I beg to move,
That this House
has considered the future of the oil and gas industry.
It is a pleasure to serve under your chairmanship, Mr Hollobone.
I start my contribution today by taking a moment to remember the 167 workers who lost their lives 30 years ago in the Piper Alpha disaster, off the coast of Aberdeen, on
I will focus my remarks on the success of the North sea oil and gas industry, and on how the sector is working alongside its partners downstream and in its supply chain to secure a lower-carbon future. I will also outline two choices that the UK Government must make. The first is to protect existing labour and supply chains through the single market and customs union membership, or risk sacrificing world-leading firms and skilled, productive jobs.
I am grateful to my hon. Friend for securing this important debate and for taking an intervention so early. Grangemouth, which is in my constituency, is home to Scotland’s only crude oil refinery, as well as the terminus of the North sea Forties pipeline system. It hosts a number of petrochemical plants and leading players in the chemicals industry, and it accounts for more than a third of the chemical sector’s gross value added in Scotland. In total, 60% of the UK’s chemical exports and 75% of imports are to and from the EU. How important is it to have frictionless, tariff-free trade, and to ensure that multinational companies can move their staff between different countries to support local jobs and growth across districts?
My hon. Friend makes an excellent point; it is absolutely essential that we remain in the customs union. Of course, I will come on to the importance of frictionless trade and the supply of labour later in my speech; indeed, I hope that everybody will speak about that.
The second choice that the UK Government must make is to recognise the £350 billion contribution to the Treasury that the sector has made over the past 50 years and provide the political certainty and financial support it needs now, or risk undermining North sea oil and gas by once again using it as a cash cow, this time to pay for Brexit Britain.
With sales up by 18.2% between 2016-17 and 2017-18 and the North sea holding up to 20 billion barrels of oil, the sector is in very strong health. Recent industry announcements, such as BP’s successful discoveries in the Capercaillie and Achmelvich wells, Nexen’s phase II development of the Buzzard field, and the Norwegian oil and gas giant Equinor’s deal to buy Rosebank’s share of the oil reserves to the west of Shetland, demonstrate the enormous investment potential that the United Kingdom continental shelf still holds.
The sector supports 283,000 jobs across the UK. In the town of Grangemouth, which is in my neighbouring constituency of Linlithgow and East Falkirk, INEOS alone employs 1,300 people, including seven new apprentices, who started training in 2017. Those figures somewhat contradict the predictions we hear about the sector’s constant decline. Healthy investment is continuing.
I am grateful to my hon. Friend for giving way again and for mentioning the great work that goes on in my constituency. INEOS, which now owns the Forties pipeline system, estimates that the economic life of the asset will be extended to 2040, which is 10 years longer than BP’s original projection. INEOS has already invested £500 million in the Grangemouth site in the last five years, and it is now investing in infrastructure projects at Grangemouth that will have a further positive impact on the longevity and reliability of the Forties pipeline. The firm has already committed to the UK’s North sea sector with investment in the northern gasfields west of Shetland, which contain the Lyon prospect. However, I wonder how much potential investment by the wider sector has been delayed until the uncertainty of Brexit has passed. Will he join me in calling on the UK Government to do more to stimulate exploration and investment?
I thank my hon. Friend for that intervention; again, he makes a very good point indeed. He is right to raise the concerns about investment, and I join him in calling for the UK Government to support and encourage investment in this vital asset that we have on our shores. I give him my full support in that regard.
Healthy investment is continuing, even though in some cases the level may not be as good as it should be, and new discoveries are being made and developed. In 2017-18, revenues from Scottish North sea oil and gas increased to £1.3 billion. Surely it is now time that the UK Government acted to support the sector’s future.
The sector recognises the need to decarbonise our economy and its responsibilities in supporting that transition. It is an international leader in supporting the low-carbon transition. Average emissions per unit of production on the United Kingdom continental shelf—its carbon intensity—have fallen year on year since 2013, with total emissions in decline from their peak in 2000. Firms are increasingly diversifying and using their existing skills to grasp opportunities emerging from the green economy, thereby providing sustainable employment. Often, infrastructure owners and operators in the oil and gas sector are already part of wider portfolios across a range of conventional and renewable energy sources. Contractors and supply chain companies with expertise in offshore operations and maintenance are also providing solutions across a range of energy industries, to diversify and replenish their order books.
As we all know, innovation is absolutely key to that process. Building the sector of tomorrow presents exciting and challenging opportunities for our people. The Offshore Petroleum Industry Training Organisation’s workforce dynamics report has predicted that by 2025 there could be as many as 10,000 roles that require completely new skills. It is reassuring to note that the industry continues to attract young people to build its future. There were 105 new entrants to the oil and gas technical apprentice programme in September alone. Once again, I have seen that forward-looking agenda at first hand in my neighbouring constituency of Linlithgow and East Falkirk.
As I mentioned, the town of Grangemouth is home to Scotland’s only crude oil refinery. It is a truly remarkable site. For example, the refinery was the first to introduce ultra low sulphur diesel and ultra low sulphur petrol to the UK market. Grangemouth already makes up approximately 8% of Scotland’s manufacturing base. Many of my constituents are employed at the site or in its supply chain. Grangemouth’s success shows the impact that downstream operations and manufacturing can have on the economy, locally and globally.
I am grateful to my hon. Friend for his indulgence in giving way to me so many times.
Grangemouth has one of the country’s largest concentrations of energy-intensive industries in down- stream petrochemicals operations, and its development of a strategically located carbon capture and storage infrastructure in its industrial cluster may be essential to ensuring that those industries can compete in the low-carbon world that is coming in the future. I know that the Grangemouth site, INEOS and others are working with Imperial College as part of a wider collaboration to evaluate the feasibility of CCS for the UK. Does my hon. Friend agree that this developing technology would have been given a huge boost if the UK Government had not cancelled its CCS competition back in 2015, and that that decision demonstrated how they are failing the long-term interests of the industry?
Once again, my hon. Friend makes a good point about the need for long-term certainty of investment and policy. The CCS decision was an example of a shambolic state of affairs, given that many hundreds of millions of pounds had been invested for the future. That future was basically taken away from under investors’ feet, so I absolutely agree with him.
The export-orientated supply chain generates about £30 billion annually across the UK, and its exported services deliver £12 billion, and the future blueprint for the sector, “Vision 2035”, grasps the importance of that. Alongside adding a generation of productive life to the basin, the blueprint has the objective of doubling the long-term opportunities for the supply chain. If we work together to maximise production from the UK continental shelf and to help the supply chain grow its share of the global energy market, we can boost that prize by half again and generate £920 billion of revenue for the UK economy through to 2035. That is a real game changer for us all. By doubling its share of the global market and embracing the opportunities available through diversification into other markets, the sector can achieve an additional £150 billion of revenue above the baseline estimate of £350 billion.
However, Grangemouth, its workforce and the wider sector are being put at risk by Brexit. The latest Oil & Gas UK report makes it clear that Brexit will have a significant impact on the oil and gas sector, warning about the impact on frictionless access to goods and services, and that the UK Government’s Brexit plans could cause a “skills shortage” for vital North sea services such as emergency response and rescue vehicles.
The Scottish National party is clear that the best way to achieve the goals I have mentioned is to protect Scotland’s place in the single market and the customs union. The Scottish Government have delivered an exceptional range of support for the oil and gas sector and its workforce, including an investment of £2.4 billion in enterprise and skills through our enterprise agencies and skills bodies, £90 million over the next decade to support the Oil & Gas Technology Centre as part of the Aberdeen city region deal, and a £12 million transition training fund to support individuals and help the sector to retain talent.
The other major risk that is looming also comes from Westminster, and that is the Budget on
The SNP also demands that the UK Government use the autumn Budget to implement an oil and gas sector deal, instead of dragging their feet, as is currently the case in Ayrshire, Tayside and Inverness. A sector deal should support practical steps to protect, progress and promote operators, the supply chain and the offshore and onshore workforce. A sector deal for the industry must include visionary national hubs for underwater innovation, transformational technology and decommissioning, based in Aberdeen but serving the whole industry.
In conclusion, North sea oil and gas is booming and the sector is working hard alongside its downstream and supply chain partners to secure a bright, lower-carbon future. The sector has a clear route map in “Vision 2035” and is ably supported by the Scottish Government, who are using their limited powers to the full. The UK Government must now make two choices: to protect the supply chains and the labour supply through single market and customs union membership, and to provide the long-term political certainty and financial support that the sector needs.
Order. The debate can last until 1 pm. I am obliged to call the Front-Bench spokespeople no later than 12.27 pm, and there will be 10 minutes for the SNP Front Bencher, 10 minutes for Her Majesty’s Opposition and 10 minutes for the Minister. I would be obliged, Minister, if you allowed the mover of the motion three minutes to sum up at the end. Eight Members are seeking to catch my eye, so I will impose a time limit of five minutes and the clock will act as a helpful guide to those making speeches.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate John Mc Nally on securing the debate, and he has done so at an opportune time, just under three weeks before the Chancellor delivers his Budget. He has also provided us with the opportunity to highlight the vital importance of the industry to the UK: it is essential for the UK’s security of energy supply, it has contributed billions of pounds to the Exchequer over the past 50 years, and it provides hundreds of thousands of highly skilled and well-paid jobs.
The industry has been through a great deal in recent years. As a result of the collapse in the price of Brent crude, tens of thousands of jobs have been lost and the industry has had to restructure. In many respects, it has emerged fitter and leaner, but significant challenges remain, and it is vital that the tripartite approach of industry, regulator—the Oil & Gas Authority—and Government working together continues. The oil price has bounced back, but that is almost certainly for short-term global geopolitical reasons, and it would be complacent to assume that the higher price will be sustained into the longer term. Production is up significantly, and by the end of the year could be 20% higher than over the past five years. Significant cost reductions have been made, though it is important that they are sustained if the industry is to remain globally competitive. However, warning lights remain on amber, with exploratory drilling activity at a record low and the revenues of supply chain businesses continuing to fall. It is vital that exploration and production companies work collaboratively with their supply chains, as their respective futures are very much intertwined.
I will briefly highlight three factors that need to be centre stage for the industry to continue to play its lead role. The first is the need for a stable fiscal regime. One of the key reasons why the UK continental shelf is an attractive investment proposition is that it is fiscally competitive. That reputation has been hard won and must not be thrown away because of an increase in tax rates. That would be short-termism, and it would cause lasting damage. In the Budget, the Chancellor should re-emphasise the Government’s commitment to the “Driving investment” plan. The proposals for transferable tax history, to be included in the forthcoming Finance Bill, are extremely welcome and will drive investment in late-life assets and maximise economic recovery. It is also vital that the Treasury urgently clarifies its plans for ship end-use relief and introduces proposals that are in line with the “Driving investment” plan.
Secondly, it is vital never to forget those who work in the industry. As the hon. Member for Falkirk said, 167 people lost their lives in the Piper Alpha disaster 30 years ago. The drive for business efficiency, which is very important for the industry’s future, must never compromise safety. It is also important to provide attractive career paths to encourage people into the industry. OPITO estimates that there is a need to recruit 40,000 people into the industry over the next 20 years, 10,000 of them into roles that currently do not exist. The “Workforce Dynamics” review has been taking place this year, and skills demand maps are being worked up. The Government should encourage and support that initiative, which will enable the industry to employ safe and well-trained people who will maximise its contribution to the UK economy.
Lastly, the industry must provide a bridge to a low-carbon future, which means setting out a clear and deliverable deployment pathway for carbon capture, utilisation and storage. The Government should consider carefully the conclusions of the cost challenge taskforce and work with the industry to develop regional clusters that will bring significant economic benefits to both the north-east and to Scotland.
Off the East Anglian coast, in my part of the world, an enormous development of offshore wind farms is taking place. The two industries—oil and gas and offshore wind—need to work together. There are encouraging signs that that is beginning to take place, as evidenced by the Oil & Gas Authority’s promotion of “Gas to Wire”, which involves the gas produced from gasfields being generated into electricity offshore, and then transmitted to shore via spare capacity in the subsea cables used for wind farms. The industry has a great future—it is important we do not squander it.
It is a pleasure to serve under your chairmanship, Mr Hollobone. As time is pressing, I will try to keep my contribution relatively brief. I want to make two points. First, I want to remind Members of the historical context as it applies to oil and gas and the north of Scotland.
When I was at Tain Royal Academy in the north of Scotland, many of the brightest and best in my class left to go south—perhaps a rather sad facet of life in the highlands. Despite the best efforts, people left and sought employment further south; indeed, my own father said to me, “Go south, young man. That’s where your future lies.” However, in the 1970s, as we all know, the music changed completely and utterly, and the oil came.
Where I come from, the arrival of the Nigg oil fabrication yard was a crucial turning point, seeing the building, first of all, of the two giant BP rigs. Suddenly there was really high-quality employment available locally. Welders were trained, and other skills were trained up. The point is that the depopulation trend was halted and actually reversed, so we cannot underestimate the social importance of Nigg’s contribution to the highland economy. I would not have married and brought up children locally if I had not been employed in the Nigg yard. The fact that my children were born locally and went to the local school is entirely down to the fact that that was where I was employed and had the income to live and to grow my family. In succeeding generations, we saw increasing evidence of a reversal of the population decline, as top-quality jobs supported local infrastructure and the local economy, so we should not forget how important that contribution was for the highland economy and how, structurally, it was very much to the good.
My second point brings us to today. Very good contributions have already been made, and the potential of offshore wind was mentioned. In my constituency, we have the Beatrice wind farm nearing completion—an example of technology that is cutting edge for the future, but that is in many ways based on technology that went before, in terms of fabrication and working in very inclement conditions in the North sea. As I see that technology approach completion, I take considerable pride in the fact that, not long from now, it will be making a major national contribution to our grid and will literally keep the lights on.
West of Shetland, as I am sure Members will also mention, we still have great potential for the future. Discoveries continue to be made. It is deep water with incredibly inclement conditions, but the technology has moved forward. There is much more subsea work, but there is the new oil.
My point is this: I wish I knew what was going to happen with Brexit. I do not know, and I am sure many Members will tease me and say, “Would a Lib Dem know anyway?” However, I am damn sure that the contribution that the oil industry has made in the past, makes today and can make in the future to my constituency, to the constituency of my right hon. Friend Mr Carmichael and to the remotest parts of Scotland is absolutely huge. So my final point is a plea to the Minister, Her Majesty’s Government and future Governments. I want them to remember the goose that laid the golden egg: the oil and gas industry. Please preserve it, enhance it and protect it for the generations to come.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate John Mc Nally on securing this important debate. As many colleagues know, before I was elected to this place, I spent 25 years working in the oil and gas industry, as many of my constituents still do. The industry is still a major employer in my constituency, as is the supply chain that supports it.
Almost half the UK’s oil and gas makes landfall by pipeline in my constituency. The Forties pipeline system, which has been mentioned, comes ashore just outside the coastal village of Cruden Bay and carries about 30% of the UK’s oil. St Fergus, a few miles up the coast, is the location of the St Fergus gas terminal, through which 25% of the UK’s gas is imported through three different pipelines. St Fergus is also the site of a new project currently being developed for carbon capture and storage—a technology that has already been mentioned.
A little further south is the slightly lesser known city of Aberdeen, which many know as the oil capital of Europe, and rightly so. Many people from my constituency and from all around the north-east of Scotland commute to Aberdeen, heading not only to the worksites and offices in and around Aberdeen, in the constituencies of my hon. Friends the Members for West Aberdeenshire and Kincardine (Andrew Bowie) and for Gordon (Colin Clark), who I am sure we will hear from, but offshore, to and from the world’s busiest commercial heliport at Dyce.
At the start of the downturn in 2014, more than 460,000 jobs in the UK depended on the oil and gas sector. Throughout 2015 and 2016, the number fell steadily, reaching 280,000 in 2017, with about 40% in Scotland and 60% in the rest of the UK. As we approach the end of 2018, the sector is seeing a cautious increase in employment for the first time since the start of the downturn. I say “cautious” because we have been in this situation before, going through the cycle of a high oil price followed by a crash in revenue and knee-jerk cost-cutting measures, followed by an equally impulsive return to wasteful spending when oil prices recover. I am encouraged by conversations I have had with oil companies in Aberdeen and with Oil & Gas UK and the Oil & Gas Authority, based in Aberdeen, because it feels as though lessons have been learned from the past. However, time will tell. Will the Minister take that into account in his response?
Even before the downturn in 2014, it was long realised that many of the wasteful and inefficient practices were not sustainable. The report by Sir Ian Wood in 2014 made a range of recommendations, including a joint Government and industry strategy for maximising economic recovery, or MER, and the creation of a new arm’s length body charged with the effective stewardship and regulation of UK continental shelf hydrocarbon recovery and with maximising collaboration across the industry. The new arm’s length body, the Oil & Gas Authority, working with industry, developed the MER UK strategy. Under the strategy, a range of taskforces have already delivered huge value: an additional 2.8 billion barrels of oil equivalent to be produced by 2050, in comparison with pre-Wood report baseline forecasts; average unit lifting costs reduced from £19 per barrel to £12 per barrel in 2017; and production efficiency increased from 65% in 2014 to 73% two years later. There is still a lot of upside there to be had.
Through Oil & Gas UK’s “Vision 2035”, it is estimated that the industry could generate £920 billion of revenue to the UK economy. By 2035, two thirds of the UK’s primary energy is predicted to still be produced from oil and gas, with 60% coming from our own UK resources. Renewable sources of energy will and must continue to grow over that time, but they will not be able to meet the full demand.
MER is a strategy that can co-exist with a low-carbon agenda. As efficiencies improve, fossil fuels are burned more cleanly, CO2 can be captured, stored and used to help enhance oil recovery, and the full transition away from oil and gas may actually be extended while still meeting climate change targets.
In summary, the future of the oil and gas industry is positive, but there needs to be flexibility and openness to change. We have seen support for this from the Government, which is very welcome. Transferable tax history was a great good news story from last year’s Budget and shows how important it is that Members of Parliament, especially those representing constituencies in the north-east of Scotland, speak up for the oil and gas industry. According to Oil & Gas UK, TTH is one of a range of policies that can help the industry realise up to £30 billion of future investment opportunities.
I will conclude by asking the Minister to provide, if possible, an update on the decision on the sector deal that has been mentioned. That would be most welcome.
I thank and congratulate John Mc Nally for securing this debate. As often happens during debates in Westminster Hall, although the issue might not directly concern Northern Ireland—our seas do not contain any oil or gas fields, at least at the moment—a number of my constituents work on oil rigs and travel over and return each week or fortnight, depending on their shifts. The debate is important for those constituents, but also because, although the gas and oil is found in the seas off Scotland, the United Kingdom of Great Britain and Northern Ireland benefits from it. The debate therefore affects every person, every family and every household in the entire United Kingdom of Great Britain and Northern Ireland, which is why it is so important.
We all know the importance of the gas and oil industry and how big it is, and the stats are clear: according to 2018 figures, 37,000 people are employed directly by the industry, and 127,000 are in the relevant supply chains. Most of those roles are in the offshore industry, which is also important to Northern Ireland. Some of the repairs done to the oil rigs and the apparatus that brings the oil and gas ashore take place at Harland and Wolff in Belfast, and it is important to note our input into the process. Statistics from 2017 indicated that 40,000 people were employed directly in the industry, and it is important to record the importance of the oil and gas sector to Northern Ireland. Oil and gas provided 72% of the UK’s total primary energy, and net imports of natural gas were around 45% of UK supply. The majority of oil—almost 80% of final consumption—is refined for use in transport. Those figures indicate how important the industry is to everyone in the United Kingdom of Great Britain and Northern Ireland.
The debate is also pertinent as we look towards the Budget. In 2016, the Chancellor of the Exchequer announced commendable reductions in taxation for North sea oil and gas fields to maximise the economic recovery of the North sea. The Budget also included commitments effectively to abolish petroleum revenue tax by permanently reducing the rate from 35% to 0%, to simplify the regime for investors and level the playing field between investment opportunities in older fields and infrastructure and new developments, and to reduce the supplementary charge from 20% to 10% to send a strong signal that the UK is open for business—we need the message to go out from this debate that we are open for business and working positively towards that. In recognition of the exceptionally challenging conditions that currently face the sector, those changes were introduced in the Finance Act 2016.
As has been said, although oil prices fluctuate between massive highs and lows, they are currently high. We want all regions to benefit from the oil and gas sector, so perhaps when he responds to the debate the Minister will indicate how we in Northern Ireland can continue to benefit from the oil and gas that we in the whole United Kingdom of Great Britain and Northern Ireland own, as individuals and as regions.
In the 2017 autumn Budget, the Government focused on decommissioning costs and announced that they would bring forward legislation to introduce a mechanism for transferable tax history. Tax relief on decommissioning costs is linked to tax payment history, so the new mechanism would allow tax history to be transferred along with the asset. The Government also announced that they would consult on reducing tax for decommission- ing costs incurred by the previous licence holder.
It is clear, however, that we must do more to address prices for consumers. The Minister may not be directly responsible, but my biggest plea to him is that, because energy prices fluctuate, people consuming oil and gas think they are saving money when they come to pay for it, but actually they are not. Back home in Northern Ireland, a number of constituents who changed between oil and gas six months ago have found themselves in a difficult place in the past few weeks. That is yet another squeeze on so many families who cannot afford it, and we must address that issue at the highest level.
I look to the Minister for advice on how we can and will secure the future of this industry, and on our ability to provide our own sustainable energy source for heating in this great nation of the United Kingdom of Great Britain and Northern Ireland.
It is a pleasure to serve under your chairmanship, Mr Hollobone, and I thank John Mc Nally for securing this important debate.
I welcome the stated aim of the Oil & Gas UK trade association, which is
“to strengthen the long-term health of the offshore oil and gas industry in the United Kingdom by working closely with companies across the sector, governments and all other stakeholders”.
In late 2014, Her Majesty’s Treasury developed a plan to reform the oil and gas fiscal regime. Over the last 50 years the oil and gas industry has contributed more than £350 billion to the UK Exchequer in production tax revenue alone—not an insignificant sum.
In 2017 the UK Government’s industrial strategy stated:
“We can also reduce costs for the UK as a whole by making intelligent use of our oil and gas assets and expertise. While the move towards clean growth is clear, oil and gas remains one of the most productive sectors of the UK economy, supporting 200,000 jobs directly and in the supply chain, and generating £24 billion in annual exports. The emerging shale gas industry offers the prospect of creating jobs, enhancing the competitiveness of downstream sectors and building up supply chains.”
It seems likely that shale gas will be extracted only south of the border, as the Scottish Government appear—I emphasise the word “appear”—to have placed a moratorium on that source of energy. I understand, however, that imported shale gas from the US is helpful when securing the future of the important Grangemouth plant.
I read with interest a recent post note in the journal of the all-party group for energy studies, which considered decarbonising or reducing the carbon content of UK gas supplies as an option for reducing emissions from heating, potentially substituting natural gas with hydrogen or biomethane. I am pleased that such welcome research is continuing in that field. Indeed, some businesses in my constituency are already utilising biomethane, although not necessarily to the exclusion of natural gas.
The opening in February 2017 of Aberdeen’s Oil & Gas Technology Centre clearly illustrates both the UK and Scottish Governments’ commitment to the future of the oil and gas sector. The £180 million investment aims to unlock the full potential of the UK North sea for future generations, which is vital given that future energy demand, in not just the UK but globally, is predicted to increase as global living standards and population levels rise.
Another important aspect for the future is securing for the UK work associated with the decommissioning of platforms and subsea facilities where a cost-benefit analysis proves that to be prudent. The Oil & Gas Authority has stated that such work may create a globally competitive market for the UK. The aim of the Department for Business, Energy and Industrial Strategy is to maximise the economic recovery in relation to the UK’s continental shelf, and it endeavours to secure maximum value for economically recoverable hydrocarbons.
Although the oil market is volatile—post 2014 the price of a barrel of Brent crude plummeted—it is clear that oil and gas have a positive future. That future may not be a mirror image of the past, but rather a new vision, as scientific research and innovation define and constantly refine it for our children and grandchildren. Oil and gas may not have the same exclusivity they once experienced, but in my view they will remain part of an inclusive package of energy options for some time to come.
Let me turn to a fuel from the past—coal. These days, open-cast or imported coal is used mostly as an integral part of the UK manufacturing sector, especially in the chemical process to make steel and cement. Many Members present, however, will recall when coal was king. Collieries in Ayr, Carrick and Cumnock, such as Littlemill, Killoch, Barony, Knockshinnoch and Beoch, to name but a few, fuelled the industrial revolution and kept the home fires burning. Sadly, there are no longer any deep mines in the United Kingdom, and coal is outlawed as a polluting fuel. With the recent alarming UN report on global warming, we must be aware that the same fate may befall oil and gas in the rush to embrace clean renewables and to prevent a catastrophic rise in global temperatures. In closing, therefore, I ask the Minister to comment briefly on that recent UN report on rising global temperatures.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend John Mc Nally on introducing what is clearly a timely debate, given that the Budget is forthcoming. As he rightly said, that Tory Budget cannot undermine the future of the oil and gas industry by once again using the North sea as a cash cow—terminology that was effectively recognised even by Bill Grant, who acknowledged the £350 billion that the UK Treasury has accrued over the lifetime of the oil industry. That money has simply been frittered away.
No, because I have limited time.
Where is the legacy from the UK Government? Where is the onshore infrastructure investment to support Aberdeen? It has been left to the Scottish National party Government to pick up the pieces, including the Aberdeen bypass and rail improvements. Where is the oil fund we have called for? Norway’s oil fund, started in 1990, has now topped $1 trillion in assets, and last year returned a profit of $131 billion. That alone gives lie to the myth that Scotland relies on the broad shoulders of the UK to deal with any price volatility. Careful stewardship would have taken care of that.
Let us look at the measures the UK Government have taken recently. In the spring 2016 Budget, they reduced the supplementary charge back to 10%. That was very welcome, but the predicted cost to the Treasury of £l billion was only a third of the inheritance tax giveaway to millionaires—such were their priorities. In the November 2017 Budget, the transferable tax history was a welcome measure, but given that it was predicted to bring an additional £70 million in revenue to the Treasury, that was not a difficult decision. The UK Government need to close out the process going forward. Over the same period, we have had the £1 billion carbon capture and storage betrayal. That project would have facilitated diversification from the wider oil and gas industry.
As others have recognised, the offshore oil industry has clearly been a great success story and has turned Aberdeen into a global city. Despite the predictions of when oil will run out, there is still a bright future. Just last month, Total announced a major gas discovery off Shetland, with an estimated 1 trillion cubic feet of gas that can be extracted. Rosebank, off the west of Shetland, is estimated to contain around 300 million barrels of oil. Equinor has called it
“one of the biggest undeveloped finds on the UK Continental Shelf.”
Overall, the North sea holds significant potential, with the equivalent of up to 20 billion barrels of oil remaining. That could sustain production for the next 20 years. I repeat that the UK Government cannot do another cash grab on the industry. Production statistics show that the sales value of oil and gas has gone up, and we know that production of oil and gas remains 23% higher than the level recorded in 2014-15. Even so, the UK Government must introduce measures to improve the exploration and attract fresh investment. They need to support the industry in its ambitions to increase the total economic value of the North sea.
With the publication of the Intergovernmental Panel on Climate Change report, we have to recognise the wider climate change issues and that the world is not on track to meet the temperature goals of the Paris agreement. The UK Government will have to take action in that regard, but that does not mean that we need to pull out of the North sea any time soon. Even if we did, we would then be reliant on imports.
Scotland’s energy strategy recognises that a strong domestic oil and gas industry can play a positive role in supporting the low carbon transition. What would help that transition, while we are still extracting oil and gas, is carbon capture and storage, greater investment in renewables, and allowing onshore wind developments in Scotland. The UK Government must also back away from the nuclear folly, and invest that money in offshore renewables, grid upgrades and directly in energy efficiency measures in homes.
We must recognise that the North sea industry is highly regulated, with some of the most advanced and comparatively least polluting production methods in the world. The industry is focused on reducing its carbon footprint and average emissions have fallen year on year since 2013. An oil and gas sector deal could help that process. Where is it? We really need one, and we need to hear about that from the Minister. The future of the oil and gas industry is bright, but it needs better leadership from the UK Government.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate John Mc Nally on securing this important and timely debate.
Hailing from the north-east of Scotland, having grown up surrounded by the oil and gas industry, having worked for an incredibly brief time in the sector, and now representing a constituency to which its continued success is vital, I know all too well the importance of the industry to not just the north-east of Scotland but the wider UK economy. Looking around the Chamber, contributing to debates about the industry’s future seems to be the preserve of Members who represent such constituencies as mine, which is unfortunate. Yes, the industry is based proudly in the north-east of Scotland, but it is a UK-wide industry that has contributed more than £330 billion to the British economy, supports more than 330,000 jobs across the UK and has a supply chain worth nearly £30 billion stretching into every nation, region and community across our islands—as demonstrated by Jim Shannon— both servicing domestic activities and exporting almost £12 billion of goods and services to other basins across the world.
The success of the North sea oil and gas industry is, of course, a story born in the north-east of Scotland—all good things are—but it is a whole-UK success. It depressed me beyond belief to hear, not that long ago, a colleague exclaim, when he heard about the recent discovery west of Shetland on the Glendronach field of around 1 trillion cubic feet of extractable gas—the largest discovery of conventional gas in the UK since 2008, with a productive life of 10 to 15 years—that that was remarkable. He did not know that any exploration was going on anymore. He thought it was all decommissioning and closing up shop for the North sea oil and gas industry.
Sadly, that is a common misconception. Of course decommissioning is taking place in the North sea at the moment, and the rate of decom activity will increase in the years ahead, but that is only one small part of the story. Anyone who takes a stroll around the Oil & Gas Technology Centre in Aberdeen or visits the Oil & Gas Innovation Centre in Bridge of Don, in the constituency of my hon. Friend Colin Clark, will be blown away by the great advances in technology being made. There is exciting, explorative work being done on the smaller fields in the North sea, led by enterprising smaller companies growing in the sector, such as ROVOP in my constituency. There is also the sustained commitment to the area of big companies, such as BP, which recently announced its two North sea developments, which are expected to produce 30,000 barrels gross of oil equivalent per day at peak production.
This is not an industry in decline; this is an industry with a positive future, but it remains in recovery. We are still emerging from the deepest and most sustained downturn in the sector’s history. Many jobs were lost, some companies disappeared completely and others had to radically change how they did business. However, through shared learning and experiences, through economising and doing much more with much less, and with the support of the Scottish Government and the UK Government, which has supported the sector to the tune of £2.3 billion, the industry is confident about the future.
However, as many Members have said, what the industry needs more than anything else is fiscal stability. The North sea is one of the most attractive mature basins in the world in which to invest today, because of the long-term and fiscally sensible approach taken by Her Majesty’s Treasury since 2014. It was evident a couple of months ago, however, when there was just a hint of a change in policy or an increase in tax, that that would upset the recovery and put off investment, which could have damaging consequences.
Let the call go out from the Chamber today, from every Member and from every party represented, that we wholeheartedly support our oil and gas industry, that we recognise the huge value that it brings to the entire United Kingdom and that now is not the time to consider changing the fiscal situation, increasing tax or putting off further investment. Let us work with the sector and both of Scotland’s Governments to ensure a positive, long-term and productive future for this world-leading industry.
It is a pleasure to see you in the Chair, Mr Hollobone. I congratulate John Mc Nally on securing the debate, only a few months after my own debate on the industry.
Oil and gas is a massive part of the UK economy and an enormous part of my constituency of Gordon, with 233 service companies operating from Gordon alone. I routinely claim that I have the largest oil and gas footprint, but other Members may try to argue the point. Thanks to this Government, and the transferable tax history that will come into effect in November, billions of pounds of investment will be released into the industry. I am disappointed that voices from the Opposition Benches have said that transferable tax history is the wrong thing to do.
The industry continues to develop efficiencies in decommissioning, supported by Her Majesty’s Treasury. It contributes £1 billion a year to HM Treasury—somewhere short of the estimated £11 billion that the Scottish National party, during the independence referendum, claimed would be contributed. Fifty-nine UK constituencies have a major oil and gas footprint and, as my hon. Friend Andrew Bowie said, the same Members seem to turn up for such debates. Many other areas should realise what a significant industry oil and gas is. It is truly national and international, and it is not a dying industry. It has shrunk from 4.5 million barrels a day to 1.5 million. It is still of great importance, and it has tremendous longevity.
Why is that industry so important to the north-east? The north-east has 8% of the population of Scotland, but 18% of its economy. Even during the downturn, unemployment only got to 1.2%, because the people of the north-east believe in getting out and working, even if it is in another part of the world. The north-east is the engine room of the Scottish economy. The cost of living is higher and house prices were driven up by the boom years, but we have the highest council tax bills. It is the most expensive place to live in Scotland, because the Scottish Government chose to put council tax bills up. Employers feel penalised by higher business rates, to the extent that buildings are being knocked down in the north-east of Scotland. I recently drove past the Baker Hughes GE building in the constituency neighbouring mine, and I am told it will have to be knocked down because the business rates are so punitive.
The UK Government have delivered, with transferable tax history, a massive incentive for oil and gas estimated at £30 billion. The fiscal policy that is making the UK continental shelf the place to produce oil and gas is that of the UK Government, and there is low corporation tax for the whole sector, UK-wide, because of the UK Government. In the north-east there is the highest concentration of technicians and engineers in the UK. We have an incredibly strong and robust economy. The industry puts safety first, absolutely, and I pay tribute to Step Change in Safety, which has brought together producers, the service sector and offshore workers in a collaborative effort.
As for any downturn in activity, the Oil and Gas Authority estimates that £400 billion is still to come from the North sea through collaborative action. Chrysaor, a private equity-backed organisation, invested £3.8 billion to buy Shell assets. Wood Group bought Amec, to be a FTSE 100 company. General Electric and Baker Hughes have merged their oil and gas, which is going to float on the New York stock exchange. There is not a lack of activity because of Brexit—far from it. The size and type of mergers and acquisitions deals last year signalled confidence in the UK continental shelf. The sector needs fiscal stability and I agree with other Members that that is a message we are sending, loud and clear, to HM Treasury. Businesses are not seeking to exit the UK continental shelf, which is still seen as a strategically important basin. SNP claims of a Brexit downturn simply do not ring true. They should look at the money and where it is being invested. In the past couple of days, I and colleagues visited Wood Group, an £11 billion organisation only 6% of whose business is in the North sea, because it is a dynamic company investing further afield. As to oil and gas being something of the past, let us remember that it is our throwaway culture, not the hydrocarbons, polluting the sea.
Oil and gas have been pivotal in transforming the carbon intensity of the power sector, as has been mentioned. Let us get to the nub of things. Higher taxes in Scotland will encourage companies to register and operate from outwith Scotland, damaging its tax base. Punitive business rates in the north-east are costing jobs. Having visited 90 north-east firms related to oil and gas, I have not heard anyone speak about Brexit. Every single one has mentioned business rates. Both Scotland’s Governments need to get their shoulder to the wheel and drive the industry forward.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank my hon. Friend John Mc Nally for obtaining the debate. The timing is good, as other Members have mentioned, given that we are in the run-up to the Budget.
I want to talk first about Brexit, which several colleagues from throughout the House have mentioned. The economic report put out by Oil & Gas UK makes the point that 7% of the offshore workforce are from EU countries and refers to the fact that before Bulgaria joined the EU it took four days for goods to come from there to Aberdeen to be used in the oil and gas industry, but that they were routinely held up for an additional week because of customs controls. If we do not have a customs union deal that allows for those goods to come through the border without being held up for a week, it will cause problems for our supply chain companies and for the wider industry. A fifth of people living in Aberdeen were not born in the UK. We have done immensely well at attracting immigration, which has been good for our industry. It is a huge concern that that might be less easy after Brexit, particularly if the immigration plans mentioned at the Conservative party conference go through and we end up in a situation where very few immigrants are allowed to come to the UK. That would cause a real problem for my city and for the oil and gas industry as a whole.
Andrew Bowie set out particularly clearly the requirement for a stable taxation regime for the oil and gas industry. One of the points most often raised with me is that if there is a story in the Financial Times about the possibility of the Treasury increasing, or massively changing, tax in relation to oil and gas, that story alone causes a problem for the industry—it makes a dent. We need a clear commitment from the Chancellor in the Budget to stability and predictability in the taxation regime.
We were both at the same meeting when the Exchequer Secretary to the Treasury came up. I think it was the myth being peddled that did the damage—he clarified it from the Treasury. Does the hon. Lady agree?
I do not disagree at all. I understood that that was a private meeting, so I did not want to talk about what that Minister said during it, but it would be good if the Chancellor could make a clear statement in the Budget. I agree that it was the myth, rather than any statement by the Treasury, that caused the problem. I am sorry; I thought I had been clear on that point.
There are other asks for the Budget. I have not heard anyone on the Opposition Benches being negative about transferable tax history. I apologise to Colin Clark, but I was calling for that in March 2016, which was more than a year before he was elected. We have consistently called for changes in the taxation regime for late-life assets. I have made the case for that on many occasions, and I am pleased that it may be coming through—we hope it will. It is a good example of the industry working together. Things have happened a bit more slowly than I would have liked, but the industry worked well with Government, and the conversation went well about trying to make the tax regime work from the point of view of both the Government and the industry.
The importance of transferable tax history is because of what happens when assets at the end of their life are transferred to another company. Something that belongs to a big company with many different onshore installations will probably not be its No. 1 priority, but if it belongs to a new entrant and is all that it is concentrating on, it will be a priority. That is why transferable tax history is so important for maximising economic recovery.
The point about end-use relief is a good one. My hon. Friend Peter Aldous both mentioned it. Whatever happens, it is vital that the Government should speak to the industry about the best way to make the change work, if there is to be a change, and that as much notice as possible should be given of changes to end-use relief. We nearly had a big disaster in July, with the pulling of end-use relief. It is clear that that cannot happen. The industry and the Government need to continue to speak to each other to make it work better.
The final Budget matter I want to speak about is the sector deal. If the Chancellor could announce progress on that it would be phenomenal—excellent. I would be really pleased. If not, it would be good to know when a commitment is likely. My impression from speaking to those in the industry who worked on the deal is that they feel they worked together incredibly well on it. They feel that the proposal that has been put forward to the Government reflects the industry’s needs and requirements, so it would be positive if the Government brought it forward sooner rather than later.
I want to talk about “Vision 2035” and focus on the subject of the debate—the future of the oil and gas industry. I will not talk much about the industry downstream—I apologise to anyone involved in it—because I represent Aberdeen and because my hon. Friend the Member for Falkirk, who represents Grangemouth, and the hon. Member for Waveney have spoken about that important aspect of the industry. “Vision 2035” is the Oil & Gas Authority’s vision for securing the supply chain and the oil and gas industry in the north-east of Scotland to ensure that, in 2035, it still makes money for the Treasury, supports our local economy and provides jobs in the local area. That will happen only if the Government provide support now, including the stable fiscal regime that we spoke about earlier and support for the supply chain. They must talk positively about the industry, consider its asks, and make changes if need be.
The North sea field is a late-life asset—it is incredibly mature. It was one of the first fields in the world to reach that level of maturity, so our engineers who go out there are doing incredibly innovative things. They are working on enhanced oil recovery, bringing in tech in the supply chain, and using longer tiebacks so that small pools can be exploited. It is groundbreaking, world-leading stuff; this is the first time some of it has been done. If we get the technology right, we will be able to export it around the world even when there is no oil and gas in the North sea, but we must ensure that those companies stay anchored in the north-east of Scotland and the wider area.
The hon. Member for Gordon mentioned how many oil and gas companies he has in his constituency. I am sure he has more than I do, but I have the services that support those companies—two local authorities, the hospital and all the other vital things that the industry requires. As the hon. Member for West Aberdeenshire and Kincardine said, it is hon. Members from the north-east of Scotland and those who represent constituencies with oil and gas industries who come to speak in debates like this. I have taken part in many such debates in my time as a parliamentarian, and it is interesting that we and Conservative Members are largely asking for the same things: transferable tax history, the sector deal and support for the Oil & Gas Technology Centre, which is doing absolutely phenomenal work. Previously, we were asking for the Aberdeen city deal. We are calling for the same things because we all go out there and speak to people who work in the oil and gas industry, and the companies involved in it. We ask them what they need, and they say pretty consistently that the most important things are stability and predictability.
Support for exploration is also hugely important just now. Anything that can be done to encourage exploration and help big projects be signed off will be incredibly important. More big projects have been signed off in the past year than in the previous couple of years, which is hugely welcome news, but we need them to keep coming through the pipeline so that we can secure the future economic benefit.
Hon. Members in the Chamber largely speak with one voice and have the same asks for the oil and gas industry, but I sometimes feel like we do not make as much headway with Ministers in the Department for Business, Energy and Industrial Strategy and the Treasury as we could. I hope that the Minister hears everything we are asking for. We are all calling for the same things, because we are reflecting the voice of the industry. I would very much appreciate it if he would ask the Chancellor to make a clear commitment to a stable fiscal regime in the Budget.
We have had an excellent debate, with informed contributions all round, and I congratulate John Mc Nally on securing it. As hon. Members have said, this is a very important debate because the Budget is so close and because there are wider issues relating to the role that the oil and gas industry will play in a substantially decarbonised future. There are a number of assumptions about how oil and gas will be used in the future. As hon. Members have said, the debate is taking place literally the day after the IPCC published its report on global warming and its effects, and discussion about that report is just beginning. That must be the context for our discussions about the future of oil and gas.
As hon. Members, including Alan Brown, have said, although the oil and gas industry in the North sea has recovered substantially from the miserable predictions and prognostications of 2014-15—it is estimated that production will be up 5% over the coming year, exploration is picking up, and various other indicators show that the industry is in a better shape than it has been in for quite a while—we must nevertheless be extremely wary of assuming that happy days are here again, and that the industry can be the cash cow for the Budget that it has been perceived to be in years gone by. The industry’s long-term future is of a different order from anything that has happened in the past, so we should strike those thoughts from our minds. Although it will make a good return for the Exchequer in years to come, it should not be seen as a cash cow in the future.
I say that because we face a period in which the lessons of the downturn, up to the recent upturn, must be put in place to ensure the long-term future, prosperity and health of the industry as a whole. There has been a recent efficiency trend: development drilling has fallen substantially, but the costs of drilling have reduced substantially, and the average unit operating costs have halved from about $30 a barrel in 2014 to $15 a barrel now. Those tremendous efficiency gains will stand the sector in good stead for the challenges that lie ahead. We can use them to exploit small pools, which will be one of the staples of exploitation and development in the future.
It is unlikely that any new Brent fields will be discovered. In that context, we need to understand, as hon. Members said, that the North sea is not just a mature field but a very mature field: 43 billion barrels have been extracted, and there are perhaps about 10 billion to 20 billion barrels left to extract. Its future therefore needs to be in the best possible hands.
I commend the creation and operation of the Oil & Gas Authority and—hon. Members have mentioned it—“Vision 2035”, which the OGA is putting forward for the future of the industry. In that vision, it does not just talk about continuing business as usual, but looks at the much longer-term future, even beyond the point at which the very last reserves have been produced. One of the OGA’s missions is to create a sustainable energy service and technology centre long after the final economic reserves have been produced. We need to look not just at business as usual, but at a range of other things that the industry can start to develop, and is developing, as the North sea field becomes even more mature. Of course, one of the things it can do is develop decommissioning skills on a worldwide basis, so that we can ensure not just that the decommissioning in the North sea is done in the best possible way, but that those skills can be exported across the world.
We also need to contemplate a future of carbon capture and storage in the North sea and the use of decommissioning as a possible way forward to a position in which the North sea is not only producing oil and gas, but storing the carbon that comes from those processes and creating an industry so to do.
We need to be mindful of the fact that, as I mentioned at the beginning of my contribution, the IPCC report on global warming and the future of the world has just come out. It is pertinent to our discussions today, because it underpins what kind of long-term future there is for oil and gas. I consider that the long-term future involves looking at how oil and gas can be used in a range of ways that are not entirely familiar to us today but will be essential for the sinews of British industry. Oil and gas will have a substantial role to play, for a very long time, in those areas of activity. I am thinking of chemical products for which oil is irreplaceable and of alternative vectors such as hydrogen, if the CCS implications of the formation of hydrogen can be managed. All those things imply that there is a substantial future for oil and gas from the North sea.
We know—I am not talking off the top of my head here, I am referring to BEIS’s updated energy and emissions projections—that the demand for oil and gas in the UK economy, is likely to go down substantially. Indeed, we can see that from looking at the 1990 figures, when there was a primary demand for oil of 87 megatonnes of oil equivalent and for natural gas of 97 megatonnes of oil equivalent. In the year when “Vision 2035” comes to fruition, the demand is projected to be something like 70 megatonnes of oil equivalent for oil and only 28 megatonnes of oil equivalent for gas.
There will be a substantial decline in demand, but that means, it seems to me, that the North sea can provide a secure UK supply for the declining demand over that period. It is surely best, for energy security purposes and many other reasons, to ensure that our supplies for the future come from the UK. That is the future that I want to see for the North sea oil and gas industry, by means of efficiency and by means of the innovative techniques mentioned this morning—the ways of managing a mature field so that it works in the best way possible in the national interest and in the interests of having very different future for oil and gas from what we have seen hitherto. We must ensure that it works for the UK and that it has a secure future. I hope that the Government will be able to join in that vision and provide support where necessary to underpin that innovation and those new methods of doing things, so that the oil and gas industry can be in the best shape possible to face that very different future.
It is a great pleasure to serve under your chairmanship, Mr Hollobone. Indeed, I congratulate you on the discipline that you have brought to these proceedings, although curtailing the shadow Minister, Dr Whitehead, to 10 minutes is a clear infringement of his human rights and of the normal way he behaves. In fact, some would say that it is a crime against humanity that his erudition, which is never known to be brief, was curtailed. I look forward to hearing him, as I did today, on many other occasions.
I genuinely congratulate John Mc Nally on not just securing the debate, but the thoughtful way in which he made his contribution. That sums up today’s debate. There is general consensus, and I hope hon. Members do not think I am saying this out of complacency, but the fact is that, as Kirsty Blackman said, most things to do with oil and gas are done on the basis of consensus. I wish there was the same attitude towards other debates in which I have the pleasure of speaking.
When I became Energy Minister, one of my first visits, in August of last year, was to Aberdeen—several hon. Members were with me that day—where I met industry leaders and visited Robert Gordon University to see the dynamic advanced response training simulator. That is relevant today because of the comments from the hon. Member for Falkirk about Piper Alpha. I saw a lot of the virtual reality equipment there, and I felt that I was actually on a rig. Everything was about health and safety and preventing the kind of incidents that happened at Piper Alpha. It is a tribute to the area that academia, industry and Government work together. I was most impressed by what I saw.
I understand the hon. Gentleman’s constituency interest because of the Grangemouth industrial site, which I visited as an A-level economics student in 1975—many hon. Members here were not born then, and some of their parents were probably only just born. However, I do remember the industrial site; I remember the scale of it. I think of it when I hear figures such as 8% of Scotland’s manufacturing base and 4% of GDP; I will never forget that visit, so I do understand the issue, and so do the Government.
In a very thoughtful speech, the shadow Minister expressed how important oil and gas are for the UK economy. I am not paid to promote the shadow Minister; I just cannot help but compliment him at various times. He talked about the mutual vision for the future. In fact, I kept looking up at him and seeing him reading from a document with blue print, which I thought was a Conservative party document, as the colour appeared to be the same, but which I then realised was, of course, “Vision 2035”, the authors of which at least had a good idea of which colour it should be in. But it does show no complacency; the serious point is that it does show a vision for the future, from what many people, out of ignorance, believe is a clapped-out former industry—they think that because they remember the boom days. One has only to visit it to realise that that is far from the case.
The upstream industry alone supports more than 250,000 jobs. Then there is the supply chain, supported by the sector, in key clusters all over the country. Jim Shannon, who has been at every single Westminster Hall debate I have ever spoken in, contributed extremely well. He mentioned the importance for Northern Ireland of the supply chain. I am very pleased to say that it is a United Kingdom supply chain and is not restricted to the specific area that many hon. Members have spoken about today.
The hon. Member for Aberdeen North mentioned Brexit, which came up in a few of the contributions. I do not take it lightly, I assure you, Mr Hollobone—none of us does. Many of the good things that have happened in the past couple of years have happened in a time when things have been written off because of Brexit, but I want to say to the hon. Lady and others that the Government fully understand the need for frictionless trade, on which the oil and gas industry has long depended, whether in the movement of goods, services or people. I assure her and other interested Members that my Department has made that matter very clear to other parts of Government—it is our job to do that, and we have. We are fully aware that the sector has paid more than £330 billion in revenue to the Treasury, which is phenomenal. I know of no other single sector that has been as beneficial to the Government over the past half-century.
The end-use facility mentioned by my hon. Friend Peter Aldous and by the hon. Member for Falkirk relates to customs procedures. I assure Members that Her Majesty’s Revenue and Customs continues to discuss with the sector the possibility of future mitigations being available, and which ones. The issue is complex, and I cannot claim to understand the full detail.
Since 2014, it is fair to say that the industry has had a torrid time as a result of the collapse in the price of oil. From that point of view, I am pleased that the price has gone up, but what I realised on my visit to Aberdeen was that, despite the decimation of the industry and its contraction—a statement of fact about the number of employees and so on, as was explained to me—good things resulted as well, such as some new technologies.
I remain optimistic for the future. I feel that the tripartite approach between the OGA, industry and Government, which hon. Members mentioned, is particularly important. I am pleased that, since its establishment, an extra 3.7 billion barrels have been forecast, and production has risen by 16% since 2014 figures, with a reduction in the production costs. The issue was forced by what happened to the price, but those cost reductions will remain and be improved on.
Optimism is returning to the North sea. My hon. Friend Colin Clark mentioned the amount of mergers and acquisition activity over the past couple of years—about $8 billion-worth last year—with some significant investment involving new players to the basin. Divestment by some of the supermajors does not mean that they are losing interest; it is part of the natural order of a mature basin, with newer, smaller companies coming in. Shell is investing in new frontier areas, and BP’s development is moving well. There is huge potential.
To determine the industry’s potential, we obviously need responsibly regulated exploration, and the Government support that. There are a lot of challenges, and we understand that. The Government all realise that exploring and drilling for the upper reaches of the remaining resources is more difficult than doing so for the original resources—that is a statement of fact—and the measures that we have put in place since 2014 will contribute significantly towards that.
The focus of the debate is on the future. My hon. Friend Bill Grant asked me to comment on the IPCC report, and our clean growth strategy is clear. We are focused on meeting our Paris agreement climate change targets, and we have asked the Committee on Climate Change for advice on our targets in the light of the new evidence.
Whatever happens, oil and gas will be part of the energy mix for decades to come. We know that we have to reduce demand to meet our climate targets, but this industry has a lot going for it. Gas can play an important role, and so can oil. My Department’s main interest will be to continue the security of the energy supply, which means that we have not seen the end of hydrocarbons.
I am running out of time, and I will do my best to talk briefly about the sector deals mentioned by several hon. Members. One of my responsibilities is the implementation of sector deals. We have had a lot of discussion with the industry, and I am confident that these will proceed. As my hon. Friend David Duguid pointed out, this is an ambitious sector deal to support the industry’s “Vision 2035”. We have not yet reached the final stage of the process, we will do so quite soon. It is a question of assessing the value for money of the amount of contribution expected in the deal from Government, which takes more time than people think.
This is a complex industry with a great future. My hon. Friend the Member for Banff and Buchan said that it is an industry with a lot going on, and we know that the Government, the industry and the Members who have spoken today will be an important part of its future.
On a point of order, Mr Hollobone. I may have misled the Chamber inadvertently by quoting a statistic erroneously. On the estimates for natural gas usage in 2035, the figure should be 59 megatonnes of oil equivalent and not 29, as I believe I said in my speech.
I thank the Minister for his kind and generous comments. All Members have been supportive of the debate. Many points were made about how vital this industry is to the economy in the transition to renewable and sustainable energy in the future. We are all agreed that we need a stable regime in place so that we are all aware of what will happen for the future of the industry. The points made about short-termism were excellent. We seem to have been practising short-termism for decade after decade, and that has to stop.
I particularly liked the emphasis on safety in the North sea and on how important it is to retain skilled, clever and well-trained workers. I was not actually around at the time of the Piper Alpha disaster—I was running businesses at the time the news started to come out. I was terrified, as everyone else was, and I read the papers and listened to the news to find out whose friend or relative had been killed and who had been injured. The long-term consequences of that disaster, such as post-traumatic stress, are still going on today. That should never be allowed to happen as long as we are in charge of safety, so the emphasis on safety is appreciated.
The need for a collaborative approach has been well versed. We are all singing from the same hymn sheet. We might want to get there in different ways, but I think we are all trying to get to exactly the same place. I am very appreciative of that.
Good and interesting observations were made during the debate, which showed a good understanding of local and global issues and of the importance of the sector, in particular to our constituents and the businesses in our constituencies, including all the support industries. The basic thing that most people like in their life is stability and an understanding of where the future is going. I hope the Chancellor and the Government have listened to the points made today. We need certainty of policy and of investment—everyone present agrees that that is what needs to happen. I am extremely happy with the debate.
Question put and agreed to.
That this House
has considered the future of the oil and gas industry.