Oil and Gas Industry — [Mr Philip Hollobone in the Chair]

Part of the debate – in Westminster Hall at 12:34 pm on 9 October 2018.

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Photo of Alan Whitehead Alan Whitehead Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), Shadow Minister (Business, Energy and Industrial Strategy) 12:34, 9 October 2018

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.