HC Deb 11 February 1985 vol 73 cc23-9 3.47 pm
The Secretary of State for Energy (Mr. Peter Walker)

With permission, Mr. Speaker, I wish to make a statement on the proposed purchase of gas from the Norwegian Sleipner field.

As the House is aware, major negotiations have been in progress for some time between the British Gas Corporation and the licensees of this gas field, which has reserves of some 7 trillion cubic feet, for supply of gas to the British market. Any deal resulting from the negotiations required the endorsement of Her Majesty's Government, and I had made this clear to the parties concerned.

The British Gas Corporation approached me during 1984 with the terms of a provisional agreement under which delivery of gas would start in the early 1990s, reaching a plateau in the mid-1990s at a rate which would be sufficient to meet up to 30 per cent. of United Kingdom requirements and continuing at that level well into the 21st century. The Government immediately examined the details of the contract from the point of view of the broader national interest and thereafter entered into discussions with the Norwegian Government. We explained to the Norwegians that, at the rate of delivery proposed, there was a serious risk that prospective development of gasfields on the United Kingdom continental shelf would be held up. We accordingly sought agreement that the rate of delivery provided for in the draft contract should be reduced. Discussions with the Norwegians on this and other matters continued throughout the remainder of 1984 and good progress was made.

The Government have now reviewed the proposed purchase in the light of the situation which has developed during the period of these discussions. In particular, the Government have been impressed by the results of the recent record levels of exploration and appraisal activity. As a result the estimates of proven and probable gas reserves remaining in the United Kingdom continental shelf, as shown in the Brown Book published in April 1984, have increased by 6.2 trillion cubic feet. As a consequence the Government have concluded that it will no longer be necessary to import gas in the 1990s on the scale anticipated even last summer. Accordingly, the Government have decided not to endorse the draft contract negotiated by the British Gas Corporation for the purchase of gas from the Sleipner field. The Norwegian Government and the British Gas Corporation have been informed of this decision. We recognise that the Governnent's decision will cause disappointment to our Norwegian friends. I emphasise that we shall continue to value the relationship which has developed between our two countries through our common interest in oil and gas matters.

The Government welcome the fact that current and prospective developments on the United Kingdom continental shelf now seem likely to provide sufficient gas to meet the needs of the British market well into the 1990s. However, they recognise that the British Gas Corporation has clear obligations in regard to the security of gas supply. The Government, in consultation with the corporation, will therefore keep under review the likely availability of supplies to meet demand in the coming decades.

The improved prospects for the development of our own offshore gasfields over the next few years will have important and welcome implications for the generation of additional orders and employment in the offshore supplies industry as well as reducing expenditure on imports in the 1990s.

Mr. Stanley Orme (Salford, East)

The statement begs as many questions as it answers. Above all, I find it astonishing that the Secretary of State has made no mention of price. He has based his decision on a major revision of North sea gas reserves. The question is not just about the size of the reserves but whether they can be developed to meet gas demands in the 1990s.

In recent reviews it was assessed that 45 new fields could be developed between now and the year 2000, providing North sea related jobs, but that that would still leave a significant gap between supply and demand. Will the Secretary of State tell us which additional fields he has identified to fill that gap?

In view of the potential demand for gas in the 1990s, will the Secretary of State at least confirm that British Gas will be allowed to consider importing gas in the future if it finds that it has insufficient supplies?

The Secretary of State mentioned the discussions with the Norwegian Government. I hope that the decision will not damage our good relations with Norway. Will he make it absolutely clear that there will now be no question of exporting North sea gas from Britain?

With regard to the future of gas, will the Secretary of State say whether supplies from the North sea will be significantly cheaper than those offered under the Sleipner contract?

What role has the collapse of the pound played in the Government's decision?

The Secretary of State has taken a risk and a gamble on the nation's future gas supplies. The House deserves a much fuller assessment than he has included in his statement. Will he provide it as urgently as possible, so that the House can make a proper judgment as to the extent of the gamble?

Mr. Walker

I understand the views put by the right hon. Gentleman. I understand his fears about supplies, as he does not have the updated detailed information. We shall be making that detailed information available to the Select Committee in the very near future, so it will be available to the House, and the right hon. Gentleman and other hon. Members can then make their judgments on the validity of the improvement in the supply position. It is a genuine improvement and a pleasing one for both sides of the House. Some people think that we are still underestimating the supplies that will be available during the period concerned, but we have made our estimates in accordance with the usual prudent methods employed by the Department, under all Governments.

With regard to price, if we are talking about the price of deliveries in 10 years' time, obviously the exchange rates then prevailing will have an enormous influence. The variation in the currency exchange rate during the period since the contract was originally negotiated shows the degree to which, if the dollar is strong at a particular time, it produces a big variation in the price.

In looking at the availability of our own supplies, as opposed to the need to import them from Norway, my guess is that the availability of our own supplies will mean that prices will be lower than they would have been if we had taken the Sleipner contract—[Interruption.] There is no way in which one can make a valid pronouncement on that. However, that is my genuine guess about the position.

As I made clear in my statement, I accept that there is a statutory obligation on the British Gas Corporation to ensure security of supplies. It is the duty of any Government to ensure that that is so. As I also made clear in the statement, judging by the now known reserves, we believe that far fewer imports will be required in the 1990s than was originally envisaged. On current estimates, it is still likely that some imports will be required during that period. Of course, the BGC will negotiate in consultation with Government—as it always has done—about the possibility of those supplies coming from Norway or elsewhere. While that remains the position the question of exports does not arise, especially if the demand for gas in this country is not met by our own supplies. In the foreseeable future we shall need all the supplies from the North sea. As hon. Members know, at present we are a major importer from the Frigg field in Norway.

I assure the right hon. Gentleman that I have not taken a gamble. We have consulted carefully, and the BGC has increased its estimate of gas reserves since it began negotiations. That implies is no criticism of the corporation because when it began negotiations it was working, perfectly sensibly, on the then known facts.

Several Hon. Members


Mr. Speaker

Order. I repeat that we have a private Members' day today, and it would be very unfair if a lot of time was taken up by the statements. I therefore propose to allow questions to run for a further 15 minutes on this statement, and that goes for the next statement as well.

Mr. Michael Morris (Northampton, South)

Is not the key fact that we now have a rate of increased finds in the North sea? Does that not have major implications for security of supplies and, just as importantly, for British jobs? Can my right hon. Friend estimate how many British jobs will flow from this decision?

Mr. Walker

It is impossible to give any accurate estimate, but, obviously, as we find more gas fields in the North sea there will be substantial investment. As the majority of that investment will come from firms operating in Britain, the availability of more supplies, and new and better discoveries, are obviously good news for jobs, particularly as many of those jobs will be provided in the north east and in Scotland, which are areas of high unemployment.

Mr. Dick Douglas (Dunfermline, West)

In view of his statement, will the Secretary of State give an assurance that he will not in any circumstances permit the export of southern sector gas from the United Kingdom? Will he give some assurances about the finds of probable and possible reserves about which he spoke. The probable reserves are very futuristic. What is the right hon. Gentleman's guesstimate of how long we can be assured of security of supplies? What—

Mr. Speaker


Mr. Douglas

Yes, Mr. Speaker. What is the likelihood of publishing the BGC's background papers, together with the right hon. Gentleman's views, on the contract that he has renounced?

Mr. Walker

Obviously, it is for the BGC to decide what it should publish.

The hon. Gentleman asked about security of supplies. I can only say that the increase of about 15 per cent. in availability that has occurred since we published the Brown Book in July is something that I could not have predicted last June. The hon. Gentleman has considerable experience of, and interest in, these matters, and he will understand the difficulty. Ten years ago, when I previously had responsibility for oil and gas, I was shown predictions which have now been proved to be totally wrong. I hope that that trend will continue, because they are often proved wrong in the right direction for this country. The estimates that we are now making are below those of some oil companies and above those of others. To some extent, because of what is required from the licensing agreements that we have with various fields, is only the Department that has all the detailed information. Thus we believe that there is good security of supply. Judging by present requirements, all the gas in the North sea will be required by the BGC in the immediate future. Obviously, if the time comes when our gas supplies are such that we have surpluses, any Government would have to review the scene.

Mr. Albert McQuarrie (Banff and Buchan)

I am grateful to my right hon. Friend for his statement, because had it not been for the excellent news about reserves additional to those published in the Brown Paper in April the position would have been unfortunate for my constituents. Will my right hon. Friend maintain close liaison with the British Gas Corporation on the question of increased production? Does he agree that that would not only secure existing jobs at St. Fergus in my constituency, but possibly create further jobs?

Mr. Walker

My hon. Friend referred to the Brown Book published in April. He is right. I referred to it as the July Brown Book, but it was published in April. This decision will be helpful for jobs. A great deal of investment will take place in the new fields. In the period leading up to the 1990s there will be further requirements for pipelines, which will also provide more work.

Mr. James Molyneaux (Lagan Valley)

In the light of the Secretary of State's encouraging words about improved prospects for the development of our own offshore gas fields over next few years and his hope that they will have welcome implications, will he look sympathetically at the desirability of extending supplies of gas from the continental shelf to areas such as Northern Ireland, where such gas is not currently avaialble?

Mr. Walker

I shall certainly discuss that with my right hon. Friend who has responsibility for Northern Ireland.

Mr. Tony Speller (Devon, North)

Does my right hon. Friend agree that, although deciding not to buy may or may not be a big decision at this time, it could have traumatic effects upon a supplier who has relied upon a contract, as in this case? May we have my right hon. Friend's assurance that the Norwegian Government—very good friends of ours—have been kept fully in the picture and that there is no financial liability upon us for non-completion of the contract?

Mr. Walker

Yes. I can assure my hon. Friend that we value the manner of our talks with the Norwegian Government. I have been involved in meetings with Norwegian Ministers and my right hon. Friend the Minister of State has been in Norway over the last few days having full consultations with the Norwegian Government. They will be disappointed, but they understand the reasons. The Government's objective is to continue to have good relations with Norway.

Mr. James Tinn (Redcar)

Is the Minister aware that, following the earlier Government decision not to go ahead with the gas-gathering pipeline, to encourage the development of a totally unnecessary and unwanted petrochemical complex at Mossmorran is yet another body blow to the people of Teesside, where unemployment is the highest in mainland Britain? What does the right hon. Gentleman propose to do? Why will the Government not allow the corporation to go ahead with an agreement which makes good commercial sense to it and sound common sense to our good friends the Norwegians?

Mr. Walker

I do not think that the news is bad for Teesside. There will be more developments in our own sector of the North sea and more suppliers, investment and equipment will be required, much of which can come from the north-east. Further pipelines are likely to be developed in this period and requirements in refining capacity are likely to be increased from our own resources of gas in the North sea. That should not be bad news for the north-east.

Mr. Peter Rost (Erewash)

Does my right hon. Friend agree that one of the unsatisfactory aspects of the proposed deal was that the British Gas Corporation was prepared to offer a higher price for Norwegian gas than it was to our own suppliers? If our suppliers had been offered better prices earlier, we should not have had to negotiate for the gas.

Mr. Walker

The fact that there has been such success in our exploration over the period, and that there have been finds, shows that every encouragement and incentive have been given for people to develop and produce. If one is negotiating an import contract for the 1990s, one has genuinely to calculate the world price for that volume of contract at that time. I am sure that that is what the British Gas Corporation did. I am pleased that the taxation and other policies pursued by the Government have encouraged this development of our own resources.

Mr. Malcolm Bruce (Gordon)

Is the Secretary of State not in danger of misleading the country by presenting this as an either/or decision, when the reality is that even the best forecasts suggest that we are likely to need Sleipner, and everything else that has been discovered and is not yet discovered? Is the Minister not gambling on supplies which have not yet been found? Will he acknowledge that by using the improving success rate as a justification for his decision he is giving the opposite reason to that which the Government gave for not going ahead with the gas-gathering system, which might have secured the gas supplies which we now need?

Mr. Walker

I think that further pipeline developments will take place. I totally disagree with the first part of the hon. Gentleman's question. If he looks at the facts and the figures he will see that a contract for sales from Sleipner is not needed for the 1990s.

Mr. T. H. H. Skeet (Bedfordshire, North)

Is my right hon. Friend aware that, to get security of supply, it would be best to link the European grid system with the English grid system? Is my right hon. Friend aware that by his good decision announced today producers will be given the incentive to bring their gas production forward, because there are ample supplies in the North sea?

Mr. Walker

My projections show that there are better supplies in the North sea than we predicted for the 1990s. Forecasts of consumption suggest that there might well be a need for imports during that period. Any Government and the corporation have a duty to keep the position under careful watch and care. Linking pipelines here with those in Norway or elsewhere depends upon the nature of the supply and demand built up. At present we are in the happy position of being able to take ourselves all the gas from North sea.

Mr. Frank Cook (Stockton, North)

In reply to my right hon. Friend the Member for Salford, East (Mr. Orme) the Secretary of State said he was unable to make any prediction about price. How then is he able to predict capacity and volume? Further to that, and following the question by my hon. Friend the Member for Redcar (Mr. Tinn) about employment—which is of dire importance to us in the north-east—is the right hon. Gentleman saying that the 650 jobs at the Philips handling, storage and processing facility which will be at risk before the end of the decade will be guaranteed beyond the end of the century by the home-based reserves which he says we shall tap for the next 15 to 20 years?

Mr. Walker

There was no guarantee under any Sleipner agreement. Under that agreement, no decision was made about where the liquids would go. There was no agreed position on that. As a generalisation, I think that for jobs in the north-east today's announcement is a plus. On estimates and capacity, one must take the best information available. The Department of Energy, under all Governments, can never be accused of having made over-optismistic estimates of capacity. The Department has made the current estimates of capacity in the same way as it has done over the years, under all Governments. The estimates are highly conservative and they are not as accurate in their optimism as they could be. The Department has always been wise to be on the side of prudence rather than of extravagance. It has continued that with these estimates.

Mr. David Crouch (Canterbury)

Does my right hon. Friend agree that we have given a great deal of thought to this complex problem for many years? Does he think on reflection that, looking at the possibility of a serious gap in the 1990s, we might have passed up a valuable opportunity by turning down this contract? Does he agree that we might have to resort to panic buying of Dutch and even Soviet gas in the 1990s?

Mr. Walker

Obviously, if I had thought that I should have given approval to the Sleipner deal without hesitation. As my hon. Friend knows, we examined the matter carefully, without any prejudice against the deal. The situation has genuinely changed to the advantage of our country. It is the duty of any Government and the British Gas Corporation to ensure that they have secure supplies for the decades to come. Those supplies may be available from many parts of the world, including Norway, in the future.

Mr. Ian Wrigglesworth (Stockton, South)

Do not the anxieties mentioned by the hon. Member for Canterbury (Mr. Crouch) exist because the country and the House are so uncertain about the Government's hopes and intentions for energy supplies from all different sources in the coming years? Will the Secretary of State make much more clear to the House and to the country how the Government see the energy mix for the future, so that better judgments can be made on such deals? What is the British Gas Corporation's reaction to the decision that he has just announced?

Mr. Walker

The British Gas Corporation must be free to make its own pronouncements. It has been fully consulted throughout and knows of the adjustments we have made with regard to capacity and also the validity of the reasons on which we have based our judgments. Obviously, having negotiated the Sleipner deal, the corporation must be disappointed that it has not been completed. I am sure that the BGC will wish to continue good relations with Norway as a potential supplier of gas in future, as it is at the present time.

On the hon. Gentleman's question about projections on a whole range of energy supplies, I remind him — although not wishing to do so—of his political past. The party of which he used to be a member published a series of projections for energy supplies over five and 10-year periods, but the only thing that can be said about them is that they were all proved to be dramatically wrong.