HC Deb 17 October 1975 vol 897 cc1822-34

4.1 p.m.

Mr. T. H. H. Skeet (Bedford)

With the five-fold increase in oil prices, the energy position in the EEC is critical. Several of the nations are better endowed with resources than others, but all are economically interdependent under Community law. The EEC has limited reserves of oil and coal and, with the exception of the Netherlands and the United Kingdom, the remainder have limited quantities of natural gas.

By 1985 United Kingdom and Norway, which is not a member of the Community, could produce from the North Sea two-thirds of current EEC demand. On the other hand, indigenous oil production in the Federal Republic of Germany in 1974 was 6 million metric tons, in Italy and France about 1 million metric tons and a shade more in the Netherlands. For the United Kingdom, 16 million metric tons in 1976, if the time schedules are maintained, means that self-sufficiency in energy is envisaged, but this happy position is unlikely to be repeated in the rest of the Community. The Commission has decided, for reasons that may be readily appreciated, that the quantity of imported oil must be substantially reduced.

The United Kingdom is potentially by far the largest producer of coal. Germany produces 100 million tons plus and France 25 million tons, but production in Italy is negligible, and has ceased in the Netherlands. To meet the demand for coal in 1975, the EEC will have to import 40 million tons, thereby increasing export opportunities for the National Coal Board. Apart from the supplies in Norway, the United Kingdom and the Netherlands, there are relatively small quantities of natural gas in Europe. About 40 trillion or 45 trillion cubic feet, which Britain has available on the Continental Shelf, are likely to be allocated for indigenous consumption. Gas on the Continent is primarily supplied by the Dutch, with supplementary quantities from outside the Community.

Against the background of relative abundance on one side and sparse resources on the other, Britain's narrowminded views on the North Sea are beyond my comprehension. The United Kingdom owns that part of the reserves of the Continental Shelf on the British side of the median line and will continue to do so. The Commission has not attempted to deny the Dutch the rights to their own natural gas. Many hon. Members match extraction rates with rising United Kingdom demand. This would be a short-sighted policy, and would make only a small contribution to the United Kingdom's economy.

Henri Simonet, Commission Vice-President for Energy, has referred to the United Kingdom's "obsession" with North Sea Oil. He said in the European Parliament, in July 1975, that the United Kingdom could not ask for EEC measures to guarantee a profit from the North Sea and at the same time insist on keeping all the oil for itself.

An article in the Economist last week said: Britain wants the Nine to commit themselves, at the very least, to supporting a minimum selling price for oil". The United Kingdom cannot have it both ways. The Government spend most of the time counting the wealth while opportunities slip imperceptibly by.

Britain must think in European terms about its North Sea potential and emulate the foresight of the Dutch, who have not attempted to hog their natural gas. They have made it freely available to their Community partners. Gasunie, the distribution agent in the Netherlands, is scheduled to produce 97,000 million cubic metres of gas in 1975, allocating 47,000 million to the home market and 50,000 million to export to such countries as the Federal Republic, Belgium, France, Italy and Switzerland.

The benefits of this policy are immediately apparent. Without earnings from natural gas exports the Dutch current account for 1975 would have been a sizeable deficit of 6 billion florins. As it turns out, with 50 per cent. of the gas exported, a surplus of 4 billion florins was returned. If the Dutch had depleted the Groningen reserves to suit their domestic requirements, such a policy would have been implemented at the expense of their neighbours and their current account would have continued in deficit, with enormous reserves of gas left in the ground to be extracted at some future date when alternative fuels might be available seriously to erode the border price of the natural gas. The reserves of this Groningen field will not be depleted until approximately 1990. If it were left only to the Dutch, they would last Holland into the twenty-first century.

There is no question of a lack of availability of oil in the United Kingdom. While one hesitates to agree with Professor Peter O'Dell, of Erasmus University, Rotterdam, in his computerised projections that for 14 years from 1982 the North Sea could produce gas and oil in excess of Western European demand, and that self-sufficiency based on North Sea reserves could extend well into the next century, at least his calculations, pared down, give some indication of the quantities of oil and gas available. The Government's legislative approach, both in the Oil Taxation Act and in the Petroleum and Submarine Pipe-Lines Bill, has tended to make the marginal fields uneconomic, and thus reduce availability, but in the appropriate fiscal and administrative climate even fields of 100,000 to 150,000 barrels a day could be developed to suit consumer requirements. Can Britain afford to be so niggardly with her European partners? Can Britain select the advantages of membership and reject a reasonable contribution to the common cause for which it would be so handsomely rewarded?

The Government have shown a "little England" mentality in recent negotiations to retain a separate seat at the energy and raw materials conference which is scheduled to take place in Paris in December rather than presenting a united view in the Community. Having freely accepted the benefits which are likely to accrue from the Community, it is urgent that Ministers should learn to honour the obligations which arise from membership, and if Britain continues to demand a seat at the conference it could incite Holland to advance its claim as a major exporter of natural gas and France, the Federal Republic and Italy as major product consumers. Britain would rest on stronger grounds if it asserted its case on the basis that London is both the leading commodity centre and the principal European financial centre. This might enable the negotiators to argue a case more cogently for separate representation on two of the four separate commissions—raw material and finance—leaving the Community to represent Britain's views on energy and development.

After all, it is not expected that any decisions will be reached at the series of conferences. The most that can be hoped for is that in the consumer-producer dialogue problems may be identified and a common approach evolved on some issues which might lead towards future settlement of these outstanding matters.

It has been observed in this House for many years that the Socialists in Britain are the most meticulous planners in Europe. They have decided through some niceties of the Oil Taxation Act the profit to be left to producers, and they have loaded production units with the most complex set of licence conditions to be found anywhere in the world. Petroleum law has become so complex that production of the commodity has become a secondary consideration. Development land, if I may turn to another sphere, is about to be nationalised, and, through planning, it will completely disorganise the flow to the market. It is ironic that the super-planners, when faced with a comprehensive energy policy calculated to help their partners and themselves, should have produced this myopic and insular approach.

Oil should be treated and traded like any other commodity. That is not the philosophy which the Secretary of State for Energy has adopted. He told his counterparts in Europe in July that Britain's North Sea oil would not be shared out in Europe as though it was just any other article of commerce.

Apparently, the Government's determination to acquire a 51 per cent. participation in North Sea fields derives from the fact that they wish to limit production as near as possible to domestic consumption. Generally speaking, British exports are not subject to any Government control or direction. Statutory authority arises under the Import, Exports and Customs Powers (Defence) Act 1939 for dealing with a very limited number of commodities. To extend Government hegemony over a much broader field would contradict Article XI of the GATT, infringe Article 34 of the Rome Treaty and conflict with the letter and spirit of our obligations within OECD. In my view, the Government should pursue the following policies.

First, Britain should maximise the production of oil consistent with good oilfield practice for the benefit of itself and of the Community of which we are full participating members, and, after supplying the requirements of the home market, make it available to our partners at world prices.

Second, we should equip ourselves through the building of indigenous export refineries or by adapting existing ones to make full use of the added value element in oil.

Third, we should utilise the proceeds derived from the rapid encashment of North Sea oil to revitalise British industry, pay off accrued debt and replenish our balance of payments. Further, Britain should utilise the providential advantage of natural resources to obtain trade advantages for the United Kingdom in overseas markets. It may pay to keep an eye on the Japanese oil market, which is heavily reliant upon oil imports, and, indeed, the United States market, which is geared to the lighter end of the barrel.

Fourth, the Government should allow the chemical industry in the United Kingdom to have ready access to its feedstock from the North Sea, be it naphtha or natural gas, unencumbered by unreasonable levies or taxes.

Fifth, natural gas should be allowed to rise to at least 25 per cent. of total energy consumption at the earliest practical date. The fuel should be confined as far as possible to the domestic market and premium users in industry and commerce. Although it is not expected that the continental gas sources will be coupled to the United Kingdom grid, in forward planning Britain should not lose the opportunity of further diversifying its source of supply, as those in the Community have sedulously been developing for some time.

Sixth, Britain should continue to welcome overseas investment, including that from the EEC, particularly to aid investment in areas not otherwise economically viable without additional funds. Community Continental Shelf tax law should be harmonised to facilitate exploration and development.

Seventh, provided that the production of coal is economic and prices of the commodity do not move seriously out of line with other energy sources, coal production in the United Kingdom should be expanded to accommodate a sizeable share of the home market, thus making additional supplies of low-sulphur oil available to overseas buyers. A national reserve should be allocated to conserve a sizeable area for development at a later date as one of Britain's ultimate sources of energy.

A depletion policy is valuable in so far as it is consistent with good oilfield practice, but beyond that point the policy has little real significance in contemporary conditions. The policy is unrealistic in the context of a large balance of payments deficit. Moreover, it could deter investment if the economics of extraction and production are invalidated. Early implementation of depletion policy could be ruinous if opportunities in the market are missed and oil from abroad becomes available lated at cheaper prices.

As North Sea oil production costs are relatively expensive compared with those obtaining in the Middle East and elsewhere, Britain should ensure that the United Kingdom has a continued market for its products in the Community; thus, a depletion policy is realistic only if it is interpreted as part of an EEC energy policy, but it should not be dictated to us by the Commission. I am certain that that observation will have the agreement of the Under-Secretary of State.

It will, in my view, be the trend in energy for every nation in the Community to continue to maximise the use of whatever individual resources lie within or adjacent to its borders—for example, coal and coal lignite and, to a limited extent, natural gas in the Federal Republic, and nuclear energy in the Federal Republic, France, perhaps Italy, and probably to a lesser extent the United Kingdom for fear of injuring coal's most valuable market in the electricity industry. Though individual programmes may vary, it is possible to find a common denominator for a Community energy policy provided all negotiators are sincere in their endeavours. That is a matter that the Government will have to consider. No doubt the National Coal Board would welcome a broader market on the Continent and oil could be suitably phased into the European energy programme for the reasons I have stated.

Flexibility in the evolution of the policy would best be maintained by permitting private firms to operate within a reasonable statutory framework. For that purpose independent conservation boards would be most apposite. The proposals that the Government have set out in the Petroleum and Submarine Pipe-Lines Bill are too complex and too cumbersome. The dirigiste proposals of the Government in France in relation to ELF and the Erap group may be overtaken by events and the disenchantment with ENI in Italy as a result of continuous political involvement and undertones may lead to substantial and unforeseen changes in the State monopoly.

Political controls of industry are cyclical in nature. Tight controls in one era are the precursor of looser dispositions in another as the public begin to weary of the failure of such policies as illustrated in Brazil, Argentina and elsewhere. Nothing is so permanent as change, and the trend towards socialisation of industry in Europe may be overtaken in the general metamorphosis.

Before concluding, it is only right to say that what I have stated is perhaps heresy in the ears of the Under-Secretary of State. I am sorry for his predicament and sorry that the Secretary of State and his predecessors appear to have embarked on the wrong road. However, Parliament demands that the hon. Gentleman should have an opportunity to express the stance of his own Government as he now sees it.

4.17 p.m.

The Under-Secretary of State for Energy (Mr. John Smith)

The hon. Member for Bedford (Mr. Skeet) concluded his remarks by referring to the possibility that his views might be regarded as heresy by myself and Her Majesty's Government. If it was heresy, it was expressed in his usual engaging way, but it crossed my mind that the hon. Gentleman's views may be regarded as heresy by some of his hon. Friends. The hon. Gentleman has always put forward an individual viewpoint on oil matters. I respect the interest and assiduity with which he follows his interest in oil.

I am grateful for the opportunity which he has given by raising these matters to refute the notion that the United Kingdom is in some way trying to block progress towards the adoption by the European Community of a common energy policy. I refute the implication, if not the stated accusation, of the hon. Gentleman that in some way we have not been honouring obligations or seeking to avoid obligations. I believe that the reverse is true.

In the development of energy policy in a Community concept one needs to decide what sort of common energy policy is desirable. To be fair to the hon. Gentleman, he indicated in some detail what he thought that energy policy should constitute. Our concept of such a policy is one which ensures that Europe's energy requirements are met, taking account of the need for the maximum security of supply and reasonable prices and bearing in mind other factors such as the need to ensure the safety of the public. We reject proposals put forward for doctrinaire reasons based on centralised control of the market which in no way contribute to the improvement of Europe's energy supplies.

We have already worked out with our partners in the Community the objectives of a common energy policy. We have discussed and agreed certain financial support measures for energy projects of common interest, and we are discussing ways in which further support might be given to energy production in the Community. My right hon. Friend the Secretary of State has taken the initiative himself in proposing that the discussions should take place on the basis of national investment plans. We are discussing other matters which will contribute to our joint security of supply—for example, measures to be taken in the event of supply difficulties. All these matters are highly relevant to our concept of a common energy policy.

The Secretary of State indicated his belief that one of the ways in which the Community can formulate a successful energy policy is by comparing national plans, trying to identify an area of genuine common interest, and building upon that. I do not think that that is a negative attitude to take towards the Community. I believe that it is a realistic and constructive one.

The hon. Gentleman suggested that we were too nationalist in our approach. He cites Government policy over the disposal of North Sea oil in support of his argument. The concern which he has expressed seems to be shared by others, notably—as he has said—by the Vice-President of the EEC Commission, M. Simonet. In the European Parliament, M. Simonet has twice commented recently on British attitudes towards the North Sea. I should like to make the position of the Government clear. The position of the Government is perfectly logical and sensible. Given the substantial areas of uncertainty within which we have to develop our North Sea policies, it would not be right to make a snap judgment at the instance of either the hon. Gentleman or the Vice-President of the Commission about our future export expectations before we have all the necessary facts.

The hon. Gentleman referred to the depletion policy. North Sea oil is a finite, exhaustible resource, which the Government are determined shall be used to the maximum benefit of the nation as a whole. If all goes well, the North Sea will produce at least 100 million tons of oil in 1980 and 100–150 million tons a year through the following decade. This level of production should be compared with an estimated consumption of oil in the United Kingdom in 1980 of not much more than 100 million tons. Taking into account the fact that we shall still need to import some heavier crude oils to make particular products, we have said that it is reasonable to expect that up to two-thirds of our North Sea oil will be refined here. This is a flexible objective which will depend on the level of both North Sea production and market developments, and it does, of course, allow for refined product exports as well. It is clear, therefore, that there will be significant quantities of North Sea oil for export in the 1980s, either in crude or in refined form, and Europe has obvious attractions as an export market.

Mr. Skeet

Will the Minister extend his remarks and indicate what proportion of the total will be consumed in the United Kingdom and what will be exported?

Mr. Smith

We have insufficient information with which to make precise predictions. We have been asked to do so by people in Europe and elsewhere. We feel that in the present state of information, especially about the resources in the North Sea—a matter of intense and continuing debate—it is not possible to approach the matter yet in that precise form. However, I have indicated clearly that there will, in our view, be oil for export and that Europe has obvious attractions as a market for that oil. The amount which will be available for export clearly depends not only on the quantity which will be produced but on factors which are as yet difficult to clarify, such as how much oil will eventually be discovered in our Continental Shelf. The development of the North Sea is a continuous process. We are still learning the size of fields already discovered. To some extent the rate of production on the United Kingdom Continental Shelf in the 1980s will depend on how much oil is yet to be discovered. This has been a successful year, with 23 discoveries made in one year.

There are many factors which will govern the level of oil production in the 1980s. All these factors will need careful consideration nearer the time in order to determine, for example, the appropriate rate of depletion of British North Sea discoveries. I hope that discoveries will be made in other parts of our Continental Shelf.

It is unreasonable to ask the Government to commit themselves to the highest possible production in the 1980s simply to demonstrate to our European partners our readiness to export large quantities of oil to them. I think that was the general drift of the hon. Gentleman's argument. It is in any case wishful thinking to expect that Europe's needs could be more than marginally met from North Sea production.

I was surprised that the hon. Gentleman quoted Professor Odell. My recollection of debates on the Petroleum and Submarine Pipe-Lines Bill was that the hon. Gentleman was not then using Professor Odell in the same way as he did in his arguments today. Perhaps the hon. Gentleman warms towards Professor Odell when his arguments suit him and shies away from him when his arguments do not suit him. The size of our resources must be regarded as limited until we have clearer information. Our present proven reserves in the United Kingdom sector of the Continental Shelf are such that they would be exhausted in two years' time if they were used as the sole source of oil for the EEC countries.

Mr. Skeet

Discoveries in the North Sea amount to a total of between 20 million and 50 million barrels in the British sector. If the Dutch had adopted the line the Minister is now suggesting, they would never have allowed their gas to go over the border. I suggest that he should look ahead and accept an element of risk in terms of our balance of payments.

Mr. Smith

Our views on the United Kingdom sector were made clear in the Brown Book. The figures suggested by the hon. Gentleman envisage that we might have possible reserves of 4,500 million tons. I must admit that it is confusing to talk on the one hand of barrels and on the other of tons. I have had recent estimates from the oil companies which go above that, but we are not in a position to be absolutely clear about how much oil there is.

The hon. Gentleman mentioned the Dutch, and it is worth bearing in mind that when the Dutch formulated their policy in regard to gas exports they were in a different situation in terms of energy supplies. The Dutch embarked on their policy 15 years ago and entered into contracts to supply large amounts of gas to neighbouring countries. They have come to rely on valuable reserves of gas, particularly as they have little oil or coal supplies of their own. It is noticeable that they are following more of a conservation policy now by forcing power stations to switch to other fuels and are reviewing existing contracts as they expire. Perhaps the current line of production over indigenous fuels is more in line with the United Kingdom Government's situation than the hon. Gentleman would lead the House to believe.

The hon. Gentleman also raised the question of the United Kingdom's claim to be separately represented at the consumer-producer's dialogue. We believe that we have a strong claim in this respect and that there are differences of interest between member States in the Community. We are far from certain that it is possible to work out a common EEC policy in view of these divergent interests. One of the features of the hon. Gentleman's contribution underlined these divergent interests between Britain and other countries in the Common Market. Therefore, we felt unable to agree that the Community should be the sole and exclusive representative of member States at the conference.

This is without prejudice to our position that we are prepared to make our contribution in preparation of the Community mandate. We wish to underline our co-operation in that process provided that our position is understood. It is reasonable to say that the member States should be represented to the extent that their interests are identical, but that is no reason why the United Kingdom should not have a separate seat so that we can put forward our own ideas where these are not covered by the Community mandate.

I have briefly tried to sketch some of the main features of the common energy policy and the British Government's attitude to it. I repudiate any allegation that the United Kingdom is dragging its feet in the sense that it is seeking to frustrate the achievement of a common energy policy. What I said at the beginning of my remarks shows that we are seeking to be constructive, and my right hon. Friend the Secretary of State for Energy has followed that line in the Council of Ministers, and Her Majesty's Government have maintained it in their communications within the Community and to members of the Community.

We are at an early stage in the formulation of a common energy policy. The hon. Gentleman stressed the strong energy position of this country not just in terms of oil, which is the fuel about which everybody is talking, but in terms of a whole range of indigenous fuels available to this country. We as an energy-strong country in the Community have responsibilities towards the Community, and those responsibilities and obligations will be followed by the British Government.

The hon. Gentleman referred to a number of other matters which are controversial between us, such as the Petroleum and Submarine Pipe-Lines Bill, but the main motivation of his speech was to draw attention to the common energy policy. He and I will not agree on every detail, but I thank him for the opportunity which he has given to the House to discuss this important matter since it has given me the opportunity of making Government policy clear.

Question put and agreed to.

Adjourned accordingly at half-past Four o'clock.