§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Newton.]
§ 10 pm
§ Sir Anthony Meyer (Flint, West)On 8 November last year, my hon. Friend the Under-Secretary of State for Energy, the hon. Member for Croydon, Central (Mr. Moore), announced to the House that the Government and the National Coal Board had decided that the Point of Ayr colliery in my constituency was the most suitable site for pilot plants to make oil from coal. My hon. Friend pointed out that the decision whether to go ahead with these plants would be taken in the light of cost estitnates which would be available in the spring of this year.
I need hardly say how warmly that announcement was received in my constituency. The decision was taken as a tribute to the excellent work clone by management and workers alike at the Point of Ayr pit and to the very healthy state of industrial relations there, which is due in large measure to the extremely responsible attitude of the two unions locally.
It was not just the prospect of some 180 jobs in the construction of the plants and a substantially larger number in their operation when they were erected. It was not even the hope of many more jobs from 1985 onwards if the operation of the two pilot plants showed that the process was commercially viable and the decision was then taken to go ahead either with a demonstration-scale plant using some 200 tons of coal per day or a full-scale commercial plant using 2,500 tons per day. Goodness knows, these jobs are badly needed in an area which has been hit simultaneously by the largest steel closure in the Western industrial world and by the textile crisis and which has gone in a matter of months from a position well below the national average to not far short of double the national average level of unemployment.
On the basis of jobs as well as on the basis of the work record, my area's claim to this project is surely incontrovertible. But it is not merely in the number of jobs that this project is so vitally important to this part of North Wales. It is important above all because it will bring to the area and to the mining industry in the area the high technology opportunities which have been so conspicuously lacking there and which have so beneficent a spin-off in stimulating other activities, in raising standards in education and training and in attracting new investment into the area.
I hope, therefore, that there is no risk of anything going wrong with this programme. Speculation is already beginning to appear that the cost of each of these two pilot plants, originally estimated at some £32 million, has now been revised upward to £55 million or more, and recently I have heard a figure of £64 million mentioned.
Naturally, this raises fears that the Treasury—whose very laudable determination to cut public expenditure all too often causes it to lose sight of the vital distinction between non-productive current expenditure which must be trimmed, however painful the consequences, and highly productive capital expenditure which ought not to be trimmed, however great the need—may even now be lifting its axe to this highly desirable capital project. I hope that my right hon. and hon. Friends in the Department of Energy will fight for this desperately needed scheme.
295 I am well aware that even at the present very high level of prices it is still not economic to extract oil from coal. I am not one of those alarmists who believe that the world will run out of oil altogether. But it appears to be indisputable that, as geologically easy or politically stable oilfields become exhausted, the price of oil will rise towards the level at which it becomes commercially profitable to extract it from what are known to be the world's gigantic reserves of coal.
Of course, there is the argument that, even when that cross-over point is reached on the oil-from-coal graph, it might still be cheaper to import the oil processed from coal, just as it would no doubt at present be cheaper to import all our coal. However, that is a dangerous, unworthy and foolish argument. It would make us totally dependent on imports for our very life-blood, which, in the event of hostilities, would bring us to our knees in a week, would expose us to grave danger in the event of a sudden political crisis or an earthquake in some foreign country, and would cast away our principal asset, namely, our huge energy reserves. I doubt whether even the Treasury, pursuing short-term economies, would dare to advance that argument.
Much more plausible is the argument that we should import not coal-based oil but the technology of making oil from coal and that we should leave the research and development to others and then exploit, under licence, whatever turns out to be the most efficient process discovered by others. No doubt, the ghosts of Concorde, the TSR2, Blue Streak and others still stalk the corridors of Whitehall. The frontiers of knowledge are dangerous places for careful civil servants. But to reason thus is to ignore the lead that the National Coal Board has already built up in that area. The NCB, in partnership with BP, is ready to exploit two processes developed by the Coal Research Establishment each of which is more promising for commercial exploitation than the methods at present in use in South Africa or anywhere else.
To take the easier and safer option of importing technology would be to cast away the opportunity to maintain our lead in an area where we enjoy huge natural advantages in the form of proven coal reserves. Above all, if we opt out of the leadership in that area, where we have everything going for us, what conceivable claim could we have to be a leader of any sort among the industrial nations? We should be deliberately choosing to become a nation of unskilled operatives dumbly carrying out the routines devised for us by other and cleverer men. It is surely in the area of energy, above all, that Britain has an important contribution to make both to Europe and to the world. Is that contribution to be simply that of a place where the coal reserves happen to be? Are we to be the backward Arab sheikhdoms of the next century, with our unearned riches exploited by the skills of others and by the manual labour of our own people?
The flight from greatness—indeed, from ordinary responsibility—must stop somewhere. Surely, this is where it stops.
§ Mr. George Grant (Morpeth)May I support the hon. Gentleman?
§ Sir Anthony MeyerI should be grateful for the hon. Gentleman's support, but perhaps I should continue.
296 Even if we are talking of funding the entire operation from taxpayers' money, the sums involved—even at the upper limit of £60 million for the two pilot plants—are trivial in comparison with the hundreds of millions that we are spending in a vain effort to cling to jobs in obsolete industrial processes. I sincerely trust that, in this matter at least, the Department of Industry is on the side of the future and not of the past.
It is not only public money that is available. In addition, there is the participation of BP. There is also the European dimension. We have heard far too little about the involvement of the EEC, or, more properly, the ECSC. As I understand it, the Community has committed about £3.5 million to the super-critical gas solvent extraction process trials. There is as yet no commitment to the liquid solvent extaraction process, which is the other process that is being tried out. That seems hopelessly inadequate by way of European involvement. If it is inadequate, is it partly because the Department has been somewhat reserved in its attitude towards European energy policies? I am sure that the National Coal Board under Sir Derek Ezra's leadership can have had no such reservation.
Ever since my right hon. Friend the Prime Minister secured the drastic revision of Britain's budgetary contribution, the European Community has been casting about for sensible ways of putting Community funds into Britain to match the contributions that we make through the common agricultural policy. Here would be a glaring example of European money well spent. Why is the European contribution so miserably inadequate? After all, £3.5 million is peanuts. I hope that my hon. Friend the Under-Secretary will be able to assure me that his Department will seize the opportunity with both hands.
Europe needs to invest in Britain and Britain badly needs investment capital. In this project of getting oil from coal, we have a marvellous and unique investment opportunity. Seldom can there have been so good a bargain to both sides or one so superbly timed. My constituents—especially my mining constituents—will be listening with great care to what my hon. Friend has to say.
§ Mr. Tam Dalyell (West Lothian)The Under-Secretary of State is a generous man. I think that he will concede that a great deal of work was done by his predecessor, my hon. Friend the Member for Midlothian (Mr. Eadie), who is my parliamentary neighbour and who for personal reasons cannot be present. I hope that the House will accept his apology.
I merely want to ask whether anything has become of the project that was dear to Jimmy Cowan, the former director of the Scottish area of the National Coal Board, who is now a full member of the NCB. Will there be some sort of project at Kinneil near Bo'ness?
§ Mr. George Grant (Morpeth)I do not want to take too much of the time of the Under-Secretary of State. The hon. Member for Flint, West (Sir A. Meyer) raised this issue in a serious manner—I agree with every argument that he has advanced—because of his constituency interest. A great deal of money has been spent on research and development. That has not been confined to the Point of Ayr. There are many other areas awaiting investment 297 in the development. It is vital to Britain that the development should go ahead when it is set against the background of world energy supplies.
When we were discussing the Coal Industry Bill in Committee, the Government said that liquefaction would not be part of the NCB's restricted finances. When will the money be made available? A long wait will be to Britain's detriment.
As I said, I support the hon. Gentleman's case. We are discussing a development that is in the national interest. I' plead with the Government to make the money available that will enable Britain to remain in the fore. The money is needed now, not only for the Point of Ayr but for all the other areas where this remarkable technology can progress.
§ The Under-Secretary of State for Energy (Mr. Norman Lamont)I begin by conveying to the House the regret of my hon. Friend the Under-Secretary of State for Energy, the hon. Member for Croydon, Central (Mr. Moore), who has special responsibility for coal. I present his apologies for not being here tonight. The House may be interested to know that he is in the United States. Among other things, he will be looking at work on liquefaction, fluidised bed combustion and in situ gasification. He will obviously take the opportunity to measure the work being done in this country against that in the United States.
My hon. Friend the Member for Flint, West (Sir A. Meyer), in raising the question of the United Kingdom's coal liquefaction programme, has brought to the fore the concern that we all feel and that was echoed by the hon. Member for Morpeth (Mr. Grant) about what will happen when our North Sea oilfields are no longer able to meet our needs. Our Western society is heavily dependent on oil, some countries more so than others.
It is argued that our highly industrialised society has become over-dependent on oil, but oil has provided a basis for many of the improvements in living standards that we have enjoyed over the past 25 years—fuels for industry, transport and the home, feedstocks for the chemical industry, the source of the plastics and synthetic materials that play such an important part in modern living. Those are just some of the important uses that oil has.
My hon. Friend did not agree with people who talk of the world running out of oil. I agree. However, what will happen as oil becomes scarcer and dearer? That question is being addressed seriously in most countries, together with the problems created by OPEC's determination to preserve and maximise its return on what it now clearly recognises as a short-lived but extremely valuable asset.
Natural petroleum is a complex mixture of hydrocarbons. Coal can be similarly regarded, although it is even more complex. Oil is a liquid, convenient to handle, transport and store. Coal is a solid, with all the drawbacks that that brings. However, because we have a strong coal industry, which has survived the intense competition created by the cheap oil era of the 1950s and the 1960s, we have retained much of our expertise on coal utilisation.
The first priority for the oil consuming countries of the industrialised world is, of course—as has been recognised with the EEC and the International Energy Agency and at the Venice summit earlier this year—to reduce dependence on oil through energy conservation efforts and substitution of other fuels. The first major opportunities 298 for substitution lie in power station and bulk industrial use of oil. The United Kingdom's strength in coal and the infrastructure that we possess have already enabled us to make substantial progress in reducing oil- burn in electricity generation.
The next priority market for our own coal industry-and for coal suppliers around the world, as opportunities in electricity generation are taken up—will be the industrial market. It is in these two areas that the substantial early gains can be made that will help to ease pressure on world oil supplies and spin out our own limited oil resources.
That is a rather lengthy introduction, but I hope that it sets the background and perspective for the production and use of synthetic fuels in the United Kingdom.
Unlike the Amercians, whose objectives in coal liquefaction have been dominated by a requirement for non-premium liquid fuels—heavy fuel oil in power stations—to enable clean air standards to be met our programme has set its sights firmly on the premium liquids—the transport fuels and chemical feedstocks that play such an important role.
The National Coal Board started work on coal liquefaction about 10 years ago and has conducted a research and development programme that can stand comparison with anything done anywhere else in the world—often in countries possessing significantly greater resources. It is a measure of the inventiveness of the board's scientists and engineers that not one but two processes of considerable merit have emerged. One uses a heavy coal-derived liquid to dislodge the hydrocarbon structures within the coal substance; the other uses supercritical gases.
In 1978, the work had reached the stage where serious thought could be given to taking the work out of the laboratory and building pilot plant of sufficient size for a start to be made on the engineering development needed to move the processes towards commercial exploitation. In February 1979, the hon. Member for Midlothian (Mr. Eadie)—the hon. Member for West Lothian (Mr. Dalyell) was right to pay tribute to his work on the subject—as Under-Secretary of State for Energy signed an agreement with the chairman of the National Coal Board which provided Government support for design studies to be made on two 25 tons per day pilot plants to enable the board to develop further its liquid solvent extraction and super-critical gas solvent extraction processes. At a later stage BP became associated with the project, and the oil industry experience that it has brought to the project has proved invaluable. This work is now complete and the results are being studied in depth.
At this point, two questions pose themselves. One is, when is the United Kingdom likely to need synthetic liquid fuels based upon coal? The second is, what must we do to ensure that when the time comes we have the technology and expertise needed to provide these fuels?
I am not sure that I can provide definitive answers to these questions tonight. There are many imponderables. The Government recognise, however, that there are important factors that relate to the markets for indigenous coal, opportunities for the process plant industries and employment which must be weighed in the balance before decisions can be taken. We start from a position of some disadvantage in that, while our coal resources are abundant, the seams are deep and mining costs are high. Despite an efficient industry and work force, British coal 299 is not cheap by world standards. It is vital that both management and unions take full advantage of the Opportunities created by the massive investment in the industry made under "Plan for Coal" and after. Making the best possible use of our vast coal resources depends crucially upon the industry achieving the performance and efficiency which the investment is designed to produce.
The period to the end of the century will see several oil-from-coal processes reaching commercial application. Most of these will be American, since their development work is further forward and their need is more urgent. A wide choice of processes is beginning to emerge and many of these will have worked their way through the inevitable difficulties that accompany new processes. Their economics will be firmly established by the time a United Kingdom need for synthetic liquids begins to develop
On present forecasts, that is likely to occur some time around the turn of the century. However, much will depend upon the use that we make in the interim of our North Sea reserves. Coal, of course, will have a part to play in this. The more coal we burn in place of expensive fuel oil, the more effective will be the use we can make of our crude oil reserves by preserving them for the premium uses to which oil is best suited. We must also bear in mind that our natural gas reserves are finite and that at around the turn of the century we shall probably need to start producing substitute natural gas from coal. The demand for coal-based gas is likely to increase during the early part of the next century. I agree with my hon. Friend that a United Kingdom initiative in coal liquefaction must not be allowed to suffer the same fate as other examples of ill-fated excursions to the frontiers of technology, such as those mentioned by my hon. Friend. The United Kingdom liquefaction processes must, therefore, look first to the opportunities offered in the countries which will wish to liquefy coal earlier than will the United Kingdom.
A programme of development aimed only at meeting United Kingdom demands runs the risk of having limited objectives and of working to a time scale that lacks the urgency of competing programmes in other countries. The resources that will be required to bring United Kingdom technology to the point of commercial exploitation are considerable. It is, therefore, important that clear business objectives are identified.
The correct way forward is to secure the involvement of industry, particularly the oil industry, which in effect is the customer for this technology. In that way, its worldwide experience can be brought to bear, and in that way partnership with industry will also allow the sharing of risk as well as the rewards in due course.
§ Mr. George GrantWill the Minister give way?
§ Mr. LamontI am sorry, but I cannot.
Earlier this year the Department of Energy received the results of preliminary design studies carried out by Matthew Hall Ortech for a dual pilot plant facility at a site at the Point of Ayr colliery in Clwyd for the two liquefaction processes that the NCB has developed—the LSE and SGE processes. For a facility capable of operating at nearly 25 tonnes a day on either stream, the estimated cost at 1980 prices will be £34 million for construction over the period from 1981 to 1984, with a further £21 million for operation from 1984 to 1987.
300 As my hon. Friend pointed out, the European Community is providing financial support for the NCB's supercritical gas extraction pilot plant. This falls in the first round of the Community's alternative energy demonstration programme and covers only the design and construction phases. The question of aid for the operational phase and, indeed, support for the board's LSE process, which my hon. Friend raised, is being considered in the discussions presently taking place on the possible enlargement of the Community programme.
Concurrent with the design studies for Point of Ayr was a study carried out by an independent process engineering consultant—the Badger Corporation—which sought to compare the economics of the NCB's processes with those of some of the major United States processes currently under development. The results of this comparison may be of interest to hon. Members.
The first point to be made is that the estimated cost of producing oil from coal in the United Kingdom is still some way from being competitive. Using coal at current United Kingdom pithead prices, the average cost of finished products such as petrol, diesel or LPG would be about 25 per cent. higher than if made from crude oil. Put another way—and if the mathematics seem a little odd that is because of the way premium products are priced relative to crude oil—crude oil would need to increase in price by about 50 per cent. and the price of coal remain constant before oil from coal began to look competitive in the United Kingdom.
But, of course, an increase in crude oil prices of this magnitude over the next couple of decades cannot be ruled out. In any event, a start will soon be made on commercial liquefaction in other countries that have coal resources but not our access to indigenous oil. This is likely to provide firmer figures for the economics of oil from coal and help materially in developing our strategy.
The second point that emerges from the study is encouraging. The study suggests that, on the basis of producing premium products, the NCB's processes could offer substantial advantages, both on capital costs of plant construction and on thermal efficiency, over present United States processes.
I can tell the hon. Member for West Lothian that Kinneil was considered as a possible site for the oil-from-coal pilot plants during the initial stages of the project. However, Pount of Ayr possessed advantages over Kinneil, and so the decision was to base the pilot plant design on the former. I shall see whether there is anything further that I can add, and I shall write to the hon. Member.
The processes should, therefore, be of wider interest and potential than just to the United Kingdom. We are anxious to explore this further, and we need to look at the results of the design and comparison studies in an international dimension. It is because of these important factors, and not the shadow of the Treasury axe, that the Government have not yet announced their decision. Because it is so important to map out carefully the way forward and to make certain that we start on the right foot, it has become clear that our appraisal will take longer than was originally expected. This means that we are unlikely to be able to make any announcement until sometime in the new year—
§ The question having been proposed at Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
302§ Adjourned at half-past Ten o'clock.