HC Deb 06 March 1968 vol 760 cc458-62

4.21 p.m.

The Minister of Power (Mr. Richard Marsh)

With permission, Mr. Speaker, I will make a statement.

Members will be aware that I gave an undertaking to keep the House informed of the progress of negotiations on the price of North Sea gas. I am pleased to be able to report that the first of these contracts has been agreed by the Gas Council. The contract is with the Phillips group and covers its share of the Hewett field. The Phillips group comprises Phillips Petroleum, Petrofina, Agip and a group of British interests. Deliveries under the contract will start in October, 1969—earlier if this is possible. It is expected that after a build-up period of about six years the field will be capable of producing some 600 million cubic feet a day, of which the Phillips group have rather more than half.

The basic price for gas supplied at 60 per cent. load factor is 2.87d. per therm. For valley gas—that is to say, extra gas supplied mainly in the summer—the price will be 2.025d. The contract is for 25 years and, as is appropriated in a contract of this length, there is provision for either side to apply for a review of the price if, at any time, it is suffering hardship as a result of changed economic circumstances, with the right to appeal to independent arbitration. In addition, there is provision for limited automatic adjustment of the price by reference to indices reflecting changes in factors affecting production costs with built-in safeguards for the gas industry's marketing position.

I have from the start made clear to both sides the Government's policy objectives in the exploration and development of the North Sea, with particular regard to the impact of the price negotiations. These objectives, as the House is aware, are directed to securing the maximum benefits for the national economy and the balance of payments, consistent with a fair reward to the producers and encouragement to further exploration. I am particularly pleased that the Gas Council and the Phillips group have been able to reach an agreement which is in line with these objectives.

I have always believed that, given good will and a genuine desire to reach agreement, a fair settlement could be negotiated direct between the parties, and I think that the House will agree that the result reflects credit on the good sense of all those concerned on both sides in these negotiations. I hope that the other groups which have gas to offer will also be able to reach agreement with the Gas Council before long, so that the work of harnessing this great new source of energy for the benefit of the nation can can continue unchecked.

Mr. Maudling

We on this side are glad to know that the log jam that has persisted so long is showing some signs of shifting. As this is a very detailed statement, we shall want to examine it in the light of the criteria the Minister has put forward. Will he add to the criteria he has enunciated the criterion of the importance of protecting the interests of our oil companies in their overseas activities, which add so very much to the balance of payments? Anything done in this country to hamper their overseas activities would, I am sure, be a very bad thing.

Mr. Marsh

I would agree with the right hon. Gentleman that the contributions made by the British oil companies in their overseas activities are a very real benefit to the economy. I would stress, however, that this is a freely negotiated commercial agreement and, as such, can have no adverse repercussions.

Mr. Peyton

I might say that, at first sight, the agreement does not seem to be too bad at all, but could the Minister say something about the minimum guaranteed take by the Gas Council from the companies? I would also be grateful if he could add anything on the subject of further agreements to follow with other companies.

Mr. Marsh

As to the take, the contract is for 300 million cubic feet a day after the build-up period, at 60 per cent. load factor. The field should produce at 600 million cubic feet a day. In other negotiations, which will continue, this will be a factor. It will presumably be borne in mind in the course of negotiations, although the fields are very different.

Mr. Eadie

Whilst one will want to examine in detail his statement on the price, would not my right hon. Friend agree that we are talking today about a coal equivalent of about 8 million tons? While we may welcome any settlement, I hope that there will be no exaggeration of the potential here, and that we shall not find ourselves in the position that North Sea gas is oversold.

Mr. Marsh

I have tried desperately, and with a singular lack of success, on more than one occasion in this House, to stress that under the White Paper policy North Sea gas and nuclear power will together amount to a consumption considerably less than coal consumption.

Mr. Ogden

My right hon. Friend will appreciate that there is nothing personal in what I say, but will he agree that the Government are providing a guaranteed market for North Sea Gas, they are providing a guaranteed market for residual oil and they are providing a guaranteed market for nuclear energy? The only market that is not guaranteed by the Government firmly and clearly is that for our own basic indigenous coal industry.

Mr. Marsh

I should have been warned by my hon. Friend's opening remarks. The Government are not guaranteeing markets. The Gas Council have reached a commercial agreement which I should have thought was seen to be clearly to the advantage of the nation as a whole. The coal industry can sell all the coal it can, and has had considerable assistance from the House and the Government to enable it to do so.

Mr. Lubbock

Is the Minister aware that this field is a great deal closer to the shore and shallower than the Leman field of Shell Esso, or, even more so, than the Indefatigable field of Amoco—the Gas Council? Does this mean that he would expect to pay a higher price for gas from those fields?

Secondly, as this contract amounts to an equivalent of about 8 million tons of coal a year, does the right hon. Gentleman intend to amend the figure in the White Paper of about 17 million tons coal equivalent of natural gas expected to be used in 1970?

Finally, does the Minister envisage that valley gas at 2.025d. per therm would be used by the Central Electricity Generating Board and, if so, in what quantities?

Mr. Marsh

There are no plans at the moment to burn natural gas under C.E.G.B. boilers. As the hon. Gentleman knows, there is one small boiler at Hams Hall, but that is purely experimental. This use is not proposed at the moment.

As for the figures, the gas take under this contract will build-up to about 300 million cubic feet a day. We hope that other contracts will provide additional gas in line with the White Paper figures.

It is true that this field is the nearest to the shore, but there are many other factors to be considered, such as the nature of the field, and the characteristics prevailing around it. Though the distance from the shore is a factor, there are many other factors as well.

Mr. McGuire

Can my right hon. Friend tell me what effect devaluation had either in reaching a price or increasing the price? Can he tell us whether the 12½ per cent. royalty on the wellhead value of gas will remain constant, or be increased': If an agreement is reached to get more than the 60 per cent. take that my right hon. Friend indicated, is that figure on a firm basis or will it fluctuate upwards, as I hope?

Mr. Marsh

The royalty at the moment is fixed on the wellhead value. The effect of devaluation varies from company to company. It had an effect in causing a temporary break in the negotiations, because there was some difference of opinion between the two sides as to exactly what part devaluation played. But there is no figure one could give, as it varies with every company.

Mr. Dodds-Parker

While welcoming very much the beginning of the commercial use of this gas, will the right hon. Gentleman ensure that the monopoly position of the Gas Council is not used to delay in any way further exploration and development?

Mr. Marsh

I do not see how the Gas Council would use its monopoly position to delay exploration. I should have thought it is in the interests of the companies and the Gas Council to find more gas. This is to everyone's advantage.

Mr. Whitaker

Has the Minister had equality of information and post-costing from private companies in these negotiations? If so, what is the rate of profit the private companies will make out of the deal?

Mr. Marsh

One cannot post-cost at this stage an operation which has not been completed. There is no comparison between this type of contract and, say, an aircraft contract. The Government have had access to all the information they needed at this stage and are satisfied with it. I would ask the hon. Member to think very carefully before he calls for a cost-plus price in this field because he might find it an extraordinarily expensive business.

Mr. Lane

Will the Minister expand slightly on his statement by telling the House what undertakings have been given by Phillips and their partners in arriving at this agreement about plans for further exploration in the North Sea?

Mr. Marsh

This is not a part of the agreement. One would assume that Phillips would continue to explore, having discovered this amount of profitable gas already. Of course all the companies in the North Sea have programmes to which they are committed.

Mr. Adam Hunter

Does this price include a cost to be borne by the Gas Council for conversion and adjustment of gas appliances of the domestic consumer?

Mr. Marsh

No. The conversion is a charge on the Gas Council. This is a price which enables the Gas Council to market the gas, which is the important thing.

Sir Harmar Nicholls

Is the Minister aware that there will be surprise in some quarters that he does not consider that he has to amend the figures in the White Paper to some extent following discussions leading up to the agreement? As the Phillips organisation has mainly American money and secondly Swedish money, what proportion is British?

Mr. Marsh

About 20 per cent. is British. As to the figures in the White Paper, I am not sure why this should lead to a revision because we have been working on the estimate of 2,000 m.c.f.d. by 1970–71, and that is the first instalment of that figure.