HC Deb 12 April 1972 vol 834 cc1393-402

10.13 p.m.

Mr. Dick Douglas (Clackmannan and East Stirlingshire)

I want to raise the matter of development contracts for the construction of liquefied natural gas carriers. I realise that this is not a debate on the future of the shipbuilding industry. However, the lessons I seek to point out have repercussions for the whole United Kingdom shipbuilding industry and the European shipbuilding industry.

The Government are apprised of the situation. In a letter to me dated 18th October, 1971, the Minister indicated that part of the analysis for the future of Govan Shipbuilders included a study of the future market for ships, including liquefied natural gas carriers, the results of which would be made available to Govan Shipbuilders.

Enough embarrassment about the future of the company has been caused in the House, and I do not want to add to it. However, I have told the hon. Member for Glasgow, Cathcart (Mr. Edward Taylor) that I would mention in this debate his deplorable posture on Monday, when he had down a Question about the future of the four yards and failed to ask it, thus adding to the anxiety about their future. Therefore, I assume that the Government have at their disposal in relation to these yards an expert analysis of the world market for liquefied natural gas carriers and the problems and potentialities of these vessels.

What I am seeking to do is to put information before the House and to request that the Minister should either substantiate or contradict my analysis. To sustain my case I must do three things. First, I have to prove that there is a market for such vessels; secondly, to indicate that there is sufficient expertise in the United Kingdom to build them; thirdly, to point out how a suitable package could be put together in order to have future vessels of this type built with it.

My information suggests that the main demand for liquefied natural gas will come from the United States and Japan. At present, about 30 per cent. of the United States energy requirement is catered for by liquefied natural gas, and the expectation is that the growth rate will be about 6 per cent. per annum. The requirement for such a fuel, and its relatively clean nature will put pressure on United States importing sources. Estimates are that the United States importing requirement will necessitate the construction of from 30 to 40 liquefied natural gas type vessels between now and 1980. An assessment of the requirement of the Japanese market might be between 15 and 20 vessels. Additionally, there are possibilities that liquefied natural gas carriers will be required for Europe.

Speculatively, therefore, there is likely to be a market for 80 ships to meet the needs of the nations concerned up to 1980, and the type of vessel favoured might range from a size of 75,000 cubic metres capacity to as high as 200,000 cubic metres capacity, with costs at current prices for such vessels of 120,000 cubic metres—comparable to 130,000 tons dead weight tankers—ranging between £23 million and £29 million, depending on the designs chosen.

I have taken a conservative figure but I know from Lloyd's List today, that some experts in the United States estimate that by 1985 120 liquefied natural gas carriers will be required for their market, and they have extreme doubt as to the capacity of the United States and, indeed, the world to meet that demand.

I do not want to go into intricate detail of design and building techniques because time does not permit, save to underline my second point. In the main, there are two techniques for the construction of methane carriers—one a self-supporting tank type and the other an integrated membrane-type. Owners and designers claim advantages for both types. Of the ships built in British yards, the "Methane Princess" and the "Methane Progress", constructed at Vickers Armstrong and at Harland and Wolff, Belfast, respectively—are of the self-supporting tank design and are on charter to the Gas Council, which first gained experience of the carriage of such fuel as long ago as 1959.

I do not want to over-state my case—it would be wrong to do so—by giving the impression that British shipbuilders are clamouring to build this type of vessel. I will not disclose the name of the company, but this evening and earlier I had discussions with representatives of a company which has had some experience of building similar types of vessel. They indicated that there are extreme problems involved in the construction of such vessels. They recognise that there are great potentialities in the market.

The British shipbuilders are not clamouring to build. They are not alone, because until quite recently the Japanese showed no great interest in tendering for liquefied natural gas carriers. Part of the reason may have been that the technology for such ships is a European development and that the Japanese contented themselves with acquiring licences from European yards, mainly Norwegian yards.

However, I suggest to the Minister and to the House that this is unlikely to continue. It would be idle to give the impression that Japanese shipbuilding technology is inferior to that of Europe. What is more likely to be the case is that, these ships being more labour intensive and more complicated in design than the Japanese have concentrated on so far, the Japanese will be willing for our nations to do the work of the technological break through and then, having acquired licences, and watching the development of the world market, and recognising their need to import this type of fuel, will catch up very rapidly, once they have looked at the method and the approach of European technology.

What I have said today, as I have said in previous debates on the shipbuilding industry, and as lately as last Monday in the debate on the Navy, is to suggest that here is a class of ship having a very close resemblance in standards of construction and operation to the standards of construction and operation of naval vessels. I have asked Questions on this, and I have had an indication that the naval research establishment at Rosyth gives technological advice to a British company which placed an order with a French yard for this class of vessel, labour intensive, requiring very high standards of construction and design, so that there is a harmony in phasing the deployment of orders for such vessels with the naval construction programme. What owners and operators have to seek, because of the rigorous conditions of ship operations and safety, are the highest standards of workmanship, particularly in welding.

Consequently, while one must be resigned to the placing of orders for the construction of seven liquefied natural gas carriers for Shell Tankers (U.K.) with Chantiers du l'Atlantique at St. Nazaire, while I am resigned to that, it is galling to read in the shipping Press recently that one of the Onassis group of companies has concluded a letter of intent with a Spanish yard for up to five natural gas carriers of 165,000 cubic metres capacity to be built at a cost of close to £190 million. I am reliably informed that the Spaniards will build a new yard for this purpose. It will be more than the British spirit can bear if in the not too distant future we see ourselves in the position of watching North Sea gas liquefied and exported in ships constructed in Japan or Spain, because we have the necessary skills to build this type of vessel in the United Kingdom.

I do not know what significance is to be drawn from it, but I note that the board of Govan Shipbuilders has included in its number now Andrew Spyran, who is a director of one of the Onassis group of companies. I wonder if it is in the mind of the Government or of GovanShipbuilders perhaps to develop the potentialities for the construction of these vessels. I do not expect the Minister to reply to this this evening—

Mr. William Hannan (Glasgow, Maryhill)

Why not?

Mr. Douglas

I do not expect him to because he is new to his job. I expect him to be investigating the position. I do not expect much from this debate, which is to try to probe the Government's mind and to indicate to them the general lines on which they should be embarking.

I make my concluding point with great humility because it is not for me to do the Government's job for them in relation to the shipbuilding industry. If the Government had lent half an ear to the remarks made from these benches during the last 18 months much of the confidence they have sapped from British shipyards and are now belatedly trying to put back would have been saved.

My third point concerns the putting together of the package. The package would have to consist of a group including a company which had a source of gas, and a company which had knowledge of the operating of such vessels and which wanted either to order or charter more vessels and had a source of finance for this purpose.

I do not believe that the United Kingdom shipbuilding industry is uncompetitive. We may be uncompetitive with Japan in certain classes of ship, but I do not believe that we are uncompetitive with the United States—the United States is building this class of vessel—and I doubt that we are uncompetitive with Spain.

If the Government have made an appraisal of the situation and believe that there is a market for this type of ship, they have a responsibility for getting together the shipping companies, the oil companies, which have resources of gas and sources of finance, and the shipbuilding industry. The Government have the responsibility of bringing these organisations together to see whether we can build this type of ship in the United Kingdom. If the Government persist in "arms length" dealing they will not do it, but the ships will be built if the United Kingdom Government take the initiative.

I do not mean a development contract in the traditional sense in which orders are placed ahead of demand. The demand for this type of vessel is evident and pronounced. Several things are holding up operations. One is the complexity of the vessels and another is the potentiality for inflation. To go for a fixed price contract for this type of vessel is to court disaster. The vessels that have gone out from British yards have lost the companies millions of pounds because of the difference between the order price and the cost of construction.

Have the Government made an investigation of what has happened in other countries? Are we quite sure, for example, that orders placed in the French yards are not being under-pinned or under-written by the French Govern- ment? My information suggests that the French Government are anxious to get this type of order for their shipbuilding industry and have indicated to the yards that they are willing to under-pin the orders.

The Government have recently altered their shipbuilding policy and have told the industry that they are willing to back it by making a tapering provision because the industry has taken on fixed price contracts in a period of inflation. The type of development contract I have in mind would go somewhat the other way. Companies that want to order the ships should be allowed to do a fair deal with the shipbuilding concern. Because of the complexity of the vessel and because there is a growth of demand for this type of vessel, it would be fair for the Government to say that if there are great discrepancies between the order price and the eventual cost they would be willing to stand behind the scenes and to make up the deficiencies. It is not sufficient to go for one order. One order for this type of vessel is disastrous. We must have a flow of orders and carefully select the yard or group of yards.

It is possible, if the package is put together, that the steel for the ship might be made in one yard which has a good throughput of steel, and the tanks for the ship might be made in another. I am pleading with the Government to enter into discussions with the industry to see how the package might be put together. If it is correct for the Government to take into consideration the consequences of inflation for shipbuilding companies by announcing these tapering subventions because of the cost of current orders, would it not be correct for them to offer assistance to cover the cost of future orders?

I know that my hon. Friend the Member for Glasgow, Maryhill (Mr. William Hannan) challenges me in this respect, but I do not expect answers tonight to all the points that I have raised. I plead with the Government to recognise that this is a growth market. This is a market in which we have the necessary skills. This is a market that will not come again. It is related to beginning and expanding the petroleum technology base in the United Kingdom. It is related closely to the discovery of North Sea oil and gas. There is a whole relationship that we have to exploit, and I plead with the Government to take note of this exciting international development, to study very carefully how they might assist the British shipbuilding industry, not as a lame duck, not in a declining market, but in a manifestly expanding market, and to consider how they might give development contracts.

10.32 p.m.

The Under-Secretary of State for Trade and Industry (Mr. Anthony Grant)

Perhaps I might deal first with the point raised by the hon. Member for Clackmannan and East Stirlingshire (Mr. Douglas)—a slightly different one from the issue of liquid gas carriers—about the withdrawal of a Question by my hon. Friend the Member for Glasgow, Cathcart (Mr. Edward Taylor) on Monday. My hon. Friend explained the reason why he withdrew his Question, but what I think the hon. Gentleman and the House would wish to know is that my right hon. Friend the Secretary of State hopes very shortly to make a further statement on shipbuilding on the Upper Clyde.

I am grateful to the hon. Gentleman for bringing this subject to the attention of the House. We all know that he has a great deal of interest in and brings a great deal of expertise to this subject, and we listen to him with great care. He was good enough to say that he did not accept specific answers to many of the questions that he posed. Whether that was because they were of a complex nature, or because this is my first apperance at the Dispatch Box to deal with shipbuilding, is a matter of choice, but he may rest assured that we shall carefully construe what he said.

The Government do not dissent from the figures given by the hon. Gentleman of the estimates for the market in this matter, and they agree that there is an important and growing market for liquid gas carriers, particularly those designed to carry natural gas. The Government are aware of that, and I am sure that the British shipbuilding industry is aware of it, too.

It is not altogether a simple matter to predict just how quickly the demand for these unique ships will grow. In the main, as the hon. Gentleman said, it is the developing countries that will require imports of natural gas by sea to supplement their indigenous and traditional imported fuel supplies. A proposal to supply a new area of, say, the United States or Japan with imported natural gas involves long planning and heavy capital expenditure, and may require Government approval before it can go ahead.

The gas-carrying ship, itself an extremely complex and costly vessel, is only part of a chain of supply which includes liquefaction plant in the exporting country and equipment in the importing area to reconvert the liquid gas. The integrated nature of the operation can obviously introduce elements of uncertainty above and beyond those normally associated with ship construction.

This is, therefore, a specialised field involving very much above average technical and commercial risks, where the technology is changing and developing rapidly. I do not doubt that the capability exists in the British shipbuilding industry to design and build these ships. The ships which have for seven years carried supplies of liquefied natural gas to Canvey Island from Algeria in one of the longest established regular liquid gas services were built in Britain, and several British companies have built liquid petroleum gas carriers.

The modern natural gas carrier is not a very costly ship—the price of the largest at present under construction will be about £30 million—though, because of its size, it requires a large berth for its construction. It must be for the commercial judgment of the individual shipbuilder whether he is prepared to devote the necessary resources of plant and labour to entering what is already a competitive market, and if so for precisely what types of ship.

The market for liquid petroleum gas is different from that for liquid natural gas and demands a rather less costly and complex ship. The tendency towards larger tankers will probably be less marked in this sphere than in those of liquid natural gas or crude oil transportation and some shipyards may judge that they have a future rôle in building liquid petroleum gas carriers but not natural gas tankers.

The hon. Gentleman pointed out that the three-year tapering production grants which we have announced will not be so applicable in this sphere, in which, of course, there are very high risks and long-term developments. In this sense I agree with him. It is an entirely different sphere. However, we must remember our international obligations and understandings reached in the O.E.C.D. Britain has continually supported moves internationally to prevent any type of international subsidy race in shipbuilding, and it would be inconsistent forus to take a step which would go against the trend which we have been following in this matter.

It would be wrong for the Government to seek to influence decisions by individual shipbuilding companies by offering specially favourable financial inducements for this type of ship. This is not to say, however, that the Government can offer no assistance in the development of gas carrier construction in the United Kingdom. I noted the points the hon. Gentleman made on this issue, but there are perhaps more difficulties than were apparent from his speech. It may be that particular aspects of the design or marketing of these ships require research work beyond the resources of individual companies, and in this context my Department would be willing to look at proposals put forward by the industry to see whether it was feasible to assist such projects, possibly through the channel of the British Ship Research Association and the Naval Construction Research Establishment, which can offer expertise in the technology of liquid gas carriers, though its services for commercial shipbuilding will always be limited by staff availability and the priority which naval work must take.

Mr. Douglas

Would the Government be willing to place that limited type of development contract with British yards to give them a development study along particular lines?

Mr. Grant

We would be prepared to look at proposals which were put forward by the industry. We have not had particular approaches from the industry in this sphere. I cannot make firm promises at this stage—this is not the time to do so—but the Government will certainly look at realistic and carefully thought out proposals so that we can assess what can be done in this respect. I think that it will be possible to assist the industry by offering to look carefully at the difficult technological sphere which this involves.

I thought that the hon. Gentleman put his argument clearly and carefully. However, I must not be taken to go along with him in the broad belief that the Government can choose or single out any particular area, no matter how interesting and unusual it may be, for special assistance. It would be inconsistent with our international obligations, and we would be usurping the function of the industry which must have the right to decide on the best type of ship. However, we would not like the industry to feel that it has a deaf ear if it wishes to consider the possibilities of further technological assistance in some way.

Question put and agreed to.

Adjourned accordingly at eighteen minutes to Eleven o'clock.