North Sea Oil and Gas Production

– in the Scottish Parliament on 14th May 2013.

Alert me about debates like this

Photo of Rhoda Grant Rhoda Grant Labour

1. To ask the Scottish Government whether it considers that North Sea oil and gas production will continue for the rest of the century. (S4T-00352)

Photo of Fergus Ewing Fergus Ewing Scottish National Party

It is estimated that 24,000 million barrels of oil are still to be recovered, with a potential wholesale value of up to £1.5 trillion—that is £1.5 million million. However, some industry estimates suggest that the figure could be substantially higher. Despite numerous predictions from London that the oil was running out in the 1980s, the 1990s and the noughties, today we still have an industry that continues to thrive and expand. Indeed, the industry itself predicts that capital investment will rise to more than £13,000 million this year—with £100 billion of investment in companies’ plans.

The Government believes that if we create the right conditions for innovation and increased investment, we can increase the recovery rate of our oil and gas reserves, increasing the return and extending the life of the sector to most of this century.

Our oil and gas strategy lays the ground for a thriving oil and gas sector. We are committed to creating a supportive business environment, which encourages innovation and the development of new technology. We are committed to working with the industry to boost asset integrity and extend the lifespan of critical infrastructure.

With the right policies, we can realise the full potential of the resource; with access to all the policy levers that independence will bring, we can do even more to enhance the conditions in which the industry is operating. We will be able to create the fiscal incentives that will enable not only the industry to realise its potential but all Scotland’s people to benefit.

Photo of Rhoda Grant Rhoda Grant Labour

Professor Alex Kemp tells us that by 2050 we will be producing less than 9 per cent of current levels. I noticed that the minister downgraded his own assertion when he said “most of this century”. The Cabinet Secretary for Finance, Employment and Sustainable Growth privately told Cabinet colleagues that there is considerable uncertainty over the future of North Sea oil. What evidence does the minister have to back his assertion?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Let us stick to the facts. Let us stick to the fact of BP’s announcement on the Clair Ridge field. The Clair field was discovered in 1977—three years after oil was first brought ashore from the Argyll field. Who then would have predicted that BP would expect and indeed announce that fossil fuels would still be being produced from the Clair Ridge field in 2055? Not many people, and certainly not people in the Labour Party, whose negativity has for years been the only consistent element of their approach to the oil and gas industry.

It is clear that Scotland is at the leading edge of technological advance in areas such as seismic 3D and 4D imaging of reservoirs, which can clearly identify where fossil fuels are. Ten years ago, that was not possible. That is why companies such as Apache, which acquired the BP Forties field in 2003, when it was predicted that 144 million barrels of proven reserves of oil were left, has announced that it has already had 190 million barrels—way more than the 2003 estimate—with another 130 million barrels of proven reserves of oil remaining.

The history of oil and gas extraction is that there is more than we think there is. That will prove to be the case in Scotland’s waters, provided that we pursue the right policies.

Photo of Rhoda Grant Rhoda Grant Labour

Simply saying something does not mean that it is going to happen. The minister is gazing into his crystal ball and citing the only evidence: the Clair Ridge field, which will produce until 2055—some years short of the century of production that he has asserted.

Surely ministers owe the Scottish people the same honesty as they give Cabinet colleagues. Surely they need to provide an honest appraisal, to allow the people to make decisions that are based on facts rather than fiction.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Let us take the honest appraisal of Oil & Gas UK. If the member reads the report that Oil & Gas UK has produced, she will see that Malcolm Webb prefaced it by pointing out that over the next three years 130 wells will be drilled, that this year there will be more investment than ever before—£13 billion—and that investment in the industry has been at a higher level than ever before. If the member wants evidence, she should go to Oil & Gas UK, the body that represents the industry, with which we have close relations.

The member said that I gave only one example. On 21 December last year, Statoil announced a £4.3 billion investment in the North Sea, which will create 700 jobs. That is something about which the Scottish National Party is extremely positive. The Mariner field, which is one of Statoil’s fields—the other is Bressay—is expected to produce for 30 years from the date of commencement.

If the member has a good read of journals such as The Press and Journal, which provides excellent coverage of the day-to-day developments in oil and gas, she will see that a large number of developments have been announced in the past 18 months and that she is alone if she thinks that there will be no more discoveries than those that have already been made.

Photo of Liam McArthur Liam McArthur Liberal Democrat

In the reported comments from the minister in Houston, it is suggested that he said:

“it’s a bit liberal to say the oil is going to run out, because it ain’t.”

By the words “a bit liberal”, I assume that he meant “correct”. [Interruption.]

Photo of Liam McArthur Liam McArthur Liberal Democrat

Given that the minister’s personal view that oil reserves will last another nine decades is entirely at odds with the view that the cabinet secretary expressed in his leaked document, does he want to take the opportunity to alert Mr Swinney to any other personal views that he holds that may be factored into future documents?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Well, no, I must admit that I was not thinking of the member when I used the word “liberal”.

The fact is that we should all be rejoicing in the success of the oil and gas industry, not talking it down. Let us consider the people who talked it down in the past. Remember Tony Benn? He was a minister once. He said that North Sea oil would run out within the next two decades. Jack Straw said in 1983 that North Sea revenues would be running out before the end of the decade. Labour, the Liberals and the Tories predicted that oil and gas would run out in Scotland in the 1980s, and then they said that it would run out in the 1990s. Then they said that it would run out in the noughties. They might be right in one respect. Perhaps the oil and gas will run out in the 80s or the 90s, but they were certainly wrong about one thing: the century.

Photo of Mike MacKenzie Mike MacKenzie Scottish National Party

Does the minister agree that, with the Office of Gas and Electricity Markets warning that the lights could go out unless the United Kingdom Government resolves the uncertainty of our energy policy and with many of our European neighbours being net energy importers, Scotland’s oil and gas will become increasingly valuable as we move further into the century?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I think that the member is referring to the warning that was issued by the head of Ofgem, Alistair Buchanan, last October, and repeated in February. That prediction was that the spare capacity margin in the UK’s electricity supply will fall to around 4 per cent, or next to nothing. Therefore, the product of the energy policy pursued in the UK over decades of a lack of investment in the grid and a lack of consideration to ensuring a diverse and sufficient range of capacity is that there is now a real risk that the lights will go out south of the border. North of the border, we have a 25 per cent margin, which is much more as it should be.

From time to time, people in the Scottish National Party have felt that the Government in England was in the dark, but we do not want the people of England to spend time in the dark. To avoid that, they will need the increasing electricity supply that will be transmitted south of the border, and to enable that to happen, Ofgem has approved the investment of £7,000 million to upgrade our grid, which will allow our export capacity to be quadrupled.

Mr MacKenzie is entirely right to raise that question. Conservative and Liberal members who seem to think the lights going out in England amusing do not seem to be showing the fellow feeling that SNP members are evincing to our good friends and neighbours south of the border.

Photo of Gavin Brown Gavin Brown Conservative

In all seriousness, what is the official Scottish Government central projection for how long oil production will last?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

We believe that oil and gas production should last for most of the rest of this century. The question is very serious, and I will say why it is not possible to make a prediction with absolute certainty. At the PILOT meeting that I attended with Michael Fallon recently, one of the industry presentations was from an industry leader who pointed out that the southern North Sea may close for oil and gas production circa 2035 because of the ageing infrastructure.

Unless the right policies are pursued to address the challenges that we face in the southern North Sea, the potential consequences will be fiscally catastrophic. The right policies include collaboration between companies; consideration of whether further exploration must be incentivised; and consideration of further fiscal incentives. Those are the policies that industry has identified for several years; are they going to be implemented? The consequences of failure have been estimated by one industry source to be the loss in tax revenue of £85,000 million. That is what is at stake.

I am delighted to have the opportunity to highlight the massive contribution that companies in Aberdeen—small and medium-sized enterprises as well as big companies—are making in innovation, in technology and in leading the industry throughout the world. I saw that in Houston last week, when I led a delegation of around 50 Scottish companies. Scotland has a top-class reputation in the world and our SMEs are at the top of the field, leading innovation across a range of industries. Surely we should be uniting to celebrate that success and congratulate them on it, not decrying or seeking to belittle it.

Photo of Patrick Harvie Patrick Harvie Green

If humanity exploits, extracts and burns all the fossil fuels that we have already identified, there will be no realistic chance of preserving the climate conditions in which our civilisation has been able to thrive. During this century, there will be a moral imperative to leave a substantial proportion of known fossil fuel reserves in the ground, unused. Why should Scotland be exempt from that moral imperative?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

One of the exciting opportunities of the innovation in technology that is taking place in Scotland among individuals and companies is in the field of carbon capture and storage. This morning, I co-chaired the carbon capture and storage and thermal generation industry leadership group. One of the potential benefits of carbon capture and storage is that it can be used to reduce the emissions from fossil fuel—coal or gas—generation and to store them and use them to enhance oil recovery. I would have thought that the Greens would welcome that, but apparently they do not.

Our strategy is based on maximising recovery. Surely it makes sense from a green point of view that, when we take out any deposit of oil and gas—whether in the North Sea or anywhere else—we should take out more than we leave behind. How does it make sense to leave more than 50 per cent of oil or gas behind before going on to exploit the next field?

I commend our policy to Patrick Harvie. I suspect that he may not see entirely eye to eye with me on the details of it, but I hope that he will come to support carbon capture and storage. It is reported that the contribution that it could make through enhanced recovery, by unlocking 3 billion barrels of hard-to-reach oil from the North Sea, could be worth £190,000 million. I can tell Mr Harvie, who is laughing, that the technique is being actively pursued by many leading companies as we speak.

Photo of Dennis Robertson Dennis Robertson Scottish National Party

I am sure that, in an earlier answer, the minister meant to say “Aberdeen and Aberdeenshire”.

Does the minister agree that, with the current investment by industry and the announcement last week of energy skills Scotland, there is faith in the Scottish Government and the industry, and that there is a long and prosperous future in oil and gas as well as in our workforce in Scotland?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I was pleased to be in Aberdeen last Friday. I did not quite get to Aberdeenshire, but I will put that right very soon.

On Friday, the First Minister announced that an additional £6.5 million will be made available to allow our excellent universities and colleges to equip their students with the certification and degrees that they require to take up the opportunities in the energy sector as a whole. We estimate that, by 2020, Scotland will need an extra 95,000 people for the energy sector as a whole. In addition to the funding for the University of Aberdeen, Robert Gordon University, Aberdeen College and Banff and Buchan College, along with other universities and colleges that provide oil and gas courses in Scotland, there will be 1,000 conversion training places for those who want to enter the oil and gas industry or other industries in the energy sector from other fields.

I would have thought that that is another piece of good news. To answer Mr Robertson’s question, it was very much welcomed at Robert Gordon University, where the announcement was made. I pay tribute to all the staff and other people who work extremely hard—as the First Minister and I saw on Friday—in equipping young people to acquire the skills that they need to take part in those exciting industries.

Photo of Alex Johnstone Alex Johnstone Conservative

I share the minister’s ambition that we will see every last drop of oil and gas being recovered from the North Sea, but surely he must accept that if that oil and gas is to last the whole of the century, we will need a tax regime that is fit for purpose and which suitably incentivises the investment that is necessary. That tax regime might not produce the return that his ambitious forecasts predict.

If the minister were in a position to plan the tax regime for the rest of the century, would he be able to raise enough money to keep the promises that are being made by the lady on his right, Nicola Sturgeon?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I am not sure whether that is a serious question, because Scotland more than pays its way already, as has been demonstrated by documents that have been published.

The Conservative Party should not be lecturing us on tax. The tax hike that was imposed in 2011 sent shock waves around the world. When I visited companies in Houston and Canada, confidence in the UK was shaken. Following representations by the First Minister, Oil & Gas UK and others, field allowances were introduced in 2012. That has undone some of the damage.

What we know that the Conservatives and the Labour Party—which had two hikes of its own during the disastrous Gordon Brown years—do not is that what the industry requires is extremely simple: fiscal stability and fiscal predictability over the lifetime of the fields. [Interruption.]

The Conservatives are laughing, but do they honestly think that the unheralded introduction—a few days before the budget, by the Chief Secretary to the Treasury—of a 12 per cent increase in the rate of tax is any way to run a country? The industry does not think so. The Conservatives might laugh, but the industry believes that those changes were extremely damaging. That is its view, and if the Conservatives go up to Aberdeen or Aberdeenshire, they will find that out for themselves.