NORTH SEA ENERGY

HC Deb 20 March 1974 vol 870 cc1198-222

11.48 p.m.

Mr. William Hamilton (Fife, Central)

It might be as well to get on the record the fact that we should have another look at the way in which we conduct the Consolidated Fund Bill. The last debate began at just after six o'clock. That means that it has continued for virtually six hours. It was concerned with a subject of major importance, but I think that our proceedings should be arranged in such a way that Members who take part in the ballot and are badly drawn in it might have a better chance of participating and having their say on whatever subject they wish to discuss. I suppose that that is a matter for the Procedure Committee. I hope that the committee will consider the desirability of limiting a debate to a maximum of two or three hours.

Mr. A. J. Beith (Berwick-on-Tweed)

The hon. Member for Fife, Central (Mr. Hamilton) might consider having a word with his Whips about the possibility of allocating more Supply Days to minority parties. That means could be used and might ease the hon. Gentleman's problem.

Mr. Hamilton

It might well be that the minority parties would fare a lot worse than today. Minorities are to be protected, but majorities also have rights. Perhaps I may describe them as larger minorities. Until now, and certainly since the election, the House has given protection to the smaller minorities. It is time that the larger parties had a greater say in the running of debates than they have had hitherto.

I come immediately to the subject of this debate, which is North Sea oil. Next week we shall have the Budget, in which one of the most critical problems that will have to be dealt with is the scandalous blunder which has been perpetrated in the handling of North Sea energy resources by both Labour and Conservative Governments. I think that the Conservative Government were more culpable than the Labour Government, because it was under the Conservative régime that we had a glimpse of the obvious wealth of resources under the North Sea waiting to be developed.

The guidelines on future policy were laid down devastatingly by the Public Accounts Committee Report of 1972, which made damning disclosures about Government ineptitude in a purely nonpartisan and objective way. But even since that report was produced at least two new factors have emerged which make imperative the introduction of radical new attitudes and policies.

The first new factor is the quadrupling of world oil prices within the past four months. It is easy to be wise after the event, but I suppose that we should have foreseen that. It is possible that there will be an equal increase in the foreseeable future.

Secondly, there has been increasing knowledge about the extent and value of the oil finds in the North Sea—much of it, as well as the Celtic Sea, not yet even explored. In a few months the value of the known commercial reserves has increased sixfold. Various estimates are now made, but anyone who engages in hard figures in this game is being absurd. We do not know what the value of the finds is. It depends entirely on existing prices, and they can be out of date before I sit down.

It was estimated by the Observer on, I think, 10th February this year, that the resources are worth about £130,000 million at existing prices. The Observer also stated that by 1980 production could be up to 150 million tons a year.

Professor Balogh said in his recent article in the Banker that by 1980 it could be up to 150 million tons a year. American bankers estimate that production could be over 200 million tons a year. Various estimates are given. Professor Odell, quoted by Professor Balogh, believes that production could be 300 million tons a year, with the British sector delivering two-thirds of that. We are talking in figures beyond the comprehension of the British people.

Let us assume a minimum United Kingdom figure of 150 million tons a year, or over 1,000 million barrels. Even at 10 dollars a barrel, the annual pre-tax profits would be over £4,000 million and by 1980 the price is almost certain to be at least 50 per cent. higher. It has already been higher than that in some of the auctions. These figures are far higher than the latest figure for the gross profits made by the whole of United Kingdom manufacturing industry as of now. That is the scale of the problem with which we are trying to grapple.

The scandal is not irreversible, because not a barrel of oil has yet been delivered. At present, more than half of those profits could go untaxed to foreign interests. As early as mid-1970 the oil experts were predicting that the North Sea could provide up to two-thirds of the whole of Europe's requirements, and since then enormous further finds have been made.

I referred on a previous occasion to the Edinburgh Mafia, but now the international Mafia has moved in for the killings, from the House of Fraser to Courtaulds—concerns that have no relationship to oil—Thomson Associated Newspapers, and the inevitable stockbrokers, land speculators and merchant bankers. They are all in it, and I hope that the Government—who are now in the process of formulating their policies—will prevent these people from grabbing what they can while they can and then clearing out. By the end of 1971 the potential robbery and plundering of the North Sea was terrifying in its magnitude, matched in size only by the crass ignorance of the Government of what was going on under their noses. But the situation is not irreversible, and the recommendations of the Public Accounts Committee still await implementation.

Certain minimum steps are required to be taken by the Government. Some have been spelt out, partly by the Public Accounts Committee and partly by Lord Balogh. Despite what the Opposition may say about Lord Balogh, he knows his onions about North Sea oil, and I do not think that anything he has proposed will frighten off the oil companies. Let not the Tory Party say, "You are too severe; you will frighten them off." We shall not be able to drive them out. They will settle for 5 per cent. or 10 per cent. on their capital; there is no question of their pulling out.

First, there is a case for renegotiation of the existing licence conditions. We have the benefit of hindsight and can see how ridiculously over-generous were successive Governments in giving away the licences at the beginning.

Secondly, I agree with Mr. Dick Douglas, the former Member for Clackmannan and East Stirlingshire, who sat on the Public Accounts Committee and strongly recommended a barrelage tax on a sliding scale, perhaps as recommended by Lord Balogh in the Banker article. We on the Government side favour increased public participation at least comparable to that exercised by Norway.

We must have a reform of the royalty system, varying with the size of the field, and, going back to the Labour Party policy of six or seven years ago when we recommended the establishment of a national hydrocarbon corporation, a monopoly State buyer and seller which would fix the price at which the oil was bought and sold. The manifesto on which the Labour Party fought the election, referring to the increased oil prices in the Arab countries, said— the new situation has greatly strengthened Labour's intention to ensure not only that the North Sea and Celtic Sea oil and gas resources are in full public ownership, but that the operation of getting and distributing them is under full Government control and majority participation. We cannot accept that the allocation of available world output should continue to be made by multi-national oil companies and not by Governments. We will not permit Britain's own resources to be parcelled out in this, way. It is public ownership and control that will enable the British people, through its Government, to fix the pace of exploitation of our oil, and the use to which it is put, so as to secure the maximum public advantage from our own resources. The manifesto went on to refer to the possibility of setting up an international energy commission to establish an international allocation of available oil resources. I shall return to that in a moment.

When he spoke last Tuesday, the Prime Minister reminded us that these resources are already a publicly-owned asset, under the Continental Shelf Act. The machinery to ensure its proper use has not yet been devised. The Government admit that frankly. Much the same consideration applies to this matter as applies to Kilbrandon. Any Government would be most ill advised to make decisions of this magnitude on the spot. Instant government does not apply either to Kilbrandon or to North Sea oil. I could not blame the right hon. Member for Wanstead and Woodford (Mr. Jenkin), when concluding for the Opposition in the energy debate last week, for making some play of the apparent contracliction between one policy and another expressed from this side. But there is no need to apologise for saying that it is an extremely difficult problem to tackle. One does not want to drive the oil companies away. On the other hand, one does not want them to be the masters of our fate. They must be our servants, not our masters.

All we are entitled to expect from the Minister tonight, I think, is a progress report. Two days ago, on 18th March, he made a speech to a conference in Newcastle in which he said, in so many words, that the Government were planning a partnership with the oil companies to obtain the maximum benefit for the British people. That can be criticised, of course, as saying no more than that we are not going in for full-blown public ownership, or nationalisation. I do not give a damn how the cash is obtained—whether through 51 per cent. control, a public corporation, a barrellage tax, or whatever it may be—so long as we ensure that the revenues from North Sea oil come back to the people. The asset belongs to us and to no one else. The oil companies' expertise in exploring, discovering and extracting must be used for the public good.

My hon. Friend went on to say that several schemes are being considered, and that legislation will be forthcoming in the next 12–18 months. Tonight, I hope that he will be able to answer one or two specific questions. He recognises the importance of the IMEG Report, which was highly critical of what had gone on up to 1972, when the report was made. Do the Government intend to implement as swiftly as possible all the recommendations in that report? If not, which are they throwing overboard, and why?

For instance, are we to have art extension of further education and training facilities? It is absurd that we should be talking about thousands of millions of pounds of potential revenue, yet for education and training facilities we speak in terms of hundreds or thousands at the most. We should be thinking in terms of millions of pounds, and we should be demanding that kind of money from the oil companies.

I hope that we shall hear from my right hon. Friend the Chancellor of the Exchequer in his Budget next week that we hope to get revenue from the oil companies' profits, prospective and present, and use a lot of that for extending these facilities, for building up the Petroleum Supply Industry Board which was recommended by the IMEG Report, for an information service to offshore operators and contractors, for credit facilities for covering the sales of equipment and services to offshore operators and contractors, and financial support for research and development projects.

Different types of production platform are being put forward for offshore moorings, or for pipelines. There are various techniques for deeper water exploration. All these require enormous sums of money. I was glad to see the IMEG report recommending a study of the infrastructure. There is no doubt that oil facilities onshore will affect the environment. No one can prevent this.

I do not believe that the industry can be sustained without a massive switch of transport from road to rail. There will have to be a big investment in the railways in the Highlands and wherever there is an oil potential. There is a reference in the IMEG report to the problems created in Scotland. It happens that oil has been found where the environment is perhaps more important than anywhere else in the United Kingdom. It is not easy to marry the need to get the oil for national purposes with the need to protect a way of life that is unique. To make sure that one situation does not destroy the other is an exciting and challenging task, which we cannot shirk or pretend that it will go away.

We must ensure that the minimum long-term damage is done to traditional values and ways of life. It is not good enough to say that we should slow down development. The tap cannot be turned off as easily as the Scottish National Party seems to suggest. How would that party slow it down and to whose advantage would that be? I appreciate that in the nature of things this is an extremely valuable asset, limited in its duration. We do not know how long an extractive industry will last. It is important to treat it as a precious asset, not one to be squandered by selling it below the world price or by getting people to believe that it can be shovelled out to provide massively increased pensions.

The SNP campaign during the election appalled me by its appeal to the base material instincts of people. It had a leaflet that was almost pornographic. It spoke of £25-a-week pensions, no income tax, and no rates. One of the party's candidates actually went around on a camel in one of the constituencies.

Mr. Gordon Wilson (Dundee, East)

It was a Conservative candidate in Clackmannan and East Stirlingshire who had occasion to use a camel in the course of the campaign. Certainly none of our candidates was so minded.

Mr. Hamilton

No, perhaps they could not afford it. That was the kind of campaign conducted. Certainly it was not a Labour candidate who used a camel.

It is quite wrong to appeal to people's nationalistic greed by saying that because the oil happens to have been found round a particular part of the coast north of an arbitrary line drawn between Carlisle and Berwick, all the benefit should go to people who happen to live north of that line and nothing should go south. I find that kind of campaign quite appalling.

I go further. These ought to be treated as international resources. We are not at that stage yet. We are a long way from world government. But that is how I would like to see them treated. At the moment we have divided the North Sea by international agreement, and we have divided the resources by international agreement. We have to see to it that they are used for the benefit of all our people.

There are people all over the United Kingdom who are as poor as and sometimes poorer than the poorest in Scotland. As an international Socialist, I do not think in these narrow nationalistic terms, and as an Englishman representing a Scottish constituency for 24 years, I think that I can say that.

My nationality has never been questioned, although my birth sometimes has. The people of Fife always ask me what I stand for and what principles I stand for, not where I was born and what nationality I am. This problem should be approached in a similar way.

Whatever Government machinery is devised or evolved, the minerals round our shores and beneath our land belong to us all, and we have to see to it that the oil companies are answerable and accountable to us. They must be our agents and not our masters. I appeal to my hon. Friend the Under-Secretary to seek ways and means of keeping this House continuously informed. I should like some machinery devised—it may be a permanent all-party Select Committee of this House having a continuous oversight of what is going on, or the Government might see fit to produce monthly reports on the progress of consultation. They must demand from the oil companies a full disclosure of their costings and of their accounts. Let us have full open disclosure by them. For far too long we have worked in the dark. The oil companies are skilled at pulling the wool over the eyes of successive Governments. That must no longer pertain. I hope that we shall have some undertakings along these lines.

I hope, too, that my hon. Friend will explain precisely what is to be the role of Lord Balogh in these proceedings and what is the relationship between my hon. Friend himself, Lord Balogh and the Minister for Energy. I have a great admiration for the noble Lord. I think that he knows what he is about, and the oil companies have a right to fear and respect him. I hope that he will be used to the maximum. But I should like to know the relative importance of Lord Balogh, of the Minister for Energy and of my hon. Friend.

It will be a very difficult exercise and a very exciting challenge. I hope that this minority Government will exist long enough to get the legislation on the statute book which the previous Chancellor of the Exchequer promised in his last Budget. Nothing has happened since, except a retreat, if anything, from that promise. Apart from that, I hope that the present Chancellor of the Exchequer will take it upon himself to lay down the line to the oil companies that we are not having any more of the kind of financial jiggery-pokery for which the oil companies have been well known over many years. They have always known how to cook the books and how to evade taxation. This must be stopped. We must ensure that the vast resources at our disposal are used for the benefit of all our people and that in the process the environment is disturbed to the minimum extent.

Mr. Speaker

Order. I propose to suspend the sitting till half-past Twelve.

Sitting suspended.

On resuming—

Mr. John Stradling Thomas (Monmouth)

On a point of order, Mr. Speaker. I should be pleased if you would give us some guidance as to why the House was suspended for approximately a quarter of an hour.

Mr. Speaker

There are certain physical limitations on the occupant of the Chair.

12.31 a.m.

Mr. J. Grimond (Orkney and Shetland)

I start by congratulating the Under-Secretary of State on his appointment. No doubt the tea break will end soon and he will return. However, I put my congratulations on the record before he arrives.

I am glad that the Government have apparently dropped their somewhat peculiar proposals for nationalising the oil industry and are prepared to fall back on imposing a levy on oil or obtaining public participation in the profits from oil in some other way. I think that such profits must be shared between the regions concerned, Scotland and the rest of the United Kingdom. Indeed, some of the profits might well be used to help underdeveloped countries.

Briefly, the reason for saying that the regions most directly affected by oil are entitled to a reasonable share of the proceeds is that it is their economy which will be temporarily disrupted, for better or for worse, and which will have to be put back; and these are regions which have been told for generation after generation that they need to be subsidised by the rest of Britain. It would be psychologically bad if they were not to have a reasonable share of the profits accruing from oil discovered in the seas adjacent to them.

I want to raise certain specific matters concerned with oil development in Scotland, particularly in Shetland and Orkney. I do not expect the Under-Secretary to be able to reply to these points in detail tonight, but they are substantive and concrete points of some urgency.

First, is it too late to have a proper survey of Scotland carried out to suggest where oil-related development of various kinds can or should take place and where it would be unsuitable? Some time ago a very unsatisfactory document was produced in the Scottish Office. It was incomplete, tentative and in many other respects unsatisfactory. It is a great drawback when trying to decide on particular developments if there is no general survey taking in the whole of the Scottish coastline.

Secondly, I hope that at some point the new Under-Secretary will say what his view is of the committee which was set up within the Scottish Office to advise upon the impact of oil. I attach great importance to impartial advice which will enable the Government, the House and local authorities to make up their minds about what are and what are not suitable oil-regulated developments.

This brings me to the planning procedures, because if we had a survey and if we had authoritative and impartial advice I think we should find it much easier to deal with these very difficult matters such as whether development should take place at Drumbuie. I believe that it is essential to have a careful investigation taking into account the public interest in all its forms—economic, social and environmental. At present the procedures are far too lengthy, they are far too expensive and they are uncertain.

The Under-Secretary was a member of the Committee which considered the Zetland County Council Bill and he will be very much aware of the time consumed, of the expense of sitting for nearly three weeks in Edinburgh, and at the end of it having a Bill which had to be considerably altered in this House. I do not think this is satisfactory and I hope that the Government will give very urgent consideration to the whole question of planning. When the Government do that, I trust that they will look at the question of planning in the sea. I have raised this matter repeatedly. I am informed that the planning Acts do not run below either the high water mark or the low water mark and that it is extremely doubtful whether we have any proper control over the routing of pipelines in the sea or over the installations in the sea. Certainly these lines and parts of other installations, and pollution of various sorts, can have serious effects on fishing grounds. There is great anxiety among fishermen in the north of Scotland, where these pipelines and related works concerned with oil could damage still further the only areas in which we can trawl or seine net and which have already been gravely affected by wrecks, refuse dumped from ships and other obstructions on the sea bottom.

Would it not be possible to set up an insurance fund from which the fishermen who have lost gear or whose livelihood have been damaged by pollution—the livelihoods of shell fishermen may suffer very much from pollution—could be compensated?

I come now to what, to my constituency, is the most urgent and serious matter—the inadequacy of preparations made for the impact of oil. It is incredible to go to areas like Sullom and see the total lack of preparations. We are told that it is not a question of two years or three years; it is a question of mere months before certain parts of my constituency in this part of the north of Scotland become associated with the largest oil find for many years in any part of the world. The roads in Shetland are quite inadequate to bear heavy traffic. To put them into a condition to do so will be extremely expensive. They are laid on peat, they are very narrow and they have not the foundations to bear the strain.

Again, in the case of Brae the housing is inadequate. It is inadequate for the Shetlanders, and far more so for newcomers. There is a grave shortage. The school is totally inadequate, housed in temporary buildings which do not meet the needs of the existing Shetland children. There are no amenities fit for the present population. Yet within months, we are told, this district may have to take in thousands of newcomers, and the preparations are not there.

We cannot expect the local authority, with a population of 17,000, to undertake this type of expansion. It demands action by the Government. I was astonished at the complacency and inertia of the previous administration in the face of the impact of oil which will be upon us in a matter of months.

In the case of Flotta, which is the terminal for the oil pipelines, as far as I am aware there is no promise of a doctor. At the moment there is not even a nurse. In Shetland no adequate steps have been taken to strengthen the police services, the social services, the education services or the medical services. Whenever I asked the previous administration about it, their answer was "We are watching the situation very carefully". Time marches on. No doubt the periscope of the former Secretary of State was fixed on something or other, but what it was I do not know. It is no longer a question of watching. If we are to put the roads in Shetland in order it must be done next month, because it is no good waiting for winter. By 1975 there will be some heavy traffic passing over the roads.

I also make a point about the Zetland County Council Bill. We are told that the Government intend to nationalise land for development. As the Minister is aware, the Zetland Bill enables the local authority to exercise compulsory purchase powers. I trust that there will be some examination of interaction of these measures.

Already it seems that the proposed legislation on crofting and on Shetland, and the proposals for compulsory purchase, have not been correlated in the they should have been. I suspect also that the price at which crofting land can be acquired has been decided without any attention to the immense increase in land prices in certain crofting areas due to the discovery of oil.

I ask the Government to look at the impact of phase 3 or, if that is now a dirty phrase, whatever will be taking its place. It is absurd to expect that if there is a major boom on small islands 150 miles from Aberdeen the economy of those islands can continue as it has done in the past. Already public services in Shetland are being denuded of essential services which will be responsible for the building of roads and houses.

The attitude of the previous Government was that phase 3—that sacred book handed down, apparently, by the prophet —could not be breached in any way. It seemed to be suggested that if there was shortage of labour in Shetland busloads of workers could be sent from Glasgow. But buses cannot cross the sea; and it is not possible to house the type of labour required.

Unless we are careful, the indigenous industries of Shetland—such as fishing, fish processing, and knitwear—as well as the public services will be totally denuded of labour. The oil boom and oil-related industries will also suffer because it will not be possible to get the labour which is needed to set up the infrastructure in the way it should be set up.

The Minister of State, Scottish Office (Mr. Bruce Milian)

The right hon. Gentleman will be interested to know that I had an informal meeting with the county convener for Shetland yesterday when he was in London for other reasons. I discussed with him, on a preliminary basis, some of the points which the right hon. Gentleman has raised. I hope to go to Shetland during the Easter Recess and take up some of the points in more detail.

Mr. Grimond

I am relieved to hear that. I know that the county convener and the county manager are in London in connection with the Zetland County Council Bill, which we hope will reach the statute book.

The points I have made also relate to Orkney and, I suspect, to the rest of the north of Scotland, but Shetland is the area most affected. I do not expect detailed answers tonight on these points, but they are substantive and are probably also relative to other parts of Scotland. However, they particularly apply to Orkney and Shetland because they are island communities and to that extent are bound to be self-contained.

12.44 a.m.

Mr. Gordon Wilson (Dundee, East)

Oil is now big business in Scotland and people here and in other parts of the United Kingdom are beginning to realise how much it can mean. I was interested to hear the points which the right hon. Member for Orkney and Shetland (Mr. Grimond) made about Orkney and Shetland.

The Government might do well to refer to some Norwegian legislation which prevents the movement of rigs without the consent of the Norwegian Government and imposes many other conditions on the oil industry in Norway.

It is expected that by 1980 there might be in the North Sea 60 exploration rigs and about 40 production rigs. These could pose navigational problems or affect fishing. I understand that the Geneva Convention of 1959 lays down international conditions safeguarding these two matters.

It is clear that oil production is likely to be far in excess of the figure which was previously quoted in the House of between 75 million tons and 100 million tons a year by 1980. I think that the IMEG figure was 130 million tons. Our estimate about two years ago was 150 million tons a year by 1980, and that seems to be becoming a popular figure, although bankers in Dallas, Houston and elsewhere are apparently prepared to quote about 200 million tons a year.

These estimates have given rise to increases in the value of oil which will come from the North Sea in years to come. The quadrupling of world oil prices has thrown all existing computations of value into disarray. No one can yet say what the value of oil per barrel will be in three months' time or after that. An indication has been given by some of the OPEC countries that they expect the price to settle down at about 14 dollars a barrel. This would be a very substantial increase. Some of the auction prices for spot supplies oil have already gone to higher figures.

An article in the Banker for March by Lord Balogh, who is now Minister of State, Department of Energy, expresses some of the disquiet that many of us feel about the way in which the previous administration dealt with the oil question on what can only be described as a Rip Van Winkle basis. Lord Balogh said: Only 15 blocks out of 2,665 licences were not allocated at the discretion of the Minister —that is the Petroleum Department—for a trifling payment: the initial payment was between £25-£45 per square kilometre; the maximum annual fee between £290-£350. The 15 blocks which were allocated by competitive bidding fetched £37 million… The licences were for 46 years. [An HON. MEMBER: "This is old stuff."] It is, but it shows the extent to which the Conservative Government and the Labour Government up to 1970, as I think members of that Government have admitted, failed to appreciate that such substantial deposits of oil would be found in the North Sea as made it necessary to change the terms on which the areas were to be licensed for exploration.

Mr. Peter Emery (Honiton)

Would not the hon. Gentleman be the first to admit that two of the blocks raised over £22 million, and that to take the rest of the 13 across the board presents a very different picture? It is then interest- ing to note that one of the blocks that was the subject of the major payment has produced no oil at all.

Mr. Wilson

I understand that drilling has been carried out on the periphery of that second block to test an adjoining field and that the whole area has not yet been drilled or fully tested. Finds of oil in other areas in the East Shetland basin have been so promising that the attention of the company concerned has naturally been diverted to other, more promising, areas.

We look forward with great interest to the Budget next week to see what action the Chancellor of the Exchequer takes on the taxation of oil to be produced from the North Sea. I hope that Her Majesty's Government will renegotiate the existing licences which have been granted and seek an early opportunity of bringing in some carried interest arrangement along the Norwegian lines. Many people in Scotland would like to see that happen as soon as possible.

Whether posted prices will be a necessary requisite for the assessment of barrelage taxes is not so clear. That was a system which was introduced when there was little sale of oil on the open market. It was then difficult to establish what the true market value might be bearing in mind that oil passed through various companies in the same group before ending up at different prices. We now have international values and the posted price system may not now be so essential.

I must warn the Government to take into consideration in negotiations with the European Economic Community two factors which are of some importance. The first is that there may be a restriction capable of being placed on the export outside the Community of natural assets of a Community country. The second factor is that when a higher price is capable of being paid by a Community country it may not be possible for Britain to reserve to itself supplies of oil or natural gas without being in breach of the Treaty of Rome.

The Government have not yet announced the policies which they will be putting forward to the Caracas conference on the law of the sea bed in a couple of month's time. As a matter of principle I might indicate, following the remarks of the hon. Member for Fife, Central (Mr. Hamilton), that there is sound ground for suggesting that the ocean bed should be treated in a different way from the Continental Shelf. The Continental Shelf agreement has been reached by various countries, but it would be useful if the ocean bed were reserved to international ownership and vested in the United Nations, perhaps to be used and exploited to the benefit of humanity as a whole.

As has been made evident in the past two weeks, the Scottish National Party has a distinctive attitude towards the oil which has been found in the North Sea. We have made no secret of our belief that the oil is a Scottish asset and that it has been discovered north of 54 degrees 50 minutes, which the former Labour administration in 1968 designated should be starting point of the Scottish jurisdiction sector. Be that as it may, on Scotland's becoming a self-governing country the oil would belong to Scotland in terms of the Geneva Convention of 1959.

Mr. Barry Henderson (Dunbartonshire, East)

Is the hon. Gentleman suggesting that all the gas is English gas?

Mr. Wilson

In making that point the hon. Gentleman is unaware of the vast stocks of gas which are to be found in the northern sector of the North Sea which would in the same way be available to Scotland. Scotland has been at the end of the queue in getting any of the natural gas which has come from the southern sector and has had to pay a substantial price for it. That price has been calculated as being marginally higher than the price charged by Soviet Russia to West Germany.

Having said that the oil would belong to Scotland, we would naturally insist on having control over it not only from the economic balance of payments or fiscal aspects but because of the need to control its exploitation and development. Such control is necessary to ensure that future generations in Scotland benefit from it. I am sure that any Scottish Government, of whatever political affiliation, would be interested in playing an active part within the British Isles in ensuring that areas in England, if they were suffering from the conditions described by the hon. Member for Fife, Central, were helped in whatever way was possible. Further, as the right hon. Member for Orkney and Shetland said, we would also bear some responsibility for helping underdeveloped countries. The record of the Scottish people in outward-looking actions of this sort over the years will bear out my contention.

I have a great reservation on the question of gas from the North Sea. I hope that the Secretary of State for Energy will look into the technical difficulties which might arise in the Brent or Beryl fields as a result of gas pressures which could make it difficult to exploit the oil. The companies concerned are faced with the logistics of separating and piping the gas or flaming it. We in Scotland would not wish the gas burned off as it has been in the Middle East for years. If gas from the Brent or Beryl fields could not be extracted as an additional form of energy, we would rather see the oil remain under the sea bed until technology was so advanced as to enable both the oil and the gas to be taken out. I hope that no premature decisions will be taken by the oil companies which can be detrimental to the Scottish people.

I would like to see the Secretary of State regulate the pace of oil development as much as possible to Scottish needs. I know that he will face the problems of the British interest in trying to get the oil out as soon as possible for the satisfaction of Britain's rather clamant needs over the balance of payments. But even from the British point of view—not an attitude I normally take —this would be a short-sighted policy.

It has been calculated that there might be about only eight to 10 years' selfsufficiency—I do not mean eight to 10 years' reserves, but self-sufficiency for Britain—so there might be good reason to husband these resources.

Another reason for care is that oil is now a precious commodity. I have already told the House of my hope that it will be used for petrochemical feed-stocks, for production of protein and things of that sort, and not used as a short-term stopgap in the world energy crisis. Although the resources are great in proportion to Scotland's population, they are small in relation to world demand, and we cannot hope to keep the continent of Europe going for any length of time, unless vast resources are still to be discovered, let alone try to keep pace with the United States or Japan, which have indicated an interest in the commodity.

I hope that the Government will bear in mind that oil is not merely there as a source of revenue—but is also a capital asset. In pursuing the development of oil, the Government should ensure that after the oil has gone there will be a substantial basis of industrial activity arising from the investment of oil revenues, or that the money will be used in capital projects for the production of another form of energy to take care of Scottish needs in years to come. The pace of development and the need for Scottish participation are both important to the people in Scotland.

Reference was made in the previous debate to the way in which Scotland is governed. The Government will be aware of the need to reduce unemployment from the high rate of 4 per cent. last month and 5.8 per cent. for males, which is a dreadful figure for a modern civilised country. The oil revenues must therefore be directed primarily to the benefit of our people.

I trust too, that the Secretary of State will liaise more closely with Norway to ensure that the common oil resources in the North Sea straddling the boundary between the two sectors are developed at a pace suitable for both countries.

1.2 a.m.

The Under-Secretary of State for Energy (Mr. Gavin Strang)

I congratulate my hon. Friend the Member for Fife, Central (Mr. William Hamilton) on initiating this useful debate. I apologise to the right hon. Member for Orkney and Shetland (Mr. Grimond) for missing his earlier comments and I thank him for his kind remarks.

No one is more effective and skilful in raising important issues in Parliament than is my hon. Friend the Member for Fife, Central. During the previous Parliament we had a series of debates on this extremely important subject, and I am sure that that pattern will be repeated in this Parliament. I extend a welcome to the hon. Member for Dundee, East (Mr. Wilson), who I am sure will play a useful rôle in ensuing debates on this subject.

The people of Britain as a whole are at last beginning to recognise the immense economic significance of North Sea oil and gas. Last May the Government published their estimates of power reserves and production in 1980. Those figures are now well out of date and the estimates will be revised upwards. In May we hope to publish the updated estimates relating to the reserves which have been delineated by the companies. The 1980 production figure published last year was 70 million to 100 million tons. As my hon. Friend the Member for Fife, Central said, we are talking about a commodity of immense economic importance to the country. One hundred million tons of oil at current prices is worth about £3,000 million.

I cannot anticipate the precise figures which we shall publish next May, but there will be an upward revision. I am not sure that they will quite reach some of the extreme figures given by my hon. Friend but there can be no denying that the figures presently published are too low.

North Sea oil presents a tremendous challenge to the present Government. It is our objective to see that the oil and gas are exploited in a way which brings the maximum benefit to the people of Britain. As my hon. Friend said, the report of the Public Accounts Committee brought out just how serious the present situation is. It showed the extent to which the British people would lose under the present arrangements, and it concluded that the Exchequer take and balance of payments gains under the present arrangements would not be comparable with what is obtained in other producing countries.

The Public Accounts Committee recommended that we should substantially improve the effective tax yield from operations on the Continental Shelf and should consider a system of quantity taxation as a means of doing that. Also, it recommended that before any new licences were issued all aspects of licensing, especially for oil, should be reviewed.

It is fair to add that the report of the Public Accounts Committee brought out how complex a matter this is. The Government are clear as to their objectives, but I am sure the House will understand that at this stage I could not spell out the precise methods and machinery which we intend to introduce to rectify the position.

Mr. David Howell (Guildford)

I join in the congratulations to the hon. Gentleman on his appointment at this critical time and in the welcome to him on his first appearance at the Dispatch Box. Will he help us on one rather worrying matter? He was reported in Tuesday's newspapers as saying that there were plans for bringing forward legislation for North Sea oil in a year to 18 months. I found that rather puzzling, and I wonder whether he can elaborate on it. As it stands—perhaps he was not understood correctly—it is a little disturbing.

Mr. Strang

Obviously, at this stage we cannot say in which month the legislation will be introduced. We are talking here of taxation matters, of the wider question of licensing and, in particular, of the whole question of the arrangements to which I shall refer presently. But the fact that it is included in the Queen's Speech means that we attach the highest priority to this matter.

I assume that we should introduce the legislation within, say, six to 12 months. On the tax side, we can perhaps introduce it in advance of that, but on the possibility of setting up a hydrocarbons corporation, on the question of public participation and control and the rest, all these matters will have to be worked out in consultation with the companies and with the interested parties. It would, therefore, be unreasonable to expect us to be able to introduce the complete package within a month or so.

Hon. Members have referred to possible ways of going about it. My hon. Friend the Member for Fife, Central referred to the suggestion—a longstanding suggestion in the Labour Party —that we should set up a national hydrocarbons corporation, or perhaps a number of such corporations. There is also the question of future licensing terms. A great deal of action is required and these are possible methods which the Government will consider when it comes to taking final, hard decisions on how to maximise the benefits of the oil to the people.

The hon. Member for Dundee, East raised the question of the rate of extraction. We should distinguish between two aspects of this problem. The first relates to how quickly we get the oil flowing in significant quantities. The second deals with the rate at which we allow it to flow after it has begun flowing at a reasonable rate.

On the second point, hon. Members will realise that this will be decided in future, in the light of circumstances then prevailing. As to the first point, I submit that it is in the interests of everyone, including the people of Scotland, that we get the oil flowing in significant quantities as soon as possible. In the fields which we know can come on stream in 1977, 1978 and 1979—the Argyll, Auk, Piper and Forties fields—we want to see that there is minimum slippage and that we do everything possible to help all concerned to get the oil flowing.

That is not to say that there should be no control and that we will allow the oil interests to run roughshod over the interests of local communities. The Government are determined to see that this does not happen. The right hon. Member for Orkney and Shetland had quite a bit to say about this. Planning is the direct responsibility of the Secretary of State for Scotland and my right hon. Friend is reviewing the planning procedures. I was interested in the right hon. Gentleman's remarks about the Zetland Bill, in which I have a particular interest. We all hope that it will become law soon.

The right hon. Gentleman referred to what he regarded as the inadequacy of preparations for the oil. He referred to the Sullom Voe area. We all recognise that we are talking about a huge investment by the oil companies. There will be a great impact upon many areas and it is important that we are not only prepared for it but that we are prepared to maintain the necessary investment in the infrastructure. I assure the right hon. Gentleman that the Government recognise the importance of this.

The right hon. Gentleman referred also to Drumbuie, and in this connection on the control and protection of the interests of the local people perhaps I might restate and clarify the Government's position with regard to the inquiry. Both the Secretary of State for Energy and the Secretary of State for Scotland, who has planning responsibility, have said that the inquiry should run its course and that the Government will not seek to pre-empt its proceedings by introducing a Bill to take over sites for oil development, as proposed by the previous administration. At the same time, the option of introducing such a Bill remains. We are not prepared to pre-empt the Drumbuie inquiry, but we are not saying that we shall not find it necessary to introduce such a Bill. We may do so in the future.

We want to see the inquiry completed as speedily as possible, as do most people. But, as many will have noticed, there has been some criticism of the fact that the Government this week submitted two further reports to the inquiry. These two reports have just been completed, and the Government thought it right that the information contained in them should be made available to the inquiry. Had the reports been kept secret and the inquiry allowed to go on, I think that when it eventually became known that the reports were in existence the Government would have been open to criticism for not having put all the information available before the inquiry and given the various people at the inquiry a chance to comment on it. But we hope that the inquiry will proceed speedily and be completed in the near future.

I have taken the view at the same time that probably the most urgent aspect of North Sea oil development for Scotland at present is the tremendously important matter of maximising the participation by Scottish and British industry in the supply of goods and services to the offshore operators. We want British industry involved, especially in those areas where jobs are badly needed.

In that connection my hon. Friend the Member for Fife, Central referred to the IMEG Report and asked whether we intended to implement its recommendations. He referred to the need for further training and education facilities. The Government agree that this is a very important area. If we are to have the maximum indigenous participation, we must be prepared to invest in training courses and in higher education for the oil industry, in the whole range of training, to create the indigenous skills which will be required.

I do not wish to go over each recommendation in the IMEG Report and comment on it. I assure my hon. Friend, however that the Government are looking at the report again. We are concerned to achieve the objective set out in the report, which is to obtain for British industry as big a share as possible of this huge new market. It is a market which the report estimated to be something like £300 million a year. That estimate relates to outdated figures of the likely flow of oil, so that £300 million is probably a modest estimate of the annual size of the offshore market.

We are determined to achieve more oil-related jobs in the areas which need jobs and to get them on the right terms. By "on the right terms" we mean as far as possible in the places where we particularly need more jobs and as much indigenous ownership and control of the investment, new expertise and technology as is possible. Of course we welcome foreign investment and the expertise that foreign companies bring with them, but we should not lose sight of the fact that if we are to develop a long-lasting oil-related industry which will be there when the companies have moved into other waters, we can do it only if it is an indigenous industry in which we own the new technology, techniques and expertise which is developed.

I am pleased to inform the House that recently I made my first visit to the Offshore Supplies Office in Glasgow. That office was set up by the previous Government following the IMEG Report. Although they did not accept the recommendation for a PSIDB, they set up the OSO.

I should like to see more people based in Glasgow, but I must pay tribute to the work that is being done. I was tremendously impressed by the way in which those concerned go about their tasks and by the close liaison they are maintaining with officials in the Department of Industry. It is important that the Offshore Supplies Office, which is now within the Department of Energy, should work closely with officials in the Department of Industry who are responsible for operating the Industry Act.

On the important matters of maximising investment by British industry and new jobs, we must be aware of the crucial importance of a real British capability in research and development into the new techniques required in this sector. The IMEG Report spelt out some of the areas where it is important to carry out more research and development. If we are to develop an industry that will be with us after the oil in the North Sea is exhausted, it can be done only if we have the necessary research and development at the forefront to break new ground.

Hon. Members will be aware that this is a completely uncharted area for the companies. They have no experience of the tremendously demanding and difficult conditions in the North Sea. We are already talking of moving into very deep waters. We now have an opportunity to develop an indigenous industry which depends on advanced and sophisticated technology. The Government are determined to establish a long-term industry and to spend the necessary money on research and development. A working party with outside experts has been set up to try to establish the areas where it would be in our commercial interests to concentrate our research and development.

I shall now attempt to summarise my answers to some of the questions that have been put to me. My hon. Friend the Member for Fife, Central asked whether we would seek to keep the House continuously informed of developments in this sphere. I certainly take his point. It is absolutely essential for the Government to start to get control of the situation. It is important to introduce legislation as soon as possible to rectify the present disturbing position regarding the inadequate take that the Government get from the operation and the amount of public participation and control. It is also important to spell out to the House and to the country what is happening in this fast-moving industry.

My hon. Friend the Member for Fife, Central has a Question down to the Prime Minister on the specific responsibilities of the Minister of State, and I am sure that he would not expect me to anticipate the reply he will receive.

I think that I have covered most of the points raised by the right hon. Member for Orkney and Shetland.

The hon. Member for Dundee, East (Mr. Wilson) referred to the technical question of maximising the gas that is associated with the oilfields. There is no argument about this in principle. The Government recognise that it would be a tremendous sacrifice if we were to lose some of this valuable energy. I cannot at this stage guarantee that there will be no flaring of the gas, but our objective is to make it minimal and I shall be disappointed if we cannot organise this in such a way that we waste as little as possible of this valuable energy.

This is a big field. There are a variety of measures which the Government could introduce to tackle the problem. The Ministers at the Department of Energy have been in office for about two weeks—less than that in my case—and I am sure that hon. Members do not expect me to be in a position to state in detail precisely what measures we intend to introduce to ensure that the British people obtain the maximum benefit from the oil.

What I can do is repeat what is in the Queen's Speech, namely, that the Government regard this as an urgent matter and take the view that all necessary steps must be taken to obtain for the people of this country the maximum benefit from the oil and gas off our shores.