HC Deb 27 April 1990 vol 171 cc698-706

Motion made, and Question proposed, That this House do now adjourn.—[Mr. John M. Taylor.]

2.36 pm
Mr. Alex Salmond (Banff and Buchan)

The central area transmission system—or the great gas robbery, as it is known in Scotland—is a proposal by a consortium of oil companies, led by Amoco, to take gas from the North sea off the Aberdeenshire coast by under-sea pipelines straight to the north-east of England for processing and development. The plan is to use the gas to generate thousands of megawatts of cheap electricity by combined cycle technology, giving a major cost advantage to energy-intensive industry in that area.

My purpose in raising the debate is to alert public opinion in Scotland to the wholesale pillaging of our natural resources and to the serious economic consequences that will inevitably follow if the plan is not stopped. My purpose is also to persuade the Government to change course and withdraw the support that they seem about to give the plan, and to explain clearly to the Minister the political consequences for the Tory party if it continues on its present course.

First, the Minister should understand the economic importance of this issue. Although only two gas fields—Everest and Lomond—are initially involved in the project the gas pipeline is planned to have a capacity of twice as much gas again. If the pipeline establishes a route south from the central North sea, reserves from up to a dozen or more major accumulations could end up being sent south. Thousands of direct jobs are at stake in processing and development.

The electricity that is already planned to be generated is substantial—a proposed 1,750 MW station at ICI's plant at Wilton, which would be the world's largest combined cycle plant, and a real possibility of a further 1,000 MW station being built by the Neptune consortium. Such a quantity of electricity could have powered half Scotland's total electricity requirements at a generation cost of about 2p per kilowatt hour.

Instead, under the Government's plans, the Scottish electricity industry will be forced to buy power from nuclear stations whose real generating costs are well over double that figure. What energy-intensive industry will be able to compete if companies in the north-east of England are offered the advantage of cheap power generated by Scottish resources?

It has not escaped the attention of the Scottish National party that one of the companies involved in the Neptune consortium is British Steel, which is in the process of choosing between a central Scotland or a north-east of England location in which to concentrate its operations. The opportunity being thrown away for the Scottish people is staggering. A combination of gas, hydro and coal could give Scotland by far the cheapest energy base in the European Community, turning our country into a Mecca for energy-intensive investment and slashing Scottish household electricity bills.

I will explain why the Government's attitude is so resented in Scotland. The great gas robbery goes one stage beyond the great oil robbery of the 1980s. Over the Thatcher years, about £87 billion—£17,000 for every man, woman and child in Scotland—has been sent south from the Scottish waters of the North sea. I hope that the next time the Prime Minister talks about Scots being subsidised by the tolerant English she will pause to remember whence her Government have been bankrolled—unwillingly—over the past 10 years.

The great oil robbery was bad enough but at least the oil was physically landed in Scotland, where some direct jobs were created, particularly in the north. If the plans for the great gas robbery go ahead, the gas will be piped south and never touch Scottish soil. This proposal represents the greatest international larceny since the Spanish stole the Inca gold, and at least the Incas did not have to tolerate being lectured and patronised by the Prime Minister. Of course the Government will try to say that this is not the result of Government policy, that it is all about the interplay of market forces. I hope to demonstrate briefly the threadbare nature of that argument and I want to make four points in that context.

First, the oil companies are being paid to bring the pipeline south. Amoco has refused to divulge the projected cost of the pipeline, but basing the calculation on a pipeline with identical specifications for British Petroleum the additional costs of taking the pipeline on the 254-mile route to Teesside rather than the short route to St. Fergus in Aberdeenshire could be about £170 million, a massive additional cost.

My information is that it is possible, even likely, that all this extra cost will be met from public funds as offsets against petroleum revenue tax, and that certainly the subsidy will be no less than 35 per cent. of the total pipeline cost. Scotland must be the first country in the world to pay oil companies to take away its most valuable natural resources. It is hardly surprising that the oil companies concerned are so relaxed about the huge additional cost of taking the pipeline to Teesside. They are not being asked to pay for it—we are—and that has nothing to do with market forces.

The second argument to demonstrate that this is a matter of Government policy and not of market forces is to be found by contrasting the public handouts given to the oil companies with the Government's equivocation about the funding of work to strengthen the electricity interconnector between Scotland and England. My latest information on that subject is from correspondence with the National Grid Company on 22 March. It is clear that little or no progress has been made and that negotiations are to be left totally to the electricity companies themselves.

Why are the Government willing to subsidise to the tune of £170 million the syphoning south of Scotland's resources but are not willing to spend half that amount on strengthening the electricity interconnector which would allow the electricity to be generated in Scotland and sold for a fair price across the border? Once again these are matters of Government policy and have nothing to do with market forces.

My next point is made on behalf of the Northern Ireland Members who put down an early-day motion on the matter. It would be reasonable for the Government to use the massive amounts given to the oil companies to bring natural gas to Northern Ireland for the first time. That is the only area of the United Kingdom without that benefit. However they propose to give massive subsidies to the oil companies to take Scottish resources to the north of England. That is totally unacceptable.

The third argument to show that this is a matter of Government policy and that it has nothing to do with market forces is that Amoco clearly told me that it intended to take the pipeline to St. Fergus in Aberdeenshire. It was stopped by the refusal of British Gas to offer an economic price, although the facilities required to receive the gas in Aberdeenshire are already largely in place. The Government established British Gas, first as a total monopoly and now as a near monopoly for the purchase of gas. That company's anti-competitive behaviour has pushed Amoco into looking south for a market. Once again, it is not a matter of market forces but of Government policy.

My fourth and most serious argument is about the impact of Government energy policy on the Scottish electricity system. The Government and their predecessors have saddled Scotland with two huge advanced gas nuclear power stations which, according to the most recent evidence received by the Select Committee on Energy, will generate power at a real cost of some 5p per unit. Even on the fiddled figures from Scottish Power the cost of nuclear electricity in Scotland is acknowledged to be 3.5p per unit, almost twice the cost of combined cycle gas generation.

Why are the new electricity companies in Scotland not acting rationally and competitively and building combined cycle gas stations? It must be because they have been instructed to purchase from Scottish Nuclear Ltd. uncompetitive nuclear power. That power is to be subsidised by the Scottish taxpayer. Either way, Scotland will end up paying through the nose for the white elephant of the Torness nuclear power station. Once again, this has nothing to do with market forces and everything to do with the Government's distorted energy policy.

In all the areas that are critical in creating the combination of circumstances which have brought about the threat of the great gas robbery we find not the invisible hand of market forces but the sticky fingers of the Government's energy policy. I assure the Minister that if the Government allow the plan to proceed, the current 15 per cent. support registered by the Conservative party in the latest opinion poll in Scotland will seem like a high-water mark as our people pass judgment on the scandal that I have outlined.

I shall conclude by asking the Minister some specific questions. I know that he is about to take notes so that he can answer them in that vein. First, at what stage are the approvals for the central area transmission system scheme, and do the Government intend to permit the new pipeline route south? Secondly, will the Minister confirm that under oil taxation rules all of the pipeline costs may well be reclaimable from PRT over a period of years? Thirdly, are the Government prepared to commit funds now for strengthening the electricity interconnector between Scotland and England, and when is it that the work is proposed to start? Fourthly, has a price for electricity been agreed between Scottish Nuclear Ltd. and the two electricity companies in Scotland, and what is it in pence per unit? Did the Government require Scottish Power and Scottish Hydro-Electric to purchase the nuclear electricity?

The proposed great gas robbery crystallises the economic and political choices that are facing Scotland. On the one hand, we can allow the systematic pillaging of our country's natural resources to continue and to intensify while we have to tolerate patronising abuse from the Prime Minister. The alternative future is to use our natural resources literally to power our economy to success within the European Community. I am confident that next week, in the local elections in Scotland, we shall take a further step in the right direction.

2.47 pm
The Parliamentary Under-Secretary of State for Energy (Mr. Tony Baldry)

I am grateful to the hon. Member for Banff and Buchan (Mr. Salmond) for providing us with the opportunity to comment on the exciting developments that are taking place on the United Kingdom continental shelf. The timing of this debate is indeed opportune because, as hon. Members will know, next Monday my right hon. Friend the Secretary of State for Energy will be presenting his annual report on the development of the oil and gas resources of the United Kingdom in 1989. I cannot, of course, go into detail today about the report, but I am able to say that the future looks bright.

Rates of exploration and development activity, and the level of investment are currently high. There were 183 exploration and appraisal wells drilled in 1989, and we believe this number should be exceeded in 1990. Some 29 significant new offshore discoveries were announced in 1989, the highest annual total since North sea exploration began. These exploration successes reflect the fact that substantial quantities of oil and gas are still to be found in the North sea.

The rate of development also continues at a high level. Sixteen development projects were approved in 1989—nine new oil and two new gas fields, plus five enhancements of existing developments. Offshore employment in 1989 was some 31,000, the highest level since 1984.

This increased activity is good news for the health and future prospects of the North sea and for the supply industry. The hon. Member for Banff and Buchan will be pleased to learn that most of this investment is supplied by United Kingdom industry, particularly Scottish industry.

That bright picture is set to continue. Two new offshore licensing rounds have only just been announced by my right hon. Friend the Minister of State—a 12th round of licensing for the established areas of the UKCS and a separate frontier round to encourage exploration in the frontier areas to the north and west of Scotland.

Mr. Salmond

rose——

Mr. Baldry

I am seeking to respond to the hon. Gentleman's points. He asked a number of questions. I hope that he will forgive me if I do not give way at this point.

That separate frontier round marks a completely fresh approach in United Kingdom offshore licensing policy. Consultation with the oil industry shows that it shares our view that the time is ripe for exploration in those areas. Both of those rounds should help to ensure that the UKCS remains a significant oil province well into the next century by providing the opportunities for new discoveries and, I hope, new developments.

That welcome picture of growth and investment has come about because of the Government's free market stance. Our free market regime has encouraged oil companies to invest in the United Kingdom continental shelf to the benefit of industry and employment offshore and onshore. Meanwhile, our neutral offshore tax regime has permitted the companies to select the most profitable investments for exploitation and development—profitable for them and profitable for the United Kingdom. Although, naturally, I cannot comment on the actual tax liability in any individual case, I can confirm that the tax system is designed to produce the greatest overall return to the United Kingdom.

The hon. Member for Banff and Buchan has expressed particular interest in gas development, an area where prospects are especially encouraging. Recent independent analysis from the City has concluded that the United Kingdom could have a gas supply surplus over demand from 1993 into the next century. That potential surplus presents a real opportunity for expanding the market for gas. The value of gas is being fully recognised, not just as an alternative to oil but because it can offer environmental benefits as well. That comes at a time when competition in the gas market is growing.

The key to bringing about that growth in competition was the Monopolies and Mergers Commission report of October 1988 and the resulting changes in the gas market. British Gas has been operating to a published price schedule for the contract gas market since May 1989. It has also published indicative charges for the use of its pipelines and set up a separate transportation department to market common carriage services.

Those developments, together with the Government's target that 10 per cent. of all new gas supplies should be supplied to contract customers by companies other than British Gas, have opened up the industrial and commercial markets to competitors. New players have entered the gas transportation sector with proposals for independent pipeline systems in competition with British Gas. Several new gas marketing companies have also been formed and already one company, Quadrant, has started selling gas to contract customers in Scotland.

Against that background of the proven success of our North sea policies—encouragement of free enterprise, a liberal fiscal regime—and the Government's objective of promoting competition in both gas supply and electricity generation, clearly it would not make sense to refuse to approve an offshore development plan or refuse a consent for a power station on the ground that the gas is to be landed in England rather than Scotland.

The market for Everest—Lomond gas is at Teesside. The hon. Member for Banff and Buchan may not like that, but it is a fact. Customers in Scotland had the opportunity to buy it, but did not. The Government are not in the business of dictating to producers where they can and cannot look for markets for their gas.

Mr. Salmond

We are coming to the nub of the issue. I can understand why the North sea has been a great success for the Tory party. We can well understand why the North sea has been a great success for the Tory party, which has had £87,000 million of revenue from the Scottish sector. How can it be in the interests of Scotland for our resources to be directed to the north-east of England without ever touching Scottish soil? If the Minister argues that it is all about where the market lies—free market forces—will he deal with the question whether the additional £170 million to take that gas from the central North sea to the north-east of England will be reclaimable from petroleum revenue tax?

Mr. Baldry

The indisputable benefits that have come from North sea oil have been enjoyed by the whole of the United Kingdom. The nub of the issue is that the Government believe in promoting the common wealth of the whole of the United Kingdom, whereas the hon. Gentleman seems to be interested in only one small part of it.

Mr. Salmond

Scotland is hardly a small part of the United Kingdom.

Mr. Baldry

Not small perhaps, but still only one part of it.

If the hon. Member for Banff and Buchan has his way and the gas is prevented from landing at Teesside, he would be responsible for a delay of several years in the development of the fields, with a consequent loss of employment both offshore and among the fabricators and suppliers of equipment—many of which are based in Scotland.

Mr. Salmond

I wonder whether the Minister really listened to my contribution and intends to depart from his prepared text. Amoco told me that it was in the final stages of reaching agreement with British Gas and that it was that company's uncompetitive behaviour that promoted Amoco to move south. If a market exists in north-east England, why do oil companies need to be funded with £170 million from public sources to be persuaded to take the gas south? How can that be a matter of market forces?

Mr. Baldry

I am attempting to answer the hon. Gentleman's questions. He is aware that this is a timed Adjournment debate. If he will be patient and listen, I shall answer his questions—but every intervention that he makes lessens the time available to me to respond.

I repeat, if the gas is prevented from landing at Teesside, many opportunities for companies will be delayed or possibly lost. The Government are committed to seeing the United Kingdom continental shelf developed and the gas brought to market with all the benefits that will follow for the United Kingdom, including Scotland.

The Government welcome interest in gas generation, which is a direct result of our policy of stimulating competition in both gas supply and electricity generation. That policy will bring major benefits to all sections of industry and to consumers in general.

My officials have received from the operator their draft proposals for most aspects of the field development and the related pipeline; and they will examine them on their merits. Based on normal experience, that process is likely to take some time, so I cannot say when my right hon. Friend the Secretary of State is likely to be in a position to take a decision on approving the developments.

If the concerns of the hon. Member for Banff and Buchan are more local, he need have no concern about the future of the St. Fergus terminal. At present, four major United Kingdom continental shelf pipelines land gas at St. Fergus. The two Frigg lines connect into Total's terminal, and the FLAGS—or far north liquids and associated gas system—and Fulmar pipelines connect into the Shell-Esso terminal. Once the gas has been cleaned and processed to the required specification, it is passed to the British Gas terminal. During 1989, that terminal handled 17.5 billion cubic metres of gas—34 per cent. of British Gas's total gas supply.

St. Fergus and north-east Scotland will continue to play a key role in the transportation of gas from the North sea for the foreseeable future. It is proposed that gas from the large Bruce and Beryl fields, which have recently been sold, should be landed at St. Fergus, as will gas from the Miller field, which is to be used to fuel Scottish Hydro-Electric's Peterhead power station.

Regardless of landfall, the Offshore Supplies Office will ensure a fair opportunity for all United Kingdom suppliers to compete for associated goods and services. With their record of success in contracting for North sea developments and in electricity generation projects, Scottish-based companies will be well placed to participate in the supply of major components for the construction of the plants. There is every reason to suppose that the Scottish economy will derive benefit from those opportunities.

The hon. Member for Banff and Buchan has complained that the Scottish generators will be undercut by cheaper electricity supplies from the south. I have more faith than he appears to have in the commercial acumen of the Scottish generating companies. The involvement of Scottish Hydro-Electric in gas developments in England and Wales is just one example of this forward-thinking approach.

Mr. Salmond

I am sorry to interrupt again, but we are reaching the last few minutes of the debate and I want an answer to the question that I am now asking for the third time. I left the Minister plenty of time to address himself to this question, as well as reading his text. Will he confirm or deny that the Amoco-led group of companies is likely to be able to reclaim all of the possible £170 million of additional cost of taking the central North sea gas to Teesside? Will he contrast that with the Government's total lack of commitment to providing public funds for half that amount to strengthen the electricity inter-connector between Scotland and England, which would allow the gas to be landed in Scotland, generated into electricity and sold for a fair price across the border?

Mr. Baldry

I am responding to the hon. Gentleman's points, although he may not like the answers. I am making clear the Government's philosophy on the free market and where we are and where we are not prepared to provide support.

It is certainly not the case that Scottish electricity consumers will be required to pay more for their electricity than consumers in England and Wales as a result of the higher proportion of nuclear capacity in Scotland. The diversity of efficient base load generating plant, combined with the flexibility and speed of response afforded by the significant proportion of hydro-power existing on the Scottish system——

Mr. Salmond

On a point of order, Madam Deputy Speaker. I seek your guidance. Is it normal for a Minister, in an Adjournment debate called by a Back-Bench Member, to continue to dodge a question put to him repeatedly about Government money going to subsidise oil companies taking gas to England?

Madam Deputy Speaker (Miss Betty Boothroyd)

The hon. Gentleman knows that that is a matter for debate and is by no means a matter for the Chair to resolve.

Mr. Baldry

I have much to say on the subject. It is a pity that by his numerous repetitive interventions the hon. Member for Banff and Buchan has denied himself, the House and those outside the opportunity of learning more of the good news about what the Government are doing for the North sea oil industry in general and for Scotland in particular.

The diversity of efficient base load generating plant, combined with the flexibility and speed of response afforded by the significant proportion of hydro-power existing on the Scottish system, will ensure that reliable and economic supplies of electricity are available to Scottish consumers for the foreseeable future.

As announced by my right hon. and learned Friend the Secretary of State for Scotland on 22 March, the maximum average generation price to customers should not be allowed to increase beyond changes in the retail prices index over the next four years. During a further four-year transitional period, regulation will move over progressively to an index derived from average generation prices in the England and Wales competitive market. In this way, the disciplines of the wider market will be impressed upon the Scottish companies. Prices to consumers taking 10 MW or more will not be directly regulated in Scotland, nor will sales by the Scottish companies outside their areas.

Prices in this part of the market are already being determined, quite properly, by competitive forces and this will offer customers the best form of protection. To protect smaller customers who do not have a choice in their supplier, there will be a subsidiary cap on average prices to all consumers taking up to 1 MW which will restrict maximum average price rises to the movement in the overall price cap.

Finally, a provision will be included in the licence for Scottish Hydro-Electric to ensure that the benefit of cheap hydro-power will be applied to maintain transmission and distribution costs in the highlands and islands of Scotland at levels comparable with those in other parts of the country, thus underpinning our commitment to maintain common tariffs for customers throughout that area——

The motion having been made after half-past Two o'clock, and the debate having continued for half an hour,MADAM DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at three minutes past Three o'clock.