Oil and Gas Industry

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Mr. Malcolm Bruce (Gordon): Why do oil companies seem to value the advice of Conservative Members when one considers how much damage the Conservative Government did to the industry over so many years?

Mr. Salmond: The hon. Gentleman anticipates that the election is upon us. I am sure that there is general sympathy with his reasonable points. I am also sure that neither he nor I has ever been a consultant in the oil industry in any shape or form.

The Chancellor again opened up the possibility of changing taxation in this year's Budget. I hope to hear from the Secretary of State that any taxation changes will support the objectives of the Pilot initiative, which reinforced the trend that the Secretary of State took forward during her time at the Department of Trade and Industry in setting key objectives. The taxation regime should take account of the objectives that have been set for the industry.

What progress has been made with respect to undeveloped discoveries and the identification of 350 potential discoveries, and the satellite accelerator and marginal fields? The Nova technology fund has been mentioned, and we heard that the Secretary of State had been about to present a cheque. How many other cheques have been presented, if any, by the Secretary of State or her successor? What are the tax implications of the industry technology facilitator and the cluster idea of small fields combining into larger fields?

In terms of sustaining development and viewing the industry as one of the future, and not of the past—or even of the present only—is the Chancellor reviewing the taxation regime so that he can grab yet more billions from the North sea, or is he reviewing it to make changes that would reinforce the objectives that have been set by Pilot?

Miss Begg: Will the hon. Gentleman give way?

Mr. Salmond: I have already given way. I will make my other points quickly. If the hon. Lady still wishes to intervene, she might do so later.

I wish to ask the Secretary of State about progress in relocating the oil directorate jobs to Aberdeen. In the early 1990s, I was a member of the Energy Select Committee that produced a report that was instrumental in persuading the then Minister for Energy to transfer an initial tranche of jobs to Aberdeen. Sixty jobs were transferred at that time. The Library told me that the establishment in Aberdeen now comprises 72.3 posts, so progress has been made. There are still 101 jobs in London, some of which are in sectors that the Secretary of State identified as critical for the future development, particularly at the national level, of the directorate's work. What is the possibility of a further transfer of positions to Aberdeen?

Mrs. Liddell: The issue of moving jobs to Aberdeen is one that the Government are interested in promoting. There are 217 people in the division that is centred in Aberdeen, but only 81 of them are located there. However, relocation is continuing. We must allow people an opportunity to make arrangements. I understand that a press release was issued yesterday about the HSE's involvement in Aberdeen as a centre of the UK oil industry. The hon. Gentleman made a good point. The deputy director is already in Aberdeen, and the director is about to relocate. The programme is rolling out over time.

Mr. Salmond: I am grateful for that answer. I remember evidence that came from the former Department of Energy eight years ago; it seemed to equate the prospect of moving to Aberdeen with going to the north pole. We heard evidence from a civil servant who suggested that it would be awkward because the commute back to London at the weekend would be somewhat difficult. That was not the idea behind the move.

The Secretary of State will appreciate that the significance of the relocation is not the number of jobs moved but the message to the industry as to where the oil and gas centre is located and the knock-on effect on private sector jobs, as we have seen in oil provinces around the world. I hope that that progress will be accelerated, particularly in the areas that the Secretary of State identified as important for the future development of oil and gas.

My last point concerns sustaining the huge endowment effect of oil and gas revenues into the far future, not just the foreseeable future. I was interested by the remark that revenue of approximately £170 billion has flowed into the Treasury during the last 20 years. That is about £32,000 for every man, woman and child in Scotland. Such are the revenues that have flowed into the Treasury in that time.

In the early 1980s, when oil revenues brought in substantial funds, a debate was initiated on how to ring-fence such revenues to ensure that the benefit impacted on the country as a whole. Many suggestions were made, none of which was put into practice. Although Labour Members will say that oil revenues have been used wisely in the past three or four years, most of us would argue that the advantage and opportunity afforded have been allowed to dissipate through the 1980s and 1990s.

We should consider the working model that has been developed in Norway in the past five years. In the mid-1990s, the Norwegian Government decided to set up a specific oil investment fund—one might call it a fund for future generations—anticipating a time when the Norwegian sector runs dry and generates no more revenues. It is worth spending a couple of minutes considering the fund's progress since 1995. It is now worth 370 billion kroner, or £30 billion. That is only a proportion of the revenues invested, but it is equivalent to 33 per cent. of Norwegian gross domestic product.

The key outcomes of the Norwegian experience are staggering. The income earned from the fund in 1999 was equivalent to a real annual return of more than 11 per cent. The average return in the three years to 1999 was 9 per cent. Importantly, the total value of the fund will overtake that of remaining reserves by 2006, and has already overtaken Government revenue from oil itself. In just a very few years, the Norwegian experience has shown that setting aside a proportion of oil revenues in a fund for, say, future generations, can within 10 or 15 years yield greater revenues and earnings than those from oil itself.

Miss Begg: I am very interested in what the hon. Gentleman is saying. By his own admission, projections for the Scottish budget and oil revenues are attributable to the Chancellor's good stewardship of the UK economy. In response to my earlier intervention, he said that the figures that I cited are two years old and that things have improved since then. Indeed, they have improved enormously, so why risk changing that winning formula?

Mr. Salmond: The hon. Lady must forgive me if I do not attribute as much of the improvement in public finances to the Chancellor's wizardry as she does. She will expect me to wonder whether it was the wisest thing in the world for the Chancellor to apply Tory limits on public expenditure in his first two years in office, given the resulting damage to the health service that is visible in her constituency and mine.

I was trying to answer the hon. Lady's point about how to secure the benefit of this vast natural resource not just for 10 or 20 years but for all time, and the Norwegian experience shows a way forward. The idea is not new—it was considered in the 1980s—but the example of Norway shows that it can work extremely well. A fund for future generations is an idea whose time has come. It is a way to secure the benefits not for a single generation but for all generations. The Government would be wise to understand that they will not be easily forgiven if they yet again accumulate in the London Treasury money generated by the upswing in oil prices and revenues, without looking at the long-term benefits for Scotland and its people.

Several hon. Members rose—

The Chairman: Order. I am grateful to the hon. Members who have spoken so far, including Front Benchers, for keeping their speeches to a reasonable length. The Minister of State has kindly agreed to limit his winding-up speech to 10 minutes, so I shall call him at 10 minutes to 1. Several hon. Members wish to speak. If they keep their remarks brief, I can fit them all in.

12.15 pm

Mr. David Stewart (Inverness, East, Nairn and Lochaber): I am grateful for the opportunity to make a short contribution to the debate, focusing on the downstream activities in oil and gas in the fabrication industry. That is important in my constituency, which is home to what was one of the largest fabrication companies in the UK: Barmac. Last year was one of the leanest on record for downstream construction work, and there were many job losses at Barmac. That has been a tragedy for our skilled work force, and has also affected the local economy in an area that has a gross domestic product well below the European average.

With representatives of the trade union movement and with local authorities, I have been involved in a campaign for Barmac that is quite different from that of the early 1990s. The focus of the earlier campaign was to try to ensure that the work on the UK continental shelf went to UK yards rather than to yards in Spain and Italy that were, allegedly, highly subsidised. As there is now little work—although it fluctuates—in the whole UK sector, the present campaign concentrates on convincing oil and gas companies to explore, to drill and to produce plans to help the fabrication sector. The picture is not all doom and gloom. It was announced this week that 1,000 jobs have been created on the Caspian sea by Tulloch, whose UK headquarters is in my constituency. That will employ many former Barmac workers.

There has been debate today about the amount of oil available in the North sea and on the UK continental shelf. Many seasoned observers have argued that between 4 billion and 4.5 billion barrels remain to be developed in UK waters. After further development, another 1.6 billion barrels could be produced from existing fields. Potential UK production is large, but the oil is in small fields under deep water. That is geologically challenging, and it could be very expensive to extract the oil.

Small fields and large companies do not always go together. Some people say that the large companies' strategy is to go for big fields, such as those in the gulf of Mexico. However, I have met representatives of the large oil companies—BP, Texaco, Shell, and Conoco—during the past few years, and I am convinced of their commitment to the UK continental shelf.

There have been structural problems with the way in which the North sea is operated. UK block leasing terms do not help to accelerate development, because ownership periods can vary between 30 and 40 years. Some earlier licences will expire in 2010. The Minister might wish to encourage companies to develop existing and new fields, and motivate them to explore and drill. The Government's oil and gas task force, and now Pilot, have worked on that problem and developed the LIFT—licence information for trading—policy to enable companies to swap licences.

I am, nevertheless, worried about the fallow fields that companies have decided not to develop, after having been granted licences for them. On 21 December 1999, I tabled a written question to my hon. Friend the Secretary of State for Scotland, who was then the Minister for Energy and Competitiveness in Europe. She replied that

    ``108 significant oil and gas discoveries''—[Official Report, 21 December 1999; Vol. 341, c. 460w.]

had had a licence for more than 10 years, but not been developed. The LIFT initiative will help to develop the potential of the UK continental shelf.

We need to encourage the establishment of small oil companies, which have fewer overheads and more manoeuvrability. In the USA, clusters of such companies, which benefit from lower corporation tax, operate groups of small fields.

The UK does not have a national champion or flagship operator comparable to Statoil in Norway or Elf and Total—which have now merged—in France. Despite the fact that those companies operate in a free market, they are highly supportive of Norwegian and French industry and technology. In the United States, every oil company is a United States champion.

Investment decisions by oil companies are extremely complicated and depend on many factors, including the price of oil, accessibility, the geology of fields, demand, levels of reserves, exploration costs and supply. The key is confidence. No one can force large companies to invest in the UK sector. The Chancellor has kept his side of the bargain by keeping the fiscal regime unchanged. Implementing the roll-over of capital gains relief was a positive development that helped companies dramatically. It is time for oil companies to use or lose their licences. We must encourage smaller companies to enter the market, and we should develop a UK champion.

Let us not forget about the future of gas. Gas-fired power stations play an important role in the market. The Minister may wish to comment on the opening up of the stricter consents policy in respect of such installations. There are positive factors for the future. The Minister's recent announcement of the licensing of the white zone—the deep water between the mainland and the Faroes—was extremely important. The estimates for those prospects are between 10 million and 30 million barrels.

 
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Prepared 28 March 2001