Oil and Gas Industry

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The Chairman: Order. I intend to start the debate at ten past 11. I shall call as many hon. Members as I can before then, to ask brief questions and give brief answers.

Mr. Nigel Griffiths (Edinburgh, South): I join my right hon. Friend in congratulating the Daily Record. I pay tribute to its reporters and photographers, who have bravely exposed drug dealers in every community in Scotland. I ask him to ensure that the work of the Scottish Parliament in providing closed circuit television security cameras is reinforced. In Edinburgh last year, that resulted in 700 additional arrests for all sorts of crimes. In the nine multi-storey blocks in my constituency, where we now have 24-hour CCTV surveillance, the drug dealers have been driven out and those properties have become more desirable residences.

Mr. McCartney: I have paid as much credit as I want to pay to the Daily Record in that respect. We all have our role to play, including the media. Frankly, my personal experiences with the media have sometimes been negative, but the fact that they have decided to change their approach is important. They are now targeting the people they should be targeting—not the victims of drug abuse, but those who have caused the disaster. I would be untrue to myself and my family if I said anything else. There is a history to this, and I am not prepared to let that lie. I congratulate the Daily Record on what it is doing, and others should be positive and join in the fight.

The Government are investing huge sums in CCTV as part of their partnership agenda to tackle crime. However, we must ensure that we do not simply drive drug dealers from my hon. Friend's area to someone else's. Indeed, the purpose of the 10-year strategy is not to drive them from one area to another, but to stop them altogether.

Several hon. Members rose—

The Chairman: Order. We now move on to the main debate—the future of the oil and gas industry in Scotland. Again, I have no power to impose a time limit on speeches, so I can only appeal to hon. Members to make brief contributions.

Oil and Gas Industry

11.10 am

The Secretary of State for Scotland (Mrs. Helen Liddell): I beg to move that the Committee do now adjourn. You have presided over this Grand Committee for many years, Mr. Maxton, and as you come to the end of your service in this House I am sure that few experiences have been more riveting than listening to today's statement by my right hon. Friend the Minister of State, Cabinet Office on drugs and drug abuse, which has focused the minds of members of all political parties on the evil of drugs in our society.

I welcome this opportunity to discuss another aspect of Scottish life—the future of the oil and gas industry in Scotland. The debate is timely, as the industry is emerging from the problems it has experienced in the past two years. There can be no doubt about its importance to the United Kingdom economy, and, indeed, to Scotland. In the past 10 years, it has accounted for some 18 per cent. of industrial investment in the UK. Since the mid-1960s, it has invested some £190 billion in exploration and development of the UK continental shelf. Indeed, in the past year I have joined BP in celebrating the 25th anniversary of the Forties field, which, when it first came on stream, was expected to last no more than a decade. The fact that it has prospered for so long is a tribute to the skills and creativity associated with extracting oil and gas from one of the most hostile fields in the world.

The Scottish oil and gas industry has come a long way in developing the people and skills that are important to its continuation. Of the 270,000 people whom it currently employs directly and indirectly in the UK, some 116,000—7 per cent. of the Scottish work force—are in Scotland. That underlines the oil and gas sector's major contribution to the United Kingdom and the Scottish economy.

However, it is fair to say that in recent years the industry has had to grapple with significant change, leading to the recognition that, if its future is to be secured, the challenges that lie ahead are as daunting as those of the past. After 30 years of activity, the North sea's oil and gas remain a valuable resource for Scotland and the UK. Now, the challenge is to take the industry global. The UK industry has great expertise in identifying and developing reserves in some of the world's most inhospitable environments. Such expertise can provide engineering solutions to the economically viable and environmentally sensitive recovery of previously unattractive fields. With partnership, those challenges can become opportunities.

Some two years ago, when the drop in the price of oil to $10 a barrel coincided with a change in demand for heavy fabrication work, the industry and the Government faced a dilemma: whether to go ahead as before, lurching from problem to problem, or to take a radical look at how to secure the future of both the industry and the jobs associated with it. The result was a unique partnership between this Government and the industry in all its guises. The oil and gas industry task force, which was set up in January 1999, had a very specific remit: to develop strategies for reducing the cost base of UK oil and gas operations against the background of then historically low oil prices and the mature nature of the North sea field, to examine and prioritise initiatives for improving the competitiveness of the UK industry, and to recommend specific actions to be taken by the industry or by the Government. The aim was to establish common areas where significant improvements were still needed to enable the industry to compete in an intensely competitive world market, and to map a way forward that was both visionary and realistic. That aim led to the initiatives for improving competitiveness.

The task force established the following vision for 2010:

    ``The UK oil and gas industry and Government working in partnership to deliver quicker, smarter and sustainable energy solutions for the new century. A vital UK Continental Shelf is maintained as the UK is universally recognised as a world centre for the global business.''

The task force took the unusual decision to disband itself in favour of a new organisation, Pilot, which was charged with putting words into action. It is an example of co-operation between Government, operators, contractors and suppliers, and the trade unions. That is a model for Government and industry working in partnership.

Pilot has a real job on its hands, because its targets are specific and focused. It aims to improve the competitiveness of the UK oil and gas industry and to encourage and provoke continuing exploration and development on the UK continental shelf. The task force defined the following targets: to sustain investment in UK continental shelf activity at £3 billion a year; to achieve a 50 per cent. increase in oil and gas exports by 2005; to get £1 billion additional value from new businesses; to support up to 100,000 extra jobs; and to produce the equivalent of 3 million barrels of oil a day. That will give the UK prolonged self-sufficiency in oil and gas.

If we are to have any chance of meeting those targets, investment is needed. The recovery in oil prices has helped, but the impetus provided by Pilot has led to renewed commitment by operators, who openly acknowledge that. Investment spending in 2000 hit the £3 billion target, which was similar to the 1999 level. The survey of investment undertaken by the United Kingdom Offshore Operators Association in September 2000 suggested that expenditure in 2001 could be nearer £4 billion. However, our analysis must be hard-headed. Some projects included in that figure are not fully confirmed, and oil companies must be frank with us about the investment that is going ahead. Oil companies' plans for the future are based on lower oil prices than current ones, so the projections are challenging.

More than 40 per cent. of the investment is for drilling in existing fields, satellite developments and new fields. Most new field development will be sub-sea, using existing infrastructure. Significant new platforms will be few and far between. Although the problems of the fabrication industry require special attention, that should be focused on preserving existing jobs and activity.

Operators' intentions suggest spending £12.5 billion in 2001-2004, £3.5 billion of which—roughly 28 per cent.—has already been sanctioned. Companies are making positive assumptions about new technology, lower costs and oil prices. That is sensible and welcome, but, as my right hon. Friend the Chancellor of the Exchequer said in the Budget statement, we want investment intentions to become projects on the ground, not a wish list.

Mr. Malcolm Bruce (Gordon): What might the Government do, in partnership, to stimulate exploration? There has been a severe drop during the past two or three years, and only a very small recovery.

Mrs. Liddell: The hon. Gentleman makes a good point, to which I will return. One advantage of Pilot is that we have had an opportunity to talk frankly with the industry without using the megaphone diplomacy of the past. We have discovered what the industry needs to encourage exploration. There are, of course, additional macro-economic issues. OPEC and other oil producers have a role to play in creating and maintaining demand for oil and gas. I shall consider the specific issues in a moment.

Last September, BP and Shell announced major investment plans. BP announced a £650 million United Kingdom continental shelf investment programme for 2000, and forecast continuing rising capital investment over the next three years. On the same day, Shell indicated that capital expenditure for developments operated by Shell UK Exploration and Production in the North sea in 2001 would increase by 50 per cent. compared with its original plans, which is encouraging news. The projected figure of £820 million represents an increase of about 20 per cent. on actual expenditure in 2000.

The hon. Member for Gordon (Mr. Bruce) asked about further exploration. Shell has indicated that it plans to double its spend on seismic exploration, with several new technologies being deployed, which is a further indication of confidence. Last Thursday, TotalfinaElf confirmed its £145 million Otter oilfield development. The company has awarded contracts that will immediately benefit Aberdeen, Dunfermline and Evanton on the Cromarty firth, and there has been a raft of other similar announcements.

As the hon. Gentleman pointed out, the Government are partners in that and we are helping to encourage investment. Compared with other countries, we continue to have a relatively generous oil taxation regime, and we want to ensure that it continues to balance the need to raise a fair share of revenue against the simultaneous need to promote long-term investment in the North sea. Receiving first-hand information from the oil and gas industry task force and Pilot has helped our understanding of the industry, and it has also meant that the industry has been able to receive direct messages from the Government about our intentions.

 
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Prepared 28 March 2001