work needed at Nigg Bay. These include the facility design study, the reclamation design and the subsoil investigation and topographical study.

Offshore, BP expects to complete in the next few days its detailed conceptual engineering design. It has awarded contracts for the study of the junction platform needed to link northern and southern parts of the gas gathering line and for the analysis of gas flow in the system. Contracts for the survey of the pipeline route and junction platform location will he let shortly.

I wish to turn to the question of gas for the pipeline. There is no doubt, as shown in the BGC-Mobil report and Energy paper No. 44, that the pipeline will be economic on the basis of United Kingdom gas alone. The knowledge that the pipeline will be built has stimulated further drilling programmes in the areas that it will serve, and the prospects look rosy. Once flows have built up, the pipeline will land, each year, gas and liquids worth about £1.5 billion.

The economies of scale inherent in such projects mean that the British Gas Corporation has been able to make the Norwegians a very good offer to buy their share of Statfjord gas and bring it to Britain through the pipeline. The Norwegians have yet to decide whether to accept this offer. I must, however, stress that 16 per cent. of the Statfjord reserves lie in the United Kingdom sector of the continental shelf. I therefore expect United Kingdom Statfjord gas and natural gas liquids to come to the United Kingdom irrespective of the decision reached on the disposal of Norwegian Statfjord reserves. I refer to United Kingdom gas and United Kingdom natural gas liquids, needed in the United Kingdom.

We believe that an alternative disposal route would be economic nonsense. There is no way that any alternative can be ready until a long time, probably years, after ours. Since we are already so well advanced along the path towards an economically and technically robust system, we are not prepared to see years of unnecessary gas flaring or loss of oil through years of unnecessary gas reinjection.

I want to stress that the work is proceeding well and that the United Kingdom is right up to schedule on the gas gathering system. We expect to see a massive reduction in flaring in the second half of the decade as the pipeline brings ashore the gas and liquids that the country so desperately needs. I thank the hon. Gentleman for giving us the opportunity of discussing this important subject. I emphasise to the House that the Government's determinaton to ensure that the natural gas liquids are used in the best national interest continues to be paramount.