Security of Supply Agreement

Part of Orders of the Day — Oil and Pipelines Bill – in the House of Commons at 7:45 pm on 15th July 1985.

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

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.