Orders of the Day — Oil and Pipelines Bill

Part of the debate – in the House of Commons at 5:01 pm on 14th May 1985.

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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?