Oil Prices (Hansard, 12 May 1986)

§ 4. Mr. Litherland
asked the Secretary of State for Energy what requests for meetings he has received from oil companies as a result of the fall in the price of oil per barrel; and from which companies.

§ 7. Mr. Rowlands
asked the Secretary of State for Energy what estimate his Department has made of the impact of falling oil prices on developments in the North sea.

§ Mr. Peter Walker
I meet the companies regularly, and they are free to raise any subject they choose. As the market remains volatile, and future oil prices uncertain, it is impossible to say at this stage what the impact will be on North sea development.

§ Mr. Litherland
Why, since we have had a fall in oil prices, has there been no real reduction in the cost of such things as air travel, and especially petrol, plastic commodities and paint? Does that not show that big business is making bigger profits and that it has cocked a snook at the Chancellor of the Exchequer? Should there not be some real, meaningful discussion?

§ Mr. Walker
I disagree with the hon. Gentleman's premise. There have been substantial falls in the price of petrol. My right hon. Friend the Chancellor was jeered for his prediction, but it has been more than surpassed in the period since. As existing contracts come to fruition, there is no doubt that other industrial prices will benefit from the lower oil price.

§ Mr. Rowlands
Is the right hon. Gentleman aware of a number of statements by major oil companies casting serious doubts on long-term developments in the North sea? Should there not be a greater sense of urgency in discussions with the oil companies, so that we do not fall into the trap of becoming more and more dependent on OPEC countries in the 1990s?

§ Mr. Walker
It would be a mistake to rush through a load of decisions on the basis of an immediate fluctuation in the oil price. I forget what the oil price was when we last answered questions, but it has moved up and down in an erratic way. No one would like to predict with any accuracy what it will be at the end of the year. Rightly, the oil companies have issued warnings that, if prices stay at these low levels, some investment decisions will have to be deferred, but at the moment they are waiting to make a judgment on the market.

§ Mr. McCrindle
I take my right hon. Friend's point about the renewal of contracts, but is it not somewhat surprising that over a period when the price of crude oil has fallen by 60 per cent. the cost of aviation fuel appears to have fallen by less than 15 per cent.? Does that cause my right hon. Friend any concern? In particular, will he be prepared to draw that to the attention of the oil companies next time they request a meeting?

§ Mr. Walker
I shall look at the trends in the cost of aviation fuel. There is considerable competition around the world, but I shall look into my hon. Friend's point.

§ Mr. Beaumont-Dark
Bearing in mind that for the first time for about 15 years the price of oil has halved, is it true that other energy prices will fall in line with it for the first time for many years? Is it likely that, because of the falling cost of oil, the cost of electricity and perhaps even coal will fall, so that consumers will receive the benefit in their household and industrial bills?

§ Mr. Walker
Yes. In the electricity industry there is potential competition between oil and coal. Therefore, if the coal industry is to retain its contracts, it must take note of the present competition from the oil industry. Talks are 432 taking place between the coal industry and the Central Electricity Generating Board with that purpose in mind. If, as a result, the cost of coal is reduced, it will be the consumer, both domestic and industrial, who will benefit.

§ Mr. Kennedy
As the Secretary of State has admitted that already some companies are postponing investments, would this not be an opportunity for his Department to put pressure on colleagues at the Treasury to hold the Chancellor to his undertaking in the Budget. that if there were clear evidence of worthwhile projects being frustrated changes in incremental investment to the fiscal regime would be swiftly introduced, particularly as the Finance Bill would be an appropriate opportunity for the Government to do just that?

§ Mr. Walker
No. On the evidence available, I do not think that immediate action of that sort should be taken by the Chancellor. However, my right hon. Friend has ensured in the past and is intent on ensuring in the future that taxation of North sea oil takes account of the realistic assessment of the economic conditions there. I am sure that he will do that.

§ Mr. Favell
When may we expect a reduction in the price of electricity?

§ Mr. Walker
When agreement is reached on the price of coal, the benefit to industrial and commercial clients occurs swiftly, because of the nature of the contracts in that area which automatically get reduced as costs reduce. It would be for the electricity boards to decide when and how to fix the domestic tariff.

§ Mr. Douglas
Will the Secretary of State give us some indication of the impact of the diminution in oil prices on jobs in Scotland? Will he also assure us that, in addition to exhortations to the oil companies to continue developments, the Government intend to take positive action to safeguard the onshore industry, which has been built up so painfully in recent years?

§ Mr. Walker
As the hon. Gentleman knows, a great deal of activity is still taking place in the North sea, and the oil companies themselves very much wanted us to have a further round of licensing. A great deal of exploration work is taking place. However, what happens will depend on trends in the oil price, and none of us can have any certainty about that. We shall have to watch developments and take action accordingly.

§ Mr. Peter Bruinvels
Notwithstanding what the hon. Member for Manchester, Central (Mr. Litherland) said, should there not be a great welcome for the fall in oil prices? Is not the only concern the fact that there is still too much variance in fuel prices, particularly petroleum? If my right hon. Friend were able to come to Leicester, he would find petrol in Melton road at 1.58 per gallon, which is very good value compared with prices in other parts of the country.

§ Mr. Walker
There is no doubt that substantial competition is taking place at petrol pumps throughout the country, and the consumer and industry are benefiting.

§ Dr. M. S. Miller
Further to the point raised by my hon. Friend the Member for Dunfermline, West (Mr. Douglas), is the Secretary of State aware of the impact that falling oil prices are having on the city of Aberdeen? What is the right hon. Gentleman doing to ensure that we shall be able to receive the benefits of North sea oil in future? 433 Surely the right hon. Gentleman is aware that we are facing a short-term problem. Is he satisfied that the Government are doing enough to ensure that the benefits of North sea oil will be available to us soon?

§ Mr. Walker
Developments are still coming forward on quite a substantial scale. The hon. Gentleman's assessment, that future development in the North sea may be needed because this may be a temporary drop in the oil price and, therefore, we need production in the mid 1990s, is shared by a number of oil companies. That is the reason for their interest in continuing exploration and development and further rounds of licensing.