Orders of the Day — Oil and Pipelines Bill

– in the House of Commons at 4:19 pm on 14th May 1985.

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Order for Second Reading read.

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside 4:24 pm, 14th May 1985

I beg to move, That the Bill be now read a Second time.

The House is familiar with the background to the Bill. Over the last six months we have had two reports from the Select Committee on Energy and, as a result of the reports of that Committee, we have had two debates on the Supplementary Estimates which the Government have asked the House to approve for grants to cover trading losses of BNOC. On 13 March I announced the Government's conclusions regarding the future of BNOC. At this stage I should like to pay tribute to the work of the Select Committee on those two reports.

I appreciate that the conclusions to which the Government have come are not of course the conclusions of the Select Committee, but it is significant that the analysis that led up to those conclusions was very helpful to the Government in reaching their conclusions. Indeed, I think that there is not a great deal of difference between the Government's analysis of the background and the analysis of the Select Committee. I certainly pay tribute to the work of the Select Committee leading up to the Bill. I wholly accept that the Select Committee will not neccessarily agree with the Government's conclusions, and I make that point plain. The analysis was very helpful, as was the evidence taken by the Select Committee.

When I announced the Government's conclusions on the future of BNOC I mentioned—and I repeat today—that it is our belief that the balance has shifted decisively against the retention of BNOC in its present form. At the time of the announcement and in the brief debate on the report of the Select Committee, I made it clear that the Government believe that there are a number of functions currently performed by BNOC that should be retained. First, there is the function of the custody of participation agreements; secondly, there is the power to dispose of royalty in kind; and thirdly, the power to act as agent for the Government in the management and running of the Government's oil and pipeline system. The conclusion that I announced on 13 March was that it was appropriate to establish a small oil and pipelines agency to perform these functions. The Bill, if approved, will give effect to these conclusions.

I do not intend to go into all the details and the background of the reasons for the abolition because I outlined those in my statement, and the House considered them in the debate on the Supplementary Estimate initiated by the Select Committee.

The Bill seeks to preserve what we believe to be of continuing value with regard to BNOC's current institutional arrangements and to discard those parts of its arrangements which we believe have become outdated or in some cases a potential liability. The one item which we believe is outdated and has a potential to become a liability concerns the contractual arrangements under which BNOC acquired and sold participation oil. Although, as I freely acknowledged in earlier debates in the House and in my evidence to the Select Committee, that is a function which has been important in the past and one which BNOC has performed with distinction, I believe that for a number of reasons it has now ceased to provide a means to prevent instability. It was in the means to prevent instability that the main purpose of the exercise of this function lay. The reason, as I explained to the House previously, is that in recent years, and particularly in recent months, we have seen fresh developments in the market which I believe give these arrangements for contracting and trading in participation oil the potential to spark off a cycle of competitive undercutting which, far from being a force againt destabilisation, would run a serious risk of dragging down prices to an unsustainable level.

That was very much the basis of the evidence that I put before the Select Committee, and which we discussed during our debate on the Supplementary Estimate. Therefore, we have had a full debate on that matter. Basically, it stems from the growth, not only in the United Kingdom but worldwide, in the spot market and the decline in contract sales at a term price. As we do not envisage those forces changing in the foreseeable future, we believe that it is right to change the institutional arrangements to take account of the changes in the oil market over recent months and years.

I wish to make it clear that this is not a case—as the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) tries to make out—of trying to cut down some lame duck state corporation that has been losing money through inefficiency or failings. That is most certainly not the Government's view. What we are doing is no reflection on the corporation or its staff. The corporation maintained its prices after consultation with the Government and taking account of the national interest. It is our continuing belief that those decisions were correct in the national interest. However, because of those decisions it was necessary to come to the House for a Supplementary Estimate to cover the losses. Our proposals today are a reflection not on the staff or the operation of the corporation, but simply on the development in the structure of oil markets that we have discussed at length on previous occasions.

Although we are discarding the major function and purpose of BNOC, it has other functions and purposes. One of those, to which the Select Committee attached importance, is security of our supplies. That is central to the whole matter. On its other functions, while there were contract sales at term prices BNOC served a useful purpose in providing transparent evidence of arm's length prices for North sea oil. That was helpful to the oil taxation office for transfers of oil within integrated oil companies. However, that must be considered apart from the structure and organisation of BNOC, because the virtual disappearance of term prices for oil destroys the value of the diminishing evidence available to the oil taxation office. Therefore, although it served a useful purpose in the past, it is not appropriate in the changed market circumstances.

Mr. Bruce Milian:

Even if we accept what the Minister says—which we do not—what steps are the Government taking, through the oil taxation office or by any other means, to deal with changing circumstances to ensure that the taxpayer is not ripped off by fancy transfer prices or various devices to reduce the tax burden?

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside

The right hon. Gentleman has a direct interest in these matters, so I am surprised that he does not agree with my analysis of the background. He knows that one of the problems that the Government have had to face —I am sure that he has read the evidence before the Select Committee — is that the loss of contract sales — with sales taking place at different values, sometimes at spot price — has thrown considerable doubt on the use of the prices established by BNOC for taxation purposes. Under the legislation, what is required is actual evidence of the price at which the oil passes from one affiliate to the other. The oil taxation office is in discussion with the oil companies about that —as it would have had to have been regardless of what we are doing in the Bill. It is an important issue, but one that would have arisen anyway.

Another useful purpose of BNOC has been as a marketing agency for smaller licensees. I know that many of the smaller companies have found it convenient and helpful to market through the corporation. However, I do not believe that it is in any way an essential purpose of the corporation. There are other possibilities, such as disposal to larger producers or—and discussions are taking place on this now — the possibility of setting up either independent agencies or co-operative agencies. Therefore, although that purpose was useful in the past, it is not one that necessarily requires or demands the need for intervention by a state corporation.

On the issue of security of supplies—

Photo of Mr Peter Rost Mr Peter Rost , Erewash

On the marketing of oil by the smaller companies, has my right hon. Friend sought any assurances, and can he confirm reports in the press, that the larger multinationals have reached an accommodation with the smaller companies, or are in the process of doing so?

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside

Obviously, any arrangements are commercially confidential to those making them. I have certainly received indications that discussions are taking place. If the arrangements are not actually made, they are in the course of being made. There is also a certain amount of talk about other initiatives, such as the setting up of independent or co-operative agencies. I have not seen any evidence that shows that the normal commercial organisations will not be able to cope.

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside

The hon. Gentleman underlines his political motivation in wishing to keep in being a state corporation when there are perfectly adequate organisations available in the commercial sector.

I know that security of supply has concerned the House, and I made considerable reference to that during my speech on the Supplementary Estimate. It is important to look not only at the role that BNOC has performed in carrying out the contracts in participation oil, but to examine the background to the security of supply and the existing arrangements.

If, for example, there was an interruption of supply from the Gulf, we could turn to the international agreements—which have been refined and developed over the years and especially since BNOC was established —through the International Energy Agency and the EC to make arrangements to take care of any severe disruption. I use the words "severe disruption" advisedly because the international arrangements under the IEA can be triggered only where the shortfall is of the scale of 7 per cent. or more of OECD country supplies. Therefore, the IEA arrangements exist where there has been a severe disruption. Where there is a less severe disruption there are informal arrangements.

Where there is severe disruption the arrangements through the IEA guarantee to the United Kingdom an appropriate share of the remaining production in the free world, irrespective of the companies. corporations or agencies that may be handling the production. Where the shortfall is big enough to trigger the international obligations, access to North sea oil is not as important as it may have seemed at one time. In any case, as a fallback under the Energy Act 1976 the Government have power in a crisis to control oil production on the United Kingdom continental shelf, whoever produces it and whatever the contracts may be.

On security of supply the real concern must relate to minor interruptions up to the 7 per cent. trigger point which comes under the IEA agreement. Again we must remind ourselves that in that case it is not an interruption of access to crude oil that matters, as has been shown in the past, but rather access to the oil products that are needed by industry, transport and so on. The real burden of the responsibility to meet a crisis of a smaller nature would fall on the private refining and marketing companies which supply those products and not on the state itself or on any agency of the state.

The Government have obtained from the refining and marketing companies assurances that we believe would meet that kind of crisis. Most important, they are concentrated on products where the demand and the need would be. To put it in a form that is easier to understand, a shortfall of 7 per cent. is equivalent to 25 or 26 days of actual supply. Since, currently in the United Kingdom, subject to the informal arrangements that we have. stocks of products stand at 92 days' supply, obviously the arrangements we have with the refining and marketing companies are adequate to fill the gap and would give time to reactivate participation if it was felt to be necessary, and which the agency could do with the consent of the Secretary of State. Given the arrangements that I have taken some trouble to describe to the House, I do not believe that the abolition of BNOC should in arty way diminish the country's security of supply of oil or of its products, which are most important.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

I have searched high and low to find the character and nature of the assurances upon which the Minister rests so much of his case. Are they published? Are they available? Will they be made available to the House or to the Committee on the Bill so that hon. Members can judge for themselves how real the assurances are?

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside

These are informal assurances that the Government have from the oil companies. That is the basis on which they have been for some years. The Government and I are confident that they would be carried out in the kind of crisis I have described. The details are confidential. I. shall see whether I can give more information to the hon. Gentleman and to members of the Committee. As there is still a fallback in a time of real crisis to exercise the participation rights, I believe the arrangements I have described are adequate. I emphasise that in the Bill we are not abolishing the power to exercise rights of participation.

In regard to some of the other functions of BNOC which we are continuing under the smaller agency, we have the Government pipelines and storage system which covers 1,000 miles of oil pipeline and 41 oil storage facilities. Over the period that it has operated the system BNOC has built up an effective team. We intend to retain that function.

Another function that we intend to retain is the power to operate in royalty in kind. Of course, the Government remain entitled to royalty in kind. Therefore, I wish to retain in the new agency the mechanism to obtain the best possible price for the realisation of the royalty in kind.

I have mentioned specifically four main functions—the exercise of participation rights, which the new agency will not operate but which it will have the power to operate, subject to the agreement of the Secretary of State, should it be thought necessary to activate that power; security of supply; the operation of the pipelines and storage system; and the power to operate the royalty in kind.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

The Minister talked about the role the agency will play in marketing the Government's royalty oil in kind. That figure is theoretically 280,000 barrels a day. In the past there have been sale-back arrangements. If they were continued or conceded by the Government they would leave the agency with only about 100,000 barrels a day to trade. Can the Minister tell us the intention of the Government in relation to the royalty oil in kind?

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside

The arrangements made between BNOC and companies will be taken over by the agency. The power to operate the royalty in kind will be in the legislation. The functions may be changed in the future while royalties in kind continue to exist. As the hon. Gentleman knows, they will eventually be self-extinguishing. The agency will be empowered to trade in that oil. I shall explain that more fully when I deal with the clauses in the Bill.

The Government think it important to get the new organisation moving as quickly as possible. Because of market sensitivity it was necessary to announce the decision as we did. I understand the uncertainty that the announcement caused immediately. It is important for the future that the organisation of the new agency becomes clear as quickly as possible.

My right hon. Friend the Secretary of State has already announced the appointment of the chief executive designate who will become the chief executive subject to the passage of the legislation. Mr. Kenneth Vaughan joined BNOC in 1978. He is, therefore, already a member of BNOC's staff. Prior to that, he was for 20 years with BP, and he spent 11 years with the Kuwait National Petroleum Company. For the last three years his responsibilities in BNOC have related to the piplines and storage system and to LPG trading. We are fortunate to have the services of someone with his wide experience and, in particular, with his experience of BNOC.

My right hon. Friend hopes to make an announcement as soon as possible about the appointment of the chairman designate. The appointment of the chief executive designate will help the future management to decide on the staff necessary for the manning of the agency, and I know that Mr. Vaughan is pressing ahead with that. I do not want there to be any unnecessary uncertainty, and, as the organisational arrangements go ahead, the details will be made known in the appropriate way.

I will explain the main provisions of the Bill. Clause 1 provides for the establishment of the agency and lays down its board structure. That is a straightforward provision, particularly bearing in mind the background that I have described.

Clause 2 sets out the functions of the agency, with its responsibility for the disposal of royalty in kind, for managing the Government pipeline and storage system and for maintaining the participation regime which I have explained.

The agency will also have power to trade in petroleum on its own account, but such trading will be subject to the Secretary of State's consent. That consent will be given only for limited purposes. The first purpose is to enable it to maximise the proceeds from the disposal of royalty in kind because, in the course of trading, it may be desirable to do that. The existence of this provision will, I hope, make it clear that the agency need not be hindered for legal reasons from maximising the proceeds.

The second purpose is to ensure that the agency will be able to trade effectively in participation agreements, were they ever to be reactivated. But, as I pointed out, the agency will not be empowered to act as agent for disposing of anyone else's oil.

Photo of Mr Peter Rost Mr Peter Rost , Erewash

Will the agency be empowered to subcontract out the sale of royalty oil if it thought it economically desirable to do that?

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside

The agency will have responsibility in that respect, but obviously it will have to exercise that responsibility from the point of view of proper commercial accountability.

There has been some discussion about the role that BNOC has so far performed in trading in liquefied petroleum gases. The Government do not see any reason for the public sector to remain involved in the LPG market. At present, BNOC handles less than 30 per cent. of the UK continential shelf production of LPG and under 20 per cent. of the total UK output, including that from refineries. The agency could retain sufficient volume of LPG to trade effectively only if it continued to exercise options to purchase LPG under participation agreements. That could not be justified with participation trading in crude oil—this is one of the main purposes of the Bill— being wound up. In any case, since January 1982 BNOC has been precluded from exercising new options to take LPG.

Clause 2 enables the agency to enter into new participation agreements, as determined by the Secretary of State, and to give effect to those and to existing agreements. However, it may not, without the Secretary of State's consent, elect to take petroleum under a participation agreement. It is the Government's intention that as new oilfields reach the development stage the licensees should continue to conclude agreements which enable the agency to participate in the oil produced.

It is the Secretary of State's intention to consent to the exercise of an option to take petroleum under such agreements only if such an exercise was finally justified by an existing or imminent threat to the security of the nation's oil supplies.

Clause 3 allows all the property, rights and liabilities of BNOC to be vested in the agency on a day appointed by the Secretary of State. Statutory vesting provisions have been a common feature of legislation introduced by all Governments in recent years and it is our intention, in relation to the agency, to establish it and to use the powers under the clause as soon as the Bill has been enacted, so enabling an orderly transfer to take place to it from BNOC.

BNOC will have to be retained in existence for some time--although in the latter stage very much as a shell —to enable it to draw up final accounts and effect the transfer of property, assets and liabilities. Clause 3(5) requires BNOC to be dissolved formally as soon as those tasks have been completed.

Schedule 2(2) makes provision for the contracts of employment of BNOC staff to be transferred in their entirety to the agency, so that the employees' terms and conditions are not adversely affected by the transfer. It also makes appropriate provision for pension rights.

Photo of Mr Dick Douglas Mr Dick Douglas , Dunfermline West

Apart from altering participation agreements and BNOC's role in obtaining oil, selling it back and otherwise operating in the market, the Government could have reached the conclusion that BNOC should remain in place but should not, for the foreseeable future, set a price.

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside

It is sad that the hon. Gentleman did not attend the meetings of, or hear my remarks before, the Select Committee. I said that it would have been perfectly possible to have done what he suggested — there is here a straight political divide between myself and the hon. Gentleman—but that we saw no point in keeping it in being if its function was simply to trade in oil at the market price, a function which others were perfectly able to do.

I appreciate that the hon. Gentleman is devoted to state organisation and interference in trading in this and other matters. However, so long as BNOC is not performing the function that it had before in relation to avoiding destabilising the market, and is simply trading at the market price, that purpose is, in our view, outdated. I am sorry to have to repeat that, and I do so for the hon. Gentleman's benefit.

Clauses 4 and 5 and schedule 3 make the financial provisions to enable the agency to perform the responsibilities that I have described.

I have paid tribute to the effective way in which the staff of BNOC have worked in the past. The board of BNOC is paying particular attention to the question of assisting the staff, the majority of whom will have to move from the corporation, although, as I have pointed out, some staff will be needed for the new agency.

The board has already told its staff the terms of the compensation arrangements for those who become redundant. That is a matter for the board, but I understand that the terms are in line with benefits paid by oil companies generally when staff are made redundant.

During April, my right hon. Friend the Secretary of State met Mr. Roy Grantham, the general secretary of the Association of Professional, Executive, Clerical and Computer Staff, and discussed the genuine anxieties felt by the staff. The corporation is providing special counselling services to help those who will become redundant. I am sure that the board will do all that it can to ease the transition and to solve the genuine problems faced by those whose careers will be disrupted as a result of the Government's decision.

The Bill is a direct consequence of changes in the oil market. Given those changes, although BNOC served an extremely useful purpose in the past and, as I have acknowledged, served it well, I do not believe that there is any longer a need to maintain a public body to carry out the activities that I have described, many of which can be equally well carried out in the private sector. The new small agency will be better geared to the limited functions that we are retaining. I therefore commend the Bill to the House.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney 5:01 pm, 14th May 1985

The Minister and I are playing unusual roles today. We normally reply to debates. I believe that it is the first time that we have opened a debate, and I welcome that opportunity. The Minister's introduction of the Bill begs as many questions as it answers. It also skated over a number of issues which have been thrown up as a result of the decision to abolish BNOC. My hon. Friends and myself will underline some of the dilemmas and issues and some of our fundamental disagreements with the decision to abolish BNOC.

Like the Minister, I wish to pay a tribute to the Select Committee for its work over the past months which led to two debates. The Minister managed conveniently to forget his contribution on 18 December which was a coherent and comprehensive defence of BNOC's fundamental role. I shall come later to one or two of his observations.

I want also to pay tribute to BNOC's staff. The trading arm was severed and the exploration and production side was hived off by the Oil and Gas (Enterprise) Act 1982. Veterans of that Act—I can see one on the Conservative Benches—will recall the lengthy debates that we had about the problems that could arise with the remit given to the corporation and the position into which it was placed. Some of our worst fears were not realised. chiefly as a result of the skill and competence of members of BNOC's trading staff and the way in which they conducted BNOC's functions after the passing of the 1982 Act. I should like to add my tribute to that by the Minister. It is deeply regrettable and distasteful that the staff is receiving this kick in the teeth, especially as there are ways in which we could have solved the problems that the corporation faced this year if it were not for the Government being so ideologically committed to abolishing it.

We should put the Bill into its historical context. It is the second stage in the dismantling and proposed destruction of a successful, profitable, competent and professional corporation. Before the passing of the 1982 Act, the corporation had earned considerable respect, grudging initially, from the oil industry. It served an important and valuable national function. It was the only organisation in the North sea which was 100 per cent. loyal to the nation and, through the Secretary of State, to the House. It was the ears, eyes and nose of the Government and the nation in the North sea.

The organisation was broken up by the 1982 Act. It led to one of the most remarkable flotation debacles — Britoil. The Oil and Gas (Enterprise) Act 1982 was supposed to herald a new era. I remember the debates and so will Conservative Members. A new, independent, thrusting and enterprising British oil company was supposed to spring up as a result of that Act and of the removal of BNOC from exploration and production.

We all know what a terrible flop the Act has been. Last week, the Secretary of State performed the funeral rites over the gas part of the Oil and Gas (Enterprise) Act 1982. He tacitly admitted that there was little or no future for gas enterprises in the North sea. He intends to create a private monopoly in place of the multitude of private gas enterprises which were supposed to result from the 1982 legislation.

Enterprise Oil has not been a thrusting company. It was supposed to be a young, independent company but the Rio Tinto-Zinc Corporation gobbled up 29 per cent. of its shares within 48 hours of their coming onto the market. The Secretary of State was helpless to intervene. We are now witnessing a process of gobbling up in the North sea. Commercial and economic pressures, I admit, but also Government policies are leading to the gradual disappearance of a number of our independent British oil companies. They have been merged or will be taken over. I mention that because it is relevant to the Bill. One of the sad subsidiary contributions to that process will be made by the Bill. It will contribute to the continuing disappearance of the small independent oil companies.

The Minister did not pay as much attention as the small independent oil companies might to the role that BNOC played on their behalf. BNOC offered a commercial service to the small independent oil companies who had small amounts of oil—about 8,000 or 10,000 barrels a day—and who believed that they would receive a more secure and better deal by taking it to a national oil corporation than they would by trading at the mercy of the bigger boys.

The right hon. Gentleman was sanguine about the impact that the Bill would have on the trading activities of small oil companies and the way that they would have to come to new arrangements with the oil majors. The evidence that they gave to the Select Committee was not sanguine. I know that the right hon. Gentleman has read the report as carefully as I have, but I draw his attention to appendix 5 of the Select Committee on Energy report published on 8 March 1985. That appendix contains a letter from Westar Oil UK. It states: For a small producer such as Westar, with no affiliated downstream operations or in-house marketing expertise, the presence of a strong, knowledgeable trading organization like BNOC is a considerable benefit. Without BNOC we would have to try to sell our product to the major refining and marketing companies who have traditionally preferred to handle their own production. The gentleman who wrote the letter goes on to state, plainly from his personal experience: The writer recalls vividly the extreme difficulty that small producers had some 20 years ago in marketing their oil. Downstream operations were then (as, largely, now) controlled by the Majors, and they simply refused to purchase crude from independent producers. That is an unsolicited testimony to the useful and rather more important role—admittedly a subsidiary role—that the national oil corporation played as a trading corporation in assisting the commercial dealings of the small independent North sea oil producers. Every day we read in the newspapers of potential mergers and of huge conglomerates gobbling each other up—for example, the Tricentrol and Britoil activities. Given those tremendous pressures and the Government's professed wish to have bright, new, enterprising oil companies in the North sea, the Bill will make life harder and more difficult for the small independent oil companies.

I hope that the Minister of State will reflect between now and the Committee stage on what the agency, which will trade in royalty oil and will, I assume, have traders in its membership and on its staff, will say to the small independent companies—for example, Westar, Premier and GOAL. Those companies will ask, "Will you take our 8,000 barrels a day? As you are marketing your royalty oil in kind, will you market our oil as well?"

It does not matter where we stand on the fundamental issues, we must consider this question: what is especially devastating, apart from the ideological obsession with the concept of a trading corporation, about the corporation's fulfilling a useful function? I ask the Minister of State to respond pragmatically to that question.

Clause 2(1)(d) refers to the agency's power to buy, sell or otherwise deal in petroleum on its own account. Through that provision, it will be possible for the agency to fulfil a useful function, one which was properly carried out by the corporation.

A remarkable decision was made in the Oil and Gas (Enterprise) Act 1982 — to retain the trading side of BNOC. That was the only positive measure. The decision was made not by Socialist nationalisers or people passionately in love with state corporations, but by the then Secretary of State for Energy, the present Chancellor of the Exchequer, who is probably the ultimate freebooter in the Cabinet. One of the most astonishing and specious reasons given by the Government for abolishing the corporation concerns the stabilisation of prices. I shall deal later with that point, because I think that hon. Members on both sides of the House found the Minister's remarks confusing, to say the least, and ambivalent.

Why did the then Secretary of State choose not to abolish the trading side of the corporation when he was undertaking other acts of privatisation? I have searched high and low through the Second Reading and Committee debates on the Oil and Gas (Enterprise) Bill—I should be grateful if the Minister of State can assist me—for an argument by the Secretary of State that BNOC would be retained to fix prices. It would have been a profanity for him to say that. He must be the one person who would never admit, at least in public, an intention to fix, prop up or stabilise prices. I cannot find a single reference to the idea that the corporation's premier role was to be involved in stabilising prices, but, apparently, its abolition has been based entirely on the fact that it can no longer stabilise prices. Stabilising prices was never the corporation's primary function, although it later played that role.

In the middle of an act of privatisation, the Conservative Government said, "We want to retain the trading side of BNOC because we think that it is the most sensible instrument to control the security of our oil supplies." That is what the then Secretary of State and other Ministers said when taking the Bill through the House. They subsequently upheld that statement. They believed that trading in participation oil was a useful and sensible function of the corporation in controlling oil supplies.

Those are not my views, although I think that they are excellent ideas. Those were the views of the present Chancellor a mere two years ago when he was Secretary of State for Energy. They were the views also of the Secretary of State for Energy in 1979. The right hon Member for Guildford (Mr. Howell) will recall—he is the man who was in the hot spot during the oil crisis—his statements in the summer of 1979. He said: I can take powers under the Energy Act 1976 to control movements in conditions of limited shortage, but BNOC's direct access to participation oil, together with royalty oil, strengthens our position. This Bill is concerned with the abolition of a corporation that trades in participation oil. That trade strengthened our position in 1979 in a crisis; this abolition will weaken our position in any future oil crisis. I vividly remember question after question and statement after statement in the House on the problems during the summer of 1979, and I am sure that those days are ingrained in the memory of the right hon. Member for Guildford.

The Minister of State has made exactly the same points as the Chancellor and the right hon. Member for Guildford. The speech of 18 December 1984, which the Minister forgot to mention, made strong recommendations. I do not think that I am letting out any trade secrets when 1 say that he and I co-operated in presenting the most comprehensive and coherent case for the retention of BNOC. In column 230 of the Official Report of 18 December 1984, the Minister made the basic case for retaining BNOC as a body trading in participation oil and exercising its rights to that oil. Long lead times are involved in this trade. The right hon. Gentleman said that we needed long-term arrangements because they would provide us with secure supplies of oil. I do not believe that the oil market changed between December and May in relation to the basic argument about the security of supply. Prices have certainly changed. What the right hon. Gentleman said in column 230 of the Official Report was valid then, and it is valid now. If the right hon. Gentleman wants to stand on his head—an unseemly posture—he should not expect the rest of us to do so as well. The right hon. Gentleman stood some of the arguments on their head today. We have every right to remind him of them and to reject his arguments, too.

The truth is that BNOC had, and has, in my view, a basic and fundamental role in securing our oil supplies. The alternatives that the Minister of State described have been around for some time. The Energy Act has been around since 1976 but, as the former Secretary of State the right hon. Member for Guildford knows, it is an enormous power, but it is a bit of a power of last resort. The House has to declare a national emergency before aspects of it can be used. The power is meant to be used not for handling a shortage problem but for a massive crisis in our oil markets. It is perfectly reasonable and justifiable legislation but it is a last resort, and so inappropriate for dealing with shortages and crises that fall short of the 7 per cent. figure.

Likewise, the International Energy Agency and EEC arrangements assume a dramatic position. There has to be a dramatic crisis before the arrangements are triggered off. The Minister argued that the participation rights will be in place. He also said that he has the paper assurances from the oil companies. What sort of assurances are they? Are they in the form of letters? Do they have the force of law? If they were challenged in a time of crisis, would they stand up? If any of the oil companies reneged on them, would the Government have the power in law to force them to abide by those assurances? Suddenly the assurances have become informal. We do not know in

what form they are. Are they just letters, saying, "Dear Secretary of State Peter … Yours sincerely … " and so on? Are the assurances meaningful? Do they have legal presentation? Do they have the binding effect of a contract? We need to know.

The Minister of State made a strong case that we need not have a national oil corporation with all the participation rights and so on because we have those assurances. My fear, and the fear of many hon. Members, is that those assurances would be worth only the paper that they were written on when the crunch came. One should talk to those who faced the crisis in 1973–74 to discover whether oil companies deliver such assurances when the time comes. They plead other obligations and other contractual arrangements. I could list the qualifications and conditions that could be attached. However, I am willing to look at those assurances if the Minister will present them to the House so that we may decide how effective they are.

We should not rest the case of the security of our oil supplies on paper assurances from the oil companies. However, we should rest the case on the right to participation oil— not only the right but access to and trading in that participation oil. Today the right hon. Gentleman did not mention — and in December he argued otherwise — how he and his agency will trigger off those paper participation rights. I should like the Minister to clarify that. The paper participation rights that can be activated in times of shortage and crisis car, be served with six months' notice in half the cases and 12 months' notice in the other half. How much of an assurance is that? I hope that people will hang around and wait and not create too much of a crisis while the Secretary of State and his agency trigger off the participation rights, with the six months' and 12 months' notice.

That is why we have a national oil trading corporation. It is real participation oil, not paper participation oil. Net after sale-back, BNOC trades in about 800,000 barrels a day. It serves on the technical and operating committees on the North sea. It is involved in the detailed decisions of lifting and transporting our oil. That is the real thing. That is what I call a real form of safeguard and assurance.

Will the agency inherit any of those responsibilities? Will it have the right to serve on the operating and technical committees as BNOC does now? That is vital. That is how one knows what is going on, on a day-to-day basis. That is how one finds out how the oil is being lifted and transported. Those are genuine, basic, reasonable and effective ways in which one can know about our North sea oil. If the agency does not do that and does not trade in at least some participation oil, what we have been offered as an alternative to a national oil corporation is a pathetic, stripped-down substitute — yet another new quango serving a limited purpose.

The Minister did not give the figures, so I shall offer mine to the House and see whether he disagrees. These are the 1984 figures. Net after sale-back BNOC trades in about 800,000 barrels a day. I hope that the Minister will correct me if I have got the figures wrong. I had to do my own research, and I want to make sure that I am giving the factual statistics. BNOC trades in about 430,000 barrels a day of participation oil and about 260,000 barrels a day of royalty oil. It trades in about 175,000 barrels on a commercial basis, in voluntary commercial deals, often with the small independent oil companies and some quite large companies. That is about 850,000 barrels altogether. How many barrels will the Oil and Pipelines Agency trade in? The hon. Member for Erewash (Mr. Rost) also raised this matter. I understand that the agency will trade in royalty oil. Is that correct?

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

The Minister nods in agreement. Will the agency trade in 260,000 barrels a day of royalty oil? That was the point of my intervention, which was not minor or clever, but fundamental. Until about a year ago, quite a few of the large major oil companies had arrangements on sale-back of quite a large percentage of royalty oil in kind. Of the 260,000 barrels, about 160,000 barrels or so a day were sold back to the major oil companies, but they dumped it on the national corporation recently. They did not ask for the royalty in kind, so the royalty figure is now 260,000 barrels a day at its maximum. That is nearly a quarter of what BNOC trades in. The volume for security of supply is important. If the agency did not trade in 260,000 to 280,000 barrels a day, it would be worthless. It would be scarcely worth setting up. It would be an incredibly pale shadow if it were trading in a net figure of 100,000 barrels a day of royalty oil. One need not bother to do that. One would not get the people who felt any sense of commitment if they were to trade in such minimal amounts of oil. There would be no security of supply if the figure were down to 100,000 barrels a day.

When he winds up, perhaps the Minister will give us a clear undertaking and assurance that the agency will be a form of insurance policy, an organisation with a right to trade in oil, which will endeavour to give security of our supply, and trade in all royalty in kind. However, in itself that will not be much good because, as the Minister said, it is self-extinguishing. After two years royalty oil will drop rapidly and dramatically because we passed the Petroleum Royalties (Relief) Act 1983 to remove our royalty in the new fields. In six of the older fields, the Government did not elect to take royalty oil in kind anyway. After two years, the agency will dwindle as the royalty oil dwindles. How secure will our oil be then? An agency trading in royalty oil is supposed to be a new factor in ensuring our security of supply, but in three years' time it will be far less important.

The Minister also said that he would not allow the agency to trade in liquid petroleum gas. I find that statement astonishing. The Government are abolishing BNOC because of changes in the market and the movement from contract to spot price, but the curious feature of the LPG market is that it has not done that. It is still substantially a contract term price market. It also happens to be one of BNOC's most profitable businesses. Why should the agency be forced to turn its back on good profitable business which has helped to stabilise the market and has not manifested itself, like the crude market, by going dramatically from term and contract price to spot? Why should the agency not be allowed to trade commercially and profitably on BNOC's LPG contracts? The Minister said that the trade was not large, but 500,000 tonnes could be a profitable sideline. We shall return to that matter in Committee.

I do not think that the way in which the Government are establishing the agency will attract top people. The staff of BNOC deserve an assurance that nobody will be forced to transfer from BNOC to the Government's Oil and Pipelines Agency, or GOPA. It sounds about as good as it looks — cacophonous. Will proper redundancy and severance terms be negotiated with the staff? There should be no forced transfers from a good trading organisation which was respected and attracted first-class people to an agency which, unless we can beef it up in Committee, will be unable to attract anybody who is not second or third-rate because it will not have a meaningful function.

The only oil that the new agency will trade in will dwindle away, as will control of our oil, when North sea oil production begins to fall. Irrespective of the tremendous efforts that have been made with discovery and development, we now know that our oil supply will grow much tighter in the 1990s and that we shall be lucky to hold to self-sufficiency — and we shall have less practical control as a result of the Bill. I hope that my right hon. and hon. Friends will join me in Committee in trying to give the Bill more substance and realism, especially with participation oil. Without an agency such as BNOC we shall have far less control over our oil supplies.

The Minister said that BNOC performed several other important functions. I shall not say much about the management of the pipeline as we shall be able to discuss that in Committee, but he mentioned other matters on which I have the right to ask for clarification. When asked about BNOC's role as a tax reference point and helping the oil tax office to tax oil companies, the Minister gave an astonishing reply. It was utterly unclear and contradicted a fundamental statement that he made on 18 December when he said: We must also ensure that there are some arms length sales at transparent prices."—[Official Report, 18 December 1984; Vol. 70, c. 230.] He then discussed other options. He must have been asked about the American posted price system, as he said that our market could not be compared to the American one and that we need something like BNOC to act as a tax reference point. We are now told that the oil tax office has been in conversation with the oil companies. How many oil traders has the oil taxation office got? How many people who really know the ins and the outs of the North sea oil regime, who know the score — the fiddles, arrangements, fixes and intricacies — of North sea production and development has it got?

As the Minister said so eloquently on 18 December, BNOC's value was that it relieved the oil taxation office of this sort of operational function. The Bill will lead—I choose my words carefully; those of the Minister were wholly inadequate — to loopholes and certainly tax avoidance.

The oil taxation office will depend heavily on the oil companies' information and published information. After all, I suspect that the authoritative Financial Times oil price statements depend on companies such as BP for their information. This Bill, in seeking to abolish BNOC and thus its role as a tax reference point through its pricing mechanism, will lead to considerable loopholes and tax avoidance, if not abuse.

The basic reason for abolishing BNOC concerns its price fixing and price stabilising role. Apparently, BNOC has failed to prop up prices. That is the ultimate sin in the Government's eyes and the only case that the Minister has made—the other arguments and issues are not affected by price. The Minister validated that in December. The Government's only case is that market conditions between December and March showed them that BNOC was unnecessary and irrelevant because it was unable to fix and stabilise oil prices any longer. I challenge the Minister to find that that was BNOC's primary function. It never was. BNOC played a role, but fixing and stabilising oil prices was never' its primary function. I find it distasteful that BNOC should be abolished because of its failure to prop up prices at the Government's behest.

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside

I have never said that BNOC was used or that one of its purposes was to prop up prices. I said it had a role in a rising or falling market to try to avoid destabilisation. That is very different from the gloss which the hon. Member is trying to put on it.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

We all heard the Minister and the modest disbelief on the faces of his right hon. and hon. Friends says it all. "Stabilising" is a euphuistic word; the Minister meant propping up the price. Indeed, he claimed it as a virtue that, although £65 million was spent in subsidies and grants to BNOC, one can discount most of that because, as a result of the propping up of the price, the Chancellor of the Exchequer collected more tax. I do not think that I have given an offensive or inaccurate description of what the Government are doing. In more ways than one, they actually stated it. The Minister claimed that the subsidy was not in effect very large because, as the price was kept up, the Chancellor collected more taxation and, overall, not much money was lost. Any reasonable person would say that the Government were propping up the price.

Photo of Kevin Barron Kevin Barron , Rother Valley

I entirely agree with my hon. Friend. Indeed, it was stated in the debate in December that 75 per cent. of what was paid in Supplementary Estimates to keep the prices up was paid back directly through taxation.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

That point was also made in the Select Committee. We can only conclude that the Government were in the business, last summer and again in January and February this year, of attempting to hold up the price—to stabilise it at a fairly high level.

In January and February this year, BNOC attempted to carry out that function not on its own judgment but at the direct behest of the Government. However, because it cannot now carry out that function, it is to be abolished. It is being abolished, the Government say, because, as a result of the apparent oil glut, there is a major shift towards the spot market and away from term contracts. Incidentally, one of the reasons for the flight out of term contracts with BNOC was that the Government would not let BNOC adjust its price in order to keep the contracts.

How permanent will the shift towards the spot market be? Even the Minister, when he made his abolishing statement on 13 March, dared not forecast with any confidence the permanent nature of the market change, even though it is the reason that the Government give for abolishing BNOC. I shall quote the Minister's words without interpretation or gloss. He said: This trend… is unlikely to be reversed in the near future." —[Official Report, 13 March 1985, Vol. 75, c. 305.] BNOC is being abolished on the strength of the unlikelihood of another change in a trend in the near future. How spurious and shortsighted can an argument be? Can that be the sole basis and justification for abolishing an oil trading corporation?

No one would deny that there has been a shift in the market, or that it is necessary to adapt to change in market situations. Did BNOC not wish to do just that in January and February? Did not Mr. Goskirk and his team put to the Government specific proposals to relate the price to the market, and possibly even sensibly to reduce the percentage of participation oil that BNOC was taking? Those were sensible and pragmatic proposals to adjust to the changing market. BNOC wished to adapt to the market, but the Government prevented it from doing so. Scared of OPEC, and afraid of the fiscal consequences of lower prices, the Government asked BNOC to intervene and hold the price for longer than BNOC would have wished to do. BNOC could have adjusted both to price and participation volumes in a sensible and moderate way without destroying its other primary functions. The Government have made an appalling case for abolishing a major national corporation that until last summer had made a profit and to which, even though it was given subsidies and grants, the net payment was minimal.

I hope that the Minister will make a statement about the existing state of BNOC's finances. That was an astonishing omission from his speech. Has the £65 million done the trick? What was the net cost of the Government's intervention in BNOC last autumn and in the first three months of this year?

The Minister says that the Government are abolishing BNOC because it cannot affect the price or act in a stabilising role when the spot market is of such importance. He says that we must not risk a major destabilisation of prices. How will he now stop the price going through the floor? He believes that stabilisation was of vital importance, but now we have no way of combating the growing destabilisation of the market.

The Government enjoyed a good press on the day after their announcement on 13 March. OPEC did not respond. There was no immediate collapse of the price. A cosy glow surrounded the announcement. Last Sunday, and today, the situation did not and does not look quite so cosy. There is great potential for destabilisation of oil prices. The imbalance between capacity, production and demand is so great that destabilisation is quite likely. Nevertheless, the Minister does not have even a fig leaf now. He has made his case for stabilising the price. Whither now that policy? Whither now the price of oil? Whither now the Government's cherished goal of stabilising the prices?

There was no case for rejecting BNOC's modified proposals earlier this year. There is no case for abolishing BNOC on the basis of a trend in the market. It might be abolished for ideological reasons, but not for the spurious and specious reasons given by the Minister. The characteristic of the Government's approach to our oil industry is shortsightedness. The Minister's charm conceals considerable complacency. The Government are complacent and shortsighted about our oil and gas reserves. They are dangerously complacent about the security of our oil supplies. The Bill illustrates that complacency. It destroys our most sensible and practical instrument for ensuring sensible control over the destination of our own oil. The Opposition will vote against it tonight.

Photo of Mr David Howell Mr David Howell , Guildford 5:47 pm, 14th May 1985

I strongly welcome the Government's decision to wind up BNOC and to get out of oil trading on a substantial basis and out of what, for want of a better word, we may call price stabilisation. BNOC was never an effective organisation for stabilising prices. For better or worse, it may have fallen into a role in which it was believed to be able to make a contribution to price stability, but in due course, as my right hon. Friend has rightly argued, such effect on prices as it had began to tend towards instability.

Conditions in the oil market have changed totally and fundamentally, not just in connection with the move from scarcity to glut but in a structural way, since the early 1980s and late 1970s. We must construct a new policy to deal with those changed conditions. As my right hon. Friend knows—if I may strike one querulous note—I believe that we should have made this decision earlier. Conditions began to change in 1983, and were consolidated by the end of that year and the beginning of 1984. We might have saved ourselves some pain and grief by moving earlier. We could have saved ourselves some difficulties and some public money.

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) covered the scene with knowledge and experience. He has followed these matters in great detail for a long time. I fully echo the hon. Gentleman's tribute to Mr. Goskirk and his team, who have done a very good job in increasingly difficult and ultimately virtually impossible circumstances. They deserve our congratulations and our full recognition of all that they have achieved.

Looking at the broad picture, I have no doubt that we are right to extricate ourselves from an oil price world scene that is admittedly ugly and will probably get uglier. In the past we were sucked into those difficulties, but now we may be able to stand a little aside from them. Nevertheless, we are bound to be affected because we are part of the world oil market.

My only question about the Bill is why, having taken the decision to disentangle us from the activities of BNOC as a major oil trader and having gone so to speak three quarters of the hog, has my right hon. Friend not gone the whole hog and ended the role of the successor organisation as a substantial oil trader or, at least, as an oil trader on a routine basis? The successor organisation will continue to trade royalty oil. I do not know whether the figure will be 250,000 barrels a day or less because of refunding arrangements. However, it remains an extremely large trading operation by oil trading standards.

The world oil conditions that we face today are completely new and wholly unrelated to anything that we faced six years ago, and I query whether we need to maintain a state oil trading operation of this size. I shall deal with the problem of security of supply about which the hon. Member for Merthyr Tydfil and Rhymney spoke at length shortly. It is quite separate from the question of trading.

To take royalty oil in kind has nothing to do with security of supply. It is perfectly true that in 1979 or early 1980 I decided that we should take royalty from the oil companies, not in cash, which was the previous arrangement, but in kind. At that time we were living in a world of major crises. Indeed, many oil-dry and oil-thirsty countries were in what can only be described as a state of panic. The far eastern buyers from Korea and Japan were ready to enter into contracts at almost any price named by the middle eastern producers under any conditions to secure access to oil. At that time the OPEC countries were producing about one third of the free world's oil needs. Now they produce much less than half of that. In that crisis atmosphere the decision was taken to take royalty oil in kind.

Those conditions do not prevail today. Of course, it is possible to paint a scene in which the world turns upside down and crises return, and we should prepare to meet that, if it comes. However, I do not see the need to continue with the royalty in kind arrangement. I think that my right hon. Friend the Minister said that that responsibility was to be exercised by the new agency. However, it is the Secretary of State who can decide whether to take the royalty oil in cash or kind. If it is to be taken in kind, we would be left with a small residual body, which could be activated if we ever needed to use the participation agreements again, but which would not be involved in the sizeable trading that is now proposed. I hope that my right hon. Friend or one of his colleagues will tell us why we are leaving the state in the oil trading business in these new conditions.

It is clear that in 1979 the threat of the participation agreements, rather than their practical use, helped to maintain conditions in the United Kingdom oil market, where we could get reasonable security of supply. However, as was said in a previous debate, there were problems. In the late 1970s, in less critical times, the fact that BNOC had entered into agreements overseas to supply oil which it had procured through participation later created rigidities and difficulties at the moment of crisis when we had to unscramble them. The hon. Gentleman's case that we should keep BNOC, not for price stability —I agree with him that stability of price was a function that grew on to BNOC later — but to keep the participation agreements active, with oil flowing in every direction, needs to be considered carefully in the light of our experience of 1979–80. We found that during quieter times too much of that hamstrung the United Kingdom Government and the needs of the United Kingdom market for oil.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

Did not the right hon. Gentleman institute changes to create greater flexibility in BNOC's trading as a result of finding those rigidities and inflexibilities? Does he agree that it is important to have a volume of oil in order to redirect or divert a percentage of it? The smaller the volume of oil, the less chance one has of redirecting or rediverting a percentage of it back to one's own market.

Photo of Mr David Howell Mr David Howell , Guildford

I do not see it that way. Under present conditions one does not need to be involved in a large volume of oil trading to influence security of supply. The participation agreements remain on the books, the Energy Act 1976 is on the statute book, and in 1979 and 1980 we spent many days and nights developing the International Energy Agency and European Community trigger agreements. The European Community countries are far better equipped now to cope with the problems of a sudden interruption in oil supplies than they were then. In these conditions we are right to keep the participation agreements, but on the back burner.

It is particularly timely that the United Kingdom should withdraw from involvement in international arrangements to maintain high oil prices because the oil market is in an unhealthy state. Continued dabbling through BNOC and price stabilisation added to that. Although that has now stopped, it does not mean that everything will stabilise. On the contrary, we shall either see a steady and continuing decline in the international oil industry combined with sagging and soft prices, or a sudden collapse in prices. The latter is less likely than the former. There is about a one in four chance that that could happen.

That position is extremely dangerous. We are in that dangerous position for the simplest of economic reasons: the attempt to keep prices politically and artificially high has, as always, vastly stimulated additional production. Despite OPEC's attempts to keep to its quota, huge new non-OPEC oil supplies have come on stream and vast exploration has been stimulated throughout the world.

On the demand side, those high prices have produced massive incentives to cut demand. All the demand forecasts of the oil industry and of OPEC, even the recent ones of a year ago, have proved wholly wrong. This summer demand increased less than 1 per cent. on last summer, and that was after a year of colossal growth in the American economy. In 1973 the oil industry's forecast for the amount of oil that the world would use in 1985 was 100 per cent. wrong. For every two barrels that the industry forecast we would use in 1985, we are using one. Therefore. demand has fallen dramatically, alternatives have been dramatically developed, and OPEC has continued to produce at a fairly high rate. Although that rate is officially constrained, I have no doubt that a great deal of cheating and leakage goes on, so that all sorts of oil supplies are now swamping and surging into the Mediterranean market and creating a vast production overhang.

The latest developments on the Soviet side have not helped because it is now recycling much more oil into Western markets. Meanwhile we are beginning to realise that if we liberate the natural gas market in northern Europe, there will be a vast upsurge in the use of natural gas. That will undercut falsely priced oil even further. If we follow my right hon. Friend's plans to privatise the British Gas Corporation, as I hope we shall, the corporation, which will remain a large integrated organisation, will pursue vigorously its market strategy and vastly expand demand for its product. We shall see in Britain and throughout northern Europe a far greater incursion of natural gas into the oil market.

All those matters will inevitably create conditions in which the supply and demand of world oil will be in hopeless disequilibrium. As I said earlier, the only question is whether there will be a steady but awkward decline, with the international oil industry fighting to maintain its domination and, paradoxically, by its fighting, losing it, or whether the position will slide out of control completely and cause a major collapse in world oil prices.

In those conditions, we must think carefully, as a substantial oil producer, of how we would cope with a one in four chance of a collapse. We must think realistically about how we will manage our economy in the next 10 years, given that we are moving down from a peak of oil production—although much more gradually than people realise—and that there is an almost continual softening in the price. It is beginning even now. Each month, OPEC makes hopeful statements that oil prices will firm or that real prices will increase. Each month that passes, the opposite happens, and the oil price in spot markets is beginning to slide away to about $25 for Arab light. It will be $23 before long.

The price will probably not collapse, because many international and institutional forces have an interest in trying to prevent a collapse, but the alternative will be a steady downward drift. The projections from the oil companies of ever-increasing real oil prices are completely unrealistic in the new conditions. The domination which OPEC hoped to achieve has slipped out of its grasp, and its contribution to free world oil supplies has fallen from nearly 40 per cent. to less than 20 per cent.

In all those circumstances, it is entirely right that the North sea should stand apart from those developments, although Britain, as a producer and as a nation that relies on substantial oil exports, should prepare itself for the difficulties to come. As long as we were involved, we were blamed. Even now, I notice that as OPEC prepares for the inevitable, which is the next slide in oil prices of a dollar or more in a few weeks or months' time, it is working up the blame machine again. Although when my right hon. Friend announced the demise of BNOC there was remarkably little comment from OPEC, we are beginning to see some cross remarks in the newspapers to the effect that Britain is over-producing, has removed BNOC and is generally undermining the position. That is nonsense. We are not undermining the position; it has inherent undermining qualities built into it, which will remain until and unless OPEC and, to some extent, the international oil industry recognise the need to respond to market forces and allow oil to settle down again as a relatively low-cost source of energy in the world economic system. They damage themselves vastly by talking about how oil will be incredibly scarce, and the dangers and costs of production. The more they talk about scarcity, the more everyone designs oil needs out of their equipment — in everything from screwdrivers to sky scrapers. Therefore, the need for oil is gradually being designed out of the economic and industrial system.

That is the pattern, and I believe that we should stay well clear of it. My only sorrow is that our example has not been followed by the wiser minds in the middle east and other oil-producing countries, especially those in OPEC, which have not allowed market forces to enter the scene.

Conditions now are completely different from what they were in 1979. The pattern of oil production has changed radically, as has the pattern of demand In those new conditions, we are right to adjust our policy, and I welcome what the Minister of State has done. Finally, I repeat that my only query concerns why we must remain in the oil trading business on a large scale at all.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Govan 6:04 pm, 14th May 1985

I will not follow the forecasts of the right hon. Member for Guildford (Mr. Howell) of what is likely to happen in the longer term to world production of and demand for oil, but I think that he is being remarkably complacent if he assumes that there will be no supply crisis in the future. I do not believe that that is the view of the Government, who are much more cautious in this matter, and who claim that the safeguards still available to them for security of supply are adequate. They do not argue that we need no safeguards. It would be an incautious and unwise Government who did not operate on the basis that we need safeguards, but I shall return to the security of supply later.

If the price of oil drops in real terms in the next five or 10 years, and even more so if it collapses, it would have serious implications for the United Kingdom economy. In 1985–86, apart from all the other considerations, such as the balance of payments and employment, the Government are assuming £,13·5 billion in terms of tax receipts from North sea oil. Since 1979, the Government have been fortunate in the vast revenues that have come in from North sea oil. The great tragedy is that that revenue has been largely squandered. The right hon. Gentleman will agree with me on that. Our manufacturing industry has been debilitated since 1979. The Government constantly assure us that the economy is moving forward at a satisfactory rate, yet we have appalling unemployment, which is getting worse rather than better.

All this has happened in a period when we have had the uncovenanted advantage of North sea oil. The Bill is another example of the Government withdrawing from the oil business and abandoning any attempt to ensure that the industry is managed, developed and controlled in the national interest. The only interest of the Government—this is not irrelevant to what the Minister said—is to get production up to the maximum as quickly as possible for short-term financial advantage to the Exchequer. The Government do not have a depletion policy. In terms of security of supplies and the long-term future of the economy, the potential of North sea oil is being wasted.

The Bill is an example of withdrawing from the oil business, handing it over to private enterprise and assuming that, somehow or other, the national interest will be safeguarded. We can be sure that the national interest will not be safeguarded, because the oil companies, even in a crisis, are torn between their loyalty to the Government and their commercial interests. Experience has shown that commercial interests dominate their activities in a period of crisis.

My hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) made an excellent and comprehensive speech. The case that he put is unanswerable. The arguments of the Minister of State were not convincing, especially when so many of them contradicted his arguments in the debate in December and in his evidence to the Select Committee on Energy in March. They changed the day the Government announced the abolition of BNOC.

As my hon. Friend the Member for Merthyr Tydfil and Rhymney said, the Government's only case for the abandonment of BNOC is the changed circumstances of pricing. But that was never the primary purpose of BNOC. I hope that the Minister will attempt to answer the points that my hon. Friend made — although I believe those points to be unanswerable.

I am glad that the Minister said that the paper losses of BNOC over the past few months were no reflection on the competence and excellence of the BNOC staff. It is extraordinary that we are winding up an organisation that is constantly receiving these encomiums from the Government and everybody else for the excellent job it does.

On pricing, BNOC was operating under Government direction, as the Minister eventually, and reluctantly, agreed. If there were paper losses, they did not arise from the inefficiency of BNOC or policy decisions taken by it in the national interest. In fact, they arose from decisions taken by Ministers in what they considered to be the national interest — I do not seriously dispute their attitude to that.

I am not a member of the Select Committee, but I have read the report and it is difficult to understand what the Government were up to in that period. Was it an attempt to maintain the stability of prices for stability's sake, or were they concerned with the fiscal implications of a drop in oil prices? I suspect that the second consideration was rather more important to the Government than the first.

Included in the report of the Select Committee on Energy is a memorandum from the Department of Energy. It is speaking about the second half of 1984 when, despite the so-called losses, there was a net gain to the Exchequer from the way in which BNOC was operating under Government direction. The Department of Energy said in February: In the particular circumstances in which BNOC's losses were made last year, they were more than offset by a higher level of tax revenue than would otherwise have been the case. That is because(i) suppliers of oil to BNOC at the term price pay tax on that price. The average marginal rate of taxation is over 75 per cent. In circumstances where BNOC is able to sell more than approximately 25 per cent. of its oil at term prices, therefore, its losses on its remaining sales at lower spot prices will be less than the benefit to the Exchequer of suppliers to BNOC paying tax based on the higher term price. Those circumstances obtained throughout the second half of last year. There was some financial sense in what the Government were doing in their directions to BNOC to prop up the price, which is what they were doing, despite all the talk about stability.

Labour Members accept that BNOC cannot prop up prices in this artificial way indefinitely, and perhaps should not do so at all. It was never the function of BNOC to operate in this way. Though I find it difficult to accept the proposition that this country, the fifth largest producer of oil in the world, has no influence on world prices. That would be an abandonment of responsibility. Again, the Government have not come clean on this.

It is difficult to understand exactly what the relationships are with OPEC and what discussions the Government had with OPEC and other countries. One of the major oil companies, Shell, in the memorandum that it presented to the Select Committee on Energy, took the view that BNOC could influence the world price of oil, although obviously this is one of many influences. I should not for one moment argue that BNOC's influence could be anything like the influence of the decisions, or non-decisions, of OPEC on either price or production.

Even if the circumstances of pricing had changed, that is not a case for the abolition of BNOC. There is no reason why BNOC could not operate on the basis on which it was operating before the Government asked it to prop up prices artificially when it did respond to market conditions.

It is extremely foolish and dangerous to say that, because circumstances have changed and present conditions are as they are, that will continue for ever, so there is no need for this organisation, even for pricing. However, the argument is not basically about pricing, although that is an important consideration. Security of supplies is bound to be the main consideration. Until recently not only was that not disputed by the Government, but they argued strongly, as my hon. Friend the Member for Merthyr Tydfil and Rhymney said, for the necessity to maintain BNOC for the sake of security of supplies in possibly dangerous situations.

We know that, under the Energy Act 1976, certain arrangements can be made only in a dire emergency. We are talking about a state of emergency being declared before the British Government, under the Energy Act, can take certain measures. Other measures can be taken under EEC arrangements and International Energy Agency arrangements, about which the Minister has spoken today.

The Minister's case was ludicrous. First of all, he spoke about reactivation of participation agreements. Perhaps the Minister will answer the point made by my hon. Friend the Member for Merthyr Tydfil and Rhymney about the requirement of six months' or 12 months' notice to reactivate the participation agreements. Are we assuming that we shall get notice of a crisis six or 12 months in advance? That has never happened before in this sector or any other sector of political and economic activity. Reactivation is not a satisfactory safeguard compared with the present arrangements under which BNOC is trading in participation oil on a massive scale. Our position is bound to be weakened if a crisis short of a declaration of a state of emergency should arise.

As to informal assurances from oil, product or marketing companies, I am sorry, but I doubt very much whether they are worth the paper on which they are written—if indeed they are written at all. Even that was not clear from what the Minister said. If they are not legally binding but are rather more than general expressions of good will, no doubt we shall get further information in the winding-up speech or in Committee. However, it is not sensible, on a matter of such importance, to rely on informal assurances from product or marketing companies in the oil sector.

It is a dereliction of duty on the part of Government to rely simply on such informal assurances. I had a limited experience at one time of the difficulties of oil supplies. Although my interest was marginal compared with that of my right hon. Friends, I did not as a Minister find the oil companies particularly helpful or accommodating. I have no reason to believe that they would be any better in the future than they were in the past.

Similar questions arise about taxation. We are talking about massive sums of money. If things go wrong, there will be a considerable loss to the Inland Revenue. The Minister acknowledged that it had been useful to have BNOC as a reference point in determining the appropriate prices for taxation arrangements when one was dealing not with arm's-length arrangements but with arrangements in which artificial pricing is commonplace. Artificial pricing is arranged in a way that benefits not the Inland Revenue but the potential taxpayer.

The fact that BNOC is involved in trading on a massive scale is bound to be of considerable benefit from the point of view of the oil taxation office. It contains a wealth of knowledge and day-to-day experience which will be lost if and when the Bill is enacted. BNOC is trading in many different brands of crudes, so the office has a yardstick by which to judge the market price. The price at which BNOC sells and, in certain circumstances, buys is the going rate. The major oil producers are also refiners. Therefore, they have an interest in depressing, for taxation purposes, the price of crude oil. It is on the crude price that the marginal rate of tax bites very heavily.

All the major oil companies have oil taxation departments staffed by highly skilled, professional people, many of whom are accountants. They are very well qualified to look after the interests of the oil companies. I do not criticise the oil taxation office when I say that, unless it is provided with information from inside. it cannot compete with that level of expertise. It can obtain that information now from BNOC, but in future it will be unable to obtain information on anything like the same scale, and after the royalty oil has run out it will be unable to obtain any information.

We are referring to considerable sums of money. If the price of oil is reduced by 1 per cent., the Exchequer will lose revenue amounting to £150 million. A 1 per cent. fiddling around with transfer pricing or a 1 per cent. difference between the reference price that the oil taxation office, properly informed, applies now and what will be applied in the new circumstances involves a considerable sum of money.

The Minister of State said that this matter will be taken care of because the Government will talk to the oil companies about it. How naive can one be? The oil companies are on the other side. They are, as they are perfectly entitled to do, looking after their own interests. Nice chats with the oil companies will not solve this problem. As recently as December 1984 the Minister acknowledged in a debate the worth of the BNOC.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

I am grateful to my right hon. Friend for allowing me to intervene. I wish only to underline his point that in 1984–85 petroleum revenue tax yielded an estimated or provisional £7·2 billion, while corporation tax yielded another £2·4 billion. Therefore, the odd loophole or slip-up in taxation could mean the loss of tens of millions of pounds, not just a few million pounds.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Govan

Yes. In that context we are dealing with the abandonment of an organisation which now employs 120 people. When the Bill is enacted it will employ only 40 people. These people are involved in a great many activities, all of which were profitable until the Government interfered with the pricing mechanism. Even that, from the overall national point of view, benefited the Exchequer. We are dealing with a small organisation that is operating in an area of activity where, if things go wrong, the Government can be taken to the cleaners for very large sums of money. It is astonishing that we should be debating the abolition of BNOC, for the reasons given about price changes, when all these other activities are of such immense advantage and importance to the country and the Exchequer.

I am a member of the trade union which is principally concerned with the staffing of BNOC—the Association of Professional, Executive, Clerical and Computer Staff. I was glad that the Minister of State referred to the fact that there had been a meeting with the general secretary of APEX, Mr. Grantham, at which I know certain assurances were given. However, the announcement came as a bolt from the blue.

Mr. Milian:

The Minister of State is acknowledging that fact. There was no reason for the staff to believe that BNOC would be abolished. BNOC was recruiting up to the day of the announcement. Some of the staff have not been with BNOC for very long. They were recruited to work for what they believed to be a developing organisation with a long-term future. Therefore we must make sure that the staff are dealt with very generously.

As my hon. Friend the Member for Merthyr Tydfil and Rhymney has already said, members of staff must be given freedom to decide whether they wish to be transferred to this much truncated and mutilated agency. It will have considerable difficulty, for obvious reasons, in attracting the highest quality staff. Its functions are to be severely reduced. Its oil trading functions will disappear completely, unless participation agreements should be reactivated. If such agreements they every were, it is probable that nobody in the new agency would know how to trade in oil. I do not wish to deal in detail with the provisions relating to pensions, but those Opposition Members who will consider the Bill in Committee will wish to ensure that staff are dealt with fairly and generously, particularly bearing in mind the unexpected nature of the announcement about the winding up of the BNOC.

In conclusion, I repeat what I said a few moments ago. In the light of the various statements made by the Minister almost up to the date of the announcement, it is astonishing and extraordinary that the Government should be about to abolish the BNOC. It is a tragedy that an organisation which has done an extremely worthwhile job for the country is to be abolished. The national interest will be put at a considerable disadvantage.

Photo of Mr John Hannam Mr John Hannam , Exeter 6:27 pm, 14th May 1985

In his speech the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) beat his breast, called for pragmatism and then went on to deliver a speech which demonstrated a total ideological commitment to the continuation of another state interventionist body. I do not criticise him for that; he has always stuck to that approach. The right hon. Member for Glasgow, Govan (Mr. Milian) implied that the only way in which some degree of control can be maintained over the oil industry—he did not use the words "the wicked oil industry", but that was the phrase used in years gone by — is through some form of British National Oil Corporation. The Department of Energy, through the powers that it wields by means of the licensing rounds, exerts a very much greater degree of control and discipline. The threat that participation agreements might be reintroduced would bring to heel any oil company that was thinking of trying to get round any form of taxation. Therefore, the right hon. Member's arguments are irrelevant in the context of this Second Reading debate.

When the House last debated the role of BNOC on 14 March 1985, the only Opposition Front Bench spokesman who was present was the hon. Member for Merthyr Tydfil and Rhymney. This is surprising, in view of the outraged indignation of the Opposition the previous day when my right hon. Friend the Minister of State announced the abolition of the BNOC. Someone referred to it being a fight involving tooth and nail. I do not know whether the hon. Gentleman would class himself as the tooth or the nail.

The fact is, as my right hon. Friend the Member for Guildford (Mr. Howell) has made clear, the Government are now right to call an end to the expensive game of playing with world oil prices. I am one of those who have in the past given qualified support to the role of BNOC as a price stabilising force and a means of ensuring a degree of security of supply to Britain in the event of a crisis. In my speech in the debate on 18 December I referred to the ever-present possibility of such a crisis of supply and I mentioned in particular the Iraq-Iran war as a potential threat. I also mentioned the coal dispute and our dependence on the much higher oil-burn in our power stations. It was the security of oil supply rather than the trading influence of BNOC which attracted my guarded support, and all the evidence of recent months points to the irrelevance of that trading role.

When spot oil prices were rising in the period up to spring 1983, BNOC was able to establish a good reputation as a shrewd trader in the volatile spot market following the Iran revolution. But when prices began to fall dramatically it became obvious that the role of BNOC in trying to set marker prices for oil had become impossible and large losses developed. The effect on oil prices of BNOC's intervention became less obvious. In my speech on 18 December I said: I do not believe that BNOC or the Government have any illusions about their power to determine or influence oil prices in other than the most limited or marginal way."— [Official Report, 18 December 1984; Vol. 70, c. 221.] I said that the BNOC price card could be used only occasionally and with diminishing effect as we moved from contracted sales to a large spot market. It is interesting, looking at the figures, to see that the spot market has increased from 500,000 barrels a day in 1979 to over 6 million barrels a day in 1984.

Therefore, I do not mourn the passing of BNOC's increasingly ineffective role. Indeed, looking at recent events, where we see a continuing shift from contract oil sales to the spot market as a sign of things to come in what everyone would agree is an oil surplus world market, I can foresee the continuation of those particular pricing problems. I welcome the Government's decision although I pay tribute to the work of the BNOC's staff during a difficult trading time.

It is with security of supply that I want to deal tonight. When I served on the Committee dealing with the original Petroleum and Submarine Pipe-lines Bill in 1975 with my right hon. Friend the Member for Guildford, the argument deployed by Conservative Members, who were then in opposition, was that we did not need the extensive BNOC interventionist role in the North sea. We argued for the combination of a proper tax regime and some kind of mechanism for ensuring security of supply in the event of an emergency. We did not support the creation of a vast BNOC organisation.

That is where we finish up again now. I fully accept the assurances of my right hon. Friend the Minister that security is and will be maintained through agreements with the refining and marketing companies because they are the companies which supply the British customer. I also agree with the hon. Member for Merthyr Tydfil and Rhymney that it would be extremely useful for us to have more detail of those assurances because that would satisfy the House.

I welcome the assurances of my right hon. Friend the Minister and also his explanation of the powers contained in the Energy Act 1976. It ensures that over two years stocks of oil will be maintained if an oil supply shortage of some 7 per cent. develops. I understand that that has never happened and is unlikely to happen, but it is a precaution which can be triggered in the event of a world crisis.

As I understand it, the agency will still handle royalty oil of some 250,000 barrels a day and will retain the right to buy up to 51 per cent. of all North sea production, but only, as it says in the Bill, if there is some threat to the security of our United Kingdom oil supplies.

I would be grateful for more information on the definition of that threat to United Kingdom oil supplies. Who will decide what triggers off that threat? The International Energy Agency deals with world situations which became patent and easy to determine. What happens when there is a threat to the United Kingdom, not of the magnitude of a world crisis but which necessitates some action being taken to put into effect the assurances which my right hon. Friend the Minister has proclaimed we shall have from the oil trading companies and refineries? We need to know who will decide the nature of that crisis if we are concerned about security of supplies. Will it be a Cabinet decision based on advice from the Department of Energy or through consultation with a specific oil industry committee or association?

With regard to royalty oil, the agency has, I understand, the power to sell the 250,000 barrels a day or to contract out the selling. Under what circumstances would it choose between those two roles? How and what would influence its decision?

On 14 March my hon. Friend the Member for Enfield, Southgate (Mr. Portillo) expressed reservations about the retention of that royalty oil. My right hon. Friend the Member for Guildford also mentioned that. I, too, would like a little more explanation as to exactly why that power is being retained for the agency, and also about the continuation of participation agreements. As has been pointed out, they take a long time to spark off. In the event of a crisis, the mechanisms would take some time to take effect. I would concede that more direct means of securing oil supplies for Britain would be used. In fact, we have seen that done by other European nations. In the 1979 crisis we seem to have produced longer queues and greater shortages than anywhere on the Continent where more direct methods were used. I suspect that that will happen again unless we are clear how to ensure supplies to the British consumer.

The fact that we had BNOC in 1979 does not convince me that BNOC is the answer to security of supply. The Continental countries used their own more direct methods of ensuring that they got supplies to the consumer. However, I am not over concerned about the retention of those powers in the Bill. If they help to secure all-party support for the Bill, that is fine.

We live in an uncertain world with regard to energy and oil supplies. As has been pointed out, prices are on the slide again and, with OPEC increasingly unable to control its members' production levels, the short-term points to slack demand and a glut of oil. That should mean lower world energy prices and a falling dollar, both liable to benefit world trade and to create jobs. However, that will not necessarily help the oil-producing countries. We already see strains developing in OPEC with wild accusations being leveled at countries such as ourselves and Norway for maximising our production.

If we look a little further into the crystal ball — a dangerous thing to do in relation to energy — we see both Russian and American oil production beginning to turn down. The United States has produced some recent estimates of recoverable reserves which show a steep downward trend. In fact, the estimates of offshore oil reserves are now 55 per cent. lower than the 1981 estimate of offshore oil in the United States. The Alaskan reserve estimates have now dropped even more dramatically and are 73 per cent. lower than in 1971 following a succession of unsuccessful exploration wells.

At some time in the future, probably still a long way ahead, we may be heading back to the inevitable dependence once again on middle east oil and all that that entails. Those considerations must be borne in mind when planning Britain's future. The world will still be dependent to a large extent on oil, but the limited duration of the levels of consumption that we are used to will become more obvious. In that context, I believe that we need to maintain this agency with its limited security of supply powers. I believe that we are right to take the steps that we have to remove once and for all the farce of the oil trading pricing which has caused such losses to the British taxpayer.

I fully support the Bill, and I hope that the House will give it a Second Reading.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change) 6:40 pm, 14th May 1985

In one sense the announcement of the Bill was a surprise, but in another sense it was not. I have been looking back to what said on 18 December 1984 about the confusion that reigned then within BNOC: I suspect that people working at the British National Oil Corporation have even less idea what the Government's policy is and are being left in confusion about what is being expected of them."— [Official Report, 18 December 1984; Vol. 70, c. 209.] I suppose the only good thing that they can say about the Bill is that at least they are no longer in confusion, but unfortunately some of them are left looking for alternative employment.

It is logical that, having emasculated the integrated state oil corporation and attempted to use BNOC in a way that, as hon. Members on both sides of the House have acknowledged, it was never intended to be used in the first place, the Government have decided to get rid of the embarrassment of BNOC finally and for all and simply replace it with an agency. In the context of other things that the Government are doing, I find that slightly ironic. The Government most of the time seem to be trying to suggest that Government agencies should be transferred to public corporations, whereas in this case, for obvious reasons, they are having to do the reverse.

Once the Bill goes through, either a vacuum or an opportunity will be created. I suggest to the Minister that it is time the Department of Energy took advantage of an opportunity rather than continued with the present state of drift. I do not think that I am the only person in the House or outside who remains puzzled as to exactly what Government policy is in the context of further development of the North sea and, indeed, North sea oil production and pricing.

Let us first consider oil pricing. The general contention in the debate is that we have a glut, a soft market, and that the price of oil is falling. It is down to about $25 and, depending on how optimistic or pessimistic one is, it could well drop below $25. The Government's response to that apparently is: "That is the way things happen, it is nothing to do with us, we will just have to live with it," even though a few months ago they were clearly using BNOC at least to try to offset some of that effect.

It is a little naive for a country that produces 2·8 million barrels of oil a day to suggest that we have no influence on the market price. I freely accept that we are not the major influence, but it is absurd to continue to suggest, as the Government do, that there is no influence that the Government or the United Kingdom can have on the market price.

It is interesting to note in the context of OPEC that it has long been recognised that helping to determine prices cannot be separated from production. It would be nice to hear from the Government some coherent idea of what in their view North sea oil production is, could be or should be.

Perhaps I should remind the House that there was an agreement some years ago, when we were building up the production of the North sea, that we should aim for self-sufficiency. It was not a particularly scientific objective or one that was worked out on the basis of a great debate, yet a sort of consensus emerged that we might just as well go for something like self-sufficiency.

We are now producing 2·8 million barrels a day, something like 30 per cent. more than our domestic consumption. This is way past the original objective. We have gone through this figure without any reassessment of what we are doing or why we are doing it, and it appears that we are continuing to do so.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

Is the hon. Gentleman advocating that we should now cut our oil production? Is that official Liberal party policy?

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change)

I certainly think that we should be considering whether 2·8 million barrels a day of maximised oil production is in the best long-term interest of the nation. I freely admit that the Liberal party and the Social Democratic party are discussing whether some constraint on production would be sensible in the national interest. That is not a definitive statement of policy—it is not determined—but we think that it is an important question, and one to which the Department of Energy should address itself but has so far refused to do so.

The third item which has been much discussed is security of supply. The argument appears to be that we have a surplus of production, that supply is not a major problem and that therefore there is no need for any special measures. I accept the point of the hon. Member for Exeter (Mr. Hannam) that, in an emergency, legislation may be necessary rather than a long participation agreement. However, the Government cannot simply argue that, because the existing set-up does not provide adequate protection, they will get rid of it with no clear alternative. What we heard from the Minister of State was less than satisfactory. Some of his assurances were less than specific, and may or may not be valuable when the crisis comes.

It is not inappropriate, in suggesting that it is time for the Department of Energy to grasp some of the opportunities, to recognise that we have gone for a level of production in the North sea and that we have achieved that level. No hon. Member would wish to decry the considerable achievement by all those who have been involved in getting that far, but it is accepted that the investment in the industry in the next 15 years will exceed the total investment to date in the North sea since the first well was drilled. One wonders, observing the attendance in the Chamber and in the Strangers' Gallery, whether the nation is aware of the opportunities that still exist and whether the Government are failing in their duty to point out the scale of those opportunities and, indeed, to try to ensure a greater British involvement.

It is a matter of deep and continued disappointment to me that major companies such as ICI and GEC fail to have a significant stake in the technological development of the North sea and the opportunities that that brings. I should like to think that companies with substantial cash mountains might use them to increase our involvement in the technology in the industry.

Once the Government have swept away all the things that they have inherited from the Labour Government, which I understand they dislike for ideological reasons and want to see the back of, they should recognise that they have created a situation which is unlikely to be in the best interests of the United Kingdom market or, indeed, of the United Kingdom consumer. They have created a vacuum into which it is time they made a positive input. The accumulation of what the Government have done in the last five years suggests that they have a policy not to have a policy. Effectively, they are drifting about aimlessly without coming up with a constructive idea on how to ensure that, in the next 15 years, Britain's interest in pricing and production of our energy resources is maximised, with the maximisation of the industrial opportunities that arise therefrom, in a way that regrettably has not occurred in the last 15 years. [Interruption.]

I hear groans from a Conservative free marketeer, off stage, as it were. Nevertheless, I suggest that the Government should recognise that producing at the rate that we are doing, without taking account of the need to assess our national interest, is not a very responsible thing to do. Many people would recognise that it is not the Department of Energy that is running our energy policy; it is the Treasury. Indeed, there is a short-term objective to maximise oil production in order to get revenues to meet the short-term needs of the Government's public sector borrowing requirement and, indeed, perhaps their taxation measures.

If that is the case—I think that many hon. Members believe that it is—it might be more honest to admit it. I do not believe that that is the best long-term objective for the country. We need further sensible development. It is a balance, and I freely accept that we want to ensure that the market operates as effectively as it can. But we are not so naive as to ignore the effects of OPEC or of our production and our ability to influence price, and nor are we so naive as to fail to recognise that the Government could and should be doing considerably more to ensure that there is a reasonable policy.

The Government are sweeping away the last vestiges of what they inherited, but they have offered no alternative policy other than the free operation of the market — something that many people recognise is not, on its own, sufficient to ensure the best interests of North sea oil.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

Does the hon. Gentleman agree that the Government's policy can be likened to that of a farmer with a barn full of corn, who, instead of planting some of the seeds for next year's crop, decides to sell the lot?

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change)

I appreciate the point of the hon. Gentleman's intervention. Indeed, I was about to make the link to substantiate my point about Treasury domination of the Department's supposed strategy or lack of policy. The Department announced last week that it would sell British Gas at a yield of about £6 billion to £9 billion. For a Government dominated by someone who gives us homilies about good housekeeping, to do that simply to sustain current expenditure is not responsible.

The Government's objective is to maximise production from the North sea, not because it is the best policy in the long term, not because the price is right to get the best return, and not because it will provide the maximum opportunity for British industry to become involved—reasons that might be defensible—but simply to produce revenue to sustain the Government's economic strategy. It has nothing to do with good energy policy or good management of resources.

We should reconsider the production level and look to the next 20 years. We should take the opportunity to ensure that production is paced at a level that gives the maximum long-term benefit to the United Kingdom economy and the maximum long-term opportunity to British industry. There is no evidence that the Government propose to do that. While we can understand the purpose behind the Bill, the Minister should recognise that, if he does nothing but produce it, he will create a vacuum. He should take advantage of the opportunity provided.

My hon. Friends and I feel that this tidying-up operation might as well be completed, but only because of the way the Government have gone about it. The Labour party is, to some extent, defending something that it created, but which has outlived its full usefulness—

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change)

Because of the steps that the Government have taken and because BNOC's record in recent months has shown that it cannot fulfil a considerable function, given the Government's constraints.

If the Government think that they can get away with abolishing BNOC and carrying on with their policy of not having a policy, the people of this country will recognise that they have squandered the only asset that stands between us and bankruptcy and have failed to take advantage of the long-term opportunity that it should and could present both for the economy and for industrial opportunity.

I urge the Minister to look beyond the Bill and give us some indication of how he sees the way forward to ensure a sensible, positive energy policy—something which, I regret, he and his colleagues have never attempted to bring before the House.

Photo of Mr Peter Rost Mr Peter Rost , Erewash 6:53 pm, 14th May 1985

Having listened to the hon. Member for Gordon (Mr. Bruce), I confess that I am more confused than ever about Liberal party policy. His speech criticised the Government for not having an energy policy, and I pricked up my ears and hoped that he would offer us an alternative policy—but nothing materialised. He offered only some rather vague views about the need to limit oil production in the interests of the British economy. He gave no specific reasons why that should be done and how best to do it.

I spent last weekend yet again offshore—this time looking at some of Britoil's operations in the Moray Firth and the Beatrice field—and saw some of the enormous economic benefits that have spread throughout Scotland, both onshore and offshore, as a result of the enormous investment that continues to take place. I should be surprised if there were many citizens north of the border who would welcome any artificial Government intervention to curtail development or, even worse. to cut production of existing fields.

To suggest that displays an extraordinary lack of knowledge of the economics of the oil industry. Long lead times are involved in developing a field, and once the investment has been made it is necessary to get back that money quickly if the company is to stay alive and if it is to build up the cash required to make preparations for the next investment. The country cannot afford a policy of depletion that would delay development of the smaller marginal fields, which are primarily the reserves still to be exploited. We cannot afford any hold-up or disincentive that would prevent investment in fields that will be marginal in reserves and profitability.

If that is what the Liberal party is suggesting, it will not only be extremely damaging for the offshore supply industry and all the employment and economic wealth that that creates, it will not only be extremely damaging for the oil industry itself, it will be disastrous for the economy and for the revenue from oil at a time when we must survive a major structural reorganisation in our society. We are faced with huge unemployment that has resulted from our not making ourselves more competitive and thereby not competing effectively with a world that has already developed the high technology industries that we are still trying to develop.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change)

The hon. Gentleman is suggesting that there should be no depletion policy until we begin to run down production. He is implying that the maximum production objective of the oil companies is automatically in accord with the national interest. He must acknowledge that many of the fields have had the full capital return, so most fields could handle a small cut in production. However, I agree that the new fields must be encouraged.

Photo of Mr Peter Rost Mr Peter Rost , Erewash

I am not prepared to argue that there is not some case for what the hon. Gentleman calls a depletion policy. However, the Select Committee considered that a year ago and did not reach that conclusion. It decided that we do not know whether we need a depletion policy because we do not know the extent of the reserves. The first objective must be to explore more thoroughly the extent of the reserves before we decide whether we need a depletion policy.

It is all very well to say that we must conserve oil because we might need it in 20 or 30 years — which would be a valid argument if we had only 20 or 30 years of reserves — but we do not know the extent of our reserves. We have licensed only about 10 per cent. of the acreage. There are large areas of potential oil-bearing acreage, some of which is coming out in the ninth round, but a great deal of which is being hoarded by the Department for future licensing. Until we have a clear assessment of reserves, and until the annual books on reserves begin to take a more comprehensive view as a result of more thorough explorations, we just do not know our reserves. Even with modern technology, we cannot know until we have drilled exploratory wells. There must be a great deal more drilling before we have the answer. I agree with the hon. Gentleman that, at that stage, if we find that there is nothing much left there may be some justification for a depletion policy. If I pursue this theme, Mr. Deputy Speaker, you will no doubt rule me out of order.

The purpose of my contribution was to welcome the Bill and to express perhaps a little disappointment that Opposition Members have made rather spurious arguments about security of supply their main objection to the Bill. I want to deal with some of the laboured and unconvincing points put forward by Opposition Members, particularly the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands). He made heavy going of the argument about security of supply, if I may say so without disrespect to him because I admire his depth of knowledge and his contributions on these matters. I have learnt a great deal from him in my humble efforts to gain an understanding of this difficult subject.

Reference has already been made to the power that the Government have under the Energy Act 1976. Therefore, it seems strange to suggest that there is any risk to security of supply in an international emergency when, so far as I am aware — I have considered many offshore installations and platforms—the pipelines come to the United Kingdom and do not go anywhere else. Therefore, it seems absurd to try to argue that we would be in danger of losing supplies in an international emergency when the stuff has to be landed in the United Kingdom.

Of course, we export oil but it comes to the United Kingdom bases first. Some of it is moved direct from the oil platforms into tankers, but very little. Most of it comes by pipeline to bases such as Sullom Voe and it is from those bases that it is shipped abroad. The logistics make the Opposition argument ridiculous. If we were faced with an international crisis with a potential shortage of oil, I cannot see that we would be in danger of losing the supply because it has to be landed here anyway.

Even if the oil companies were not prepared to be co-operative—a ludicrous argument in itself—the logistics are such that the Government could easily use whatever force was required to insist that the oil landed here stayed here, even if there was not time for legislation.

Photo of Kevin Barron Kevin Barron , Rother Valley

In regard to the landing of offshore energy assets, does the hon. Member think that we should not alter the position whereby all energy has to be landed in this country before it can be exported?

Photo of Mr Peter Rost Mr Peter Rost , Erewash

I do not follow the point that the hon. Member is making. If he is suggesting that all energy should be landed in this country before it is subsequently exported, I cannot see the relevance of that argument.

Photo of Kevin Barron Kevin Barron , Rother Valley

To be more specific, does the hon. Member think that gas and oil from the United Kingdom continental shelf should be landed in this country before they can be exported?

Photo of Mr Peter Rost Mr Peter Rost , Erewash

That is the hon. Gentleman's argument. It is his party that says that we need security of supply. I do not accept the argument that all reserves from the United Kingdom shelf should be landed in this country first because I do not regard it as essential to do that to secure adequate supplies, as we have a surplus. In any case, most of it is landed here; it has to be landed here simply because it is marketed in this country.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

Can the hon. Member tell us what piece of legislation, other than the Energy Act 1976 which includes the last-resort power of declaring a national emergency, allows a Government to ban the export of oil? So far as I know, the United States has a law forbidding the export of oil, but we do not. If the hon. Member is saying that the best way to secure oil supplies is to land them here and have legislation which allows the Government to stop them being exported, we can discuss that, but we do not have such a law, as the hon. Member knows.

Photo of Mr Peter Rost Mr Peter Rost , Erewash

If the hon. Member had allowed me to develop my argument, his intervention might have been irrelevant. To give him an immediate response, I am not sure what sort of catastrophe he visualises, but he has been here much longer than I have and surely he knows that in an emergency the nation unites and even opposite parties unite in Parliament. It would not take many minutes or hours for the necessary legislation to be passed as emergency legislation. It has been done before. There would be a consensus on such an issue. In that extremely hypothetical case, if it were felt that the oil companies could no longer be trusted to keep the oil in this country, emergency legislation could be introduced quickly.

The hon. Member's heavy-going argument about security of supply was also nonsensical because surely he knows that we import a high proportion of the oil that we consume. We import heavy crude, mostly from the middle east, because it is more suitable for burning in power stations and for some of our oil refineries. We export the bulk of our high quality North sea oil. There is an enormous two-way trade. Therefore, it is nonsensical to argue that we need our own oil for security of supply when basically we depend upon continued imports from the middle east. If those imports were to be shut off, it would be undesirable for us to export our own oil, but in the meantime our supplies depend upon the two-way trade. That point should be borne in mind.

The hon. Member for Merthyr Tydfil and Rhymney made a valid point that I support —

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

I am surprised if that is the sum total of the great demolition job that the hon. Member wanted to do on our arguments. If we do not need BNOC to ensure security of supplies, why does a vehement privateer and free marketeer such as the Chancellor of the Exchequer accept that argument? He accepted it when supporting the Oil and Gas (Enterprise.) Act 1982. As well as being my view, it was the view of the Chancellor of the Exchequer.

Photo of Mr Peter Rost Mr Peter Rost , Erewash

The hon. Member has again jumped the gun. I was just about to support his argument in his speech this afternoon, even at the risk of embarrassing my own Front Bench. I was about to say that, while the hon. Member did not have a strong argument for saying that we need BNOC in its old form to ensure security of supply, he had a powerful argument when he reminded the House that Ministers, particularly my right hon. Friend the Minister of State, who opened on behalf of the Government, as late as last December were arguing that we need BNOC to maintain security of supplies. I do not want to embarrass my right hon. Friend by quoting evidence that he gave to me and several others on the Select Committee on Energy as recently as last December. However, I will quote him, not to embarrass him but because I wish to develop the point. I asked my right hon. Friend: Do you believe BNOC has an on-going role to maintain security of supply? He replied: Yes, I do. Later, in reply to a question from the hon. Member for Rother Valley (Mr. Barron), my right hon. Friend said: BNOC has a very important role in relation to participation agreements and in relation to security of supply. Therefore, I believe that there are important and continuing functions of BNOC. I appreciate why my right hon. Friend's view has changed since December. Perhaps he has not convinced Opposition Members in the way that he should of the need for that change of view. He might tell them, for example, that circumstances have changed considerably since December. If he wishes to persuade Opposition Members of his need to change his view about the future role and usefulness of BNOC, he need only give more credit to the Select Committee than he gave today. Although my right hon. Friend was generous about the two Select Committee reports on BNOC, he might have 'said that the Select Committee had been instrumental in allowing him to see more clearly that BNOC had become irrelevant. I am sure that hon. Members in all parts of the House would then readily acknowledge that only outstanding Ministers have clarity of vision.

It would be an ideal opportunity for my right hon. Friend to get out of what some might suggest could be an embarrassing spot, bearing in mind the quotations that could be thrown at him from as recently as last December, when he was doing his best to justify the continued existence of BNOC — that is, until March, when he announced that it would be scrapped.

It is honourable and respectful for Ministers to do little U-turns when they realise that a change is justified. Indeed, if Governments and civil servants admitted the error of their ways more readily, we would have better government. That is preferable to going to the barricades in defence of a position which the Government held previously, just because they held it previously, even if the circumstances have dramatically changed. The situation has changed dramatically and BNOC is now an irrelevance, even if there was some doubt about it six months ago.

Photo of Mr Peter Rost Mr Peter Rost , Erewash

The main reason for its being an irrelevance came to light as a result of the recent instability in the price of oil. Last autumn it was obvious that BNOC, far from helping to stabilise the oil price, was an embarrassing contribution to its instability.

Photo of Mr Peter Rost Mr Peter Rost , Erewash

BNOC's enormous volume of oil, which it had to sell because of its obligation to sell it, contributed to the collapse in the Rotterdam spot price. That has not been contradicted by anybody, even if it cannot categorically be proved. The logic of the situation supports that argument.

The spot market is extremely volatile and those who deal in it expect sharp fluctuations. The volume of trading on that spot market has increased, and a good proportion of that increase has been due to BNOC's forced sales. The Government realised, as a result of that experience, that BNOC, despite its capable and conscientious manage-ment, was not the best equipped organisation to deal with such a volatile market situation.

In saying that, I do not in any way criticise the management of BNOC. I have the highest respect for those concerned. But BNOC was not set up with the facilities to trade in a difficult, volatile market situation. Trading on long-term contracts at fixed prices was a process in which BNOC did a good job. Trading in a minute-by-minute fluctuating market, such as the Rotterdam market, was an exercise for which BNOC was not equipped.

Compared with oil companies, BNOC did not have the cash resources to do other than sell the oil almost the moment it received it. It did not have the storage facilities that oil companies have. Not only do the oil companies have enormous pipelines but, through their organisation upstream and downstream, they can absorb, large quantities of oil by way of their refineries, and they do not have to sell oil on any one day unless it suits them. They can use their storage facilities to adjust to market conditions.

BNOC, with a volume of 800,000 barrels a day, was incapable of doing that. It was, therefore, a forced seller. It was under pressure to deal in the spot market, even when that market was moving in a way unreceptive to forced sales. The Government realised that, and certainly the taxpayers realised it because they were faced with the inevitable losses of that operation.

If my right hon. Friend applies that argument in defence of the Government's change of policy between December and March, he will be adopting a respectable stance, and I am sure that the hon. Member for Merthyr Tydfil and Rhymney would accept that argument. The Select Committee report simply emphasised the nonsensical situation in which we found ourselves in the changed market circumstances. BNOC was not able to adjust to that change and became a costly irrelevance.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

The change of policy took place within a shorter period than December to 13 March. When the Minister gave evidence on 6 March he sung the same song that he had sung in December. In other words, the conversion was within seven days, from 6 to 13 March.

Photo of Mr Peter Rost Mr Peter Rost , Erewash

The hon. Gentleman is being even more unkind than I was to my right hon. Friend. I deliberately did not quote the Select Committee's proceedings of March. I thought that December was bad enough. What happened in December, it might be said, set in motion the Government's change of policy. Although by March the Government had accepted that BNOC's structure would have to be changed, until that announcement had been made publicly it would have been difficult for the Minister to have pronounced on the matter to the Select Committee. It was made clear in March that the position was under review, and we know the result of that review.

My main arguments are that the Government are right to pursue this legislation; that even if we were not in a position to say so publicly last December or a little later, we realised that the situation for BNOC had changed:, that security of supply is no longer a valid argument—it never really was— and should not be pursued against this legislation; and, above all, that BNOC, far from contributing to price stability, has contributed to price instability.

Under the new agency arrangement, there is a genuine prospect of more orderly oil marketing. It will not just benefit the oil companies; it will benefit the tax that we collect from them and the nation. It is rather stupid to suggest that the oil companies do not have the maximum incentive and motivation to find the best market and to sell their oil at the highest possible prices. Of course they do, and they will achieve that because they are better equipped to do so than BNOC. Even the smaller companies operating in the North sea should obtain a good deal from this proposal. A variety of markets will be available to them. A co-operative agency may be established. Some of the larger companies which have marketing organisations and refineries may be happy to co-operate with the smaller companies. There do not seem to be any problems there. There is no justification for retaining the BNOC's marketing operation.

I welcome the clause that provides for an annual report on the operation of the agency to be presented to the Minister and to Parliament. That is an important monitoring system. I am sure that we shall all study the annual report with great interest.

I welcome the fair redundancy terms that have been offered to the management and the staff. It would be unjust if they were to be penalised for an inevitable and sensible change in policy which came at short notice. I, and I am sure the House, hope that undue hardship will not be caused to the staff and that many people will change to the new agency or find alternative employment for their undoubted skills elsewhere in the industry.

A large volume of royalty oil will be retained and marketed by the new agency. We should not lose sight of the fact that we are talking about a large quantity of oil—about 250,000 barrels a day, which is about one third of what BNOC handles daily at present. That is the equivalent to the full production of four or five medium-sized North sea oilfields.

The House will want an assurance, if not tonight then in Committee, as to how the new agency will handle that amount of oil and the criteria that will be used to ensure that it sells oil in the most commercial way. Will it contract out to expert marketing companies in the oil industry or will it try to market the oil itself as BNOC has done? What monitoring will there be, apart from the annual report, to ensure that the marketing is being done in the most cost-effective way? That is an important point, which has not yet been covered in the debate.

I welcome the legislation. Last December, when the taxpayer was asked for a substantial subsidy to pay for some of BNOC's losses, the Financial Times described BNOC as a "busted flush", and said it was time that it was finally capped. That was more a reflection of the comments that the oil industry was making about BNOC than an editorial comment. That might be unkind to BNOC, but at least the Government have faced up to the realities of the changed circumstances in the oil world and in the economics of the marketing and pricing and the supply and demand of oil. The Government having accepted that, the House would be ungracious not to support them.

Photo of Mr Dick Douglas Mr Dick Douglas , Dunfermline West 7:24 pm, 14th May 1985

I listened attentively to-what the hon. Member for Erewash (Mr. Rost) said. One or two of the points made by my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) in an intervention related to the Minister's non-conversion. On 6 March 1985, in reply to my hon. Friend the Member for Rother Valley (Mr. Barron), the Minister said: I think one has to look back at the basic purposes of BNOC and whilst it is true that one of the objectives of BNOC is of course to trade profitably, there are also a number of other functions which make it different from a company in the private sector. It has, and this has been spelt out at different times, responsibility for example towards security of supplies; it has responsibility for maximising the benefit to the United Kingdom economy, and given those different roles that it has—another one is that it does provide evidence of arm's length prices so far as taxation is concerned, and this was made clear in the Treasury evidence to the Committee—I do not think it is possible to make a direct comparison between the role of BNOC and the role of the private sector company. Where the role of BNOC is particularly different is when it takes account of the wider public interest, and that is why, before proposals are made on BNOC prices, there is this recognised procedure of consultation between BNOC and the Government, because it is the Government that provides this wider national interest before final decisions are taken. Amen to that. The Minister was giving evidence to the Select Committee of which the hon. Gentleman is a member. The hon. Gentleman must have heard or read that evidence.

The Minister has argued today that BNOC must be abolished because it has no role to play. We are told that BNOC will cease to be a trader. Will it? The right hon. Member for Guildford (Mr. Howell), a former Secretary of State for Energy, said that the agency will not cease to be an oil trader because it will still have royalty oil. What price, if any, is it proposed to set for that? The agency will have anything between 5 million and 7 million tonnes of royalty oil a year. I know that the figure is diminishing, but by any standards that is a substantial quantity of oil to have at one's disposal. I am not tempting the Minister to help me avoid reselection, but I should not cavil at being told that I would have a substantial amount of oil at my disposal.

We are in a unique position because, if we take the Brown Book's figures, we have reached the peak years of North sea production, according to the Government's estimates. I do not argue with that. We shall produce anything between 120 million and 135 million tonnes of oil a year. We expect production to decline. We are also told, if we believe the press—I do not know whether the Minister can enlighten us on this—that this year this nation is producing the equivalent of Saudi production. Saudi Arabia has, of course, huge reserves.

Conservative Members say, "What would the Labour party do about depletion policy?" As the Irishman said, "How would you get to Ballymena?" The answer is, "Not by starting here." I do not believe that a Labour Government would have been so greedy for oil revenues that they reached this level of production. This Government have had a profligate policy towards exploiting our North sea resources.

I shall go back a little to show how inadequate Conservative policy has been. Before 1973, the Conservative Government did not have a proper tax regime in place. They said that they would introduce such a regime, but they never did. They left the matter to the oil companies, saying, "The oil companies know best." I have never considered that to be a correct view of the national interest. The Public Accounts Committee pushed the Conservative Government into making decisions with regard to a tax regime. A Labour Government introduced a proper regime for the taxation of North sea oil.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

Can the hon. Gentleman remind us how much oil had been produced before the tax regime was put in place?

Photo of Mr Dick Douglas Mr Dick Douglas , Dunfermline West

That is not the point. I recognise the argument that a fairly loose regime was needed to entice companies into what was loosely called an unproven province. The Government would have received revenue from the North sea and companies would have received substantial advantages from capital development. The argument that not much oil was flowing was not one to which the Public Accounts Committee paid attention.

Photo of Mr Dick Douglas Mr Dick Douglas , Dunfermline West

I shall not give way, because I should develop my arguments.

The Tory philosophy in opposition was to create a regulatory agency. The present Secretary of State for the Environment—the right hon. Member for Wanstead and Woodford (Mr. Jenkin)—went to the United States and was captivated by the Texas Railroad Commission. He thought that it would be a great idea to create an agency along similar lines. The Texas Railroad Commission is, however, a regulatory agency, which regulates output. Then a Labour Government came into power and published their proposals. They created the British National Oil Corporation. That body was originally anathema to the oil companies, but they came to respect its expertise and competence. Participation agreements were signed giving the nation a direct interest in the development of North sea reserves.

I recognise that, for doctrinaire reasons, the Conservative party wanted to undermine those arrangements and the creation of BNOC as an integrated company. One of the members of the Standing Committee on the Oil and Gas (Enterprise) Bill argued — we supported the idea — that BNOC should remain an integrated company. We pointed out the dangers and difficulties involved in splitting off the trading arm from other aspects of BNOC, part of which became Britoil. We argued that it should be kept as an integrated concern.

Britain produces well in excess of its oil requirements. OPEC has not been a failure, although it has had some difficulties. New sources of supply have emerged — Alaska, Mexico and the North sea supplies have had a substantial impact on international supplies. Without exception, those developments are high-cost initiatives and the countries concerned therefore have a more than reasonable interest in maintaining price stability.

The former Secretary of State for Energy—the right hon. Member for Guildford — referred to the rapid changes in the oil market. Who is to say that there will not be critical shortages again? Who is to say that the Saudis will not get fed up with us and open the valves? If someone had told us 18 months or two years ago that Saudi production would fall from 11 million or 12 million barrels a day to 3 million or 4 million barrels a day, few experts would have believed it. They would have said that that would not happen. We know that the Saudis are capable, if it suits them, of opening the valves and producing more than 12 million barrels a day. What would happen to the oil price then? What would happen to the investments in the North sea which have been made against a background of oil prices of $ 26, $27 or $30 a barrel? What would happen to the security of jobs to which the right hon. Member for Guildford referred? We should be in great difficulty.

We have a vested interest in the short, medium and long term in maintaining price stability, and so have the oil companies. They do not make investments lasting 15 or 25 years or calculate their cash flow with a short-term view of oil prices. They take a fairly long-term view. From time to time, the oil companies fall out with one another, but they also fall in with each other. A famous agreement was made in the Highlands of Scotland. Back in 1982 the oil companies came together at Achnacarry and cooked up the price.

What is likely to happen in the North sea? The Brown Book shows that 16 oil companies participate in the licence on the Claymore field and 24 oil companies participate on the Forties field. We can see that we do not need to have secret meetings in the Highlands. The oil companies can have discussions in multifarious ways on how to regulate prices. That is what they will do, and I do not blame them for that. The Minister of State argues that that is the way oil companies operate but that the Government should not try to do so within the agency of BNOC. In saying that, the right hon. Gentleman is throwing away an expertise that has been built up over the years by Mr. Goskirk and others. It will be difficult to replace that essential expertise and to retain the competence needed in an organsation trading in royalty oil. It is difficult to understand the Minister's reasons.

During the proceedings of the Energy Committee in 1984, BNOC admitted that price adjustments could be made. On page 13 of the Energy Committee's report of 6 December 1984—House of Commons Paper Nc. 126—in question 60, the Chairman asked: May the Committee take it on the basis of that reasonably confident assertion that BNOC will not be expecting to come back to the Secretary of State in the foreseeable future and ask Parliament for a further subvention? Mr. Goskirk said: I doubt whether we could give a categorical assurance to that effect, but we see no reason to believe we cannot put our price arrangement on a basis that would enable us to avoid coming back. Therefore, in his wisdom, Mr. Goskirk said clearly that adjustments could have been made to the uptake of participation oil and to the form of contracts that were being undertaken. However, that is being swept away. Why is the Minister denying BNOC that function? In a sense, the only thing that is being swept away is BNOC's capability to trade in participation oil. No reasonable argument has been put forward.

I emphasise to the Government that that is a foolish policy. A few weeks ago we saw a film on television called, "Here Comes Mr. Jordan". In the film, a boxer dies too early, and Mr. Jordan has a terrible job bringing him back to life again. There is an analogy in this matter. Ministers will be in the same difficulty. For reasons that are difficult to understand, they are denying the House and the nation BNOC's expertise. They should consider carefully what they are doing.

September this year marks the 25th anniversary of the creation of OPEC. OPEC will change, but it will not go away. We need an organisation that is part of governmental policy and gives us greater access to information than at present. That was a major argument for BNOC. We wanted more direct information about the operation of the oil companies, reserves, profitability, tax and capital investment. At a time when other nations are building up their expertise, the Government, for reasons that are difficult to understand but which are certainly not in the national interest, are withdrawing from active concern in oil and gas. Those are doctrinaire reasons that are not in our real national interest.

I believe that the Opposition are right to oppose the Bill. We are right to say clearly that we shall reinforce the Government interest in that area. The Labour party has looked carefully at the operation of the golden share. The Government say that they do not want to interfere in any way, but they now have a variety of golden shares, for example in Amersham International, Britoil and Cable and Wireless—all ostensibly performing different roles. In circumstances that the Secretary of State will determine, he says that the Government will outvote everybody else. Yet the Government say that they will not intervene. The Labour party believes that we should consider the matter carefully and, when in government after the next election, perhaps implement a one-clause industry Bill, saying that in appropriate companies we shall take out the golden share. Then we shall see the Tories in opposition oppose that.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate 7:44 pm, 14th May 1985

I listened with great interest to the speech of the hon. Member for Dunfermline, West (Mr. Douglas), and I shall refer to some of the points that he made. I was particularly interested in the scenario that he painted, from his great knowledge of the international scene, of the possibility of OPEC forcing up production and forcing down the price. However, the argument that I shall develop is that I cannot see any way in which either the British National Oil Corporation or the agency that is to replace it could influence the prices in a situation as drastic as that.

To some extent, today's debate has been a re-run of the arguments that were put forward on 14 March. I should like to begin by repeating two things that I said on that occasion. First, I congratulate the Select Committee. It produced an excellent report. Today we have had some fun discussing over what period the Government's conversion to the abolition of BNOC occurred. If it was over six or seven days, the Select Committee deserves credit. Secondly, I repeat the tribute that is due to the staff of BNOC, who have performed their duties excellently. The fact that BNOC is being wound up is not a reflection on the way in which they perform their duties.

When we. held the debate on 14 March I gave a loud cheer to the news of the abolition of BNOC because it was welcome. On the other hand, on that occasion I entered some reservations about the role of the agency that was being brought in to replace it because I thought that the Government should make a cleaner sweep and take themselves more distinctly out of the oil trading market. Having considered the matter in the two months since that debate, and having had the opportunity of reading the Bill, I am more convinced than ever that it is right to abolish BNOC. However, my reservations about the agency that is to replace it are even more pronounced.

There are two basic reasons why BNOC should go. First, it has not been able to do what many of us hoped it might be able to do—protect our security of oil supply. Secondly, it has made it appear to the outside world—this is a very important point—that the Government were trying to control, or did control, the price of oil. That has led us into all sorts of diplomatic problems.

What I have said is no reflection on BNOC, as it was not set up in a way that could possibly guarantee our security of supply or even help in securing it. In that respect, I am taking an easier road than some of my hon. Friends because I am not trying to justify a change. I do not think that there was a magic date on which BNOC ceased to be useful. It is my contention that from the moment it was set up, and because of the manner in which it was set up, it had no chance of helping with our security of supply.

My main reason for saying that is that the participation agreements gave BNOC access to 51 per cent. of crude oil. But what good is that? The industries in our country do not run on crude oil. Our cars run on petrol and our industries run on the products of oil. It is those products that are the vital ingredients in the whole scene. Control of about half the nation's crude oil does not guarantee us against interruptions of supply. Even small interruptions in the supply of products can lead to severe dislocation and problems, as happened in 1979.

BNOC also entered into long-term contracts for the disposal of the oil that it took. As some hon. Members said today, that led to a lack of flexibility. BNOC was unable to turn around on a sixpence and shed those commitments quickly. It could not respond to events when they were moving quickly. That is not a matter of theory, but a matter of fact. My hon. Friend the Member for Exeter (Mr. Hannam) referred to what happened in 1979. With BNOC in existence this country was, if anything, worse placed to defend itself against interruptions in supply than many countries that did not have such an organisation.

There has been a great deal of discussion about the nature of the assurances and the informal arrangements that are made between the Government and the oil companies. Hon. Members may have their suspicions as to whether those assurances are watertight and whether the agreements, with all their informality, are sufficient. It seems that those informal arrangements go to the heart of the matter, which is the control and supply of products of oil, and not crude oil. That is a very important distinction. The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) said that BNOC was a company on which one could rely to defend the national interest. Its heart might have been in the right place but its oil was normally not in the right place as it-was normally committed. That is one of the reasons why it failed.

I am therefore surprised that the Government want to maintain the participation agreements. I was surprised when my right hon. Friend the Minister of State told us in our previous debate on this subject that, if the Government feel that they will need such oil in the medium term, they can activate the participation agreements. He has reiterated that sentiment today. As several hon. Members said, the medium term in this context means at least six months. Any right hon. or hon. Member who could predict whether there will be an oil crisis next week would be a rich man. To predict that we shall need additional supplies of oil next winter assumes supernatural foresight. The Government can choose between exercising the participation options all of the time—which they clearly will not do or we should not be discussing the Bill—or they will never exercise the participation options. When I say "never", I refer to the present Government. A Government of a different colour might take a different attitude.

I should like now to consider the problem of the Government appearing to fix or to control the price of oil. The Government should not attempt to fix the price of oil for two reasons. First, they will never succeed, as we are not powerful enough in the world oil market to have such an impact. Secondly, in the long term, lower oil prices are in our interests. I understand the desire for some stabilising, but the Government never seriously believe that they could control prices in the long term. In that sense, I accept assurances that Ministers have given that that was not the business with which they were involved.

Because BNOC was a price setter and a Government body, it is natural that OPEC Ministers assumed that the British Government were attempting or were able to control prices. Time and again, Britain has needlessly given offence to OPEC countries. Each time the North sea oil price has moved, it has looked to the outside world as though the United Kingdom was leading the way on oil prices. Indeed, it looked as though we were leading the price up to get rich or down to sell our oil without having to cut production like OPEC countries. I believe that Lord Wilson of Rievaulx used to joke about Britain becoming a member of OPEC. It has looked recently as though Britain is trying to reap all the benefits of being a country member of OPEC without being willing to pay the club fees.

The Government's response to all of this is curious. The problem arises because a Government body trades 1 million barrels of oil a day and is a price setter. That is what produces the diplomatic problem for Britain. The answer to that problem is for the Government to get out of oil trading. However, they are now proposing to replace BNOC with another Government body which will trade 250,000 barrels a day. I do not see how the agency can avoid being a price setter. Several hon. Members have said that 250,000 barrels is a substantial amount of oil. It appears that the Government have realised that they are in the international firing line and, having recognised that that problem has come about because they have their head and shoulders above the parapet, their response is to put only their head above the parapet, keeping their shoulders well hidden. That is a curious response.

I should like the Government to give up the participation agreements because I think that they are useless, and I should like them to give up royalty in kind. I understand that the main argument for having royalty in kind—it is not a sufficient quantity to affect security of supply — is the cash flow argument. I understand that the Government receive their money earlier from royalty taken in the form of oil than in the form of cash. If that is so, we should change the rules so that the royalty in cash can be taken earlier, so that the cash flow disadvantage can be overcome. That would be much better than the Government continuing to expose themselves by being involved in the oil market.

I am as worried as any hon. Member about security of supply, but I disagree with several hon. Members about the role of the Energy Act 1976 in securing our supplies. I have sometimes felt this afternoon as though I have read a different Act. I believe that it is much more comprehensive than some hon. Members have given it credit for. It is a good piece of Socialist legislation. It contains sweeping powers, which can be activated in circumstances that fall short of those which Opposition Members have mentioned. For example, the use of oil can be controlled at any time when it seems desirable to the Secretary of State to conserve energy. The full powers can be exercised when there is an international energy emergency and when it seems to the Government that an emergency is looming or is threatened. I do not wish to put ideas into the minds of Opposition Members, but this is a wide-ranging and draconian Act. It is extraordinary to argue that it is insufficient for securing supplies.

I have no doubt that the Government are doing the best thing in abolishing BNOC, but it worries me that they have not given the best reasons for doing so. The best reason is that BNOC never did its job. It is not that it ceased to do its job, as it never could secure supplies. The Government have put all of the emphasis on the recent change in market conditions, especially the change towards the spot market. If they take that line of argument, they are open to the accusation that this is a temporary phenomenon. They are, therefore, arguing for a long-term change—the abolition of BNOC—by giving a short-term reason.

Because the Government have given only half the reason, they are proposing only half of what I believe is the appropriate change. That surprises me as the Government do not have a reputation for doings things by halves. In this, however, they have done things by halves as, first, they cut BNOC in half to create Britoil and today we are discussing a Bill that cuts BNOC in half again to create an agency. I wonder whether the Government will come back with another Bill to cut the agency in half. I am reminded of the old mathematical problem: if a flea starts in the middle of a table and takes a jump followed by a jump of half the remaining distance, and keeps jumping half the remaining distance, when will it reach the end of the table? If I remember correctly, by that method it never reaches the end of the table. My right hon. Friend the Minister of State is not in the least like a flea, but I should like him to steel himself and, with one great bound, get himself free of the table.

Photo of Kevin Barron Kevin Barron , Rother Valley 7:57 pm, 14th May 1985

I do not know whether I should congratulate the Government and Conservative Members who have spoken today On their use of the Energy Select Committee's report in support of giving the Bill a Second Reading. I am a member of that Select Committee and have felt it necessary to remind myself of what we decided and what evidence we took. Neither my memory nor my reading has led me to any reference to the abolition of BNOC.

The Select Committee's fifth report might have been critical of BNOC's pricing, but it was more critical of the Government's unwillingness to come clean on what BNOC was doing about pricing arrangements. At paragraph 37 the report said: Various suggestions have been made in the Report about how BNOC's mode of operation could alter in the future especially in order to make it a more market-related pricing instrument, and the Committee will await with interest any announcement of any review conducted by the Prime Minister's policy advisory group. It hopes that Ministers will candidly discuss the options for the future with the House. Nowhere there, or in other recommendations, is it suggested that we should have a Bill such as this. Indeed, the Committee hoped that Ministers will candidly discuss the options for the future with the House. That was on 8 March. On 13 March the Minister made the statement that was the basis of the Bill. I cannot see how hon. Gentlemen who are members of the Select Committee can say that the Committee was moving towards the abolition of BNOC as it exists at present.

Photo of Mr Peter Rost Mr Peter Rost , Erewash

I am sure that my colleague on the Select Committee would not wish to deceive the House. The Select Committee did not come to the conclusion that BNOC should be abolished, because that conclusion would not have been within its terms of reference. However, our report must have raised serious doubts as to whether there was a useful role for BNOC to continue to play, and so would have influenced any thinking and enlightened Government into doing the obvious.

Photo of Kevin Barron Kevin Barron , Rother Valley

The hon. Gentleman is tempting me. If that had been our view, it would have appeared in our recommendations. I remind the hon. Gentleman of what he said earlier in the debate. His general theme was that the Committee felt that BNOC was a costly irrelevance. That was never said by the Committee, to my recollection. Had the Committee wished to express strong views to the Government about BNOC, it would have done so in the report. The hon. Gentleman is speaking now as if the report had made such suggestions.

I suggest to the Government that they should submit such proposed changes to national corporations to a Select Committee so that they could be considered in detail before a hotchpotch of a Bill is presented to the House for debate.

Some important questions are posed in the Bill, and I hope that the Minister will be prepared to answer them in Committee, if not when he replies to the debate. It is likely that there will be lengthy debate in Committee, and much opposition, if the questions are not answered.

Reference has been made to the question of the small companies that were looked after by BNOC, and the possibility of setting up smaller or co-operative agencies. We have also heard that there have been discussions between the small companies and the larger offshore companies. Many of the small companies do exploration work on the United Kingdom continental shelf. The Minister should tell us whether there is likely to be any effect on exploration in the North sea and the discoveries of oil and gas. Is the establishment of the agency that is to replace BNOC likely to affect exploration by small companies?

When the Minister gave evidence to the Select Committee on 6 March, two days before the report appeared, I asked him whether BNOC should be used as a buffer, using taxpayers' money to deal with short-term fluctuations in North sea oil prices. The Minister said that one of BNOC's roles was to provide evidence of arm's-length pricing, as far as taxation was concerned, in the offshore companies.

What are the implications of that now that BNOC is to be wound up? How will such evidence be collected now, and what are the implications for the Treasury and the public purse if the role played by BNOC for some considerable time in connection with taxation is given away or abolished?

I appreciate. the guarantee given in schedule 2 about the pension rights of people who work for BNOC. If staff are transferred to the new agency, their pensions rights will be transferred too. I agree with my right hon. Friend the Member for Glasgow, Govan (Mr. Milian), who is a member of the trade union involved, on that point. I am pleased that the Government have seen fit to accept that that provision should be made.

However, I received a letter today from my constituent Mr. MacDonald of Main street, Ulley, near Sheffield. I passed a previous letter from Mr. MacDonald to a Minister last month. Mr. MacDonald can get no similar guarantee from the Government in the case of the deregulation or privatisation of buses and the National Bus Company's pension scheme. The Government seem to take a different attitude on different Bills.

There is also the question of counselling for redundancy. BNOC's employees are working in a high-technology industry and are highly skilled. Are the Government using the counselling service to advise people, for instance, on how to set up agencies? If so, is it possible that there will be more than just one agency —that there will be some smaller entities that will look after the small companies?

Clause 4 of the Bill refers to the disposal of surplus property owned by BNOC. The proceeds of sale will be given back to the Secretary of State. The clause states that it shall be the duty of the agency to get the best terms reasonably obtainable for such property. I do not know what properties the agency will wish to dispose of, or what their value is. However, I hope that the Minister will show diligence in this area. When public assets have been sold off in the recent past, it has become clear within a few short weeks of their disposal on the open market that the British taxpayer, through the Consolidated Fund and the Treasury, has not received full value for them. It would be interesting to know exactly how public accountability will be imposed in the case of the disposal of properties by the agencies. Clause 2 poses a number of questions. The Minister has told us that, although under subsection (2)(d) the agency will have power to buy, sell or otherwise deal in petroleum on its own account", it will not be allowed to buy liquid petroleum gas. My hon. Friend the Member for Merthyr Tydfil and Rhymney asked why that was so. BNOC is not heavily involved in LPG at present, but it makes some profit by buying it. Why will the agency not be permitted to deal in LPG? Who is likely to buy the gas that is currently bought by BNOC, and to make the profit that the agency will lose?

The major question is about participation agreements. We have some security of supply through the participation agreements. The Minister said that we had assurances from oil companies that if the Government had to enact the participation agreements to bring 51 per cent. of our offshore oil into Britain, they could do it. That begs many questions. When BNOC is not buying and selling, even to the same company as it does now, and if we do not take up the participation agreement immediately, it is likely that oil companies will look for markets for their oil throughout the world, and rightly so. If they enter into long-term contracts to supply oil elsewhere, and if for some reason we lose the benefit of heavy duty, and North sea oil could be used in this country, what would happen? What would happen if there were a conflict between those companies' contracts throughout the world and the participation agreements, which provide assurance for us? Are those agreements legally binding? Can we physically force companies to bring oil into the country? We need further assurances from oil companies. Their assurances are more to shareholders than in the interests of the country. Shareholders watch what oil companies do, but they are not in a position to look after our national interests.

The hon. Member for Erewash (Mr. Rost) said that, because all the pipelines come on to mainland Britain and the oil is landed here before it is exported elsewhere, we have some security of supply. The Minister said exactly that on 6 March in answer to a question of mine during an evidence session in the Select Committee. He believed that the security of supply was a major reason why BNOC was in existence. His answer is on page 64, and I am sure that he has read it again and again. However, only a few days after, on 13 March, the Minister made a statement to the House abolishing BNOC.

In his evidence the Minister said that BNOC was responsible for maximising the benefit to the United Kingdom economy. That was exactly what the Select Committee's report was about and what hon. Members were interested in. We were interested to know whether we were maximising the benefits to the United Kingdom by using Supplementary Estimates. The Minister gave us assurances, although they were not concrete ones. He did not say exactly how much we got back through BNOC's pricing arrangements.

On 6 March the Minister recognised that BNOC had a definite role to play in three major areas. Why is the Minister now prepared to come to the Dispatch Box and say that he no longer sees such a role for BNOC? What is our national interest in offshore oil now that BNOC is to be abolished and an agency set up? All hon. Members should look after the national interests, and not the interests of either oil companies or fellow hon. Members.

Photo of Mr Lewis Stevens Mr Lewis Stevens , Nuneaton 8:13 pm, 14th May 1985

I welcome the Bill. It was not wrong to set up BNOC in 1976 because BNOC could play a sensible controlling role. We knew little about what the markets or the output quantities would be. There were many estimates and ideas but, as we know, many of the estimates for oil have floated up and down considerably over the years.

In 1977 we produced about one tenth of the output that we produce today of North sea oil. The position has changed and there is a different role to play. During those nine years we have seen considerable changes in oil production throughout the world. The markets have fluctuate). Sometimes they have seemed to be in the control of OPEC, and sometimes in no one's control. Sometimes the United Kingdom appeared to have a strong effect through BNOC on world prices, and at other times we have had comparatively little effect.

The big difference is that today BNOC's function of trying to avoid the destabilisation of prices is no longer relevant. That is the major factor. A Labour Member said that in future the Opposition would try to resurrect a similar body. That would not be the right thing to do. BNOC has played a part for nine years, but it would be pointless to resurrect a similar body in wholly different circumstances, and hon. Members on both sides of the House have admitted that future circumstances are rather uncertain.

We must now change our view of what type of organisation and sort of control the Government should have, and of how the oil industry should be allowed to progress with its North sea interests. It has been suggested that BNOC is half its previous size. I welcome that. If I had been present in 1982, I might have pushed harder to reduce BNOC even below half its size.

We still retain royalties in the form of oil in the Bill. I query that. I would be happier if I knew that we would accept payment not in oil, but in cash. However, in the Bill we have the opportunity to contract it out. I hope that the matter will be considered seriously, and that involvement in the market and trading will be phased out.

I have never thought that the ability of Government enterprises to enter trading is a good idea. Nevertheless, I pay tribute to the work done by the employees of BNOC. However, I question whether it is right to have Government involvement in oil trade. I would be happier if we could reduce the trading concept of the new agency, for royalties too.

The Opposition have shown considerable pessimism about the part that the private sector and oil companies will play. That is not surprising because we have heard many criticisms of the private sector from the Opposition on many previous occasions. It is pessimistic to look at the matter and to say that the job cannot be done. The private sector has carried out explorations and development in both the North sea and technology. It is essential to develop new technology, and during the past few years it has developed to a remarkable extent. There was more exploration and more wells were drilled last year than previously — a total of 182. There were 10 oil discoveries, one oil and gas discovery, eight gas discoveries, one condensate discovery and three gas and condensate discoveries in 1984.

Development in the North sea is not completely uncontrolled. Any general energy policy mus: include some controls. However, the Opposition suggest that there should be much closer control and that the Government should tie the industry so tightly that they will always know what is happening, and that they can make things happen. But such control, which means that Governments must interfere in those organisations, is rarely successful. The Bill will remove direct interference in the industry by the Government, which would not be a bad thing.

I doubt whether BNOC has managed, as some have suggested, to control prices. As my right hon. Friend the Member for Guildford (Mr. Howell) said, prices changed because the world market changed. He suggested that prices would decrease; indeed, it is possible that they will collapse. Only the oil companies are in a position to decide whether that will happen.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

Does the hon. Gentleman agree that the Wood Mackenzie report of 19 December 1984, when reviewing BNOC and what use it may have, said in simple terms that the effect of BNOC was not that it controlled or organised prices, but that it slowed price changes? Did not that independent report show the value of BNOC in world oil markets?

Photo of Mr Lewis Stevens Mr Lewis Stevens , Nuneaton

I accept the hon. Gentleman's point, but I doubt whether BNOC would have continued to he effective.

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) said that, through BNOC, the Government always knew what was happening in the industry. That is a good point, and I hope that the Minister will consider it. Perhaps the change that the Bill will introduce will enable the Government to be as well informed as they were in the past, but I should like confirmation of the fact. I hope that the Government will always know what is happening as they formulate their energy policy.

There will be other problems with world oil production. Many hon. Members have asked whether OPEC production will increase, or whether we can live with the reduced output of Saudi Arabia and other countries and the undoubted back-door selling that happens at present. The removal of BNOC will not play a great part in that. There will be little difference between the proposed arrangement and the retention of trading by BNOC. We can create changes in the world market through our total output, not through a trading organisation that has been set up by the Government.

Some hon. Members asked whether the participation agreements will be honoured. I am confident that our arrangements for security of supply will be as successful, should the need arise, under the new policy as they were before. In an emergency, we have the power to obtain oil supplies without much difficulty. We should have to invoke the legislation to do it, but it could be done. However, most of the threatened developments will not happen overnight. There will be opportunity in the weeks or months ahead to see the effect on our supplies, and we shall have adequate time to talk to the oil companies and to ensure our internal supplies. In any case, North sea oil comes to Britain anyway. We consume a great deal of what we produce, and I believe that the agreements with the oil companies will secure our supplies in the future.

It has been suggested that the development of production in the North sea will be inhibited because of the change in the structure, but there is no reason why, with the oil companies doing most of the trading, there should be the slightest inhibition on the development of technology or of the industry in general.

The Bill forms the basis of a more sensible outlook. If anything, I should have preferred it to go a little further and to have abolished trading by a Government organisation. However, it is a move in the right direction. I hope that in Committee some of the details can be examined so that we can be confident that our general approach to the industry will be the best possible, and that our security of supply is maintained.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South 8:26 pm, 14th May 1985

I begin by declaring a semi-interest, in that I, too, am a member of a trade union to which many of those who work for BNOC belong. It is in our joint trade union interests that I begin by saying that it says little for a Government who have been party to a performance whereby at 3.15 pm one day the managers are told and at 3.30 pm the staff are told that their jobs have gone when until that day there had been an active recruiting programme. All right hon. and hon. Members would say that that was bad industrial practice. It cannot be argued that it was justified because the removal of BNOC and its replacement by an agency had to be kept secret. The future of BNOC was the subject of discussion for some time before that. There is no justification for those 120 people losing their jobs on what appears to be an ideological or political whim. Looking back through the history of the British National Oil Corporation, one sees the sale of Britoil. I do not propose to criticise the method by which that sale was started, except to say that it is one more national asset that has been squandered during the Government's tenure of office. Now they wish to sell off the gas industry and to squander that asset, too. Many of our national assets will be thrown into the hands of private owners, not always from the United Kingdom. Indeed, our national assets are being steadily stripped away. However, I shall try not to trespass too far from the main debate, which is the Second Reading of the Bill.

This squalid little Bill will break up BNOC and waste all the expertise that has been accumulated there, although half of the personnel will go to the agency. At the end of this squalid affair, I hope that those who have given loyal and effective service to BNOC will not suffer financially. We all know that there are 4 million-plus people out of work, and it appears that at least 80 of the 120 are destined to join that queue. Jobs are not easy to come by, and people sacrificed jobs in other careers to transfer to BNOC, which up to 13 March appeared to be expanding its operations.

Anybody who changed his job because he thought that there was a future with BNOC, and was given a job by the management of BNOC in good faith, should not suffer materially as a result of this change. The Minister and I may politically disagree about everything in sight but I hope that he will agree that justice must be done to employees of BNOC, particularly to those who will not be taken on by the agency. I wait with some interest the Minister's winding up speech, and I hope that he will give us some assurance. I know that certain terms are being discussed and it would not be right to go into the details, but I hope that they will be both generous and reflect the way in which BNOC met its untimely death.

I sought to intervene in the speech of the right hon. Member for Guildford (Mr. Howell), but he seemed not to see me. Perhaps that was as well for him, because I may have asked him a question that he would not have liked. However, I intervened in the speech of the hon. Member for Gordon (Mr. Bruce) and made a simple comment about the farmer and his corn stock.

It is all very well instantly to react to the events of the day. However, all of us who have been involved in the market—I have been to no great extent, merely as a professional observer or participater on occasions—have watched the oil market wobble around with its ebbs and flows of plenty and shortage over the past 20 years. All of us can remember the early 1970s and the sudden panic of the world oil crisis and the feeling that there was not enough oil to go around. Everybody panicked into measures to do this and that.

We have watched the North sea oilfields develop from nothing in the 1970s to self-sufficiency for Britain in the 1980s and apparently into the 1990s. We have watched the OPEC countries either fall out with each other or fall in with each other, but that did not affect the oil supply. We have watched the development of the South American oilfields and seen the North American oilfields begin to peter out in some areas and develop in others. New techniques and new concepts have been developed. All the time, the nature of the market has changed, but there has always been a relationship between world economic growth and development and the availability of oil.

At the moment, the world is in recession. It is beginning to pull itself out of recession, and the Americans are certainly coming out of recession, although we hear many worrying comments and much speculation about the large American deficit and whether this will cause a crash in American finances.

Leaving political differences aside, it is to be hoped that we too will turn the corner and come out of recession. As we do so, we shall notice a rather strange feature, which the right hon. Member for Guildford and many other Conservative Members ignored. We shall need oil. It is used when countries are working and the greater the consumption of oil—the resources exist—the greater is the take-up in the slack in the world oil markets. Companies begin to place long-term contracts. We move away from the predominance of the spot market into the predominance of the long-term contract market. That is the nature of the oil industry.

To react, as the Government have done, by killing off BNOC simply because the spot market appears to have begun to predominate over the long and short-term contract placing markets is to react to the instant without seeing tomorrow. That is the Government's sin. Instead, they should have looked at the problem in its entirety, taking a long-term view and asking the simple question of what BNOC can and cannot do and what its great value has been.

I have a copy of the Wood MacKenzie report, dated 19 December 1984. We live in the days when it is said that to change the law of the land is a long and slow process, but on 14 May, barely six months after the report was published, we are pushing through a Bill that will change all our marketing concepts. The Wood MacKenzie report analyses BNOC, discusses whether it has a future and looks at various aspects of it that seem to be of use. It says that price stability is one of BNOC's attributes.

It says: BNOC played an important role during the price difficulties in the late 1970s and early 1980s and without doubt helped to stabilise the situation. The role of BNOC has been one of slowing rather than changing the direction of the market. I intervened in the speech of the hon. Member for Nuneaton (Mr. Stevens) and put that point to him, but he seemed not to follow it. The great advantage of BNOC is its stabilising effect. It stabilises because it slows the market. If one has a daily placement of 800,000 barrels, one has an influential part to play in the market. However, to ask BNOC to try to control prices, even with such an interest, is to ask the impossible, particularly when one asks a producer at a time when the spot market rather than the term contract market predominates.

I should have thought that even a student in a first year class of economics at any university would have been able to tell the Government that. However, that is looking at things realistically, standing back and taking a long-term rather than a reactive view, a considered view rather than a political or dogmatic view.

The argument that I, too, take a political view may be thrown back in my face. However, I can be objective enough on occasions to go to experts, ask their advice, stand back and make an objective judgment. I am sure that hon. Members will agree that most such experts are not natural supporters of my party. They are experts who have looked at the problem, considered the options and the facts and on 19 December last year made a comment.

The report also says that the advantage lies in the security of supply. The arguments for that have been well canvassed this evening, and I do not propose to raise them again. On logistics, the report says that, in fulfilling a central co-ordinating role, BNOC can help to maintain a regime of orderly offtake and liftings. It has also been a ready buyer from the very small participants such as companies owning the Forties units. It is all very well saying that the little companies can go in future to the big companies and the big companies will peg their market accordingly. However, anybody who believes that companies act as charitable independent bodies lives in cloud-cuckoo-land. All of us know that Marks and Spencer dominates its suppliers because it demands quality, fixes the price and has almost a monopoly hold. Once such a company is buying 80 or 90 per cent. of one's product, one has to obey it or lose 80 or 90 per cent. of one's production. There is no alternative market. There is only a handful of major companies for the little companies to go to. The little companies will not have the same security, the same outlet and the same pricing practice as they had in the days of BNOC.

One keeps coming back to a simple question—why get rid of BNOC? Why did the Minister come before a Select Committee in December 1984 to defend BNOC and then announce its destruction in March 1985? What has led to this absolute change of mind? It cannot possibly be—I should be absolutely horrified if it were—that, because the spot market had dominated for three months and there had been fluctations in it, it was justifiable to turn the Government's policy on its head. Or could it be, as my hon. Friend the Member for Rother Valley (Mr. Barron) suggested, that clause 4, which has been cobbled together to carry out this despicable act, holds the secret? Clause 4(3) states: Any sums received by the Agency under subsection (1) above, other than such sums as may be determined by the Secretary of State with the approval of the Treasury to be sums required to be retained by the Agency for meeting expenditure incurred by it under that subsection, shall be paid to the Secretary of State; and any sums received by the Secretary of State under this subsection shall be paid into the Consolidated Fund. The agency will have a limited function. BNOC assets will be sold off, and again the dear old Treasury will collect the loot.

As I said in my intervention during the speech of the hon. Member for Gordon (Mr. Bruce), this can be compared to the farmer with his barn of corn. When this Government came to power their barn of corn contained many interesting assets. It contained the gas industry. That is about to be sold off. It contained British Aerospace, computers, shipyards, oil. It contained a wealth of assets, all of which belonged, Mr. Deputy Speaker, to you, to me and to every other citizen of the United Kingdom. We have had six years of this Conservative Government. They are even talking about selling off the water boards. Soon nothing will be left and the barn will be empty.

One does not to have to be more than a first-year economist to know that if one has an income-producing asset it provides an automatic income and that if one sells the asset there will be no income. If one sells off one's assets, including selling some of those assets for next to nothing, as happened over British Telecom, Arnersham International and several other assets, and then squanders the proceeds, at the end of the day nothing will be left. Just as the farmer who squanders his corn has no corn left to plant for next year, so this nation at the end of the tenure of this Government will have lost its major assets, its seed corn and its ability to invest. It will therefore be that much poorer.

I regret having to call this Bill a squalid little Bill, but that is what it is. Clause 4 contains the secret of it all. BNOC was a viable, profitable national asset. In 1982 the Government took out the upstream element and sold it. If one looks at the value of what they sold, it has gone up and up. Who has benefited from that sale? It is certainly not the people in my constituency, or the ordinary chap who pays his taxes and goes to work, if he is lucky enough to have a job. The institutional investor has benefited, the top 5 per cent. of our population and those who are living abroad.

On 14 May 1985 the Government intend to dismantle what is left of BNOC. Is it not interesting—perhaps the Minister of State can answer this question if no other—that nowhere is reference made to liquid gas products. What will happen to them? Or is that another part of our seed corn which will also be squandered?

Photo of Mr Michael Brown Mr Michael Brown , Brigg and Cleethorpes 8:44 pm, 14th May 1985

I have no hesitation in supporting this excellent piece of legislation, because BNOC is an anachronism. It seeks to interfere in an essentially free market. I bring to the debate the experience of an hon. Member who represents two of the country's greatest oil refineries on the south bank of the River Humber, the Conoco oil refinery and the Lindsey oil refinery. Those refineries, and the companies which have invested so much in them, have been anxious about the destabilising influence of BNOC not only during the last few months but over a period of several years. Whether one is refining or extracting oil, the oil market is essentially a naturally free market. The establishment of BNOC in 1976 was an act of deliberate Government policy. They made no secret about it. Their deliberate policy was to intervene in the free market.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change)

The hon. Gentleman says that the oil industry is a free market, but does he seriously suggest that the price we are paying for North sea oil is determined by a free market? Is it not following the lead of OPEC, which is a cartel and which intervenes in the market?

Photo of Mr Michael Brown Mr Michael Brown , Brigg and Cleethorpes

If what the hon. Gentleman says is true, there is no doubt that, because of the existence of BNOC, the market is not as free as it ought to be. I take his point about the role of OPEC. I represent constituency interests which compete against cartels and price rings and I recognise that problems are caused for a free market by any cartel or price ring, which OPEC might be said to be. However, if they can influence a market, when they have control over such assets as BNOC, in order to establish a freer market, it is right and proper for a Government in whose philosophy I believe to introduce legislation of this kind.

The market for oil in terms of the world economy is a free market. Attempts, even by OPEC, to control the freedom of that market have resulted in trouble for OPEC during the last few years. We have to recognise the fundamentally natural nature of the worldwide oil industry. It naturally responds, far more than do many other industries, to the stimulus of demand and supply. In spite of the BNOCs of this country and the OPECs of this world, whatever controls Government or international organisations try to bring to bear to establish stability in the market, one eventually finds that there is trouble. That has been the case not only during the last few months, owing to difficulties with the spot price, but generally with regard to the oil market as a whole. BNOC has sought to do as good a job as possible, but during the last few months or years, however well run, there was no way in which they could bring any helpful influence to bear.

The hon. Member for St. Helens, South (Mr. Bermingham) referred to the beneficial effect of BNOC trying to control the spot price, and in his earlier intervention he suggested that the great virtue of BNOC was that it managed to slow down the movement of prices. However, there was a fundamental pricing dilemma, and BNOC's policy which he suggested had been of advantage to the oil market did not, I suggest, result in such a benefit.

If one goes back to early 1983, the hon. Member for St. Helens, South might be able to claim that on two occasions BNOC steadied the market by delaying pricing moves. That was the burden of the hon. Gentleman's intervention and part of his speech. However, that weapon can be used on only one or two occasions. In the end, the existence of a semi-official term price becomes a force which creates the destabilisation that the hon. Gentleman and his colleagues who are opposing the Bill are seeking to avoid.

Any change would and did risk attracting changes in other official prices and market reductions which anticipated such changes. There was a great danger of setting off a downward spiral in prices, thereby causing the very destabilisation that the hon. Gentleman felt BNOC's operation in 1983 might have avoided. Any move that BNOC made towards a market-related pricing system would inevitably have been a sure recipe for changing what was even then a weak market into a disastrous one. After every month in which spot prices change and go below the BNOC price, inevitably BNOC would feel that it had to go beneath the spot price. That weakening of the market would have been a disaster.

The Government or BNOC could not have had the increased powers which would have been necessary to intervene in the market, for the simple reason that large-scale storage for the substantial additional reserves that would be sloshing around all over Britain could not have been funded. It was shown clearly in 1983 that the argument chosen by the Opposition and by the hon. Member for St. Helens, South would have been a route to even weaker prices and an even more destabilising influence on the oil market.

A Conservative Government committed to free enterprise, to ensuring that the ingenuity, skill and market response which can only come when the private sector can operate, can only take this course. That is why I welcome the Bill. The Bill is philosophically based. I make no secret of the fact that I would have welcomed it earlier. There is some merit in the charge that we should have had the Bill in 1982 along with the other piece of legislation, of which this is an inevitable and natural consequence. I class myself as one of those who might carp at the margin but I am delighted that the Government have seen fit to do what is natural for a Conservative Government.

Earlier this year I had the privilege of attending the Institute of Petroleum's annual dinner, the major occasion when all the oil companies bring together Members of Parliament and those involved in politics on both sides of the House together with all the industries. That dinner was addressed by my right hon. Friend the Prime Minister. She drew attention to the contribution which the private sector of the oil industry, both in refining and extraction, has made to our economy. That is a contribution which the withdrawal of BNOC will assist by ensuring that Britain's oil market becomes even more attractive for investors.

Let us not forget that oil exploration in the far-off early days was undertaken by the private sector. Let us not forget that, before it was recognised by either Labour or Conservative Governments that oil extraction from the North sea would be a lucrative fund raiser for the Treasury, there was no Government funding which would be anywhere near that of the oil companies as they engaged in what was a risky enterprise. In those far-off days in the late 1960s and early 1970s, it was the entrepreneurial spirit of the oil companies which made it possible for successive Governments to benefit from the revenue which was raised and which made it possible for the Socialist Government in the mid-1970s to impose its political philosophy on what appeared to be a success story.

Would there have been a BNOC in 1966 when we did not know whether there was any oil in the North sea? The fact is that in the late 1960s when a Labour Government were in power and when there might have been some cause for Government assistance in the market place to encourage the oil companies to explore a natural resource that had not hitherto been discovered, there was no such move. It was only once the reserve had been discovered, when there was known to be profit in the North sea, that action was taken. There was profit in the North sea, there is profit in the North sea and there must continue to be profit in the North sea.

I see the North sea from a constituency point of view. It has brought investment to south Humberside. It has brought a massive new Conoco works, which this year is engaging in a £100 million expansion scheme. That will result in every fabrication yard in south Humberside being full of contracts. Only about six weeks ago I had the privilege of opening a new design centre because the oil companies have so much new design work that they cannot undertake it themselves. About 50 people are employed in a design centre, contracting to the Conoco oil refinery in my constituency, to cope with that massive expansion plan which is founded upon the investment and profit that has come from the North sea in the past few years.

The Conoco oil refinery welcomes the Bill. It is the provider of much wealth in terms of jobs in my constituency and it will provide many more jobs during the coming months as its expansion programme takes off. I am glad that the Government have seen fit to bring the Bill forward for a Second Reading today. I regret that we have had to wait a year or two longer than I might have wished, but nevertheless I welcome it.

Photo of Mr Kenneth Weetch Mr Kenneth Weetch , Ipswich 8:57 pm, 14th May 1985

In the short time that I have at my disposal I want to come pretty quickly to the brass tacks of what I have to say. The Bill is more a matter of political ideology than of rational conviction. If one thing has become clear from the Bill it is that Britain has only a hazy energy policy, if we have one at all. We still have not decided on the best possible machinery and apparatus to do what we aim to do. The great assumption that underlies the Bill is that what multinational oil companies decide and what they do will always coincide with the national interest. That is the basic philosophical assumption underlying the Bill, and it is simply untrue. The British National Oil Corporation was set up initially to safeguard Britain's interest in a world of multinational oil companies. As they ever did, multinational oil companies always act in their own interests, particularly at a time of crisis.

The essence of the Bill as I undertstand it is that the corporation is to be replaced by a Government oil and pipelines agency. The agency will be responsible for handling Government royalty oil, regulating Government pipelines and activity concerned with participation contracts. It is my view that, whatever else an oil policy has to have, security of oil supplies for the country must be in the forefront. Of that I am absolutely convinced.

It is Government policy to embark on privatisation and a policy of free market economics. The assumption, as I have already said, is that this free market economics pursued by multinational oil companies will always coincide with the national interest—their interest is the nation's interest. That is a fallacious assumption. Nevertheless, it underlies the Bill.

I put it to the House that security implications now for oil supplies are a good deal more complicated than they were. When we were in government eight years ago, I went to a dinner and I sat next to a very powerful oil man. They are always plain-speaking people. I asked him, "What do you think of the British National Oil Corporation?". He chose his words carefully, and he said, "The British National Oil Corporation is a confounded nuisance." Therefore, it did not take long for me to realise that, if ever we had a free enterprise Government that could be influenced by multinational oil companies, the British National Oil Corporation was doomed and, indeed, it was. It has already been split up, and what we are discussing here is the rump. Large scale big business always wanted the corporation out of the way, and now it has gone.

I believe that security of our oil supplies always was a sound argument for the corporation. One will always have a better chance—and I will put this in terms of general principle only, because I do not have time to argue the case in detail from practical experience—of safeguarding the nation's oil supplies with a state oil company than with mulitnational oil companies. I think that it is a simple matter of principle, and at this stage I will go no further than that.

My right hon. Friend the Member for Glasgow, Govan (Mr. Milian) cast some doubt on the validity of participation agreements which can be reactivated —I think that is the word. I think that his doubts were well founded, and that these agreements are in no way a substitute for what is being lost.

My second main point concerns what my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) said regarding small oil companies with no trading departments of their own. The best way that I can put it to the House is to quote a short passage from the Financial Times of Friday 15 March which asks the question: Who, in the absence of BNOC, will trade oil for smaller oil companies which have no trading departments of their own?". The same article answered the question one column later: New trading mechanisms will also have to evolve as BNOC winds down. Smaller companies will probably have little alternative to marketing their oil through larger companies, a point which was the source of some bitterness yesterday.". As far as I can ascertain from the main course of the debate, that point has in no way been resolved. I have listened to much of the debate, I have listened to the experts, I have listened to hon. Members who serve on the Energy Select Committee and I have listened closely for certain basic. questions to be answered. Not being a specialist in this area, and being a simple man anyway in the economics of energy, I want a number of simple questions answered. Is it in the nation's interest to have a high price for oil or a low price for oil? I have heard no hon. Member answer that yet. I have heard two opinions. The first was that it is better to have a high price for oil because we are an oil exporting country. Two minutes later I heard that it is better to have a low price for oil because that lowers costs. A couple of minutes after that, I heard an hon. Member say that if we have a low price for oil that means that there is a low price for oil for the Japanese economy as well, which will compete with our own. Oil economics is a confusing world. The Government must prove their case, and they have not shed a great deal of light on a number of fundamental questions.

Will the new arrangement have very much effect on the spot market? I understand that we are moving towards free enterprise. If that is so, surely the market will fluctuate rather more than when we had the constructive management—or at least an attempt at that—of BNOC.

In the limited time that I have had to carry out research, I have been given to understand that, as a marketing organisation, the rump of the corporation has had a constructive influence on prices and marketing at certain critical periods — it has certainly had a constructive influence on price stability. In the late 1970s and early 1980s — difficult times — BNOC helped to stabilise a critical position. It earned its spurs. Even supporters of the corporation would not argue that, at the end of the day, it can alter the long-term fundamental supply and demand in the oil market. But over short periods it has altered people's perceptions and produced a stabilising effect.

The Bill does not give us very much. It is being introduced for political reasons. The Government have policies of free enterprise and privatisation. I suspect that, in trying to have a constructive price influence in the world market, the Government have attracted international political opposition. However, even put together those do not make a policy, so I oppose the Bill.

Photo of Mr Peter Hardy Mr Peter Hardy , Wentworth 9:07 pm, 14th May 1985

I am pleased to follow my hon. Friend the Member for Ipswich (Mr. Weech), not least because of the experience that we shared last night in the debate about Felixstowe, when we heard Conservative Member after Conservative Member demanding not merely that the harbour be developed but that vast public investment should be put into infrastructure—that roads should be built and services provided so that private profits could be made. It is interesting that Conservative Members are taking the same approach in this debate.

I hope that I am not taking matters out of turn in saying that it was entirely appropriate that my hon. Friend should follow the hon. Member for Brigg and Cleethorpes (Mr. Brown). Enthusiasm is always attractive — it is a commendable quality in many cases. But for an hon. Member to fail to recognise that our offshore resources are

finite and to want to see an even more excitable oil industry rushing to develop our offshore reserves is inappropriate to the current position. If the hon. Gentleman has his way, there would be more wells than water off the British coast.

It has been an interesting debate. Obviously, there have been considerable differences in approach on both sides of the House. My hon. Friends have always perceived the need to maintain security of supplies while Conservative Members have been remarkably complacent in their assumption that oil supply will be all right on the night. The truth is that it will not. Of course, there were differences. The hon. Member for Enfield, Southgate (Mr. Portillo) took a more extreme view than his hon. Friends. He did not mind whether we had any crude oil guarantees because, so far as he could see, crude oil did not matter. He should recognise that existing arrangements provide for a sufficient degree of buy-back to guarantee an adequate supply to our refineries.

I apologise to the Minister of State for not starting with some comments on his speech in opening the debate. He tried to be fair but he left many questions unanswered. Some of them may be left to the Committee stage but I ask the Under-Secretary of State to answer quite a few tonight.

My hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) presented a thorough analysis of the Bill. It might have been helpful if the Minister's approach had been as scrupulously detailed. My hon. Friend pointed out the effect that the measure might have and demonstrated how the dismantling of BNOC might weaken our national capacity to influence decision-making offshore and perhaps reduce our capacity to secure proper development of the oil market. He showed how the Bill could be seriously disadvantageous to the security of supply—a point which my hon. Friend the Member for St. Helens, South (Mr. Bermingham) pursued when he pointed out that the oil reserves that have been bequeathed to us are like seed corn which is being used improperly.

Several of my hon. Friends referred to the debate on 18 December when the House considered those sections of the 1984–85 Supplementary Estimates concerning the Energy Department. Much of that debate related to the position and role of BNOC. My hon. Friend the Member for Merthyr Tydfil and Rhymney showed in that debate how it was assumed at the time of its shearing, when the Oil and Gas (Enterprise) Act 1982 was being considered, that BNOC would be left with an important role which would ensure that the national interest was served.

Reference has already been made to the contribution of the Minister of State on 18 December. I trust that the Under-Secretary of State will offer an adequate comment on that contribution. It is interesting to note that only five months ago, in that debate, the Minister of State recognised that the United Kingdom continental shelf and the price that Britain secures for oil in international markets is not"— and, in my view, most not remain— entirely under the control of international integrated companies. We must also ensure that there are some arm's length sales at transparent prices." — [Official Report, 18 December 1984; Vol. 70, c. 230.] We have seen a tremendous change since then. The hon. Member for Erewash (Mr. Rost) seemed to adopt his customary posture of running very rapidly to be able to say, "Me, too" to the Government when they make any change in energy policy, but he must have run with enormous speed in this case because the Minister's conversion has taken place in a much shorter period than the five months that have elapsed since that debate. I trust that the Under-Secretary of State will provide a further explanation of the speed of conversion that the House has witnessed.

To be fair, several Conservative Members have sought to ensure that the destruction is humane. In addition to that humanity, my hon. Friends are deeply concerned, perhaps because some of them belong to the same trade union as the staff of BNOC, that the treatment of the staff shall be generous. It has been suggested that fair arrangements will be made. The Under-Secretary of State may prefer to wait until the Committee stage before he provides detailed information about that. The distinguished and often extremely important and valuable service that BNOC staff have provided over the years should be properly recognised. Will any of them be retained in the agency? May we have an assurance that those who feel sickened by the Government's sudden conversion and who do not wish to serve in the new agency will not be under any compulsion to remain?

Perhaps the Government will provide, through their various job creation schemes or educational arrangements, an opportunity for them to set up in consultative capacities so that they may become gamekeepers turned poachers, or the other way round. It will be a pity if the Government's behaviour has so disturbed the diligent and devoted staff of BNOC that they feel unable to remain in the public service. Over the years they have developed not only experience and knowledge but a commitment to their organisation, and that should not be so sweepingly eradicated.

The debate has not ranged as widely as I had suspected it might, and I am anxious to comment on the various speeches that have been made. For example, I thought that attention might have been paid earlier to a speech that the Minister made in Texas on 7 May last. His remarks were relevant to national energy policy, and our feelings about his speech on that occasion illustrate the difference that exists between the two sides of the House on this issue.

Speaking in Texas, the Minister boasted about our capital investment in the oil industry and the record levels of exploration and appraisal drilling. He said that 182 wells had been started in 1984—a considerable number, though perhaps not enough to please the hon. Member for Brigg and Cleethorpes. The Minister thought that the number of wells drilled this year might be even greater than last year's total. He was pleased about there having been an increase in the amount of oil being discovered. That is not surprising, with more wells being drilled.

In that speech, the Minister failed to perceive that the oil companies—no matter how closely attached to them some Conservative Members may be and no matter how cordial relations with them may be, so that the Minister can talk about informal agreements which might help us in our hour of need—are devoted to profits.

Photo of Mr John Hannam Mr John Hannam , Exeter

What about the trade unions?

Photo of Mr Peter Hardy Mr Peter Hardy , Wentworth

The hon. Member for Exeter (Mr. Hannam)—who made a complacent speech to which I shall come— is right to refer to trade unions, which, naturally, seek to improve conditions for their members. They would be misguided if they did not.

Likewise, the first obligation of the companies is to make profits—one might say, to perform the role of the vulture, and the vulture goes where the pickings are easy— and it is inevitable that they will look afterthemselves. [Interruption.] Conservative Members should not be surprised that we have a grasp of capitalist economics. The oil companies go for profits, and because at present the profits are attractive, they are rushing into the North sea.

The Minister boasted in Texas that the United Kingdom was the fifth largest producer of oil. That is true, but it is not the most prudent oil-producing country. It does not have the fifth largest reserves of oil. There are 20 or 25 countries—there may be more —that have larger oilreserves than we do. They are not boasting that they are in a good position.

While a number of Conservative Members — the speech of the former Secretary of State for Energy, the right hon. Member for Guildford (Mr. Howell) was notable for its complacency—may believe that oil prices in the rest of the 1980s may be less than they were in real terms in 1983, the fact remains that oil is a diminishing resource. The Government cannot expect that the British oil requirement will be met in full for much longer from our reserves. By the middle of the 1990s—I should be delighted if the Under-Secretary would comment on this —we shall be dependent once again. It is a pity that such a short-sighted view exists.

I do not know whether Conservative Members have studied the effect that that will have on a rundown economy which is already in dire difficulty. During the past five years we have seen industrial devastation to an unparalleled extent. That which properly harvested, planned, and depleted could have maintained Britain in some semblance of prosperity has been eagerly rushed at and exploited on the grounds that low prices will continue indefinitely. Even with a further deterioration in the Gulf, with an escalation of the conflict between Iran and Iraq, we are told that we need not worry unduly. That is gambling with the national interest in a way which is utterly reprehensible.

A number of my hon. Friends and one or two Conservative Members asked some questions. I want the Under-Secretary to respond to some of the detailed ones. To assist him, I shall emphasise some of the more significant questions. We are entitled to ask the Under-Secretary to estimate the volume of royalty oil which will accrue in the next year or two. We are entitled to ask him —despite the fact that some of the points will have to be dealt with in Committee—to offer a guarantee about the forced transfer of staff. We are entitled to expect him to say whether he will allow the independent oil companies, in particular the smaller ones, to sell to the agency.

Minnows must still swim. We cannot allow the offshore waters to be feeding grounds merely for the larger, major companies. The minnows must survive. They must have, if they wish, the capacity to trade. The agency must therefore be able to take oil from the smaller independents. If the Government are not prepared to make such a concessionary arrangement, that will once again demonstrate their interest in business, but it is big business that dominates their priorities.

Will the Under-Secretary refer to participation agreements? There has been some confusion about them. I should like to know how many participation agreements will be on a six-month and how many on a 12-month basis. The relevant information about those agreements should be given.

It was reprehensible of the Minister of State not to deal adequately with BNOC's financial basis. Several of my hon. Friends —

Photo of Mr Peter Hardy Mr Peter Hardy , Wentworth

My hon. Friend uses the word unprecedented. I suppose that it is inevitable that if the Minister's advisers are not fully informed about the matter he may wish to leave it until the Bill is in Committee.

The Bill is peculiar in its structure in that certain provisions are made in schedules that I should have thought—I am no lawyer and have no pretensions about having a draftsman's ability — should be in clauses. Since those provisions deal with financial matters, we are entitled to a more credible presentation.

What was BNOC's financial position during the last financial year? Will the Under-Secretary of State say something about the fees which have accrued to BNOC and which may have some relevance to the Department? We wish to know about BNOC's financial structure and the financial structure of the new agency. If the Under-Secretary of State cares to offer an explanation or an apology as to the nature and character of the Bill, which will be in Committee next week, that will be well received, at least by the Opposition.

The House is aware that one of BNOC's important functions is its involvement in committees that consider the technical requirements and problems posed by North sea development. By BNOC's presence on those committees, it acquires information and experience that is available for the public interest. If BNOC were dismantled, a real risk would be faced. Unless the Secretary of State positively instructs the agency to be involved in these committees, his Department and the public interest will be deprived of information and experience which will be sadly missed.

I must end in a few moments because I should hate the Under-Secretary of State not to have sufficient time to answer the questions posed by my hon. Friends. It will be a matter of considerable regret and will make it more difficult for the Government to fulfil their timetable if they cannot provide that information this evening. If they cannot, I trust that the Committee stage will not be far advanced before we receive an explanation of the points that concern us.

BNOC has been criticised for its losses of between £40 million and £50 million. I accept the fact that the Minister of State did not offer that criticism, but other hon. Members have talked about the accumulated losses. Will the Under-Secretary of State confirm that had BNOC—perhaps acting on a ministerial suggestion—not engaged in that activity the losses to the nation would have been scores of times higher than the minimal loss incurred by BNOC's intervention in the market? Any accusation of incompetence or loss making by BNOC needs to be qualified.

I shall make one further reference to the speech made by the Minister of State in Houston which received little attention. I make this point because my constituency is a long way from the sea but is deeply affected by the industrial devastation that has been experienced in so many parts of Britain since 1979. Because of the need to regenerate our industry, I was delighted to see that the Minister had realised that orders must accrue to British industry and commerce. The right hon. Gentleman needs to be careful, because I do not think that two heretics would be allowed in one Department at the present time. By his perception of the need to promote industrial orders as a result of offshore activity, the right hon. Gentleman departed from the traditional pattern of responsibility in the Department.

When the Labour Government were elected in 1974, they found that only about 20 per cent. of the value of offshore orders was benefiting British commerce and industry. By the time the Labour Government left office in 1979, that share had been built up to almost 80 per cent. It has never touched that level since the present Government took office in 1979. In some areas —pipelines, drilling tools and equipment—over one third of the orders are going to industries in other nations. The Government have always taken the view that they have an obligation to share the benefit of our offshore inheritance with our European partners. Our European partners would not take quite the same attitude if the legacy was theirs.

It is delightful that the Minister now recognises that orders should accrue to Britain. It is a pity that he did not perceive it before or that people such as the right hon. Member for Guildford, who inflicted a great deal of complacency on the House today, did not perceive it earlier. [Interruption.] I am sorry if the right hon. Gentleman feels that I am being unfair, but the share of offshore orders accruing to British industry during his tenure of office fell abysmally, which was sad, and perhaps helped to generate in a small way the enormous growth of unemployment that has so affected us all.

Photo of Mr David Howell Mr David Howell , Guildford

I do not know what figures the hon. Gentleman is quoting, but if he looks at the facts he will see that, although our share of offshore orders is never enough—we would like more for our industry—it rose steadily in the early 1980s, and has achieved some substantial levels. My noble Friend Lord Gray of Contin, who was Minister of State at that time, was able to tell the House of some encouraging figures. Therefore, I wonder whether the hon. Gentleman has got his facts right.

Photo of Mr Peter Hardy Mr Peter Hardy , Wentworth

I have got my facts absolutely right. The right hon. Gentleman need only look at the Brown Book that he issued when he was in office and the ones that have been issued since then to see that over the past year there has been a slight improvement in most sectors of the offshore market, but the fact remains that there was a decline after 1979. I recall asking the right hon. Gentleman a question about the matter when he was Secretary of State. I said that there had been a disappointing fall. I was given the explanation that in 1979 there had been some particularly large orders that had benefited British industry. Ministers said that it was reasonable for us to operate on a 60 per cent. to 64 per cent. share. In fact, Britain's unemployment problem is now so severe that we cannot possibly allow our share of, for example, drilling equipment or pipeline orders to be as low as 61 or 62 per cent., which it has been in the past few years. The right hon. Gentleman can look at the record of the Department of Energy. It is published, and it is clear.

I do not believe that I have anything to apologise for. None of my right hon. Friends and hon. Friends who spoke in the debate about an institution that could continue to serve the nation has anything to be ashamed of. We are entirely right and justified in asking the House to vote against this pernicious and nasty, if consistent, Bill.

Photo of Mr Alastair Goodlad Mr Alastair Goodlad Parliamentary Under-Secretary (Department of Energy) 9:33 pm, 14th May 1985

With the debates on the two reports from the Select Committee on Energy and a full day's debate today, the House has had extensive opportunities in this Session to consider the recent developments in the structure of the oil market. I should like to join my right hon. Friend the Minister of State and the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) in their tributes to the work of the Select Committee and in what they said about the directors and staff of BNOC.

We have had many knowledgable and constructive speeches. I intend to respond to as many as I can of the main points that my hon. Friends and Opposition Members have raised. The detailed issues can be considered in Committee.

The Bill is a modest measure. The hon. Member for Wentworth (Mr. Hardy) asked me to comment on its format. There is no need for any apology. It establishes a small successor body to BNOC, and the structure of the Bill is appropriate for that body. The Government's reasons for abolishing BNOC and for retaining the small number of the corporation's functions that continue to be needed have been fully explained to the House.

Since my right hon. Friend the Minister of State's announcement of 13 March, we have moved swiftly to prepare the Bill and to lay the ground for setting up the new agency. The management of BNOC has made vast progress to rid itself of the supplies which put its finances at risk, and has urgently sorted out redundancy payments for staff who will not be transferred to the agency so that they may know where they stand as early as possible.

The Government have not followed the suggestions of some Opposition Members who, it seems, would have preferred BNOC to have remained, like King Canute, immovable on the beach while the tide of the changed structure in the oil market engulfed it. We must remember that world oil prices are determined by the balance between supply and demand. Neither the Government nor BNOC has wished or been able to affect that. An alternative Government containing Opposition Members might wish it were otherwise, but such wishes are hypothetical. What has been crucial is the avoidance of any actions that could have destabilished the market. That is why, when BNOC disposed of large amounts of crude under term contracts, it ensured that its pricing proposals were handled delicately. Within moments, on a market dominated by spot and spot-related transactions, the corporation's slight capacity to promote stability changed into a potential for promoting instability. In those circumstances, if BNOC's abolition has any effect on the world market, it will be beneficial.

No action by BNOC, even if its board were comprised of omniscient angels, could have averted the market change. The management and staff coped admirably in circumstances that proved to be impossible.

For other hon. Members—in general they are not on the Opposition Benches—the Bill has not been radical enough. Some of my hon. Friends have argued that, having proposed the discontinuation of some of BNOC's functions, we should have gone the whole hog. The Government would not wish to lay claim to such omniscience. There has been a change in market structures which was not envisaged by either party when BNOC was established and which was scarcely envisaged when Britoil was privatised 30 months ago. The market structure might change again. If we have destroyed participation agreements, we might live to regret it in the event of such a change. It remains the Government's view that the Bill strikes the right balance.

Several Opposition Members have charged the Government, and especially my right hon. Friend the Minister of State, with inconsistency. That is not justified. The Government have recognised and reacted to changes. The Government and BNOC cannot influence oil prices in the longer term, and do not wish to do so. In so far as BNOC has any influence in the short term, it rightly exerted that influence to avoid destabilising the oil market. Last July, the spot market plunged on account of temporary destocking and rumours of large barter deals by producing countries. This appeared to be a short-term speculative move. BNOC accordingly and correctly maintained the prices that it paid to suppliers, which were intended to be term prices. To have reduced them would have been to confirm and reinforce current speculation and to have risked setting off a competitive downward spiral of term prices.

BNOC reduced prices in October in response to a change in market fundamentals which had reduced the value of light crudes such as those from the North sea as compared with heavier crudes from the middle east and South America. Speculative downward pressures reappeared and, for much of the past nine months. the spot prices at which BNOC has had to sell its oil are lower than the term prices at which it had to purchase its barrels. In such circumstances, a loss was inevitable. This has happened before. In the debate on the Oil and Gas (Enterprise) Bill the right hon. Member for Morley and Leeds, South (Mr. Rees) referred to losses in the summer of 1981. If, by reducing its prices, BNOC had enhanced speculative pressures, its losses could have been magnified.

Right hon. and hon. Members have accused the Government of propping up the oil price. That is utterly false for, as I have explained, we are unable to alter the level of prices in the world market. Sharp movements of oil prices are in nobody's interests. A sharp fall adds to the risks of the world banking system, threatens Important debtor countries, and reduces the incentive to energy conservation and substitution away from oil. That would risk making us again, in a few years' time, a captive of OPEC, and the sharp rise that would follow such a fall would damage world economic prospects.

Photo of Mr Gordon Wilson Mr Gordon Wilson , Dundee East

I absolve the Minister of any real attempt to prop up world oil prices, and would condemn the Government for having failed to do so. However, does not the Minister realise that it is over-production from the North sea's Scottish sector, together with production from Mexico and the Norwegian sector, that is swamping the world market and contributing to the downward pressure? In that respect, the Minister is a victim of over-production and of inadequacies of policy.

Photo of Mr Alastair Goodlad Mr Alastair Goodlad Parliamentary Under-Secretary (Department of Energy)

I am interested to hear that the Scottish National party would wish to slow down the development of the North sea. Perhaps we should reflect on the effect of that on job prospects in Scotland. However, since the hon. Gentleman has only just joined the debate, he will not have heard what has been said on the subject.

In the past, BNOC's pricing arrangements could make a slight contribution to averting the danger of violent price changes. However, with the change in market structures, they have become a potential for sparking off such violent changes.

The hon. Member for Merthyr Tydfil and Rhymney asked for an assurance about the sale of royalty in kind. I assure him that there is no commitment on either BNOC or the agency to sell back to the producers any royalty in kind in oil that licensees produce. I was also asked about the value of the royalty oil sold in the current financial year. It was worth just over £2·2 billion. Royalty oil comprises roughly 10 per cent. of all oil production from the United Kingdom's continental shelf.

The hon. Member for Merthyr Tydfil and Rhymney and the hon. Member for Wentworth asked for an unusual assurance — that no BNOC staff should be forced to transfer to the agency. As, fortunately, the Socialist state has not yet dawned in this country the Government have neither means nor intention of forcing BNOC staff to transfer. What is important is that those members of staff who will be offered jobs in the agency should soon be identified and that the board of BNOC should make known what redundancy payments will be made to those not required. I believe that that has now been done.

The hon. Member for Merthyr Tydfil and Rhymney asked about BNOC's finances after the Supplementary Estimates approved by the House in December and March. My Department made grants totalling £67,209,000 to the corporation under section 6 of the Oil and Gas (Enterprise) Act 1982. Those payments restored the financial reserves to a level that should be more than adequate to enable BNOC to meet all commitments liable to arise prior to the transfer of its residual assets and liabilities to the new agency.

The hon. Member for Merthyr Tydfil and Rhymney also asked about BNOC's institutional arrangements. BNOC was unique as a seller of oil in that its announced price was even more a price applicable to its suppliers than to its customers. The effects of its secure access and pricing provisions and the participation agreements is that it has had to propose uniform transparent prices. That has precluded any hidden discounts, barter deals or processing arrangements. Statoil, which sells only oil, was in quite a different position. That uniform transparent price achieved symbolic significance, so that any change in it was not really neutral but carried the risk of destabilising the market, as my hon. Friend the Member for Erewash (Mr. Rost) demonstrated with his usual eloquence.

The hon. Member for Merthyr Tydfil and Rhymney also made a plea, in his usual impassioned way, to the effect that the agency should sell the oil produced by small independent companies. There are four reasons why I do not accept that it is necessary for a public sector body to be involved in such trading. First, many small producers existed, and operated satisfactorily, before BNOC was created. Secondly, the policy of participation halved the availability of their production and so made it more difficult for the small companies to trade the remainder. Thirdly, the hon. Gentleman said that 20 years ago the major refineries refused to purchase oil from the independents. Similarly, I suspect that the difficulties anticipated by Westar in its evidence to the Select Committee were based on the world of 20 years ago. Then the major companies had potential oil production in excess of their refinery needs. Now their refinery needs are greater than their supplies, and they are eager to contract oil from independent producers. I suspect that Opposition Members may be living in the 1960s rather than today.

Fourthly, the danger of allowing the agency to act as a marketer for small companies is that it would yet again get into the business of setting a price to its suppliers. It would then run the same risk of destabilising the market as BNOC has run during the past few months.

My right hon. Friend the Minister referred to the assurances given by the oil companies on the security of supply. The hon. Member for Merthyr Tydfil and Rhymney and the right hon. Member for Glasgow, Govan (Mr. Milian) poured cold water on that. I cannot disclose the details because they are commercially confidential. The assurances do not have the legally binding force of contracts. I should be surprised if the right hon. and hon. Gentlemen were suggesting that companies of that size, which are dependent on their United Kingdom operation for their economic success, would risk going back on their word. If that is so, what is the use of participation? The British motorist cannot burn crude oil in his engine, nor the textile mills in their boilers. They require products which, whoever supplies the crude, must come from private companies, which Opposition Members consider to be unreliable. My hon. Friend the Member for Enfield, Southgate (Mr. Fortino) was accurate in his analysis of that point.

The right hon. Member for Govan pointed out that it would be several months after participation options were reactivated before oil would flow to the agency again. Several other hon. Members also probed how the security of supply would be preserved. It is correct that lead times of several months are built into the participation agreements. However, we should consider the position if participation options were already being exercised.

If the agency were by then able to sell the oil on term contracts, it would need many months to get out of those contracts to supply more oil to Britain. It would be reluctant to do so in case it spoilt its market when circumstances returned to normal. That happened in the late 1970s. What if the agency were obliged to sell its participation spot as BNOC must do now? There is no reason why the refining companies in the United Kingdom should not equally be able to buy that oil spot. BNOC claims to have diverted 100,000 barrels a day to United Kingdom companies in 1979. That is 12 months or more after the crisis of that time had started. The increase in all United Kingdom oil supplies between 1978 and 1979 amounts to only 30,000 barrels a day — less than the addition to the companies' own supplies from the North sea.

The oil companies which received BNOC's supplies must have diverted other supplies from the United Kingdom. Our increase of 30,000 barrels a day—about 2 per cent. of our demand—compares with increases of 11 per cent. to France, 15 per cent. to West Germany and 10 per cent. to the Netherlands. Moreover, United Kingdom stocks in that period increased by more than 30,000 barrels a day. Therefore, in spite of active participation, or possibly because of it, supplies to the United Kingdom increased by less than supplies to our continental neighbours, and none of the increase reached our consumers.

Reference has been made to the Energy Act 1976, which gives my right hon. Friend the Secretary of State for Energy comprehensive powers to control production, supply, acquisition, use and price of crude oil and oil products. Similarly, reference was made to the International Energy Agency arrangements.

My hon. Friend the Member for Exeter (Mr. Hannan):

asked what would trigger the Secretary of State's consent to reactivation of participation and the assurances given by the oil companies. On the latter, there is no question in general of triggering; the assurances are an ongoing recognition of the companies' responsibilities to the British market. On the former, I would not wish to be precise. There will be no question of an international trigger. It would be for the Government of the day to decide whether the threat to world oil supplies had become sufficiently close to justify the disturbance which reactivation would create.

My hon. Friend also drew attention to the queues in Britain in the late 1970s compared with the adequacy of supplies on the Continent. May that not have happened because of Government intervention on participation and —much more devastating—price control?

The hon. Member for Merthyr Tydfil and Rhymney drew attention to the remarks made by my right hon. Friend the Minister of State last December on tax reference prices, and the right hon. Member for Govan questioned whether the abolition of BNOC would result in a lack of information on the pricing of oil for taxation purposes. In fact, there is substantial evidence of spot prices published in the trade press. The oil taxation office is confident that fair arm's length prices can be established for valuing oil traded within the individual companies. The oil taxation office has plenty of expertise, and, the right hon. Gentleman will be relieved to know, plenty of accountants. The corporation's contribution to tax valuation came from its ability to find a firm market-related term price acceptable to both producers and customers. It did not come from grassing to the oil taxation office on the disgraceful habits of the oil companies. Once BNOC could no longer find a term price acceptable to producers and consumers, it was no longer able to contribute to tax valuations.

My right hon. Friend the Member for Guildford (Mr. Howell), in a thoughtful speech that demonstrated his considerable knowledge of this subject, asked why the Government should continue to take royalty in kind oil. Taking royalty in kind provides the Government with some oil immediately available during an interruption to world oil supplies, so long as that oil is not being sold on long-term contracts. It also provides a quantity of oil that can be sold at arm's length and, therefore, offers some protection should the open market for United Kingdom continental shelf oil be threatened.

The hon. Member for Merthyr Tydfil and Rhymney questioned my right hon. Friend's announcement today about LPG trading. The removal of the public sector in LPG trading is unlikely to have a major impact on prices. BNOC was handling less than 30 per cent. of United Kingdom continental shelf production, and less than 20 per cent. of total United Kingdom output, including that from refineries. BNOC's influence with the market was, therefore, not wide ranging and the ending of this trading role will have little influence on the market. It is unlikely that the business would remain viable without the volume provided under participation.

Our discussions with the LPG industry lead us to expect that a company or group will soon emerge to fill the role of BNOC in collecting small parcels of LPG from producers who have only small quantities available. I do not believe that small producers' interests will be disadvantaged in any way.

The right hon. Member for Govan claimed that the Government had no depletion policy. The hon. Member for Gordon (Mr. Bruce), on behalf of the Liberal party, suggested that the depletion policy should be reconsidered, although it was not clear how his party would do that. It is the Government's objective to promote the successful exploration for and maximum economic recovery of the United Kingdom's petroleum resources. That policy lay behind the major fiscal changes in 1983, and the Government have been encouraged by the oil industry's response to those measures in the acceleration of exploration and development programmes.

At the same time, the pace of development has been considerably helped by the industry being free from artificial and arbitrary controls on production. Licensees are free to manage production from their fields within a framework of consents or approvals based on the requirements of good oilfield practice and tight controls on gas flaring. It would clearly not be consistent with the Government's policy to impose arbitrary restrictions on the output from producing fields in the present circumstances. The Government of which the right hon. Member for Govan was so prominent a member recognised that point clearly when Mr. Varley, then Secretary of State, had to give licensees detailed assurances that he would not use the powers that he was about to take.

The Government retain reserve powers to limit United Kingdom continental shelf oil production, but, as the Select Committee on Energy's third report in 1982 recognised, the circumstances in which they might be used would relate to specific and overriding circumstances in the national interest or to a radical change in circumstances pertaining to the United Kingdom continental shelf and its development. A move to cut United Kingdom production now would impose clear and tangible losses on the nation, while there is great uncertainty about potential benefits, given that the United Kingdom has only 5 per cent. of world oil production.

Therefore, the use of those powers in the present market circumstances is unjustified. Perhaps Liberal Members believe that, with the help of the wise and the good, they can quantify the benefits of cutting production. I remind them that, only four years ago, the wise and the good were confidently forecasting ever-increasing oil prices.

The right hon. Member for Govan raised the question of the effects on the staff of the suddenness of the announcement of the abolition of BNOC. My right hon. Friend would have wished to avoid the sudden nature of the announcement, but there was no alternative to the most strict secrecy, given the opportunities for speculation that any rumours could have given. The right hon. Member also complained that the Bill hands over the oil business to the private companies. What business? All oil is produced by private companies, refined by private companies and distributed to British consumers by private companies. BNOC has been taking oil from one private

company and disposing of it to another. I wish that I could claim that the Bill advanced the Government's privatisation programme, but I fear that I cannot.

Photo of Mr Peter Hardy Mr Peter Hardy , Wentworth

It would be remiss of us not to thank the Under-Secretary for attempting to answer a number of detailed questions. However, I trust that before he concludes he will offer some comment about schedule 3 and in particular the almost unprecedented nature of the Government's approach in presenting a Bill on the financial structure of the agency and not yet having said a word about it.

Photo of Mr Alastair Goodlad Mr Alastair Goodlad Parliamentary Under-Secretary (Department of Energy)

A large number of matters need to be covered, and I shall come to that important point if I have time.

It is instructive to recall the reaction to my right hon. Friend's announcement on 13 March. The Times, in a leader, talked of the intrinsic rightness of the Government's decision and went on to report that the timing of the announcment was being described within the oil industry as "masterful". Even The Guardian, not normally the most vociferous of our supporters, reported the abolition of BNOC as the boldest step this Government has taken in the energy field." The oil markets and the foreign exchange markets reacted calmly to the announcement. Many OPEC leaders recognised that the opportunties that had been available to BNOC in the past to stabilise the market had disappeared as the structure of the oil market had changed. Our colleagues in Europe and the United States greeted the news with unqualified approval, although many of them were not surprised.

Our critics claim that we shall be weakening our control over the destination of North sea oil, but that is incorrect. The ability to use the participation agreements when they are useful for security of supply will not be affected by these proposals, and the landing requirement for North Sea oil will remain unchanged.

It is perhaps a little difficult to discern the basis for the resistance to the Bill of hon. Members opposite but I suspect that it derives from their simple beliefs that the national interest is best served by expanding the public sector as far as possible, and that state control is preferable to private sector initiative. Perhaps they feel that the defence of the public sector against the supposed attacks of the Government should be proclaimed at every opportunity, even if they cannot work out how that philosophy should be applied to the unusual circumstances of BNOC. Or perhaps they think that the enunciation of some sound Socialist principles, however fatuous, will go down well with their constituency parties.

I hope that on further reflection they will recognise that, given the change in the structure of the oil market, it is clear to all that no responsible Government of any colour could have proposed measures very different from those set out in the Bill.

In a decade, Government policy towards state involvement in the development of North sea oil has turned full circle. Ten years ago almost to the week, the House was debating the Second Reading of the Petroleum and Submarine Pipe-lines Bill. That provided for the establishment of BNOC as an instrument of state involvement and so-called public ownership in the North sea such as would satisfy the most doctrinaire of Socialists.

All that has changed. In 1982, the Government put BNOC's exploration and production business into a new company, Britoil, and transferred these activities to where they rightly belonged—the private sector. The effects of our removing the dead hand of the state from the North sea has been dramatic. In 1983, a record number of 128 offshore exploration and appraisal wells were drilled on the United Kingdom continental shelf. Last year heralded a major increase of 15 per cent. in our gas reserves.

All of these achievements reflect the Government's careful nurturing of the North sea, and it is a record of which we are justifiably proud. In the context of this substantial level of activity in the North sea, the new agency will have a modest role. The Bill is in the interests of both the British oil industry and the country. Therefore, I warmly commend it to the House.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 264, Noes 159.

Division No. 206][10 pm
AYES
Adlaey, RobertCoombs, Simon
Aitken, JonathanCope, John
Alexander, RichardCormack, Patrick
Alison, Rt Hon MichaelCouchman, James
Amess, DavidCranborne, Viscount
Ancram, MichaelCrouch, David
Arnold, TomCurrie, Mrs Edwina
Ashby, DavidDickens, Geoffrey
Aspinwall, JackDorrell, Stephen
Atkins, Robert (South Ribble)Dover, Den
Baker, Rt Hon K. (Mole Vall'y)du Cann, Rt Hon Sir Edward
Baker, Nicholas (N Dorset)Dunn, Robert
Baldry, TonyDurant, Tony
Banks, Robert (Harrogate)Dykes, Hugh
Batiste, SpencerEggar, Tim
Beaumont-Dark, AnthonyEvennett, David
Bellingham, HenryEyre, Sir Reginald
Bendall, VivianFairbairn, Nicholas
Bennett, Rt Hon Sir FredericFinsberg, Sir Geoffrey
Benyon, WilliamFletcher, Alexander
Best, KeithFookes, Miss Janet
Bevan, David GilroyForman, Nigel
Biggs-Davison, Sir JohnForsyth, Michael (Stirling)
Blaker, Rt Hon Sir PeterForth, Eric
Body, RichardFowler, Rt Hon Norman
Boscawen, Hon RobertFox, Marcus
Bottomley, PeterFranks, Cecil
Bottomley, Mrs VirginiaFraser, Peter (Angus East)
Bowden, A. (Brighton K'to'n)Freeman, Roger
Bowden, Gerald (Dulwich)Fry, Peter
Braine, Rt Hon Sir BernardGale, Roger
Brandon-Bravo, MartinGardiner, George (Reigate)
Bright, GrahamGarel-Jones, Tristan
Brinton, TimGilmour, Rt Hon Sir Ian
Brooke, Hon PeterGlyn, Dr Alan
Brown, M. (Brigg & Cl'thpes)Goodlad, Alastair
Bruinvels, PeterGower, Sir Raymond
Bryan, Sir PaulGrant, Sir Anthony
Buchanan-Smith, Rt Hon A.Greenway, Harry
Bulmer, EsmondGregory, Conal
Burt, AlistairGround, Patrick
Butcher, JohnGummer, John Selwyn
Butler, Hon AdamHamilton, Neil (Tatton)
Carlisle, Kenneth (Lincoln)Hampson, Dr Keith
Cash, WilliamHanley, Jeremy
Chapman, SydneyHannam, John
Chope, ChristopherHargreaves, Kenneth
Clark, Hon A. (Plym'th S'n)Harris, David
Clark, Dr Michael (Rochford)Harvey, Robert
Clark, Sir W. (Croydon S)Haselhurst, Alan
Clarke, Rt Hon K. (Rushcliffe)Hawksley, Warren
Clegg, Sir WalterHayes, J.
Cockeram, EricHayward, Robert
Colvin, MichaelHeathcoat-Amory, David
Henderson, BarryRoe, Mrs Marion
Hickmet, RichardRossi, Sir Hugh
Hicks, RobertRost, Peter
Higgins, Rt Hon Terence L.Rowe, Andrew
Hind, KennethRumbold, Mrs Angela
Hirst, MichaelRyder, Richard
Hogg, Hon Douglas (Gr'th'm)Sackville, Hon Thomas
Holland, Sir Philip (Gedling)Sainsbury, Hon Timothy
Holt, RichardShaw, Giles (Pudsey)
Hordern, PeterShaw, Sir Michael (Scarb')
Howarth, Alan (Stratf'd-on-A)Shelton, William Streatham)
Howell, Rt Hon D. (G'ldford)Shepherd, Colin (Hereford)
Howell, Ralph (N Norfolk)Shepherd, Richard (Aldridge)
Hunt, David (Wirral)Silvester, Fred
Hunt, John (Ravensbourne)Sims, Roger
Hunter, AndrewSmith, Tim (Beaconsfield)
Irving, CharlesSpeed, Keith
Jackson, RobertSpeller, Tony
Jessel, TobySpence, John
Johnson Smith, Sir GeoffreySpencer, Derek
Jones, Gwilym (Cardiff N)Spicer, Michael (S Worcs)
Jones, Robert (W Herts)Squire, Robin
Joseph, Rt Hon Sir KeithStanbrook, Ivor
Kellett-Bowman, Mrs ElaineStanley, John
Key, RobertSteen, Anthony
King, Roger (B'ham N'field)Stern, Michael
Knight, Gregory (Derby N)Stevens, Lewis (Nuneaton)
Knowles, MichaelStevens, Martin (Fulham)
Knox, DavidStewart, Allan (Eastwood)
Lamont, NormanStewart, Andrew (Sherwood)
Latham, MichaelStewart, Ian (N Hertf'dshire)
Lawler, GeoffreyStokes, John
Lawrence, IvanStradling Thomas, J.
Lawson, Rt Hon NigelSumberg, David
Leigh, Edward (Gainsbor'gh)Taylor, John (Solihull)
Lennox-Boyd, Hon MarkTaylor, Teddy (S'end E)
Lester, JimTebbit, Rt Hon Norman
Lilley, PeterTemple-Morris, Peter
Lloyd, Ian (Havant)Terlezki, Stefan
Lloyd, Peter, (Fareham)Thatcher, Rt Hon Mrs M.
Lord, MichaelThomas, Rt Hon Peter
Luce, RichardThompson, Donald (Calder V)
McCrindle, RobertThompson, Patrick (N'ich N)
McCurley, Mrs AnnaThorne, Neil (Ilford S)
MacKay, John (Argyll & Bute)Thornton, Malcolm
Maclean, David JohnThurnham, Peter
McQuarrie, AlbertTownend, John (Bridlington)
Major. JohnTracey, Richard
Maples, JohnTrippier, David
Mather, CarolTrotter, Neville
Maude, Hon FrancisTwinn, Dr Ian
Maxwell-Hyslop, Robinvan Straubenzee, Sir W.
Merchant, PiersVaughan, Sir Gerard
Meyer, Sir AnthonyViggers, Peter
Mills, Iain (Meriden)Wakeham, Rt Hon John
Mills, Sir Peter (West Devon)Walden, George
Miscampbell, NormanWalker, Bill (T'side N)
Mitchell, David (NW Hants)Wall, Sir Patrick
Monro, Sir HectorWaller, Gary
Morrison, Hon C. (Devizes)Ward, John
Neale, GerrardWardle, C. (Bexhill)
Needham, RichardWatson, John
Nelson, AnthonyWatts, John
Neubert, MichaelWells, Bowen (Hertford)
Nicholls, PatrickWells, Sir John (Maidstone)
Normanton, TomWheeler, John
Oppenheim, Rt Hon Mrs S.Whitfield, John
Osborn, Sir JohnWhitney, Raymond
Page, Sir John (Harrow W)Winterton, Mrs Ann
Parris, MatthewWinterton, Nicholas
Porter, BarryWolfson, Mark
Portillo, MichaelWood, Timothy
Powell, Rt Hon J. E. (S Down)Woodcock, Michael
Powell, William (Corby)Yeo, Tim
Prentice, Rt Hon RegYoung, Sir George (Acton)
Raffan, KeithYounger, Rt Hon George
Rathbone, Tim
Rhodes James, RobertTellers for the Ayes:
Ridley, Rt Hon NicholasMr. Archie Hamilton and
Roberts, Wyn (Conwy)Mr. Ian Lang.
NOES
Adams, Allen (Paisley N)Janner, Hon Greville
Anderson, DonaldJohn, Brynmor
Archer, Rt Hon PeterJones, Barry (Alyn & Deeside)
Ashley, Rt Hon JackKaufman, Rt Hon Gerald
Atkinson, N. (Tottenham)Kilroy-Silk, Robert
Bagier, Gordon A. T.Kinnock, Rt Hon Neil
Barnett, GuyLambie, David
Barron, KevinLamond, James
Beckett, Mrs MargaretLeadbitter, Ted
Bell, StuartLeighton, Ronald
Benn, TonyLewis, Ron (Carlisle)
Bennett, A. (Dent'n & Red'sh)Lewis, Terence (Worsley)
Bermingham, GeraldLitherland, Robert
Bidwell, SydneyLloyd, Tony (Stretford)
Blair, AnthonyLoyden, Edward
Boyes, RolandMcCartney, Hugh
Bray, Dr JeremyMcDonald, Dr Oonagh
Brown, Hugh D. (Provan)McKelvey, William
Brown, N. (N'c'tle-u-Tyne E)McNamara, Kevin
Brown, R. (N'c'tle-u-Tyne N)McTaggart, Robert
Buchan, NormanMcWilliam, John
Caborn, RichardMadden, Max
Callaghan, Rt Hon J.Marek, Dr John
Callaghan, Jim (Heyw'd & M)Marshall, David (Shettleston)
Campbell, IanMartin, Michael
Campbell-Savours, DaleMason, Rt Hon Roy
Canavan, DennisMaxton, John
Carter-Jones, LewisMaynard, Miss Joan
Clark, Dr David (S Shields)Meacher, Michael
Clarke, ThomasMichie, William
Clwyd, Mrs AnnMikardo, Ian
Cocks, Rt Hon M. (Bristol S.)Millan, Rt Hon Bruce
Cohen, HarryMiller, Dr M. S. (E Kilbride)
Concannon, Rt Hon J. D.Mitchell, Austin (G't Grimsby)
Cook, Frank (Stockton North)Morris, Rt Hon A. (W'shawe)
Cook, Robin F. (Livingston)Morris, Rt Hon J. (Aberavon)
Corbett, RobinOakes, Rt Hon Gordon
Cowans, HarryO'Brien, William
Craigen, J. M.Orme, Rt Hon Stanley
Crowther, StanPark, George
Davis, Terry (B'ham, H'ge H'l)Parry, Robert
Deakins, EricPatchett, Terry
Dewar, DonaldPavitt, Laurie
Dixon, DonaldPendry, Tom
Dobson, FrankPike, Peter
Dormand, JackPowell, Raymond (Ogmore)
Douglas, DickPrescott, John
Duffy, A. E. P.Randall, Stuart
Dunwoody, Hon Mrs G.Redmond, M.
Eadie, AlexRees, Rt Hon M. (Leeds S)
Eastham, KenRichardson, Ms Jo
Ellis, RaymondRoberts, Allan (Bootle)
Evans, John (St. Helens N)Roberts, Ernest (Hackney N)
Ewing, HarryRobertson, George
Fatchett, DerekRobinson, G, (Coventry NW)
Field, Frank (Birkenhead)Rooker, J. W,
Fisher, MarkRowlands, Ted
Foot, Rt Hon MichaelSheerman, Barry
Forrester, JohnSheldon, Rt Hon R.
Fraser, J. (Norwood)Short, Ms Clare (Ladywood)
Freeson, Rt Hon ReginaldSkinner, Dennis
George, BruceSmith, C.(Isl'ton S & F'bury)
Gould, BryanSmith, Rt Hon J. (M'kl'ds E)
Gourlay, HarrySnape, Peter
Hamilton, James (M'well N)Soley, Clive
Hamilton, W. W. (Central Fife)Spearing, Nigel
Hardy, PeterStrang, Gavin
Harman, Ms HarrietStraw, Jack
Harrison, Rt Hon WalterThomas, Dr R. (Carmarthen)
Hart, Rt Hon Dame JudithThompson, J. (Wansbeck)
Healey, Rt Hon DenisThorne, Stan (Preston)
Heffer, Eric S.Tinn, James
Holland, Stuart (Vauxhall)Torney, Tom
Horne Robertson, JohnWardell, Gareth (Gower)
Howell, Rt Hon D. (S'heath)Weetch, Ken
Hoyle, DouglasWelsh, Michael
Hughes, Dr. Mark (Durham)Williams, Rt Hon A.
Hughes, Roy (Newport East)Wilson, Gordon
Hughes, Sean (Knowsley S)Winnick, David
Young, David (Bolton SE) andMr. Frank Haynes
Mr. Allen McKay

Tellers for the Noes:

Question accordingly agreed to.
Bill accordingly read a Second time, and committed to a Standing Committee pursuant to Standing Order No. 42 (Committal of Bills)
.