North Sea Oil Prices

HC Deb 28 March 1983 vol 40 cc3-5

3. Mr. John Smith

asked the Secretary of State for Energy whether he will make a statement on North sea oil prices and their impact upon the British National Oil Corporation finances.

14. Mr. Chapman

asked the Secretary of State for Energy if he will make a statement on British oil pricing policy in the light of the recent Organisation of Petroleum Exporting Countries meeting in London.

The Secretary of State for Energy (Mr. Nigel Lawson)

North sea oil prices are determined by the market, as indeed they always have been. BNOC's financial position depends on trading conditions, not on the absolute price of oil.

Mr. Smith

Is the Secretary of State aware that the price of North sea oil is probably the most important economic factor in this country at present, and that he has either been silent on the subject or his statements have been as opaque as the one that we have just heard? Should not the Government announce their policy on the price at which they want North sea oil to be sold? Does the right hon. Gentleman not appreciate that by breaking BNOC into Britoil and the BNOC trading arm he will land the latter with millions of pounds of losses, which will not be compensated for by profits from the production side?

Mr. Lawson

The separation of the former BNOC into two parts makes no difference to the activities or finances of the trading side. If the trading side makes losses there are provisions under section 6 of the Oil and Gas (Enterprise) Act—as the right hon. Gentleman should be aware—for grants to be paid to make them good. It would be absurd for the Government to declare the price at which they would like oil to stand, and it would have no effect. BNOC seeks to sell its oil in the market place in a way that is conducive to the greatest stability.

Mr. Chapman

Does my right hon. Friend agree that a moderate fall in world oil prices would be beneficial to the United Kingdom's economy as we export so much of our industrial output? Is not the real lesson of the past decade that the erratic and dramatic changes in oil prices by the OPEC countries are damaging to world trade, and thus not only to every other country but to the OPEC countries themselves?

Mr. Lawson

I entirely agree with my hon. Friend. The existence of a cartel led to a more dramatic rise than would otherwise have occurred. We are now in a phase of adjustment because market forces have prevailed, as they always do. I agree that the gradual fall that has occurred has benefited both us and the world and that an exaggerated fall would be undesirable for the reasons that my hon. Friend has stated. My hon. Friend is also right to imply that the right hon. Member for Lanarkshire, North (Mr. Smith) was quite incorrect to suggest that the price of North sea oil is the biggest single factor determining the health of the British economy. That is just not so. The total value of North sea oil is only 5 per cent. of gross domestic product.

Dr. J. Dickson Mahon

Is BNOC free to determine its own pricing policy? If it is not free to do so, is it not high time that Britain held conversations with the Nigerian Government so that we do not witness a very damaging trade war between Nigeria and Britain on the subject of light oil?

Mr. Lawson

I have no particular wish to see a trade war with any country, but the sequence of events was that when BNOC proposed a $3 fall in its price for North sea oil, the immediate response was a $5.50 drop by the Nigerians.

Mr. Smith

If the Secretary of State feels that pricing should be left entirely to the market, why did he call in oil companies to discuss the subject, or were they merely discussing the weather or some other issue? Is the right hon. Gentleman saying that if the price of oil plummeted he would stand back and do nothing about it?

Mr. Lawson

Unlike the right hon. Gentleman, I do not profess to know all the answers and I find it helpful to discuss these matters with the oil companies and, indeed, with BNOC.

Mr. Skeet

What is the price of North sea Brent oil? Is it the $30.50, which has not as yet been accepted, $29.or $29.50? We do not know. If the differentials have fallen well out of alignment, should not my right hon. Friend now recommend a correction.

Mr. Lawson

It is not for me to recommend anything, but it is for BNOC to sell its oil at the best price that it can obtain in the market place. Some time ago it proposed a price of $30.50 a barrel, which some companies have accepted and others have not.

Mr. Douglas

How would BNOC's finances look if the price of North sea oil fell to $24 or $25 a barrel? What losses would the Secretary of State anticipate for BNOC? How many representatives from different OPEC countries did the Secretary of State meet? Indeed, will he confirm that he met the representatives of five OPEC countries during those discussions? What exactly did he say to them about the international price of oil?

Mr. Lawson

I pointed out in my original answer, which was by no means opaque, that it is not the absolute price of oil that determines the profits or losses of the trading organisation BNOC, but conditions in the market place, margins and so on. I cannot remember the precise number of OPEC oil Ministers that I met, but I certainly had discussions with them individually, and they were confidential.