Security of Supply Agreement

Orders of the Day — Oil and Pipelines Bill – in the House of Commons at 7:23 pm on 15th July 1985.

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'(1) The Agency shall have power to enter into agreements, on behalf of the Crown and at the request of the Secretary of State to secure the supply of petroleum and petroleum products.

(2) Such agreements shall include provision that—

  1. (a) the Company with production from the United Kingdom continental shelf shall continue to supply United Kingdom customers with crude oil and petroleum products with at least the quantities supplied over the previous year or contracted to supply over the coming year, and will increase the supply where possible and will use its transportation and distribution system for this purpose; and
  2. (b) the Company will make supplies at the prices ruling at the time of request (or as otherwise determined by law and regulations)'.—[Mr. Rowlands.]

(c) Brought up and read the First time.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney 7:35 pm, 15th July 1985

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

In the 10 sittings and nearly 30 hours of the Committee stage, there was a common thread to our arguments. Our charge throughout the proceedings on the Bill has been that the abolition of the British National Oil Corporation will weaken and undermine many aspects of the security of our oil supplies. We believe that BNOC's control over about 800,000 barrels of North sea oil represented one of the vital means of ensuring our supplies in times of shortage.

The Minister of State, Department of Energy argued repeatedly in Committee and on Second Reading that he had a combination of powers and arrangements to ensure the security of our oil supplies. One part of that combination·and, therefore, a part of the right hon. Gentleman's defence in supporting the abolition of the BNOC—was that he had a series of security-of-supply assurances from the major oil companies, particularly those with refining capacity in the United Kingdom. Therefore, the right hon. Gentleman claimed that he could afford not to activate the participation agreements for six or 12 months.

I asked the Minister on Second Reading about the character of those assurances. He said that he could not give us information at that time, but would consider enlightening us in Committee. However, he said that the assurances from the major oil companies were informal.

The matter was not raised in detail in Committee—the new clause breaks new ground—but we put some sensible and reasonable questions to the Minister about his dependence on those assurances. He told us that he could say no more than he had said on Second Reading, which was very little.

Therefore, we need further advice from the Minister about the nature of the assurances that he has received. We believe that the assurances should be formal agreements with the oil companies. My support for that view was strengthened when I read an article in today's Financial Times about a letter that might be typical of the assurances on which the right hon. Gentleman is dependent.

The right hon. Gentleman will have seen the report in the Financial Times about the letter of assurance from BP to the Department of Energy. Is that typical of the informal assurances that he holds from the major oil companies? Are they in the form of a letter from an oil company manager to a civil servant at the Department of Energy? The illustration in the Financial Times is not even a letter from an oil company chairman to the Secretary of State for Energy; I do not know whether a letter from a chairman would increase or diminish the strength of the assurances, but it gives us no comfort to believe that the assurances may be only informal letters from oil company managers to civil servants.

The second and revelant question is whether, if the letter mentioned in the Financial Times is a typical example of the assurances, the right hon. Gentleman has received any advice about the contractual strength of those assurances. Would such an assurance be legally binding if a dispute arose about its terms?

Although the letter quoted in the Financial Times is dated November 1983, it may be one of the assurances received by the Minister of State. If it is not, I should be pleased to hear how the Minister has strengthened the assurances. More important, I want to ask the Minister about the terms of such an assurance. In the letter, the assurance is given in very general terms. About the types of supplies being offered in times of shortage or crisis, we are told in the letter that the oil company—in this case, BP—would be keeping customers supplied in accordance with the relevant contracts and established patterns of business. If a shortage occurs or there is a potential crisis and pressures grow, those words could mean almost anything to anyone, especially to the oil company giving the assurance. Many of these established patterns of business may involve contracts with terminal dates. There may be very short-term arrangements with the companies concerned. How strong, reasonable and effective would such an assurance be at a time of shortage or crisis?

We also ask the Minister about the reference in this supply assurance letter, if it is still in force, to a total disclaimer on prices. The letter of assurance says that BP makes the above affirmation subject further to there being no legal or governmental constraint on its ability to raise prices as a necessary means of recovering costs. It appears that a fundamental condition of the assurance is that, in return, the Government have to assure the oil company that they will make no endeavour to restrain or to restrict price increases in times of shortage. Those phrases cannot be read in any other way. It appears that, in return for a very general assurance about oil supplies, the Government will have to accept that there will be no intervention in the prices that BP wishes to charge during a time of shortage or potential crisis. That is a serious commitment to make in return for the very general assurance offered by BP.

We do not know whether the letter dated November 1983 is the type of assurance that the Minister told the Committee he had. We do not know whether it is out of date. We do not know whether, since that date, the assurances have been strengthened or improved. However, the Opposition wish to register their objection to a general assurance of this kind combined with a disclaimer, because it does not add up to an effective form of assurance.

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

During the last supply difficulty that we experienced, the Government attempted to restrain prices and the result was a shortage of petrol. Why is the hon. Gentleman so dismayed that there should be that disclaimer?

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney 7:45 pm, 15th July 1985

I am dismayed because it seems unreasonable that, when Britain is a large oil producer, there should not be some reasonable relationship between its production and refining capacity and the prices that a company in that position should be able to charge its customers. The House will note the belief of the hon. Member for Enfield, Southgate (Mr. Portillo) in letting the market rip, especially in a period of shortage or crisis.

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

We shall take note of the hon. Gentleman's nod of assent and explain nationally that that is the position of Government Back Benchers, and I think that we are entitled to know whether the Government accept that unadulterated view of the market. Certain differences have emerged between the hon. Gentleman's position and that of the Government on certain aspects of the Bill. It will be interesting to know whether the Minister agrees with his hon. Friend.

We ought to know whether, in return for a general assurance of the kind suggested in the letter, the Government have offered the major oil companies a free-for-all in prices, forswearing any intervention on price increases during a period of oil shortage. I hope that the hon. Member for Enfield, Southgate will at least support me in saying that, in return for these assurances, we should have some knowledge of what is being suggested, and that there will not be a price disclaimer of the kind that was apparently in the BP-Government letter of November 1983.

These are two very important aspects of the so-called informal supply assurances if they are repeated in the other assurances that the Minister has in relation to supply and in relation to a disclaimer of any form of price control, moderation or restraint in times of oil shortage. Is that the combination about which the Minister spoke when he told the House of his front-line defences to ensure the security of our oil supplies?

Towards the end of the letter, I read: This letter will cease to have effect upon the expiry of the royalty agreement. Will the Minister explain that a little more? If it is assured that this is the letter of assurance between BP and the Government, will the Minister say what that sentence means? If the royalty agreement between BP and the Secretary of State includes the right of the company to the automatic sale-back of all royalty oil, is that a part of BP's royalty agreement with the Secretary of State? If it is one of the conditions of the security of suppy assurance and it lapses when the royalty agreement lapses, how does that leave the assurance given to the House by the Minister that the new agency will be entitled to manage and trade every barrel of oil? Does BP's royalty agreement with the Secretary of State give the company the right to the automatic sale-back of royalty oil, and is the assurance made subject to this agreement?

On more than one occasion when we have discussed these issues the Minister has said that the agency will have a free and unfettered right to decide whether to manage and trade in royalty oil as opposed to giving an automatic sale-back provision to the major oil companies. Again, the House has a right to know about these so-called informal assurances.

In the absence of any trading in participation oil by the new agency, because the agency will have only a limited trading role, these assurances play a much greater part than they would have if we had had an agency active in trading in any significant way in crude oil through its participation agreements.

The new clause states that agreements relating to security of supply must be binding, contractual arrangements, not informal letters to civil servants from the managers of an oil company. In other words, they must be contractual agreements having the force of law. While it would be question of negotiations between companies and the Government, the new clause states that security of supply agreement must be specific rather than general. An agreement in the terms of the letter which I have quoted from the Financial Times would not do. That is why the new clause says in subsection (2)(a) that a company shall continue to supply United Kingdom customers with crude oil and petroleum products with at least the quantities supplied over the previous year or contracted to supply over the coming year, and will increase the supply where possible and will use its transportation and distribution system for this purpose". That would be more specific than the waffly words contained in the BP letter. It goes on to place an onus on oil companies to promote and, where possible, increase supplies to the United Kingdom.

Such obligations on oil companies are not unreasonable, because those companies have major interests in our North sea fields. It would be incomprehensible to the general public if those companies did not respond in the most positive way on behalf of United Kingdom customers at times of shortage. We are not adamant about the wording of the new clause. If the Minister accepted the principle involved, we should be willing to accept an alternative form of words.

The new clause adds in subsection (2)(b) that there should not be a free-for-all in the way that the hon. Member for Enfield, Southgate described, whereby the oil companies would be able to exercise their power over the market and, in times of shortage, rip off the United Kingdom customer. To avoid that situation, we say: The Company will make supplies at the prices ruling at the time of request (or as otherwise determined by law and regulations". No form of words should restrain the Government from being able to intervene, by law or regulations, on prices during a period of shortage.

The new clause would place proper responsibility on oil companies to endeavour to improve the nation's oil supply position in a period of crisis or shortage. Such a responsibility should be on companies because, as I say, the public would find it incomprehensible should the United Kingdom not be in a better position at a time of oil shortage than are other countries that do not have oil supplies off their shores.

Not only will the United Kingdom be in the oil production business for years to come—the oil will decline eventually; we shall discuss that on later amendments—but we still do have a large refining capacity. The public would not understand if the nation, producing more than 2 million barrels a day, did not ensure that major oil companies made a special effort to see that we had adequate supplies during a period of shortage.

Let us not forget that BP, Shell and the other major companies have had their way, as reflected by the Bill. I say that because their thinly disguised desire to have BNOC abolished—to remove BNOC as a major oil trader—is conceded to them in the Bill. Therefore, we are entitled to demand more from those companies by way of security of supply agreements than the untried, untested, waffly, informal assurances at which the Minister is clutching and on which he relied when replying to points made by hon. Members in Committee.

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

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) sometimes worries me. Although some clear lessons are to be learned from the last 10 years, he does not appear to want to learn them. One is that, between 1974 and 1979, Britain and other western countries responded to the 1974 oil crisis by attempting to restrain oil prices. The result was that we had high inflation, we continued to be heavily dependent on oil and we went through a period of world recession.

In 1979, Britain again tried to restrain the prices of oil products. The result was that in Britain there was a shortage of those products, with queues at petrol stations, whereas other European countries which did not operate restraint had plentiful supplies of petrol—and we were a producer of oil, while those other countries were not.

Since 1979, countries have by and large responded to the second oil shock in a completely different way. They have not attempted to restrain oil prices. Hence, since 1979 our dependence on oil has decreased. We have shown greater efficiency in the use of energy, with the result that in the intervening years we have had falling inflation and enjoyed a period of substantial growth. Today, there is a substantial oil surplus throughout the world, and that is attributable to the fact that countries are less dependent on oil. Even the price of oil has fallen considerably because we have not made the error of trying to restrain prices.

The hon. Member for Merthyr Tydfil and Rhymney wishes to lead us back to the bad old days when we tried to put the lid on prices and when, ironically, we suffered from precisely what we thought we were avoiding—inflation in general and high oil prices.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Govan

I shall be brief and will not, therefore, answer the points that were made by the hon. Member for Enfield, Southgate (Mr. Portillo), except to comment that I do not accept his account of what occurred either from 1974 to 1979 or for the period since 1979.

I support the new clause, which was moved comprehensively by my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands). The security of supplies was the major point raised on Second Reading, when the Minister's answers were highly unsatisfactory. Nothing that has happened since then, in Committee and elsewhere, has persuaded me to change my view.

I will not go over the whole question of security of supplies and what might happen when the agreements under the International Energy Agency and Common Market are activated or what might happen on the activation of participation agreements. That is to be done with such a period of notice that, in terms of meeting a crisis—whether the crisis is beyond or below the trigger point of 7 per cent.—the whole process of reactivating participation agreements is of no relevance.

On Second Reading the Minister described the informal assurances given to the Government by the oil companies. Therefore, he must be embarrassed that the details of at least one of the informal assurances appeared in the Financial Times this morning. On Second Reading he said that he could not tell us any more than he had about the arrangements—and that was precious little—because the details were confidential. They were not sufficiently confidential to prevent them from appearing in today's Financial Times. I do not know how that happened, but I am delighted that it did. At least we now have information about those informal assurances.

8 pm

We are entitled to answers to a number of questions about the report in the Financial Times. Is it accurate? Does it give an accurate account of the letter from BP dated November 1983? As 20 months have passed, is that letter still operative? Is it written in similar terms to letters from other oil companies, or is it a one-off letter? If there are other letters—we must assume that there are, and that they are the substance of the informal assurances received by the Government—are they similar to the letter from BP?

I assume that those letters are not legally binding—they could not be informal if they were. On Second Reading and in Committee the Minister said that there were informal assurances. We are entitled to know how far those assurances are binding in the event of a crisis. Why should there not be legally binding agreements for the oil companies, given the circumstances of our North sea oil production? Why should we rely on informal assurances? If the companies are willing to give informal assurances, they can have no objection to having provisions written into legislation.

I shall listen carefully to the Minister's answers to those questions. However, unless there is a legally binding agreement the protection of our oil supplies will be deficient and defective. We must have legislation to deal with that, which is why we have tabled the new clause.

I fully support the new clause, including subsection 2(b) on prices. It is an important part of the new clause. However, if the Government said they were interested in security of supply but that it was not realistic to write a price ruling into legislation that would be fair enough. We could draft another new clause to accommodate that. What is essential is that there should be security of supply and that the Government have legally effective powers to ensure that in times of crisis. Indeed, the ordinary member of the public would find it incomprehensible that, despite our excessive production in the North sea, over our national needs, there should be a shortage in a time of crisis and no binding agreement to ensure security of supply. That would be indefensible.

As BNOC is to be abolished, something must be written into legislation to protect our supplies, and the new clause seeks to do that. If the drafting is not quite right, and if there was an objection to the provision on prices—although I would not necessarily accept the validity of that objection—it would be possible to write something into the legislation in another place to ensure security of supplies. I strongly support the new clause.

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

The House will appreciate that my hon. Friend the Member for Orkney and Shetland (Mr. Wallace) was very much involved in the Committee stage of the Bill and would have been present today had it not been for circumstances of which the House is aware—that his wife gave birth to a daughter last week. She came out of hospital today and my hon. Friend is properly with her, learning how to change his first nappy. I hope that the House will accept me as a substitute.

I am concerned about the implications of the new clause. The Opposition are understandably concerned about security of supply and the lack of legal force within the existing arrangements. However, the clause attempts to lay down specific circumstances for an unforeseen crisis, yet what will be required cannot be predetermined to the extent envisaged by the new clause. If a crisis involved the stoppage of the flow of oil in the world market, we should wish to retain the oil that we export for ourselves. We could deal with that by producing emergency legislation—something with which the House is perfectly capable of dealing in a spirit of all-party co-operation. That would be a more appropriate way to deal with the problem.

Why is it that the United Kingdom, which accounts for about 1·6 per cent. of the world's oil reserves, accounts for 4·5 per cent. of the world's production? What are the implications of that for the future security of supplies? We are producing oil at a rapid rate and selling it abroad. By definition, the oil sold and consumed now will not be available in future. We should concern ourselves with that aspect.

There is a natural instinct in the Labour party for tight regimentation in this matter. The hon. Member for Enfield. Southgate (Mr. Portillo) put the opposing view, which suggested too much trust in the force of the market to resolve the problem. However, to try to determine something in advance and introduce tight regulation over something that we cannot fully foresee is neither necessary nor likely to be workable.

Subsection 2(a) states: the company with production from the United Kingdom continental shelf shall continue to supply United Kingdom customers with crude oil and petroleum products with at least the quantities supplied over the previous year. Some customers might not want or be able to deal with that quantity for internal reasons. The criterion is rigid in the extreme.

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

I am sure that the words do not debar the customer from foregoing a supply. Most of the assurances which the Minister is trying to obtain are for times when shortage occurs, but before a crisis. If a customer does not want the oil, the clause does not mean that he must take it.

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

I am grateful for that clarification, but the clause anticipates circumstances which cannot be anticipated. The one merit in the clause is the recognition that securing crude oil is not a requirement. To the extent that the clause addresses itself to that specific, it is an improvement. It recognises that crude oil being available is no darned good without the facilities to process it. In terms of security, the new clause is an improvement on previous agreements and participation agreements which Labour Governments wrote into legislation. I am pleased that we are learning.

To be frank, I think that the new clause is proposed because of an understandable resentment about what the Government have done to the British National Oil Corporation. Once the company had been split, the only logical solution was to do what the Government are doing. We might not have agreed, but the Labour party is resisting the solution for sentimental rather than rational reasons. My colleagues and I will not support the new clause.

Photo of Mr Tam Dalyell Mr Tam Dalyell , Linlithgow

An hon. Member can seek leave of the House to speak twice at this stage in proceedings, so I look forward to what the Minister has to say. I was not on the Committee considering the Bill, for reasons of which my colleagues are aware. I have sat on a number of other Bills on the same subject. When Lord Carrington was Secretary of State for Defence in the Government headed by the right hon. Member for Old Bexley and Sidcup (Mr. Heath), he favoured the British National Oil Corporation. That was because he realised from his ministerial experience that it would be impossible to safeguard supplies without some such instrument. That was his view at the time and I do not know whether he has recanted. I think not.

We need to know whether the letter of intent is sufficient. I have two questions to ask about the Financial Times article. First, is it satisfactory that a letter from Mr. David Simon, the head of BP's refining and marketing division, to an Under-Secretary in the Department should give such assurances? Surely such assurances should be given at least by the chairman of the company to the Secretary of State. I am not a great one for protocol but that seems an odd way of proceeding.

Secondly, the article states: BP makes the above affirmation subject to there being no further governmental constraints on its ability to raise prices as a necessary means of recovering costs. What exactly is the nature of the quid pro quo?

I have kept my comments short because, after the Minister has replied, some of us might want to ask further questions.

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Kincardine and Deeside 8:15 pm, 15th July 1985

We have debated this subject on Second Reading and in Committee. I have always acknowledged that the subject causes concern. Security of supply is important to the Government, to the House and to the country. In the changes that we made to BNOC and its functions, and in the changes made when Britoil was formed and in abolishing BNOC security of supply has loomed large. That is why I devoted a large part of my Second Reading speech to that aspect and why we debated certain aspects of participation fully in Committee.

We have made changes because circumstances have changed. The situation is not the same as it was in the early 1970s, either in relation to the oil market or to the structure of the oil industry. The Bill is a reflection of the changes. What might have been appropriate 10 years ago is not necessarily appropriate today.

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) referred to the Financial Times article. I read the article with interest. The article must stand or fall on what it says. The arrangements between the Government and oil companies are confidential and I shall not breach that confidentiality. It is not my place to breach such confidentiality and I do not intend to do so. That would be wrong.

Whatever the source of the article, the information did not come from me. I shall not take any part in breaching confidentiality that would have an effect on that company and on other companies with which agreements have been made.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Govan

What will the effects be on the other companies and on BP? Everybody has read the article and the information is no longer confidential.

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

The matter is straightforward. I am surprised that the right hon. Gentleman, having held a ministerial position, should consider the possibility of discussing confidential matters. If I were to discuss such matters freely in the House and elsewhere, the parties to the agreement would have little confidence in Ministers fulfilling their obligations and responsibilities.

Photo of Mr Peter Hardy Mr Peter Hardy , Wentworth

I understand the Minister's difficulty in regard to confidentiality—obviously he does not want to comment in detail on such matters—but he must accept that the terms of the report in the Financial Times give us greater cause for misgiving about the secret undertakings. Will the Minister speak in defence of his arrangement, particularly in the light of his charge that it goes less far than we thought when he told us that the assurances were available?

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

I am certainly prepared to comment on some of the general aspects, but I said that I was not prepared to comment on the specific details of the individual agreements with individual companies. For the reasons that I have stated clearly, I am not prepared to do that.

The right hon. Member for Glasgow, Govan (Mr. Millan) asked about the form of the assurances. They vary from company to company, and there are no two companies in exactly the same circumstances, so there is no standard form of agreement for all oil companies.

The right hon. Gentleman asked about the binding nature of the agreements. He more or less answered his question. Of course they are not legally binding. In 1982, when the matter of the agreements was first made public, it was made clear that the agreements are informal. They are not legally binding, and I have never claimed that they are. Equally, given the relationship that exists over a series of matters between Government and the oil companies, I see no reason and the Government see no reason for believing that in practice those agreements would not be honoured by both parties to them.

I should like to deal a little later with the matter of prices, because it is a fundamental part of the new clause.

The hon. Member for Merthyr Tydfil and Rhymney asked about royalties. He would be correct if what is reported in the article to which he referred could be affected by the new arrangements being made as a result of the legislation. I shall turn in a moment to the relevant contribution of the hon. Member for Gordon (Mr. Bruce). Circumstances change and, as circumstances change, so may agreements with the oil companies change. If, as a result of the passing of the Bill, there need to be any changes in the agreements with the oil companies, I shall discuss them with the oil companies. We are dealing with a changing situation. The passage of the Bill will create new circumstances. I assure the House that I shall be flexible and reactive to whatever changes arise as a result of the Bill.

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

In reading the terms, it appears to be a condition of giving the assurance that the royalty agreement with BP is signed. As I understand the historic position of royalty agreements between BP and the Government, they are for the automatic sale-back of royalty oil. The Minister says now that, in the light of the assurances he has given us, the agency will not be bound by any automatic sale-back arrangements. Will the royalty agreements require revision, and will the assurance fall if the BP does not get its way in the royalty agreement with the Secretary of State?

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

I think that I have made my point quite clear. If changes are necessary, or if agreements are affected as a consequence of the passage of the Bill, obviously each agreement will have to be looked at individually, because there are different circumstances in different agreements. I give the House the assurance that I shall look at those agreements to make sure that they are no less effective, following the passage of the Bill, than they are at present.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Govan

How can the Minister say that, if they are informal agreements and not legally binding? What happens if an oil company refuses to enter into an agreement? Presumably oil companies are free to do that.

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

It is significant that no company has refused to do so. I shall deal shortly with the principle of the matter and with the reason for having informal agreements of the kind that we have, rather than having them in a more legal form, as suggested by the hon. Member for Merthyr Tydfil and Rhymney and his hon. Friends. It is a fundamental question that we debated to some extent in Committee and are debating again this evening.

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

The Minister is always courteous in dealing with interventions. That has been characteristic of the way in which we have conducted our proceedings throughout the Bill. Therefore, I am sure that he will not mind if I intervene again.

The Minister gave an assurance to this House and to the Committee that the new agency will not be bound to give the right of automatic sale-back of oil to any major oil company. It appears from the terms of the assurance that it is tied into a royalty agreement which gives BP the right to an automatic sale-back. Which assurance should we take?

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

I can only repeat what I have said. If there are changes as a result of the legislation, any changes in the agreements will have to be negotiated with those who are parties to them. That has been the character of participation. For example, where it has been BNOC's responsibility, or in relation to other contracts which BNOC has with a non-participation agreement, where on the specific agreement—[Interruption.] The hon. Gentleman cannot have it both ways. He has referred to a report in a newspaper and asked what would arise in the circumstances mentioned there. I cannot go further than I have already. If circumstances arise which affect agreements, or if any change occurs in relation to a royalty undertaking which has been given, that has to be negotiated with the company concerned.

I do not recommend to the House that there should be a legally binding agreement of the kind suggested in the amendment. The agreement in regard to supply of product and security arrangements is between the government and the oil companies, and not between BNOC and the oil companies. The hon. Gentleman is breaking completely new ground, not only on the formality of the agreement but in regard to the making of an agreement between the agency and the oil company.

Where there is an agreement on security of supply, the Government are the proper custodian of one side of that agreement with the oil company, rather than, as in the past, through BNOC, or in the future through the agency. I shall refer in a moment to why we believe in working on a voluntary basis. It is much more appropriate, in regard to the range and degree of relationship between the Government and the agency, that the responsibility for the agreements on security of supply, whether legally binding or informal, should rest with the Government rather than shifting to the agency.

From a practical aspect, an informal agreement is preferable to a formal one. The hon. Member for Gordon gave the reasons in his speech. All the experience of crises over the past 10 or 15 years shows that it is impossible to predict with any accuracy how a shortage might develop and what our priority needs will be in time of shortage. Therefore, we must have as much flexibility as possible in our understanding with our refiners, so that we ensure that they do everything to supply their customers in the best way possible. It is impossible to write down in a legal form, in the manner suggested by the hon. Member for Methyr Tydfil and Rhymney, the kind of flexibility that is necessary if we are to react properly in a crisis.

8.30 pm

The new clause is a much more rigid approach. Although at first glance it has certain attractions, there could be considerable difficulties if we sought to put it into practice. The provisions might be out of step with the commercial facts of production and distribution. The new clause states: the United Kingdom continental shelf shall continue to supply United Kingdom customers … with at least the quantities supplied over the previous year". How could this apply to a licensee with an interest in only one producing field, which had passed its producing peak? Who are the customers of a petrol station? How does one establish the quantities supplied over the previous year? Would there be an obligation to supply someone who had recently changed to another supplier?

Once one follows this rigid approach, attractive though it may seem in some respects, it becomes divorced from the real practice of commerce. It assumes a simpler basis of trading in oil and oil products than is the case in the real world. The hon Member for Wentworth (Mr. Hardy) entertained the Committee for a considerable period by following the chain of a cargo of oil from the time it was produced at the wellhead until it passed through the terminal and was loaded. He regaled us with stories of cargoes being traded 10 or 20 times. That does not apply to every cargo. One simply cannot formalise the practice in this new clause. One cannot try to solidify the pattern of trading after the agreement has been triggered. Entering into such contractual provisions—this is my main opposition to the new clause—would entail a considerable loss of flexibility. Above all else, we need flexibility.

The new clause refers to prices and to the oil that may be delivered under the security of supply agreement. It would be difficult for any United Kingdom continental shelf producer to agree to a pricing condition other than one that allowed him to receive the prevailing market price at the time of delivery. Any agreement would have to be made on that basis. Indeed, that principle was followed by the last Labour Government, when they introduced participation agreements on the basis that BNOC's transactions should be at no gain and no loss to the corporation or to producers. It is inappropriate to write into the new clause or into any informal or formal agreement any conditions on prices, other than that they should reflect market conditions.

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

That is not what the BP letter says. BP's point is very different. It tries to bind Governments not to apply any legal or Government constraint. It makes it a condition of the assurance that Governments will never try to constrain or moderate prices. That proposition is very different from agreeing to a price of the type laid down in participation agreements.

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

The Labour Government introduced participation agreements on the basis that the transactions should be at no gain and no loss. Obviously, this will reflect market conditions. My hon. Friend the Member for Enfield, Southgate (Mr. Portillo) pointed out that, when the Labour Government endeavoured to use their powers with respect to price constraints, supplies subsequently dried up. Because the United Kingdom market cannot be isolated from the world market, eventually there were upward prices in line with market conditions. The only effect of Government action in intervening was to cause a delay, which threatened supplies. I hope that my slightly more pragmatic approach, in comparison with that of the hon. Member for Merthyr Tydfil and Rhymney, in the light of the Labour Government's experience, shows what can happen. The Labour Government did not have a single supply assurance from a United Kingdom refiner. They relied on participation agreements. When the crisis came, it had no effect on the users of oil products and we suffered from shortages.

Because it is better to act informally rather than formally in giving flexibility and, because of our experience during previous crises, I believe that my approach is better than that of the hon. Member for Merthyr Tydfil and Rhymney, and I therefore ask the House to reject the new clause.

Photo of Mr Paul Dean Mr Paul Dean , Woodspring

Order. The hon. Member has spoken once in the debate. Does he have the leave of the House to speak again?

Hon. Members:

Yes.

Mr. Deputy Speaker:

The hon. Member may proceed.

Photo of Mr Tam Dalyell Mr Tam Dalyell , Linlithgow

May I repeat the question that was put first by me, secondly by my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) and thirdly by me again. It is no good simply taking refuge in the confidences in the Financial Times article, which states: BP makes the above affirmation subject further to there being no legal or governmental constraint on its ability to raise prices as a necessary means of recovering costs. What is the quid pro quo?

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

Will the Minister of State answer the point made by my hon. Friend the Member for Linlithgow (Mr. Dalyell)?

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

I shall put the point simply, as I did earlier. I am not prepared to comment on the particular aspects of agreements with companies as reported in the newspapers. I have pointed out the much broader question of principle—that trying to write in conditions on prices, as the new clause does, has proved in practice to be totally ineffective, especially in the experience of the Labour Government whom the hon. Member for Linlithgow supported.

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

We have suffered quite a lot from the Minister's complacency, which he has shown yet again in those remarks. It provides cold comfort to customers or members of the public to realise that when the Minister uses the words "informal" or "flexible", it is ministerial double-think and double-talk, allowing oil companies to get away with wishy-washy assurances of the type that the right hon. Gentleman is clutching—which, when the crunch comes, are scarcely worth the paper on which they are printed. For that reason, I ask my colleagues to join me in the Division Lobby in supporting the new clause, which gives proper and meaningful assurances to customers and to the public in times of oil shortage.

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

The House divided: Ayes 86, Noes 187.

Division No. 273][8.39 pm
AYES
Atkinson, N. (Tottenham)Foster, Derek
Bagier, Gordon A. T.George, Bruce
Banks, Tony (Newham NW)Gilbert, Rt Hon Dr John
Benn, TonyGolding, John
Bermingham, GeraldHardy, Peter
Bidwell, SydneyHart, Rt Hon Dame Judith
Bray, Dr JeremyHogg, N. (C'nauld & Kilsyth)
Brown, Gordon (D'f'mline E)Home Robertson, John
Brown, Hugh D. (Provan)Hoyle, Douglas
Brown, N. (N'c'tle-u-Tyne E)Hughes, Sean (Knowsley S)
Buchan, NormanJohn, Brynmor
Callaghan, Jim (Heyw'd & M)Jones, Barry (Alyn & Deeside)
Clark, Dr David (S Shields)Lamond, James
Clay, RobertLeighton, Ronald
Cocks, Rt Hon M. (Bristol S.)Lewis, Terence (Worsley)
Cook, Robin F. (Livingston)McCartney, Hugh
Corbett, RobinMcDonald, Dr Oonagh
Cowans, HarryMcGuire, Michael
Cunliffe, LawrenceMcKay, Allen (Penistone)
Dalyell, TamMcKelvey, William
Davies, Ronald (Caerphilly)McNamara, Kevin
Davis, Terry (B'ham, H'ge H'l)McTaggart, Robert
Deakins, EricMcWilliam, John
Dewar, DonaldMadden, Max
Dixon, DonaldMason, Rt Hon Roy
Duffy, A. E. P.Maxton, John
Dunwoody, Hon Mrs G.Michie, William
Eadie, AlexMillan, Rt Hon Bruce
Edwards, Bob (W'h'mpt'n SE)Miller, Dr M. S. (E Kilbride)
Ewing, HarryOakes, Rt Hon Gordon
Fatchett, DerekParry, Robert
Fields, T. (L'pool Broad Gn)Patchett, Terry
Fisher, MarkPike, Peter
Flannery, MartinPowell, Raymond (Ogmore)
Prescott, JohnThomas, Dafydd (Merioneth)
Randall, StuartThompson, J. (Wansbeck)
Redmond, M.Thorne, Stan (Preston)
Robertson, GeorgeTinn, James
Rogers, AllanWarden, Gareth (Gower)
Rowlands, TedWareing, Robert
Short, Ms Clare (Ladywood)Wilson, Gordon
Skinner, Dennis
Snape, PeterTellers for the Ayes:
Stewart, Rt Hon D. (W Isles)Mr. Frank Haynes and
Stott, RogerMr. James Hamilton.
NOES
Alison, Rt Hon MichaelHill, James
Ancram, MichaelHind, Kenneth
Baker, Nicholas (N Dorset)Holland, Sir Philip (Gedling)
Beaumont-Dark, AnthonyHolt, Richard
Bendall, VivianHowell, Ralph (N Norfolk)
Benyon, WilliamHowells, Geraint
Bevan, David GilroyHughes, Simon (Southwark)
Biffen, Rt Hon JohnHunt, David (Wirral)
Biggs-Davison, Sir JohnJenkin, Rt Hon Patrick
Blackburn, JohnKennedy, Charles
Blaker, Rt Hon Sir PeterKirkwood, Archy
Boscawen, Hon RobertKnowles, Michael
Bottomley, PeterLang, Ian
Bottomley, Mrs VirginiaLawler, Geoffrey
Bowden, A. (Brighton K'to'n)Lawson, Rt Hon Nigel
Bowden, Gerald (Dulwich)Lennox-Boyd, Hon Mark
Bright, GrahamLightbown, David
Brinton, TimLilley, Peter
Brooke, Hon PeterLivsey, Richard
Brown, M. (Brigg & Cl'thpes)Lloyd, Peter, (Fareham)
Browne, JohnLord, Michael
Bruce, MalcolmLyell, Nicholas
Bruinvels, PeterMacfarlane, Neil
Buchanan-Smith, Rt Hon A.MacKay, Andrew (Berkshire)
Buck, Sir AntonyMaclean, David John
Budgen, NickMcQuarrie, Albert
Burt, AlistairMadel, David
Butcher, JohnMalins, Humfrey
Butterfill, JohnMarshall, Michael (Arundel)
Carlile, Alexander (Montg'y)Mates, Michael
Carlisle, Rt Hon M. (W'ton S)Mather, Carol
Carttiss, MichaelMaude, Hon Francis
Channon, Rt Hon PaulMaxwell-Hyslop, Robin
Chapman, SydneyMeadowcroft, Michael
Chope, ChristopherMerchant, Piers
Clark, Hon A. (Plym'th S'n)Mills, Iain (Meriden)
Clarke, Rt Hon K. (Rushcliffe)Mills, Sir Peter (West Devon)
Cockeram, EricMoate, Roger
Colvin, MichaelMontgomery, Sir Fergus
Coombs, SimonMoore, John
Cope, JohnMorris, M. (N'hampton, S)
Corrie, JohnMorrison, Hon P. (Chester)
Couchman, JamesMurphy, Christopher
Currie, Mrs EdwinaNeale, Gerrard
Dorrell, StephenNeedham, Richard
Douglas-Hamilton, Lord J.Nelson, Anthony
Dover, DenNeubert, Michael
du Cann, Rt Hon Sir EdwardNewton, Tony
Dunn, RobertNicholls, Patrick
Durant, TonyNormanton, Tom
Dykes, HughNorris, Steven
Eggar, TimOsborn, Sir John
Evennett, DavidOttaway, Richard
Eyre, Sir ReginaldPage, Sir John (Harrow W)
Fallon, MichaelPage, Richard (Herts SW)
Favell, AnthonyPeacock, Mrs Elizabeth
Fenner, Mrs PeggyPenhaligon, David
Fletcher, AlexanderPercival, Rt Hon Sir Ian
Fookes, Miss JanetPollock, Alexander
Garel-Jones, TristanPorter, Barry
Gower, Sir RaymondPortillo, Michael
Gregory, ConalPowley, John
Griffiths, Sir EldonProctor, K. Harvey
Hamilton, Hon A. (Epsom)Raffan, Keith
Hancock, Mr. MichaelRhodes James, Robert
Hayhoe, Rt Hon BarneyRhys Williams, Sir Brandon
Henderson, BarryRidsdale, Sir Julian
Robinson, Mark (N'port W)Thurnham, Peter
Roe, Mrs MarionTownend, John (Bridlington)
Ross, Stephen (Isle of Wight)Tracey, Richard
Rowe, AndrewTwinn, Dr Ian
Ryder, Richardvan Straubenzee, Sir W.
Sackville, Hon ThomasViggers, Peter
Sayeed, JonathanWaddington, David
Shaw, Sir Michael (Scarb')Wainwright, R.
Shelton, William (Streatham)Wakeham, Rt Hon John
Shepherd, Colin (Hereford)Walden, George
Sims, RogerWall, Sir Patrick
Smith, Tim (Beaconsfield)Waller, Gary
Soames, Hon NicholasWard, John
Speller, TonyWardle, C. (Bexhill)
Spencer, DerekWarren, Kenneth
Spicer, Jim (W Dorset)Wells, Sir John (Maidstone)
Stern, MichaelWilkinson, John
Stevens, Lewis (Nuneaton)Winterton, Nicholas
Stevens, Martin (Fulham)Wolfson, Mark
Stewart, Allan (Eastwood)Wood, Timothy
Stewart, Andrew (Sherwood)Woodcock, Michael
Sumberg, DavidWrigglesworth, Ian
Tebbit, Rt Hon NormanYeo, Tim
Temple-Morris, PeterYounger, Rt Hon George
Terlezki, Stefan
Thompson, Donald (Calder V)Tellers for the Noes:
Thompson, Patrick (N'ich N)Mr. Tim Sainsbury and Mr. John Major.
Thorne, Neil (Ilford S)
Thornton, Malcolm

Question accordingly negatived.