British National Oil Corporation

HC Deb 13 March 1985 vol 75 cc305-13 3.38 pm

The Minister of State, Department of Energy (Mr. Alick Buchanan-Smith)

With permission, Mr. Speaker, I wish to make a statement about the British National Oil Corporation. I hope that it is for the convenience of the House that I make this statement now, in view of the debate arranged for tomorrow.

In the summer of last year, the Government reviewed the institutional arrangements and operations of BNOC. We then concluded that the balance of advantage lay in retaining the corporation in its present form, given the contribution that it was able to make to deriving full benefit from our oil resources.

Since then, the environment in which BNOC has to operate has undergone important changes. BNOC has traditionally operated by purchasing and selling oil under term contracts at prices fixed for a period of months ahead. Its purchases under participation contracts have been in this form which, as I explained to the Select Committee on Energy, has enabled BNOC to make a contribution to stability of markets in the short term.

There has, however, now been a major change in the structure of the oil market away from term contracts and towards spot and similar short-term transactions. This trend is unlikely to be reversed in the near future. In these circumstances, BNOC could avoid the risk of losses only by linking its prices for participation oil closely and continuously to movements in the spot market. Such a system would mean that BNOC could no longer contribute to stability in the market. The Government have concluded that this shifts the balance of advantage decisively against the retention of BNOC in its present form. I see no advantage in retaining a public sector body to operate on that basis.

The change in market structure that I have described has led me to the conclusion that BNOC should no longer purchase oil by exercising its options under participation agreements. Dealing in participation oil has been the dominant part of BNOC's activities.

The Government consider it essential to retain powers that would enhance security of supply if that proved to be necessary. We will therefore retain the participation agreements themselves so that we can activate them to have access to these oil supplies should the need arise. We will also retain the arrangements under which we have the power to receive oil from continental shelf licensees as royalty in kind. Those two factors together mean that security of supply will continue to be safeguarded.

I see a need in present circumstances to retain one other function of BNOC—the management, as agent for the Government, of the Government oil pipeline system. This system is important for both defence and civil purposes.

The retention of those three functions—custody of the participation agreements, disposal of oil received as royalty in kind and management of the Government pipeline system—requires the establishment of a small Government oil and pipelines agency as a successor body to BNOC. The abolition of BNOC and the establishment of the agency for the purposes that I have described will require legislation, and I intend to introduce this in the present Session of Parliament.

Finally, I wish to express the Government's thanks for the valuable work carried out by the chairman, board and staff of BNOC.

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

The Minister's statement is as disgraceful as it is incredible. As recently as 18 December he told the House of the important, vital and crucial role that BNOC could play and was playing in securing and controlling the nation's oil supplies. He now announces its abolition.

The notion that the Department of Energy can handle participation agreements and the complex problems of buying and selling oil is incredible. How many people with experience and professionalism in oil trading has the Department of Energy compared with Mr. Goskirk and the BNOC team? The statement is a disgraceful kick in the teeth for some of the most professional oil traders in the country?

The only lame excuse for abolishing BNOC is that it could no longer contribute to the Government's propping up of the oil price policy, but that was never its intention or original purpose. Deliberate intervention by the Government in the past few months has created the corporation's problems.

Did not the Minister himself recently carry out a review of BNOC's role and totally reaffirm its vital part in the management of our oil affairs? We then heard that the Prime Minister's private policy unit had been further reviewing the corporation's role. Is it not absolutely clear that, on a major aspect of energy policy, the Department of Energy has now been taken over by the Prime Minister's policy unit? Given the very personal and honourable involvement of the Minister of State in supporting BNOC, should he not resign as a result of this decision?

The Minister's announcement is a final act of vandalism in the breaking up and dismantling of a highly successful and profitable corporation set up under the Oil and Gas (Enterprise) Act. BNOC belonged to this nation. It was the only corporation with 100 per cent. loyalty to the nation. We shall oppose this legislation tooth and nail. We commit ourselves to re-establishing BNOC, which will safeguard and develop our precious national oil resources.

Mr. Buchanan-Smith

I only wish that the hon. Gentleman had read the statement, or at least listened to me. There is no question of the Department of Energy taking over the participation agreement functions. We intend setting up the oil and pipelines agency to exercise the powers under the agreements.

I make it absolutely clear to the hon. Gentleman that this decision is my decision and that of my right hon. Friend the Secretary of State with the agreement of colleagues. I can assure the hon. Gentleman that the policy unit to which he referred advises my right hon. Friend the Prime Minister. I have received no advice or representations from that body.

The hon. Gentleman cannot sit like Canute and completely ignore market conditions. He cannot defend a body and its functions when that body is no longer appropriate.

Mr. John Hannam (Exeter)

Will my right hon. Friend accept our thanks for making this statement today in advance of the debate that is due to take place tomorrow? Will he accept that those of us who have supported BNOC's role as a protective mechanism to ensure security of supply and as a stabilising influence on the oil market recognise that the position has changed dramatically during the past few months and that, therefore, we welcome my right hon. Friend's decision?

Mr. Buchanan-Smith

I am grateful to my hon. Friend. He is absolutely correct. Two things are important. First, BNOC's ability to help in the short term is now severely limited. Secondly, we are retaining certain functions, especially the participation agreement and royalty in kind, which are important in relation to security of supply.

Mr. Gordon Wilson (Dundee, East)

Does the Minister not realise that this is yet another chapter in the story of bungling ineptitude in relation to the development of offshore oil which could have job implications for Scotland if the world oil price falls? Does the right hon. Gentleman not realise that the real answer is to have an adequate depletion policy with production cuts in open association with OPEC to sustain the world oil price? Without that, the Government will find themselves floundering completely.

Mr. Buchanan-Smith

Before the hon. Gentleman pursues that line, he should study not only how BNOC operates but the evidence to the Select Committee, and its recommendations.

Mr. David Howell (Guildford)

Will my right hon. Friend accept that, contrary to the primitive views that we have heard from the Opposition, his decision is wholly welcome? The decision will be warmly welcomed by all those who are interested in lower prices for the consumer and a stable oil market. Will my right hon. Friend concede that the existence of a quasi-official oil price for North sea oil has created great difficulties for the Government and that the apparent size of intervention to hold up the OPEC price has not helped stabilise the oil market? Will my right hon. Friend accept that, by his decision and, I hope, future policy, United Kingdom industry will help the world oil price to settle down and so bring benefits to sterling and oil consumers?

Mr. Buchanan-Smith

My right hon. Friend is correct. If BNOC had now moved to a market-related type system, as recommended in some quarters, that could have destabilised the oil market. In those circumstances, I think that there is no purpose in maintaining a particular state function in this area. The market has changed, and I believe that it is right and realistic to recognise that. I am grateful for my right hon. Friend's remarks.

Mr. Ted Leadbitter (Hartlepool)

I think that the Minister might not take too much notice of the right hon. Member for Guildford (Mr. Howell), who was a well-known failure as Secretary of State for Energy. Apparently, from what I have hard, the truth is foreign to the Minister. [HON. MEMBERS: "Question."] When the Select Committee on Energy asked about the restructuring proposals for BNOC, why was it advised by the Minister's officials to write to the Prime Minister? When the Select Committee did so, the reply was that the matter being considered was confidential. The Select Committee has been bypassed by this statement. Will the Minister now try, as a simple exercise, to associate himself, for once, with the truth?

Mr. Buchanan-Smith

There is no question of bypassing the Select Committee or anyone else. If the hon. Gentleman had only listened to the questions and the answers given in the Select Committee, he would know that there was a question about the role of a particular body. If he had listened to my answer to the Select Committee or read its report he would know that I was asked whether BNOC's role was being reviewed. I said that that was continuing in relation to the circumstances. The decision has been taken because of the changed circumstances.

Mr. Leadbitter

It was last week.

Mr. Buchanan-Smith

Therefore, the hon. Gentleman himself should perhaps be paying more attention to the truth than trying to preach to others.

Mr. Ian Lloyd (Havant)

I thank my right hon. Friend for announcing these proposals so that we may consider them carefully, and have a rather more intelligent debate tomorrow than we might otherwise have been able to do.

Mr. Leadbitter

It is not true.

Mr. Dick Douglas (Dunfermline West)

It is nonsense.

Mr. Speaker

Order.

Mr. Lloyd

Secondly, although the Select Committee has plainly had no chance to consider the proposals, and since it may be argued that they follow our recommendations fairly closely, I hope that they will be received with some enthusiasm by the Committee. Do the Government expect the new organisation to be self-sustaining, and, if so, which section of its operations will be revenue-producing?

Mr. Buchanan-Smith

Its main purpose is to work as an agency for the Government for some of BNOC's current functions. The Government already pay fees for some of BNOC's functions. The details of the financing are still to be worked out; that will be done during the preparation of legislation. I am grateful for what my hon. Friend said about the Select Committee's role. Although, in the outline of these proposals, we have not necessarily followed exactly what the Select Committee recommended, the deliberations of my hon. Friend and the other members of the Select Committee over the past six months helped us to reach a decision on this matter.

Dr. Jeremy Bray (Motherwell, South)

Can the Minister of State offer any evidence that dealing on the spot market necessarily has less influence on stabilising prices than dealing with long-term contracts?

Mr. Buchanan-Smith

Yes, I think so. I believe that the terms for acquiring participation oil have a strong potential for destablising the market. Moving to a market-related price system means frequent price changes related to the spot market. It also has the effect of accentuating market trends. Those involved in sales realise the potential for instability.

Mr. Michael Morris (Northampton, South)

Is my right hon. Friend aware how welcome it will be to the country to find a Department of State that reacts to changed market circumstances and at the same time safeguards the nations's security of supply?

Mr. Buchanan-Smith

I am grateful to my hon. Friend.

Mr. Kevin Barron (Rother Valley)

May I remind the Minister that the Select Committee on Energy has never considered the proposals contained in his statement? For the Chairman to stand in the Chamber and say that it has is completely wrong. The Committee has never discussed the proposal. I will discuss it at the next meeting. The pressure that has been on the Committee for the past six months and which lies behind the statement has come from the oil lobby and not, to my knowledge, from members of the Select Committee. What has been said today is a further attack on the national interest such as has gone on for many years with this Government. I am afraid that the national interest will lose as a result of what is happening to BNOC.

Mr. Buchanan-Smith

The hon. Gentleman has to answer for himself in regard to what the Select Committee said. I said that the deliberations—

Mr. Barron

It is there.

Mr. Speaker

Order.

Mr. Buchanan-Smith

I said that the Select Committee's deliberations were a help in reaching the decisions which we have announced today. (Interruption.)

Mr. Speaker

Order.

Mr. Buchanan-Smith

I said a few moments ago that in some respects we had not followed the Select Committee's recommendations. The national interest was uppermost in the discussion that we had before reaching this decision. We have retained the functions of BNOC that we believe are unnecessary and important to the national interest and discarded those which we believe are unnecessary in a changed market.

Mr. Tony Speller (Devon, North)

Does my right hon. Friend accept that the purpose of Government is to seek lower prices for fuel for industry, commerce and private households, and that anything which works towards that, as this move may do, is to be welcomed? I congratulate the Government on the decision.

Mr. Buchanan-Smith

I must emphasise that the role of BNOC in fixing a price is related to the short term, to avoid destabilising the market. I do not believe that BNOC either has, or has attempted to exercise, the power to influence prices in the long term. In those circumstances, and given the fact that it no longer has the same number of contracts as previously because of the changed market, it is right to take this decision.

Mr. Ian Wrigglesworth (Stockton, South)

Do not the events of recent weeks demonstrate the enormous importance of the impact which oil prices and the rate of oil depletion have on the value of the pound, interest rates and our economy? In view of today's statement and the confusion that the Minister's statement on oil pricing to the Select Committee caused, will he make it clear to the House how in future the Government intend to protect the national interest in relation to oil prices and oil depletion?

Mr. Buchanan-Smith

I would urge the hon. Gentleman, as I have urged others, to read my evidence and that of other people to the Select Committee. BNOC has no power to influence the prices of oil in the long term. There has been power in the short term so long as market conditions make it possible for BNOC to operate term contracts. The hon. Gentleman must face up to change, not only in the United Kingdom oil market, but in world oil markets, which have shifted decisively and on a longer-term basis to spot sales, not contract sales. In the light of that, the decision was taken.

Mr. Patrick McNair-Wilson (New Forest)

Has my right hon. Friend had discussions with representatives of the other major oil producers to reassure them that his action today does not pave the way for a major price war, with all that that could mean for sterling? Will he confirm that it is in our national interest to keep an orderly oil market?

Mr. Buchanan-Smith

Obviously, there have not been consultations about this decision with OPEC, to which I think my hon. Friend refers. The decision will be well understood. Contrary to the views expressed by Opposition Members, the decision accepts the realities of the position.

Mr. Dennis Skinner (Bolsover)

Is the Minister aware that, when a Labour Government set up BNOC, they did only half the job? One reason why the Minister can do what he has today announced he will do through ensuing legislation is that they gave BNOC only the ability to buy and hold oil, not to take over the companies. Is it not a fact that this is a prelude to allowing the Yanks to get their hands on British oil to a greater extent than at present, especially as she at No. 10 will be in control of it for a while? Is it not a scandal that Ministers at the Department of Energy are letting the Prime Minister dominate them to the extent that she will control part of their Department because she does not trust them?

Mr. Buchanan-Smith

Characteristically, the hon. Gentleman has not recognised the position. I hope that he noted what I said about participation oil and royalty in kind. In that sense we are certainly looking after the national interest. During the past 20 years the success of the development of the North sea has been a prime example of all the best aspects of the private enterprise system. If we had not had that, the country would not now benefit to the degree that it does.

Mr. Rob Hayward (Kingswood)

I welcome the statement, but will my right hon. Friend accept that the Select Committee's report, which was published earlier this week, identified some contradictions, and that it was therefore right for the Government to take some action in whichever direction because of those contradictions which had been identified?

Mr. Buchanan-Smith

It would have been most dangerous if there had been any speculation or indecision about what might happen in future. The matter is sensitive for many market areas and the economy generally. Therefore, I welcome what my hon. Friend has said.

Mr. Dick Douglas (Dunfermline, West)

Will the Minister of State, who is fundamentally an honest man, tell us what change there has been in the world market between 6 March, when he gave evidence to the Select Committee, and today? On 6 March, he gave no sign that he would abolish BNOC. Is it not true that there is instability in the world oil market partly because of Government greed? Britain and Norway together produce more than the Saudis, and we are doing that because the Government are hooked on getting revenue. That is the real reason for the present difficulties.

Mr. Buchanan-Smith

If the hon. Gentleman reads my evidence to the Select Committee, he will find that I made it clear then, as I did in December, that the functions of BNOC are reviewed by the Government in the light of changing circumstances. Of course, there was no major change in the past week. The hon. Gentleman shows the most extraordinary ignorance of the circumstances of the market if he believes that one should trail one's coat for some days before a decision is taken. Surprisingly, he also shows ignorance about Norwegian and United Kingdom production in the North sea if he tries to liken production offshore in the deep and hostile waters of the North sea to onshore production in the middle east. The position is completely different, and he should recognise that.

Mr. David Heathcoat-Amory (Wells)

My right hon. Friend's statement will be warmly welcomed by British industry. Does he agree that there may be a short-term weakening in the domestic price of oil, which would be good news for British industry and employment, although it is not welcomed by the Opposition?

Mr. Buchanan-Smith

Obviously, the market will have to choose the way in which it reacts, but, given the firmness of the decision, I hope that the market will settle quickly.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

The Minister said that he had yet to work out the financial implications of the changes that he has announced. Can he give us an idea of when he will be able to do that? Does he agree that the need to retain participation agreements to secure oil supplies means that we should ensure the supply of products, not just the crude oil, because that must be given to the major companies anyway? In a time of crisis, we need the products, not the supplies.

Mr. Buchanan-Smith

I must ask the hon. Gentleman to await an announcement on the details of the legislation, although all these and other details will be discussed with the chairman of BNOC. As to security of supply, we already have in place arrangements with oil companies, especially those which refine oil and which, therefore, have considerable control over products, not just crude oil.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Is my right hon. Friend aware that his decision will be greeted with relief and even delight in the west midlands and in all areas that depend upon heavy manufacturing industry? Is he further aware that it has always been difficult to explain why taxpayers' money was being used to rig oil prices so as to make oil more expensive than it would otherwise have been?

Mr. Buchanan-Smith

In fairness, there is no question of taxpayers' money being used to rig oil prices. As I acknowledge today and have acknowledged on many previous occasions, when BNOC had many term contracts for oil it was able to operate a stabilising influence on the market. It has done so successfully, but we must recognise that the market has changed. In that sense, I am grateful for what my hon. Friend said.

Mr. Bruce Millan (Glasgow, Govan)

The Minister talked about accepting the realities of the position. Is he saying that the Government have no depletion policy at all and that they are not interested in stabilising oil prices, which is very much in the national interest? Is he abandoning responsibility for all those factors?

Mr. Buchanan-Smith

I am certainly not abandoning responsibility. As to depletion, the right hon. Gentleman should remind himself of the Labour Government's policy and the assurances that they gave on that before he makes such a statement.

Mr. Gerald Malone (Aberdeen, South)

My right hon. Friend will be aware that during the two Select Committee inquiries into this matter there was some scepticism about the ability of BNOC to control short-term fluctuations in prices. There will be a recognition throughout the House that he has been exceptionally perceptive in following the market trend. Can he say whether Opposition Members are as perceptive if they are thinking of controlling depletion in the North sea? Would that not go completely against market trends and drive away investment?

Mr. Buchanan-Smith

Yes. With heavy front-end investment in the North sea, if one followed the sort of policy advocated by the right hon. Member for Glasgow, Gowan (Mr. Millan) it would hinder development and would be to the detriment of the United Kingdom economy, and especially that of Scotland.

Mr. Allan Rogers (Rhondda)

Since some of the Minister's hon. Friends have said constantly that there will be a reduction in oil prices as a result of the decision, will the Minister confirm today that the decision will not affect oil or petrol prices? Secondly, how many jobs will be lost as a result of the decision?

Mr. Buchanan-Smith

BNOC currently employs about 140 staff. We shall need staff to run the new agency, and numbers and details will be discussed with the chairman of BNOC. There is no way in which I can predict what will happen to prices, any more than I was able to predict in the past.

Mr. Andrew Faulds (Warley, East)

Is this not yet another disgraceful example of the Government's ludicrous commitment to their ideological theories, regardless of the national interest or of international oil stability?

Mr. Buchanan-Smith

The hon. Gentleman is completely wrong. Had he listened to my statement, he would have heard that we are retaining some functions that will be operated on an agency basis on the Government's behalf, where we believe those functions to be necessary in the national interest. We are discarding unnecessary functions, and I would have hoped that the hon. Gentleman would have welcomed that as an efficient Government move.

Mr. Gavin Strang (Edinburgh, East)

But is not this announcement another small element in the process that will lead historians to look back and wonder how the British people could so tragically have squandered this major natural resource? In view of the Minister's answer to my hon. Friend the Member for Rhondda (Mr. Rogers), and as his statement made no reference to staff, will he at least give an assurance that all jobs and present conditions of employment and salaries will be maintained?

Mr. Buchanan-Smith

I paid a tribute to the staff, who, as I hope the hon. Gentleman recognised, have done a good job. Their future is something that will be properly discussed with the chairman and with those representing the staff.

Mr. Rowlands

Will the Minister clarify a couple of his replies? First, will he confirm that in January and February this year, the Government and his Department encouraged BNOC to maintain those price levels, and that the Government were wholly committed to that policy? It was not BNOC's policy, but the Government's. Secondly, until legislation is passed, BNOC will be operating and will have to make decisions about prices in March and April or until the legislation goes through. What will BNOC do in determining those contracts, which involve large amounts of oil, before the legislation—if it gets through the House—is passed?

Mr. Buchanan-Smith

On the first question, BNOC has fixed prices in full consultation with the Government during recent months, for reasons which I explained clearly and unequivocally to the Select Committee. Decisions have not yet been taken, nor have recommendations been made, on future market prices. The hon. Gentleman will have to await them.

Mr. Leadbitter

On a point of order, Mr. Speaker. During his statement and subsequently, the Minister said that the conclusions that have now been drawn arise from—

Mr. Speaker

Order. The hon. Gentleman is a very distinguished member of the Chairmen's Panel. He should address his point of order to me, not to the Minister.

Mr. Leadbitter

I was trying, Mr. Speaker. The Minister said today that the conclusions that he has drawn and that have now been made available to the House arise from some observations on the report of a Select Committee of which I am a long-serving and, if I may say so, distinguished member. Since we are having a debate tomorrow, is it proper and in order that that observation by the Minister should be considered by the House? I find nothing in the report which suggests that the Select Committee helped the Minister, in even the minutest way, to arrive at the conclusion that he did.

Mr. Speaker

If the hon. Gentleman is not chairing a Committee tomorrow, the best course for him to adopt would be to seek to take part in the debate, when he will doubtless be able to make that point.

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