§ Order for Second Reading read.
§ 5.7 pm
§ The Minister of State, Department of Energy (Mr. Peter Morrison)
I beg to move, That the Bill be now read a Second time.
I begin by welcoming the hon. Member for Aberdeen, South (Mr. Doran) to the Opposition Front Bench. I congratulate him on his appointment. I know that he has a strong personal interest in North sea oil and gas activities, and the House will be more than aware that he has a strong constituency interest. Indeed, over the past 25 years, Aberdeen has played a vital part in the development of our North sea oil activities, which has not always been an easy task.
The Bill is short, and it has two specific purposes. Its first purpose is to end royalties for new fields in the southern basin of the North sea as well as onshore. That will implement the commitment that was given by my right hon. Friend the Chancellor of the Exchequer in his Budget statement. The Bill's second purpose is to implement the agreement that the United Kingdom Government reached with the Republic of Ireland on the determination of the continental shelf.
Perhaps it would be sensible to put the Bill in the context of the North sea generally before I explain it in detail. It is fair to say that, when I came into office with my right hon. and hon. Friends 18 months ago, the situation in the North sea was a little bleak, and had been so for a while. That had been caused by a massive and entirely unpredicted fall in the price of oil. I am happy to say that the picture now is much better. I can paint an upbeat and optimistic picture, but it is not as upbeat and optimistic as I would like.
The House will recall what happened on the evening of 6 July. That was the night of the Piper Alpha disaster. When I went to Aberdeen in the early hours of 7 July, I was met by a stunned city and stunned citizens. I think that hon. Members in all parts of the House and the entire industry remain deeply upset by a disaster of such major proportions. Since then, the aim of my right hon. Friend the Secretary of State for Energy and myself has been to ensure that everything is done to prevent such an accident in future. My right hon. Friend has said many times, as have I, that all the information available should be made public. As for the future, if there are lessons to be learned, they should be learned properly. Hence, immediately after 6 July, the technical investigation was set up by my right hon. Friend, to be carried out by the safety directorate of my Department. Its task was to produce an early report on what had happened. The House will know that the interim report was published on 29 September.
Within a week, my right hon. Friend the Secretary of State announced that there would be a public inquiry under the chairmanship of Lord Cullen, with wide terms of reference. That inquiry will start on 19 January 1989 in Aberdeen. Before then, the technical investigation team will produce a further report, which will be made available 734 to Lord Cullen. At the same time, the work of the safety directorate continues. The House will know that the information which has been obtained has already led to the directorate asking that the industry should consider better ways to improve the pipeline isolation systems. At the time of the publication of the interim report, we asked the industry to examine six further areas in the light of what we had learnt.
§ Mr. Robert Hughes (Aberdeen, North)
I wish to say publicly that I appreciate the work that has been done by the Minister of State and the Secretary of State in setting up the technical inquiry and the Cullen inquiry. The Cullen inquiry has begun in a way that shows that it will be an open and public hearing.
I ask the Minister to comment on the great unhappiness felt by those involved in the oil industry throughout the United Kingdom, and not in Aberdeen alone, about the way in which the debris from the Piper Alpha platform has been dealt with following the disaster. Many bodies are still missing. It is believed that there are technical lessons to be learned on the sea bed. Has the Minister reviewed his position on collapsing the platform on the sea bed?
§ Mr. Morrison
I am grateful to the hon. Gentleman, as is my right hon. Friend the Secretary of State, for his remarks about our conduct since the disaster early in July. Secondly, if he will bear with me on the abandonment of the Piper Alpha platform and the evidence that is currently below the sea, I shall deal with those matters if, with the leave of the House, I have the opportunity to reply at the end of the debate.
These are technical matters and I can assure the hon. Gentleman that my right hon. Friend and I, along with the entire Department, have examined them extremely carefully. We have consulted outside experts. I think that the hon. Gentleman will be pleased that we have consulted other interests, especially the Scottish fishermen. He may be aware that I have had a meeting with the Scottish fishermen. There are important implications, and a decision will not be taken easily. If it is helpful to the hon. Gentleman and the House, I shall deal specifically with these matters at the end of the debate.
The areas covered by the interim report produced by the technical investigation team were permit-to-work systems, automatic initiation of fire-fighting systems, operability of life rafts, evacuation routes, the integrity of emergency systems and venting and explosions. I hope that hon. Members on both sides of the House will agree that safety has always been of paramount importance. That remains the Government's view. It is wrong to say that we are seeking to approach perfection when we examine safety. We do not believe that there is safety perfection, because that would imply that there is nothing more to do. I hope that no hon. Member will take that view.
As I have said, we shall want to learn everything that we can from the public inquiry. My right hon. Friend the Secretary of State has made it clear that, if Lord Cullen's report identifies improvements that could be made to the safety regime, the recommendations will be considered extremely seriously.
Piper Alpha must remain in our minds. Even so, it would be wrong not to recognise that the story of the North sea over the past 25 years has been one of tremendous success for the United Kingdom. It has come about thanks to the superb managerial and technical 735 achievements of the international oil industry. It is a story of success, however, for everyone who has been involved. Too few of our constituents—I speak of those of us who represent constituencies that are not close to the North sea or that do not have a specific oil interest—understand what has been achieved and appreciate the enormous input of North sea oil activities to the United Kingdom as a whole. Even the optimists of 25 years ago could not have dreamt that we would come so far.
We have now entered a new phase. The largest discoveries have probably been made, and oil prices continue to fluctuate. Even so, the North sea oil industry continues to be both vigorous and successful. Given the circumstances, I believe that the industry is more vigorous now than it has ever been. I shall recite one or two facts to demonstrate what has been happening this year.
We in the Department have approved 24 projects so far. That is new investment of about £3.1 billion. It is the largest number of project approvals in any one year. In 1987, 13 projects were approved, amounting to new investment of £1.2 billion. These figures tell us that we are almost £2 billion ahead in terms of new investment. A further 13 projects are currently under discussion.
At the same time, drilling activity is high. So far this year, 121 exploration and appraisal wells have been started. That is a two-thirds improvement over the equivalent period last year. Four discoveries have been made, and a further five announcements have been made on tests on structures adjacent to existing finds. In addition, 135 development wells have been started, against 100 over the first nine months of 1987. That is only 10 short of the record year of 1985. These figures are a tribute to the initiative and determination of the oil industry—and when I say that, I mean everyone involved in it. It demonstrates their great adaptability and will to introduce new technology. It is those traits which lead me to believe that the North sea oil and gas industry has a continuing and exciting future.
§ Mr. Andrew Hunter (Basingstoke)
There is some confusion, at least among Conservative Members, as a result of the Committee deliberations in June on the Finance Bill, as it then was. Is my right hon. Friend satisfied that the oil allowance of 125,000 tonnes per chargeable period is fiscal neutrality? He will be aware that the producers' argument is that that figure is too low. His comments on these matters will help the development of the debate.
§ Mr. Morrison
I am grateful to my hon. Friend for potentially drawing me out of order. However, he anticipates remarks that I was about to make about the package as a whole—because this is part of a package, as my hon. Friend rightly said.
The purpose of the Bill is to contribute to the aim that I have outlined—to continue to create the right atmosphere so that further exploration and development can proceed. It has always been the Government's policy to keep the North sea fiscal regime under review and to make changes where that was desirable to ensure that the climate continues to be favourable to such initiatives. The abolition of royalty for new fields in the northern basin in 1983 was an example of that policy.
The Bill represents a further step in the same direction. There were a number of significant gas prospects in the southern basin of the North sea which were economic 736 before tax, but which could have been inhibited by the fiscal regime. The greatest potential obstacle to their development was royalty, because its impact is relatively insensitive to field economics.
As I have said, the ending of royalty for new fields in the southern basin formed part of a package—to which my hon. Friend the Member for Basingstoke (Mr. Hunter) referred—of changes in the North sea fiscal regime which my right hon. Friend the Chancellor of the Exchequer announced in his Budget statement. Taken as a whole over the lives of the fields concerned, that change is expected to be revenue-neutral.
It would not be wholly appropriate for me to go into great detail about the discussions in Committee stage on the Finance Bill earlier this year. However, my hon. Friend the Member for Basingstoke and other hon. Friends will have noticed that the original proposal was for an oil tax allowance of just 100,000 tonnes. After we had listened very carefully to the arguments from the oil industry and examined new evidence presented to us, that figure was increased to 125,000 tonnes. As I have said, that is intended to be revenue-neutral, and that is the intention of the new figure of 125,000 tonnes.
If the industry responds positively to the package, there is a real prospect that most, if not all, of Britain's gas requirements for the 1990s can be found from our own resources. In fact, there is already evidence that the industry is responding. As the House will know, earlier this year Hamilton Brothers announced a decision directly as a result of the Government's intention to abolish royalties in the southern basin to develop the Ravernspurn North field. That development represents an investment of £600 million in 1.25 trillion cu ft of gas reserves which would not otherwise have taken place.
The Bill will also end royalties for new onshore fields. That will provide a useful encouragement to onshore development. That aspect was also foreshadowed by my right hon. Friend the Chancellor in his Budget. While talking about onshore exploration, I want to raise another point. I am more than aware that other difficulties must be overcome to promote onshore exploration and development. Of course it is right that local authorities are and should be concerned about what is involved in onshore developments. However, it is also of the greatest importance that local debate should be well informed and should not be misled by the exaggerated fears and anxieties that sometimes arise.
As those hon. Members who have had the opportunity to visit British Petroleum's Wytch Farm development will know, a well run oilfield onshore can be a perfectly acceptable neighbour as far as environmental impact is concerned. One of our oldest onshore oilfields at Dukes Woods near Eakring, Newark has been recognised as an ideal environment for wild orchids, moths and butterflies which are rare in Nottinghamshire. In 1972, the area was notified as a site of special scientific interest and, through the collaboration of the industry and the Nottingham Trust for Conservation, the well sites have been preserved as a nature trail. I mention that because of the irony that, if the same development were proposed today, it would no doubt be the subject of great concern on environmental grounds.
The other elements of the package of the North sea fiscal changes which my right hon. Friend the Chancellor announced in his Budget statement have already been approved by the House and implemented through the 737 Finance (No. 2) Act 1988. As Opposition Members will recall, in Committee on the Finance Bill the then Opposition spokesman, the hon. Member for Islington, South and Finsbury (Mr. Smith), said that he believed that the Government were right in principle to remove the penalty of royalties.
We must ensure that the momentum to which I have referred is maintained. It is no exaggeration to claim that the United Kingdom is becoming the offshore oil capital of the world. The North sea has created nearly 30,000 offshore jobs, and, according to the most recent reports that I can find, some 75,000 onshore jobs in Scotland alone. That represents a valuable part of our industrial base, which we must do our utmost to sustain.
Clause 1 will exempt new fields in the southern basin and on shore from royalties as from 1 July this year. Clause 2 is needed only to ensure that the similar exemption already granted for new fields elsewhere in the North sea will apply to licences issued in the 11th round and subsequently.
The Bill's second purpose, to which I referred earlier, is to enable the United Kingdom to implement the agreement negotiated recently with the Irish Republic on the delimitation of the continental shelf. That is dealt with in clause 3. The agreement resolves an issue which has been outstanding for 25 years. Agreeing boundaries will open up new opportunities for the oil and supply industries if exploration in the areas should prove successful. I hope that all hon. Members will agree that that represents an important step forward. As the House will be aware, copies of the agreement have been available in the Library since 8 November, when my right hon. and learned Friend the Foreign Secretary informed the House that he had signed the agreement.
I want to explain a little more about the agreement. At present, we have powers to designate areas for offshore activity on our continental shelf, but we do not have powers to de-designate, and those are what the Bill is taking. When I was first told that, I must admit that it did not mean very much to me, and I suspect that it does not mean all that much to my hon. Friends or to Opposition Members. Let me try to make it a little clearer. There are areas off the west coast of Scotland which in the past have been claimed by both sides. After considerable negotiation, it has been agreed that the Republic of Ireland should give up some of its claim and so should we. However, we cannot give effect to that, because we do not have the necessary powers. That is the purpose of this small clause: it covers that agreement and that agreement alone. I assure the House that it would not permit the Government to do anything similar elsewhere. As the House will see, the Bill refers specifically to the agreement signed in Dublin on 7 November—no more and no less.
Some hon. Members may believe that the territory of Northern Ireland is being given up as part of the agreement. I give a categorical assurance that that is not so. The line in the north-west starts at latitude 55.28 north and longitude 6.45 west. That is well to the west of any conceivable boundary between the continental shelf of Northern Ireland and that of the Irish Republic.
In July this year, I invited applications for further offshore licences in the 11th round. Two hundred and twelve blocks are on offer, which makes it the biggest 738 round for many years. One may ask why we have done this when the industry is facing such severe problems due to the low oil price. The answer is simply that there is an underlying buoyancy in the industry's outlook. The licences we are offering now will be the basis for the oil production that we need in the 21st century. No one in the industry doubts that there is a long-term future. That is why there is enthusiasm in the industry for the 11th round. I detect that that enthusiasm is spread among all sections of the industry. Our proposals are geared to interest every type of company—majors and independents alike.
There are further reasons for expecting the round to be successful. First, we have included in the 11th round some blocks which have never before been licensed in areas which are known to be of widespread interest. Secondly, exploration techniques have shown remarkable advances in the past five to ten years. Oil companies can now home in on small accumulations of oil and gas which previously went unnoticed. Thirdly, I have already referred to the industry's adaptability and willingness to introduce new technologies. That augurs well for the future prosperity of the industry and puts it in a strong position to compete for the licences that we are offering.
I know that even now companies are working hard on the proposals that they are due to put to us on 7 or 8 February, and I look forward eagerly to receiving their proposals.
The Bill may appear to be a small one, and, taken alone, it certainly is, but it is part of a large and important segment of Great Britain. Measures such as this will be needed to maintain the right climate for development. Without them, the success of the North sea would never have been possible. I commend the Bill to the House.
§ Mr. Frank Doran (Aberdeen, South)
First, I thank the Minister for his kind opening remarks. I hope only that the attendance in the debate has nothing to do with my debut on the Front Bench—perhaps hon. Members would rather read what I have to say than listen to it.
I also thank the Minister for his kind remarks about Aberdeen. I represent Aberdeen, South, and the city of Aberdeen, the Grampian region and north-east Scotland have made a very significant contribution to the success which Britain enjoys in its oil industry. Of course, we should not forget that other regions send their workers there. Many of the workers in the oil industry are migrant workers from Glasgow, Dundee—my home town—Tyneside and Teesside. Nor should we forget the contribution of the southern sector by the people in and around east Anglia. It is a national contribution to a national asset. I thank the Minister for his kind remarks.
The Bill is very specific in its intention, but, as the Minister has already pointed out, it provides us with a welcome opportunity to debate the offshore oil and gas industry. Such opportunities do not occur often. Next year we celebrate the 25th anniversary of operations in the North sea. As the Minister has said, those years have seen a tremendous leap forward in technology and the ability to exploit further and improve on our oil and gas reserves. The oil industry has made an enormous contribution to the wealth of the country, and all those involved in that tremendous achievement are to be congratulated.
Oil and gas are extremely important to the economy. We produce about 2.5 million barrels of oil and gas a day, 739 which is a tremendous boost to our balance of payments. We export 1 million barrels a day and save on imports to the tune of 1.5 million barrels a day. All in all, at current prices that is a benefit to the trade balance of £1 billion per month—a significant achievement on anyone's terms. It is a tragedy for the country that the positive input that we have enjoyed for a number of years is wasted on what Opposition Members regard as failed economic policies which rely more on dogma than economic reality.
§ Mr. Doran
No, I shall not give way on that point.
We used to get much more benefit from North sea oil and gas. As the Minister said, the price of oil collapsed in 1986. It is interesting to examine the position since then, and what the collapse meant for our economic position.
According to the Brown Book the—Department's annual statistics on oil and gas development—in 1985 the GNP arising within the oil and gas sector was £15.1 billion. That is a huge amount of money. The provisional figures for 1987, reported in the 1988 edition of the Brown Book, was £8.2 billion—a huge reduction. Tax and royalty revenues have gone down from the 1984–85 figure of just over £12 billion to the 1987–88 provisional figure of £4.7 billion—a significant drop. That is a direct result of the massive drop in the oil price in 1986. Since then, the oil price has fluctuated between just under $10 a barrel and about $20 a barrel. Today, it is just over $14 a barrel. Early hopes that this week's OPEC agreement would result in a substantial increase in the oil price have not been borne out. For understandable reasons, the markets have been cautious on pricing.
Currently, there are two major preoccupations in the oil industry—price and safety. I shall return to the question of safety. In this country, price has been left purely to market forces. The market is particularly sensitive, and that has hit my area of north-east Scotland. The oil price rises or falls in response to a whole range of factors, the most important of which is the level of production. It is quite clear that there is gross over-production and that there is a glut of oil on the world market.
Far from the controlled production levels and price stability sought by the OPEC countries, which would be of tremendous benefit to those countries and to our own industry, there is an international free-for-all on the world oil market. That has led directly to a fall in income in the United Kingdom and in other countries and to a severe depression in activity in the United Kingdom sector of the continental shelf. Only in the past year has there been a real recovery in activity. There has been an improvement in investment, but it is very cautious investment, certainly not at the levels expected in 1984 and 1985.
Britain and its oil industry have a vested interest in price stability, which would allow planned investment programmes and more planned depletion rates of existing fields and the development of new ones. Yet the Government have chosen to take no part in influencing the oil price. They are prepared to rely on market forces alone, and in doing so they isolate themselves from international discussion. None of us can say what influence the Government would have had had they been prepared to do what the Norwegian Government have done—simply to talk to OPEC and try to reach some agreement on production. None of us can say that that would have added to price stability, given the other international factors, but some 740 sense needs to be brought into world oil markets, and the United Kingdom, as a major and influential producer, should be part of that process.
Of course, the price of oil and gas is not just the cost of getting it out of the ground or the cost per barrel. Overshadowing all North sea activity at the moment is the Piper Alpha tragedy. I thank the Minister for his comments and for his recognition of the severe and shocking effect of that disaster, particularly on the city of Aberdeen and the north-east of Scotland. The hon. Member for Gordon (Mr. Bruce) will probably comment on the disaster later in the debate.
One hundred and sixty-seven men lost their lives in the Piper Alpha tragedy, which sent shock waves through the whole industry. Safety is now right at the top of the agenda. I never have a meeting with oil companies in which safety is not the major issue under discussion.
I commend the Secretary of State, as my hon. Friend the Member for Aberdeen, North (Mr. Hughes) commended the Minister, on the speed with which the Government reacted to the disaster. I know that, in the early hours of 7 July, the Minister immediately went to Aberdeen to be present at the command centre to lend whatever assistance he and his Department could offer. I commend them for the speed with which the judicial inquiry has been instructed. Hopefully, the inquiry under Lord Cullen will pinpoint the precise causes of the tragedy and make recommendations to prevent future occurrences.
It is important, however, that the Government do not shy away from making improvements in safety, where they are obviously required, now rather than waiting until Lord Cullen has reported. Parliamentary answers and the replies to the numerous letters that I have written to the Minister and to the Secretary of State suggest that to a certain extent they are hiding behind Lord Cullen and that everything is frozen until he has reported. We need, as emphatically as possible, to make the point that the biggest single contribution to safety in the North sea would be the establishment of a single, independent agency responsible for all safety matters. That was recommended by the Burgoyne committee in 1981, but despite the Secretary of State's public statements the Government have singularly failed to appoint that single agency.
There is still a multiplicity of agencies responsible for safety in the North sea. The petroleum engineering division, a section of the Department of Energy, is responsible for health and safety aspects, and the pipelines inspectorate is responsible for the integrity of pipelines. It is another section of the Department of Energy, but the two operate separately and distinctly, with quite different areas of responsibility.
There are approved certifying authorities—private companies are responsible for the integrity of platforms; the Department of Transport is responsible for fire-fighting and safety equipment and for supply boats; and the Civil Aviation Authority is responsible for helicopters. Where is the unity in that system? There is none. The Secretary of State was at pains to point out in his numerous interviews immediately following the Piper Alpha disaster that all of the recommendtions of the Burgoyne committee had been implemented, but that is not the case. The multiplicity of agencies is severely hampering the establishment of a proper safety system in the North sea.
741 In case hon. Members think that this is an academic argument about bureaucracies, I remind them of what was said in the technical report prepared by Mr. James Petrie of the Department of Energy. I commend him for the content of and the speed with which his report was produced. It confirms that the scale of death and destruction on the Piper Alpha platform was the result of ruptures in high-pressure gas pipelines. Burning gas was released on to the platform like a blowtorch, destroying everythind in its path. The integrity of the pipeline is the responsibility of the pipelines inspectorate, while the integrity of the platform is the responsibility of the certifying authority. No one has assumed responsibility for the interface between the pipeline and the platform, or, for example, considered what would be the effect of a breach of a pipeline.
That is not a novel thought. The Government are well aware of the problem, because the Burgoyne committee, way back in 1981, said in paragraph 5.64 of its report:One of the 'grey' areas referred to above is the overlap in responsibility between the PED and the certifying authorities in respect of the pipeline riser and other pipeline equipment on the installation. Although forming an essential part of the pipeline system it clearly has a bearing on the integrity of the installation.That was in 1981, and we know what happened on the Piper Alpha in 1988. That tragedy was a direct consequence of the failure to deal with that grey area.
The Department of Energy, through the Minister, has taken one positive step and announced a proces of consultation with the industry on fitting emergency shutdown valves. The failure to install such valves in Piper Alpha led to the scale of death and destruction. Will the Minister tell the House if and when he intends to introduce regulations to make the installation of emergency shutdown valves mandatory on all high-pressure gas and oil pipelines in the North sea? I recognise that there is not the same demand or need on low-pressure pipelines. Can he confirm that those regulations will be retrospective?
I want to deal with the southern sector and the relevant content in the Bill. As the Minister said, the package is intended to be tax-neutral. The first stage of the package was presented in the Budget and confirmed in the Finance Act earlier this year. Although the intention is to be tax-neutral, the Minister made it clear that some encouragement would be given to new development in the North sea, especially the smaller gasfields that have been identified but, at present, are considered uneconomic to develop.
That whole process was undertaken in the northern oilfields in 1983, and was vigorously opposed by the Opposition at the time. There are substantial differences between the two areas. The southern basin comprises mainly gasfields, which are cheaper to develop and have lower operating costs. We opposed the 1983 measures for good reasons that I believe still apply today. The first is the principle on which royalties are paid. Oil and gas in the United Kingdom are publicly owned, and have been since 1934. That public ownership is confirmed and emphasised by the payment of royalties.
Secondly, the Government already have sufficient powers to restrict the payment of royalties in appropriate cases. The powers are contained in existing legislation and are much more sensitive and sophisticated than the 742 proposed measure. They enable the Government to take a field-by-field approach, which is much more satisfactory than the system installed in the northern section in 1983 and now proposed for the southern basin. The blunderbuss approach will mean that some operators will benefit, but many will lose. The two biggest losers are likely to be Britoil, in respect of its Amethyst field, and Conoco.
There is another, more worrying aspect about the Government's general approach, and it was not mentioned by the Minister. British Gas is a monopoly purchaser in the southern basin—it is a monopoly. It can virtually dictate its terms and it negotiates field by field. At the time of the Budget debate, a number of analysts commented on that. The "FT North Sea Letter" of March 1988 stated:On this front, both Capel and Woodmac raise the possibility of BG using the improved economics on some new projects to force the price it offers down further, thus taking the benefit itself. Woodmac calculates that a 1p/therm cut could now be made on Anglia without affecting its rate of return. Capel suggests BG could cut the Ravenspurn North price by 0.9p, Barque/Clipper by 0.5p and Welland by 0.1p to leave sellers with the same pre-Budget economics.Even with those advantages over the northern sector, development costs are still very high in the southern sector. No operator will become involved in development costs until he has a contract signed, sealed and delivered by British Gas. The whole pace of development in the southern sector is therefore dictated by British Gas and its willingness to negotiate. Of course, British Gas is now a private company. No company can afford—
§ Mr. Hunter
Is the hon. Gentleman saying that it is Labour party policy not to remove royalties from the northern and southern sectors? In Committee on the Finance Bill, the Labour party argued for an even lower level of oil production. Are we to understand that Labour party policy is now to increase significantly the taxation burden on the oil industry?
§ Mr. Doran
The hon. Gentleman has misunderstood what I said. Had he taken the trouble to read the report of the Finance Bill Committee, he would know the Labour party's position. At the time of the Finance Bill debates, the Labour party accepted some of the points made by the oil industry. In the original draft of the Bill, the Government had proposed a petroleum relief of 100,000 barrels, the oil industry argued for 160,000 and the Labour party tabled an amendment for 150,000. The Government compromised at 125,000 barrels, which we regarded as unsatisfactory. At that time, we also accepted that it was appropriate to remove the royalties as part of the package. However, we stand on the principle that the royalties are an expression and a confirmation of ownership of oil in the ground, and that is still the legal position. There is no question of supporting any increase in the level of taxation. I hope that that satisfies the hon. Gentleman.
The whole pace of development in the southern sector is dictated by British Gas, which is now, of course, a private company. Will the Minister tell the House what steps, if any, he proposes to take, first of all, to ensure that any fiscal benefits which accrued to the operator because of the measure now before us will be diverted to development and not simply negotiated into the pockets of British Gas? Secondly, is the Minister content to leave the pace of the development of the southern basin to a single monopoly private company, and, if so, in what way would the public interest be protected?
743 The second part of the Bill relates to an agreement between ourselves and the Irish Government. It must be put on the record—especially this week, when all the other debates about our relations with the Irish Government have been so difficult and fraught that it is a pleasure to see that we can actually agree on something. Given the Prime Minister's statement yesterday, which today has been shown to be fairly ill-advised and misjudged, is the Minister satisfied that the agreement that was drawn up, presumably by those legal advisers to the Foreign Office, is safely signed, sealed and locked up in a safe of the Foreign Office, and now inviolable?
§ Mr. John Hannam (Exeter)
The Bill is not highly controversial, as the hon. Member for Aberdeen, South (Mr. Doran) stated, and it should not place us in an adversarial position. However, it gives us the opportunity to discuss a vital and successful oil and gas industry. As we drive our cars, switch on our gas heaters or even purchase various manufactured items, which are derived from oil-based feedstock and from fossil reserves and resources which must be drawn from those reservoirs many thousands of feet below the surface of the earth, we often forget the hazardous human involvement until there is an occurrence, such as the recent Piper Alpha disaster.
If we study the fuel split in United Kingdom energy demand, we find that coal produces 13 per cent., electricity 14 per cent., gas 33 per cent. and oil 40 per cent. The domestic sector consumes only 30 per cent. of those resources, and the remainder is consumed by commerce, industry and transport. That is why it is vital to ensure that we get the pricing system right. If we look back at the late 1970s—during the period of the Labour Government—we find that the balance certainly was not right, because the domestic consumer of gas was being heavily subsidised by the industrial user. Recently British Gas has been called to account by Ofgas for leaning too heavily on the industrial consumer. 1 welcome the strong stand being taken by Ofgas and by James McKinnon, and I welcome, too, his determination to effect more control over this huge monopoly supplier.
It is in the context of our need to encourage further exploration and development of our oil and gas reserves that we should consider the Bill, which removes the royalties system for post-1982 oil and gas fields in the southern basin of the North sea. That abolition follows from the Finance Act 1983, when royalties in the northern and central North sea were abolished for future fields. At that time we were facing a downturn in activity in the offshore sector, so, in addition to the abolition of royalties in the northern and central sectors, the oil allowance from petroleum revenue tax was doubled to 500,000 tonnes. That produced a welcome increase in exploration and development. It was an act of faith on the part of the Government, and the results confirmed what those of us involved in energy matters had been pressing on the Treasury for some time before—that a tax regime cannot just be installed and then left indefinitely in the hope that, despite all the other factors, it will produce the desired result. In fact, we must have constant adjustments—which are especially necessary during a period of world instability in oil prices—if the free-enterprise companies are to be given incentives to make the huge investments which are inherent in exploration and development.
744 We must ask ourselves whether this year's reduction in the oil allowance—the question posed by the hon. Member for Aberdeen, South—front 250,000 tonnes per chargeable period to 125,000 tonnes will truly balance out with the abolition of royalties and that we will have what the Treasury said would be a neutrally fiscal solution.
The original Budget proposal for an allowance of 100,000 tonnes for the southern basin would have had a deterrent effect. I believe that it was too low. The southern basin oil allowance would have been only one fifth of the level applied to new oil fields elsewhere and would have increased, rather than eliminated, the discrimination against the southern gas fields. I was, therefore, pleased when the Government upgraded the allowance to 125,000 tonnes, which I believe was the minimum figure.
Important oil companies, such as Conoco, have evaluated their positions. They are worried, and convinced, that they will lose about half of their post-1982 and future oil field valuations, because of the loss of the tax allowance. The problem in the oil industry is that every company has a different parameter within which to evaluate such matters, because of the nature of oil fields. However, we shall see the result. I stress how important it is for my right hon. Friend to monitor carefully the effects of any such changes on the level of activity and, if necessary—on behalf of this important industrial sector—to press the Treasury if and when the occasion arises.
We are fortunate to have these oil and gas reserves. As technology improves, the extent of the recoverable reserves will increase. We can now confidently expect to be self-sufficient in oil well into the 1990s—far beyond our expectations of a decade ago. In fact, since 1979 the estimates of initially recoverable reserves have risen by 13 per cent. The impact of that incredibly successful private enterprise industry on our economy is enormous—2.25 per cent. of our GDP in 1987, which is more than £4 billion in revenue from taxes and royalties, 85,000 jobs a year, and our United Kingdom offshore and onshore oil industry is winning a record 87 per cent. of the £2 billion orders for the North sea. Next year will signal the 25th year of this great endeavour in the North sea. We should congratulate all those who have made it possible.
At the same time, however, we must recognise the dangers inherent in a tough industrial environment; and, with the tragic Piper Alpha incident still fresh in our minds, it is right that Parliament should take every possible step to ensure that proper protection is given to those working in those hazardous conditions.
I would not want to prejudge the public inquiry, but I do not believe that the changes that the oil industry has been implementing in recent years have generally borne down on the safety standards on the rigs. It could not possibly be in the interests of a rig operator or an oil company to take short-cuts in safety. The huge losses of production that would result from an accident or a close-down would far outweigh the kind of cost reductions from such short-cuts. Safety and profitability inevitably go hand in hand, with safety always a step in front. That is the declared attitude in the oil industry, which I believe must generally be true. Nevertheless, the Piper Alpha disaster, on one of the oldest rigs in the North sea, requires the closest re-examination of training, safety procedures and equipment used on our rigs. The confidence of the work force and of the public must be fully restored by visible signs of the safest regime possible. I know that my right 745 hon. Friend accepts the Government's role in ensuring that the most rigorous statutory system of safety standards is effected.
Some 12 years ago my wife came back from having her hair done—that oftens happens—and told me that her hairdresser's husband was a scientific journalist who was considering the effects on metal oil rigs of prolonged immersion in sea water. Because I had an interest in energy, she asked me if I would meet him to have a chat. He produced a lot of evidence that he had collated. He was worried about some of the forecasts made to him privately by scientists suggesting that some oil rigs would collapse much earlier than expected. At that time, I tabled some questions to the then Secretary of State for Energy and wrote to and met various oil company chairmen, board members and scientists. At the end of my inquiries I was reasonably satisfied that those worries had been appreciated by all involved.
However, with the recent disasters on some oil rigs I thought back to that journalist's queries. I would like my right hon. Friend to reassure me that safety is still a priority and that we are unlikely to face the unexpected collapse of rigs because of the chemical effects of sea submersion upon the steel supports.
I saw a report in The Scotsman recently of comments made by Mr. Allan Millar, the general secretary of the Association of British Professional Divers, who said that he and other divers had expected the Piper Alpha platform to be one of the first to go. I do not think that he was forecasting the collapse and disaster that occurred, but he and other divers knew that the structure was becoming outdated and antiquated. He said that it was held together by clamps which had been installed after cracks appeared on nodes—the part of a rig's leg where various members are joined together. It is obvious that the fears expressed to me a long time ago about the long-term strength of rigs still remain. Therefore, we must consider carefully the strength and viability of the older rigs and ensure that we have a system to effect the necessary checks to prevent disasters.
We cannot eliminate the risks in North sea oil operations altogether. However, given the proper safety training, full use of new technology, a strict statutory regime, full equipment checks and a responsible approach by the operators, I am confident that the overall downward trend in accidents and injuries will continue. With the welcome agreement on compensation that has now been reached, the tragic Piper Alpha accident may result in a safer industry, which is vital to us all.
As we are discussing the oil industry, it is worth mentioning the major issue of the decommissioning or dismantling of our installations and pipelines. Since 1967, 150 fixed platforms and 3,000 miles of major sub-sea pipeline have been installed in the North sea, and obviously their abandonment will present a major financial and physical problem in years to come.
Crucial decisions on tax regulations, environmental protection and forms of dismantling are still to be made. One thing is clear, however: the cost will be enormous. The figure of £3 billion has been bandied about. That is higher than our nuclear decommissioning costs for the same period.
746 Some years ago in a similar debate in the House the idea was floated that some rigs could be towed offshore and turned into holiday hotels. I suspect that that idea is no longer even remotely tenable, but no doubt there will be other ingenious ideas for the re-use of the rigs. Perhaps The House Magazine might like to test Members' ingenuity with a competition for ideas. Their future use will be an important aspect of our deliberations. Because of the vast number of rigs and pipelines, and the hazards that they present, we must concentrate our minds on how best and to what extent we require the dismantling of rigs.
I welcome this small but important measure and hope that the House will give it a fair wind this evening.
§ 6.4 pm
§ Mr. Malcolm Bruce (Gordon)
It has aleady been said that next year will be the 25th year of North sea activity. I was not in at the beginning, but I have had contacts with the industry for 17 of its 24 years. I have seen it go through price hikes and collapses, peaks of profitability and economic squeezes. I recall the right hon. Member for Old Bexley and Sidcup (Mr. Heath) visiting my office shortly after he lost the October 1974 election. He was somewhat startled to be told that he had left his concern for and interest in the North sea a few months too late and that, had he paid greater attention to what was going on a little earlier, he might not have lost the election.
It is true that, at that time, the knowledge and detailed hold of the Government on the North sea was not as it should have been. That must be true, as they even resorted to using me as a source of information when answering parliamentary questions.
§ Mr. Bruce
That might be so, but I knew more than the Government, although our sum knowledge might not have amounted to much.
In the 1970s, I always supported the case for a flexible taxation regime that took proper account of price changes, the real rates of return and the variations from field to field. When the North sea was being developed, when the real rush was on, the OPEC cartel became strong and it was rightly argued that the super-normal profits that that cartel would create for those producing oil and gas should accrue to the nation rather than the oil and gas companies. It was right that the regime then established ensured that the super-normal profits were effectively creamed off for the Exchequer. Now that oil prices are relatively depressed and there is a shortage of orders for the fabrication yards in some parts of the north of Scotland, the converse is true.
The pressure on the margins is acute, although companies have shown considerable ingenuity in cutting costs. It is appropriate, however, to ensure that tax regime changes take account of the significantly changing circumstances so that we do not have a severe front-end deterrent on oil companies, which would depress exploration and development activities. That would have been the case if the recent changes made by the Government, which I fully supported, had not been introduced. The Bill is the last element of those changes.
My view is not incompatible with that expressed by the hon. Member for Aberdeen, South (Mr. Doran)—that there has been a period of over-production in the North sea. It is a matter of judgment—and only judgment—that oil sold today at £11 or £12 is, by definition, not available 747 to be sold or used at a later date when the price in real terms might be higher or lower. Of course, the resource cannot be used twice.
I have always believed that oil and gas reserves are a strategic asset that belong to the nation and not to the oil companies. The extraction process should be geared to meet national and strategic requirements. To do that, we must ensure that there are optimum levels of development and exploration and that we know what is available. We need to ensure, as has been crudely suggested, that the plumbing is in first. If we are to impose a regulation on production, we must do it when the taps are installed. I support the Government's measures. We need to ensure that the maximum encouragement, exploration and development of associated and marginal fields takes place. I know that the Government do not agree, but if there is to be any restraint on production, it ought to be directed at larger fields, and only after all capital write-offs and uplifts have been secured by the operators so that they receive a full return on their investment.
We should be encouraging research and development into reducing the costs of oil development and recovery. Those of us closely connected with the industry are impressed by the way in which oil companies and related contracting engineers have found ways of reducing costs by using their imagination and a variety of different techniques and developing technologies.
In relating commercial factors to safety, one enters a sensitive area, but one must inevitably do so—the Minister was right to address it. Fourteen of my constituents were killed in the Piper Alpha disaster. The inquiry will take place in my constituency, which is also the location of Occidental's North sea operational headquarters—so the disaster had a definite and traumatic impact on people in my area. As the hon. Member for Aberdeen, South pointed out, looking through the casualty list, one finds just how wide is the distribution of the victims' addresses, showing that the industry is truly national and draws its work force from all over the United Kingdom. It should be fully understood that Piper Alpha was not just a local tragedy.
There are one or two areas of concern that should properly be explored in the public inquiry. However, the Minister knows that I have made it clear that he has responsibilities aside from the inquiry, and that I shall continue pressing him directly on those other matters. The hon. Member for Exeter (Mr. Hannam) alluded to the particular problem of Piper Alpha and other older platforms. It worries me that it was possible to install process modules under a platform's accommodation section, and how that came to happen has not yet been satisfactorily explained. We still need to know how that came about.
Ministers know that I strongly support the case for an independent safety inspectorate. More power and resources will be needed to carry out inspections and to lay down standards. Those who work offshore, and their dependants, deserve to be satisfied and to have their concerns allayed. I feel sure that hon. Members representing Aberdeen constituencies and others will all have received many letters from those working offshore—many of them written anonymously. Normally, I discount anonymous letters but it is a matter of real concern that such people are unwilling to identify 748 themselves. The Minister knows we must reassure them that action is being taken on offshore inspection and control.
The hon. Member for Aberdeen, South mentioned helicopter safety. It is a separate matter, in the sense that the Minister, when replying, can legitimately argue that it is not his departmental responsibility. However, as the Minister responsible for oil and gas, and as someone who uses helicopters when visiting platforms, he surely accepts that they are an essential component—the lifeline and main transport vehicles for North sea personnel. Statistically, the record of North sea helicopter operations is good, but that is not to deny that there have been one or two major catastrophes or that many more alarming incidents have often been averted only by the pilots' skill and experience. There was one such incident only a couple of weeks ago.
I accept that the CAA has made several changes over a number of years, but it takes too long to review accidents and to make recommendations, partly because the CAA lacks competence and authority in dealing with helicopter operations. I partly draw that as a parallel with the reason why we need a stronger and more independent offshore inspectorate. Not enough expertise and personnel are available to deal with inspections. Also, there are costs involved in safety, which inevitably creates tension.
The hon. Member for Exeter rightly said that no operator willingly cuts corners, because the cost of a catastrophe such as Piper Alpha far outweighs any possible saving. That is true, but judgment must still be exercised, particularly at a time when profit margins are tight. Appropriate safety measures are a matter of judgment, and where costs are involved, they are another factor to be considered, according to how seriously one weighs the safety benefit that will accrue. That is why as the Minister will surely acknowledge, we need an offshore safety inspectorate able to make decisions free of commercial pressure.
In circumstances where one is dealing with a marginal field, and where costs are crucial, corners may not be cut but measures that, on balance, should be taken might not be because they might tip the field over the balance of viability. That is an extreme example, but it illustrates my point that commercial factors cannot be wholly ignored.
Given that the Government have been flexible and responsive in meeting the industry's commercial needs, it is reasonable to maintain independent pressure on the industry to ensure the highest safety standards.
§ Mr. Hunter
On the hon. Gentleman's remark that companies might cut corners, is that speculation or does he know, from his far greater knowledge of North sea exploration than I have, that companies are doing so?
§ Mr. Bruce
That is a fair question. Other hon. Members may share my experience that people working offshore believe it to be the case and could quote chapter and verse. The problem is that they are not willing to testify against the companies for which they work, and those who have left risk being accused of having an axe to grind. The answer is that specific cases are quoted, but I am not in a position to judge their validity. However, I am entitled to say that concern exists and that we should take account of it.
It is that which convinces me that the inspectorate should be independent of the Department of Energy. Both 749 the Secretary of State and the Minister of State have on occasion rebutted robustly, and with some chagrin, the implication that their inspectors are in some way compromised. I am sure that they are sincere, but Ministers must understand that they also are part of the commercial calculation, or are perceived to be so. That is because, first, the Government's revenue is affected by costs, profitability, and the ultimate level of taxation; secondly, their balance of trade figures are affected by production levels. I do not quarrel with the Minister's sincerity in commenting on his own Department, but it is a matter not just of justice being seen to be done and of independence being assured, but of the inspectorate being operated in such a way that it cannot be questioned and is recognised as something apart—in which those having any commercial interest are not directly involved.
The nuclear industry, where levels of concern about safety are much higher, has a shortfall of nuclear inspectors. If, despite pressure being applied, the nuclear industry has been left with a shortfall, is it not arguable that the oil industry has been left with one greater than it needs to be?
The hon. Members for Aberdeen, North (Mr. Hughes) and for Exeter also mentioned the toppling of Piper Alpha. The concern surrounding that disaster arises not least because not all the victims' bodies have been recovered. Here we enter the realm of personal distress, particularly since most bodies have been recovered. For many people, it is a psychological necessity that the body be returned and that there be a proper funeral so that, although tragedy has struck, at least it may be given a proper and final ending. For those who have not been given that opportunity, there is continuing, open-ended distress. The House will recognise that for those individuals the suggestion that the platform's remnants may be destroyed without the remaining bodies being recovered is unacceptable. The Minister said that he would comment on that, and I look forward to hearing what he has to say.
I served on the Standing Committee considering the preliminary enabling Bill that dealt with the abandoning of offshore platforms. We had many ingenious and rather light-hearted discussions about the possible options, but a general feeling emerged that the toppling of such installations although relatively cheap—was not an acceptable final solution. First, we need an assurance that any action on Piper Alpha will not establish a precedent for any other field disposal.
§ Mr. Peter Morrison
I am sorry to interrupt—I have been trying not to do so—but I can give a categorical assurance that that is so.
§ Mr. Bruce
That is a helpful and welcome assurance.
There is some concern that the offshore industry may be dealt with differently from other industries in which it is in close competition. It is widely reported that the Electricity Bill, which was presented to the House today and will be published tomorrow, will contain a pretty open-ended taxpayers' indemnity of the nuclear industry for the decommissioning of nuclear power stations, the cost of which is estimated at £3 billion. That is comparable with the estimate of the cost of disposal of North sea platforms.
It would be unfair if oil and gas companies and their customers were forced to absorb their costs with no 750 assistance, while the privatised nuclear power operators' costs were contributed in full by the taxpayer. It would also be unfair to fishermen and other seafarers if the cheaper option of toppling platforms were pursued on the ground that the oil and gas industries were not being treated as generously as other industries and could not afford to absorb their costs. Debate on that will continue, but I wish to put down a marker now: many of us are not at all happy about the balance.
Like others who have spoken, I am happy to support the Bill's relatively limited objectives. It is, as the Minister has said, part of a package, not all of which I agree with but which should ensure the continuation of a viable offshore oil and gas industry. I should, however, like to pick up two of the Minister's comments about onshore exploration.
I agree that the industry has a good record on environmental restoration, and has been able to harmonise its activities effectively. Nevertheless, at a time of North sea over-production, it is surely inappropriate to press for developments in areas of dense population where there is pressure on amenities. Local authorities, particularly in the south of England, are understandably sensitive to that.
We have yet to observe the final results, but we hope that the change will be fiscally neutral, which would help the continuing development of gasfields in the North sea. The hon. Member for Aberdeen, South (Mr. Doran) commented on the monopoly position of British Gas. I wonder whether the measure will have any effect on that company's wish to import gas from elsewhere. Does the Minister think that it will enable sufficient gas to be provided to meet our requirements for the foreseeable future? Personally, I doubt it.
This is a modest but sensible step, which tidies up matters. I think that we all agree that the future of the North sea industry is much greater than its past, and that, in spite of its difficulties, the industry will employ many people, using ingenuity and technology, for a long time to come. Hon. Members on both sides of the House are anxious to ensure that the industry continues to thrive.
§ Mr. Andrew Hunter (Basingstoke)
As the past few years have shown, the theme of North sea oil and gas production and exploration has not set the scene for major confrontation between the two sides of the House; and I do not intend to inject a note of confrontation tonight. I am grateful to the hon. Member for Gordon (Mr. Bruce) for clarifying his party's concept of the ideal fiscal framework in which the industry should operate. I now understand that the party welcomes the withdrawal of royalties, but seeks a tax allowance of 150,000 tonnes per chargeable period.
I readily confess that I have come to the debate unprepared, because I thought that we had already had it. Those of us who sat through the 100 or so hours of the Committee stage of the Finance Bill were under the impression that all this was behind us, and I find myself enveloped by a sense of political déjà vu. I know that my hon. Friend the Member for Maidstone (Miss Widdecombe), who has just left the Chamber for an important engagement, would share both my hope that the debate will be short and my belief that it has already been well covered in Committee.
751 I think that the industry will say of the Bill, "About time too." As long ago as 1983, when royalties were removed from the northern and central fields, the industry said that the same should apply to the southern fields. The withdrawal of royalties from the northern and central fields was accompanied, under the Finance Act 1983, by a doubling of the oil allowance from 250,000 tonnes per chargeable period to 500,000. This Bill reduces the allowance. The Government accepted in 1983 that oil revenue could and should be reduced to further and promote exploration and investment. In my view, the financial and economic climate of 1983 was rather different from that of 1988, although Opposition Members may argue differently: the economy was less robust than it is now. But the Government were prepared to decrease North sea oil revenue, whereas in these healthier days they are making other demands.
That fount of all wisdom, Conservative central office, has reminded Conservative Members of the political perception for which my right hon. Friend the Minister is so renowned, and has drawn our attention to his departmental press release of 15 March, which stated:It had become clear to the Government, in the light of our discussions with the industry, that the Southern Basin fiscal regime was becoming insensitive to the economic realities of more recent fields and could be an obstacle to the development of worthwhile projects. The incidence of royalty, a non-profit-related levy, was the most serious impediment.I entirely accept that basic proposition.
We should bear in mind the principle, or maxim, that what is good for the United Kingdom offshore industry is good for the United Kingdom, and what is best for that industry is best for the United Kingdom. The objective of our policies must be to prolong the self-sufficiency of the North sea into the late 1990s—and, we hope, beyond—and to increase the estimates of resources that are economically recoverable.
My hon. Friend the Member for Exeter (Mr. Hannam) drew attention to some of the basic statistics of the North sea industry: that oil contributes 2.25 per cent. to our gross domestic product and provides the Government with revenue in excess of £4 billion—very approximately the equivalent of 4p on the standard rate of income tax. The number of people who are directly employed in the industry was also mentioned by my hon. Friend the Member for Exeter, as well as, if I remember correctly, by the hon. Member for Gordon—about 85,000. The oil industry has enormous repercussions on employment throughout the country and provides tremendous spin-offs. A recent manpower studies paper suggested that well over 500,000 jobs depend on the North sea oil and gas industry.
Last year, 132 offshore explorations and appraisals were started, besides 38 onshore appraisals. About eight wells are producing oil on shore. The second largest of those wells is partly in my constituency. Humbley Grove oil production straddles the parliamentary constituencies of Basingstoke, Winchester and Hampshire, East. We must not under-estimate the importance of the industry. We need to create the fiscal climate within which it will flourish.
There is one matter about which I begin to quarrel with the Government. The purpose behind the package, part of which was introduced in the Finance Act and part of which we have here, is to establish fiscal neutrality. My hon. Friend the Economic Secretary to the Treasury is on record as saying:
752we wanted to set the petroleum revenue tax oil allowance at a level that would leave the overall tax take unchanged over the life of the field affected".—[Official Report, Standing Committee A, 16 June 1988; c. 512.]Questions need to be asked about fiscal neutrality. First, has it been achieved? Secondly, is it necessary to achieve it? Thirdly—this is my own proposition—would it not be far better not to achieve it? As to whether fiscal neutrality is maintained by the Finance Act and this Bill, the industry is adamant that it is not. It persists in saying that the oil allowance should be 160,000 tonnes per chargeable unit. If that is not the allowance, operations that are marginally viable will no longer be viable. The industry says that the Treasury and the Department of Energy have got it wrong—that it should be 160,000 tonnes, not 125,000 tonnes.
As to whether fiscal neutrality has been achieved, there may well be a strong argument that it has not been. The next question is whether it is necessary to achieve fiscal neutrality. I am a staunch supporter of my right hon. Friend the Chancellor of the Exchequer. I applaud all that he has achieved. We are told that last year there was a surplus of revenue over expenditure of £3.6 billion and that this year there is likely to be a surplus of revenue over expenditure of between £10 billion and £12 billion. If there is such a surplus of revenue over expenditure, and if North sea oil and gas are so important to us—as they are—we do not need to maintain fiscal neutrality. We can look for a genuine lowering of the tax burden on that vital part of our national economy.
My right hon. Friend the Member for the City of Chester (Mr. Morrison) and other hon. Members have acknowledged that the debate has provided an opportunity for wide discussion of North sea matters. I do not propose to repeat what has already been well expressed. Of course the priority is safety. We are totally united about that, and I echo the sentiments that have already been expressed. No hon. Member could take part in the debate without recalling the Piper Alpha incident and wishing to be identified with the sympathy that has been offered to those who suffered injury and to those families who suffered bereavement. I identify myself with those expressions of sympathy.
I hope that there will be a clear and unequivocal assurance that everything possible will be done in what remains a hazardous enterprise to ensure the maximum level of safety. The hon. Member for Gordon referred to the fact that North sea exploration began 25 years ago. We must acknowledge that achievement. It was pioneering work of the first order. Technological advances of that kind deserve the highest praise. They have been of the utmost benefit to our economy. A debate of this nature is an appropriate occasion to recall those achievements.
The hon. Member for Gordon and I were involved in the 1987 Standing Committee proceedings on the Petroleum Bill. On that occasion, we had to consider the abandonment of oilfields, which is becoming an even greater reality; the days of abandonment are drawing nearer. There was some objective, non-political controversy in the Standing Committee proceedings. I should like my right hon. Friend the Minister to take this opportunity to assure us again that he is convinced that the Government have sufficient powers to control the abandonment of platforms and pipelines.
The abolition of royalties is to be welcomed. It will enable marginal fields to remain economically viable. It is 753 absolutely right that tax should be paid on profits rather than on production. I confess to having profound doubts about whether fiscal neutrality has been achieved. Heretic though it may make me, I happen to believe that we need not even seek fiscal neutrality.
§ Mr. Robert Hughes (Aberdeen, North)
I have privately as well as publicly congratulated my hon. Friend the Member for Aberdeen, South (Mr. Doran) on his elevation to the Opposition Front Bench, but I want to take this first opportunity in the House to repeat my warm congratulations to him, especially on his debut, and to wish him much success in the future as an Opposition spokesperson and, I hope, as the years go by, as a Minister.
I have been involved, mainly as a Front-Bench representative, with two of the three major disasters of recent times: first, the Herald of Free Enterprise at Zeebrugge; secondly, the King's Cross fire disaster; and, thirdly, when I was involved as a constituency MP, the Piper Alpha disaster. In a strange kind of way—I take no comfort from this—we marvel that in all three major accidents more lives were not lost. The Herald of Free Enterprise keeled over 100 yd from shore. Everybody on board that ship could have been lost. Many more people could have been lost in the King's Cross disaster. Those who saw the dramatic photographs in the technical report that was published by the Department or who saw, admittedly from afar, the battered remains of the Piper Alpha platform cannot understand how anybody survived. It is a miracle that more people did not die, but we cannot take any comfort from that.
With all three incidents, there is a strong feeling that commerce and competition came before safety. With the Herald of Free Enterprise, there is no doubt that the drive of competition and to maximise profit led to quicker turn-rounds and sloppiness with regard to safety.
As for King's Cross, there is absolutely no doubt in my mind—I think that the Fennell report bears it out—that those who were in charge of London Underground were far more concerned with cash and cutting public subsidy than with safety. Again, sloppiness crept in. The day after the fire, I saw underneath the escalator. I was told that, on that one wooden escalator, there had already been 12 fires which had gone out without causing major loss of life. I incline towards the view that there is a correlation in the North sea between price stability and attention to safety. Everybody denies that. In discussions with the United Kingdom Offshore Operators Association—other hon. Members have had similar discussions—and when we visited the Tartan Alpha platform, everybody assured us that safety was always paramount. If it were not true in the past, Piper Alpha has concentrated everybody's mind. I have no doubt that the issue has been considered afresh.
All of us who have been involved have been flooded with letters and inundated by people coming to see us to tell us about breaches of safety legislation and practice. They tell us that they felt that they were being driven to get on with their job because nobody wanted the platform to shut down. It is difficult to know how to judge hearsay evidence. I normally tell people who come to see me and those who give me their names and addresses to make their 754 evidence public. I tell them to make it available to the Lord Cullen inquiry. Everybody owes it to the living and to the dead to ensure that no aspect of safety is overlooked.
I understand that Lord Cullen cannot look into every allegation and every possible aspect of safety in the North sea, nor would we want him to do so. We want a thorough examination, but we want fairly speedy conclusions. Perhaps the Minister can tell us what will happen at the end of the inquiry. What immunities have been given to the participants in the inquiry? To get the evidence at the Zeebrugge inquiry, a blanket immunity from prosecution was given to anybody who took part. Some qualified immunities have been given in regard to the Piper Alpha inquiry. I am not seeking vengeance any more than anyone else, but if clear knowledge of breaches of safety legislation emerges, the people concerned ought to be prosecuted further. I hope that, whatever qualified immunities might have been given, there is no blanket immunity from prosecution.
None of us wants to prejudge the outcome of the Cullen inquiry. I have already said publicly, and repeated it in the House, that I believe that Lord Cullen has begun his inquiry in a way which leads me to have confidence that we shall get a fair and reasonable result.
There is controversy about the independence of the safety inspectors. I have some doubt whether an independent safety commission would be as beneficial as is sometimes suggested. There is an incestuous relationship between the industry and the Department. It is neither here nor there whether that relationship is real or apparent; there is a close relationship, and people feel that it has got a bit too cosy and that perhaps the commission should be one step removed.
I know that some hon. Members feel very strongly about this issue, but my hesitation on the subject arises out of the fact that the commission cannot be entirely independent of the Government. Moreover, I do not believe that the Government's safety record is very good. I would not dare to cast aspersions on the Secretary of State or the Minister of State. I have already said that they have conducted themselves well since the Piper Alpha inquiry started, but some Ministers have departed and some may yet come in whose judgment I would not necessarily trust. We must approach the subject of independence carefully and seek an assurance, yet again, that the safety inspectors have the greatest possible independence.
I do not know why the oil industry is so hesitant. When the Opposition have demanded more trade union involvement in safety and organisation on the rigs, some people have thought that we are pursuing our natural political and industrial inclination to favour the trade unions. I am a Member sponsored by the Amalgamated Engineering Union. That union recruits members from among those working in the North sea, so people would expect me to say that we want strong trade union organisation, but it is not simply a matter of having trade union organisation because we have a vested interest in it.
I believe fervently that active trade unionists in any industry are concerned for members and colleagues, irrespective of whether their workmates are members of a trade union. I cannot understand why the oil industry has resisted proper trade union membership. The vast majority of the majors who operate in the North sea have onshore, downstream activities where for many years they have happily accommodated union safety representatives and 755 even closed shops. Why can they not allow the same in the North sea? They say that they are perfectly happy to allow organisation. It cannot be contradicted, however, that when a trade union organiser applies to go to a platform his application is welcomed but it just happens that a place on a helicopter cannot be found for another six months.
It might be asked why organisers do not organise the lads when they come on shore. Having been offshore for a fortnight. men want to get home to their wives and families; they do not want to hang about at trade union meetings. It is entirely understandable that they want to get the first aeroplane south—because this is not a wholly Aberdeen-based industry.
When there has been some organisation, because half a dozen good trade unionists have got together, it is well documented that when they come up for their next tour of duty they are put on different ships or different platforms. The cohesion which has begun to be built up is therefore broken. Why is the oil industry not prepared to allow proper trade union organisation? I believe that such organisation is important.
I do not know how many other hon. Members wish to speak, but I apologise to the Minister as I may not be able to be present to hear his reply. It is not entirely satisfactory that he should deal with the debris of the platform in his winding-up speech because we do not know what he will say. That is a minor carp. I know that the Minister of State is hoping that I shall hurry up and finish.
§ Mr. Peter Morrison
I am keen to help the hon. Gentleman. However, I wanted first to be 100 per cent. sure that I should in no sense mislead the House. I have now discovered that I should not be misleading the House, so I shall tell the hon. Gentleman precisely what the position is.
It was only last night that a proposition was put in my box relating to the abandonment of Piper Alpha, which I approved. It is obviously a matter of great importance. The proposition then went to my right hon. Friend the Secretary of State for Energy. This morning, my right hon. Friend also approved that proposition. For the sake of accuracy, it may be helpful for me to spell out precisely what the proposition is.
Under section 4 of the Petroleum Act 1987, my right hon. Friend the Secretary of State has approved the abandonment programme for Piper Alpha, submitted by Occidental and its co-venturers. This proposes the use of explosive charges to topple the remains of the installation and to put them on to the sea bed, away from the existing pile of debris, leaving at least 75m of clear water above all remains.
The approval is not final. The proposed conditions to be attached to my right hon. Friend's approval include requirements for surveys of the toppled remains and surrounding sea bed to establish the position of debris and to monitor for leakage of oil and gas. They also require sediment samples to be obtained and examined for the presence of polychlorinated biphenyls and radioactivity. The conditions provide for repetition of these surveys and of sediment sampling at such times as my right hon. Friend the Secretary of State may subsequently direct. They also provide for debris to be moved, or removed, as my right hon. Friend may direct; for any leakage of oil or gas to be sealed to his satisfaction; and for steps to be taken to deal with any unacceptable levels of pollution.
756 All those proposals are subject to approval, and the operating company will have the opportunity to raise objections under the statute. The proposals have not yet been conveyed to anyone other than hon. Members in the House today, my right hon. Friend the Secretary of State, myself and one or two officials. I hope that that has been helpful.
§ Mr. Hughes
The Minister has been very helpful. If I made any charge of discourtesy in my speech, I acquit him of it.
There were two points with which the Minister did not deal. The first point concerns the bodies. I come from a seafaring family of generations back and I know from experience—although none of my family has been lost at sea—how seafaring families find it difficult to come to terms with death if no body is found. After the Zeebrugge and the Piper Alpha disasters, the relatives of those who died found it difficult to come to terms with the deaths. If the Piper Alpha platform is toppled, perhaps there will be a further search for bodies around the platform.
The other matter about which I am anxious is that the evidence that may be available about corrosion will be difficult to obtain. I said earlier that I did not expect Lord Cullen to go into every aspect of safety in the North sea, but I believe that corrosion is extremely important in relation to safety. The hon. Member for Exeter (Mr. Hannam) mentioned corrosion and safety. As the Minister has made a final decision about the platform, I hope that he will assure us that there will be ample opportunity to study corrosion.
I believe that the oil industry is under an obligation to carry out a proper restitution of the immediate area of its operations in the North sea after abandonment. It should not have been allowed to say that it was starting a great programme, providing wealth for the nation and many jobs and that it would look after the area and then later say that it is too poor to make proper restitution.
I do not share the view that is held by some of my hon. Friends that these measures should be fiscally neutral. The oil industry generally has done pretty well out of the North sea and it should have provided more for the Government. The only comfort I take is that, although the oil industry did not produce as much for the Government as I should have liked, the Government have totally squandered the North sea revenues that they received. When North sea oil drilling began, the Opposition argued strongly that there should be a specific investment fund and that revenue should go to develop not only Aberdeen—although, of course, it needed development—but the infrastructure for the manufacturing capacity of this country. That was resisted because the Treasury dislikes hypothetical revenues, and that allowed the Government to waste the assets of the North sea. I hope that they will do better with those assets in future. I look forward to seeing the benefits from the North sea accruing to the people of this country—not only to the oil companies and those who have shares in the business.
§ Mr. Malcolm Moss (Cambridgeshire, North-East)
I shall try to be as brief as possible.
The Bill has been warmly welcomed by Labour and Conservative Members and by the oil industry. The new fiscal regime will help to remove obstacles to the development of worthwhile and economically viable 757 projects. The Government have recognised that royalty—a non-profit-related levy—was the most serious impediment to development. The abolition of royalty, coupled with tax changes, will give a new incentive for new gas developments and developments onshore. By removing the tax on wells and substituting a tax on profits, we now have a fairer system, which will encourage marginal projects to come forward and which should give a boost to the smaller and more independent oil companies. Despite a good record of new fields being developed and new wells being drilled, we should seek to exact the maximum return from this most valuable national asset.
I shall now deal with the question of undrilled acreage. The problem of the banking of acreage stems from the first four rounds of licensing. There is still a major incentive to the oil companies to develop that acreage. The licences end in the period 2010–18 and the Bill does not provide for the extension of those licences. The normal lifespan is 20 years, so the licensees may run out of time to complete extraction during the period of tenure of the licence. They are urged to come forward so that they do not fall foul of the time limit.
The Government believe that there are now good grounds for seeking to secure new impetus in the exploration of undrilled acreage. One obvious point is that the undrilled portion is an important potential addition to the United Kingdom's oil and gas reserves. Recent developments in recovery technology have improved the viability of smaller fields. The Department of Energy is encouraging licensees of undrilled plots to explore them more thoroughly. The Department has made it clear that the oil companies are expected to give details of plans to do just that.
I am delighted that the Minister made the clear point in a recent announcement that the new applications for the 11th round will be considered in the light of the existing licensees' plans on undrilled acreage. That is most welcome, and I urge my right hon. Friend to press that point whenever possible. Any measure that helps to avoid the banking of acreage is to be welcomed.
I am sure that my hon. Friend is aware of the report from stockbrokers Gilbert Eliott who looked at the problem and made certain suggestions. Instead of the full United Kingdom continental shelf coming forward in a series of licensing rounds, the report proposed that the shelf should be divided into four regions and that all the available acreage should be offered once a year, by quarters in rotation. If any block remained undrilled for 10 years, the Department could demand its relinquishment.
The report claims that the scheme will have several advantages. First, there will be a constant work load for the industry and the Department of Energy, which is surely to be welcomed; secondly, sitting on undrilled acreage will cease; thirdly, regional geological assessments would become possible; fourthly, long-term exploration planning would be easier; fifthly—most important—there would be constant opportunity for new entrants.
Many new entrants are our own United Kingdom independent producers. They are an important group and their vital contributions have recently been acknowledged by the Minister. However, this year the number of United Kingdom independents has fallen by about a quarter. In 758 February we had 40 companies; in August we had only 31. Such companies are facing several problems at present, such as the fact that their cash flows are not good and the oil price is depressed. The OPEC decision of the last few days may be of some encouragement to them.
Many United Kingdom independents are involved in onshore exploration. It is to be welcomed that the Bill gives a great step forward by having a royalties exemption clause for onshore exploration. However, problems still face those who wish to develop on shore: for example, the reserve sizes are questionable, the planning process is lengthy and there is no petroleum tax relief. I recently heard further evidence to the effect that the cost of drilling a well on shore to a depth of 6,000 ft. would cost about £750,000, whereas an offshore 15,000-ft. well would cost £2.7 million. However, when tax is taken into consideration, the net cost of the onshore well would be £480,000 compared with only £430,000 for the offshore well.
Managements involved in decision-making face competing demands on their costs. Often, the choice is made in favour of an offshore field, probably abroad, instead of encouraging the development of our United Kingdom potential to its full.
Finally, I turn to the southern basin—an area of the North sea that is important to my constituency and significant to the economy of East Anglia. The development of additional gas reserves will help preserve the production and infrastructure that is in place, and will keep jobs in my region. With electricity privatisation, there are serious possibilities of gas coming on shore for gas turbine stations. That would be a welcome addition to electricity generation in the area.
One cannot stress enough the importance of the fiscal changes in the Bill and their importance to investment decisions in the oil industry. However, there appears to be some difference in interpretation between the Government and the oil companies on the importance of internal rates of return on a field at the expense of concerns about the present value and pattern of cash flow.
I believe that when these matters were dealt with in Committee on the Finance Bill, the oil industry raised the question of the level of tonnes per chargeable period, which the Bill brings down from 250,000 to 125,000. Will the Minister give an assurance that he will monitor that regularly to ensure that it does not militate against development and that the necessary new fields come forward as we hope?
We have heard from the Minister this evening that we have a buoyant oil and gas industry. All who work in the industry deserve our greatest admiration and gratitude. Theirs is a dangerous occupation and since the Piper Alpha disaster, which has been referred to by many hon. Members, many families must be under considerable mental and emotional pressure as they await the return of their loved ones from tours of duty on the rigs. This House and those families are grateful for the Minister's categorical assurance that the highest safety standards are operated at present, and will be in the future.
§ 7.4 pm
§ Mr. Doran
This has been an extremely useful debate, although at some distance removed from the precise purpose of the Bill. However, it has highlighted some of the major problems and issues that are faced in the offshore oil and gas industries.
The points made by the hon. Member for Basingstoke (Mr. Hunter), who is not in his place at the moment, seemed to be a plea on behalf of the oil industry, not just for the fiscal neutrality of the Bill, but for a lowering of tax rates. I certainly do not agree with that, and I am sure that none of my hon. Friends would agree either, unless the lowering of tax rates were related specifically to development proposals.
I take on board the points made by the hon. Member for Cambridgeshire, North-East (Mr. Moss) about the banking of acreage and our need to encourage development. Some of his points bear further scrutiny.
The major issue that we must deal with is that of safety. Several points have been put to the Minister, who has already responded favourably to one of them. I was pleased to hear his statement on the importance of the abandonment of the Piper Alpha platform. However, I should like him to be specific on one point. When I recently met the Secretary of State for Energy—if my memory serves me correctly I should also have met the Minister of State, but he was called away to Downing street for something which, unfortunately, appears not to have been noteworthy or important—the right hon. Gentleman was at pains to point out that what was intended at this stage was an interim measure in the interests of safety because there was serious concern that the remains of the Piper Alpha platform could topple in the bad winter weather. Despite the fact that supports are being manufactured for the remains of the platform, it is not likely that the platform will survive the winter. Therefore, I am a wee bit unsure about what the Minister said earlier in response to a question by my hon. Friend the Member for Aberdeen, North (Mr. Hughes). I am not sure whether the Minister is now talking about an interim measure, or a more permanent arrangement. I should like him to clarify that if he can.
The question of safety in the North sea has been canvassed because it is the main issue at the moment and concerns us all. I have already said that the Government should not sit on their hands and wait until the report from Lord Cullen's inquiry is available before dealing with the obvious points that require action now. I look forward to hearing the Minister's response to that.
I hope that the Minister will take on board the points made by my hon. Friend the Member for Aberdeen, North about trade union rights. Again, at recent meetings with the Secretary of State it was made clear that the publication of the consultation document leading to regulations for safety committees and safety representatives in the North sea was likely. We shall continue to press our points on trade union representation. It is not just a question of establishing safety committees, because such committees require back-up. Onshore there is a well-established, well-tried system, involving trade unions on a statutory basis. Those committees have been shown to be enormously successful in improving the onshore safety record.
We want the same thing to happen offshore. We want the members of those safety committees and the safety 760 representatives to have access to the independent information and advice that is provided by the trade unions' research staff. We want a genuine contribution to safety in the North sea through the establishment of such committees and safety representatives, not a muted or toothless talking shop.
The matter of the inquiry is coupled with the points made about the Piper Alpha platform. Will the Minister repeat the assurance given to me in a private discussion that every effort will be made to recover whatever evidence remains at the bottom of the sea? I understand the difficulty and the risk involved in recovering the various modules that still lie on the sea bed under this dangerous platform. I hope the Minister understands that there is still much uncertainty, for example, about where the original explosion occurred and how it occurred. Can he give us an assurance that no effort will be spared to recover vital evidence?
§ Mr. Peter Morrison
I agree with the hon. Member for Aberdeen, South (Mr. Doran) that this has been a constructive debate. It has also given the House the opportunity to range more widely than the precise provisions in the Bill, and that is helpful, not least because for the last 18 months we have not had an opportunity to debate the oil and gas industries. Very important issues have been raised, some of which dealt with the tragedy in July on Piper Alpha. The debate has not been very political, and perhaps the industry is successful because politics and politicians do not interfere in it to any great extent.
I shall attempt quickly to answer the questions raised in the debate. The hon. Members for Aberdeen, South, for Gordon (Mr. Bruce) and for Aberdeen, North (Mr. Hughes) asked whether the work of the safety directorate would continue during Lord Cullen's public inquiry. I can give a categorical assurance that that is correct. I thought that I said earlier that that will be the case. I was also asked about the emergency shut-down valves. Proposals about those have been received by my Department from the industry, and in the light of those we are urgently considering what new regulations would be appropriate.
The point has been made to me in my office and elsewhere that there should be a separate safety directorate. The hon. Member for Gordon said that I rebutted that with chagrin and that my right hon. Friend the Secretary of State for Energy was prone to doing the same. I do not think that I did it like that; but, of course, I accept that that is how my reaction may have been judged. I thought that I said, in as reasonable a way as possible, that Lord Cullen would look at that matter and that we would look carefully at the recommendations in Lord Cullen's report. If my reaction came across as chagrin, it was not meant as such.
As the Opposition know, we have followed the majority decision of the Burgoyne committee which was made at the beginning of this decade. That was assumed to be a satisfactory way of proceeding, and until that fateful evening in July not one parliamentary question had been put to me about the safety regime as such. Obviously hon. Members and outside bodies feel strongly about this matter, and it will be looked at carefully in the public inquiry.
761 The hon. Member for Aberdeen, South asked specifically about the abandonment of the Piper Alpha platform. In an intervention during his speech I gave him an answer to that question. I repeat that the decision made overnight by my right hon. Friend the Secretary of State and I was subject to certain conditions.
The hon. Member for Aberdeen, South asked whether debris would be moved or removed. One of the conditions of the abandonment proposals is that my right hon. Friend can provide for debris to be moved, or removed, as he may direct. It was not until I intervened in the hon. Gentleman's speech that I made public at all, even to Occidental, the situation as it stands.
§ Mr. Morrison
It is subject to the possibility of written representations by Occidental. In my office the hon. Gentleman and I discussed toppling the platform outwards. Such a controlled toppling would ensure that the remaining debris would be not be crumpled, or crumpled further, as it might be if the platform were toppled by natural forces. I hope that I have made the position clear, as I understand it.
I was asked about pipelines and whether the certifying authorities were properly co-ordinated. I can give an assurance that that is the case. If the hon. Member for Aberdeen, South has any specific matter to raise with me, perhaps he could do so after the debate and I shall quite happily look at it.
762 My hon. Friend the Member for Exeter (Mr. Hannam) spoke about discussions that he and his wife had had with friends about the corrosion of platforms. I assure him that there is a continuing requirement for platforms to be regularly examined for corrosion. They will continue to be structurally examined at regular intervals by the certifying authorities so that they come up to the standards required by regulations before certificates of fitness can be issued. I hope that my hon. Friend is reassured by that.
The hon. Member for Aberdeen, South asked about the British Gas monopoly. Perhaps that matter concerns many hon. Members. As the hon. Gentleman is aware, the Monopolies and Mergers Commission produced a report a little earlier this year. My right hon. Friend the Secretary of State for Trade and Industry has asked the Director General of Fair Trading to look at the proposal in the MMC report that up to 90 per cent. of a particular field should be sold to British Gas and that the other 10 per cent. should be sold to another client. As the hon. Gentleman realises, more customers are coming forward. One can quote, for example, the sale of gas from the Miller field to the North of Scotland Hydro Electricity Board. To a certain extent, that is starting to break what might have been a monopoly.
I do not wish to detain the House any further because we have other important matters to discuss. The Bill is short and remarkable for being uncontroversial. It is the first Bill to be presented in this Session and it is important because it has a key part to play in the economy and in industry. I am most heartened that there is cross-party agreement on the Bill, and I commend it to the House.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Committee of the whole House.—[Mr. Fallon.
§ Committee tomorrow.