HL Deb 01 December 1966 vol 278 cc874-88

6.42 p.m.

Order of the Day for the Second Reading read.

THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE, HOME OFFICE, (LORD STONHAM)

My Lords, I beg to move that this Bill be now read a second time. This simple Bill deals with one aspect of an exciting national prospect. Its purpose is to increase the nation's participation in the fruits of United Kingdom territorial waters, and the United Kingdom's share of the Continental Shelf, by enabling the National Coal Board to search there for oil and gas. Before dealing with the provisions of the Bill, I would sketch in briefly the background of development in the search for oil and gas off our shores.

The 25 companies or groups who hold licences to explore there are spending over £100 million on initial exploration work alone. Thirty-one wells have been drilled, there are now 10 drilling rigs at work, and soon there will be 12. It gives me great pleasure to announce that so far six potentially commercial gas fields have been discovered. This is a great achievement for the beginning of the search, and we hope that it will continue as a success story. Oil has also been found in one well, and although it is not yet known whether there is enough for commercial exploitation, it is certainly encouraging.

No one yet knows the extent of the resources in the North Sea because many more appraisal wells must be sunk to establish the full extent of the fields already found and many "wildcat" wells will be required to probe for other fields. One pipe-line has already been laid on the sea bed from B.P.'s gas discovery 42 miles East of the Humber to a point North of the Humber at Easington. Gas should begin to flow through this pipe in the early months of next year. More pipe-lines are planned. Starting next year gas supplies are expected to build up, until by 1970 we confidently expect to be getting from the North Sea at least 1,000 million cubic feet a day. This is approximately equal to all the town gas now being supplied in the whole of Britain. In terms of heat value it is equivalent to about 13 million tons of coal a year.

In the Government's view it is right and proper to let our own fuel industries compete on equal terms with existing Continental Shelf operators both British and foreign. The Gas Council are already participating, and we propose to put the National Coal Board in the same position. In this way we can increase national participation without the State itself joining directly in the enterprise, and without creating any new organisation. We recognise, of course, that this is sensible only if the National Coal Board can take on this new responsibility without detriment to its present important function of supplying coal. My right honourable friend the Minister of Power has been assured that the Board can do this.

The British subsidiaries of two large American companies, Gulf Oil and Allied Chemical, have given the National Coal Board options to join them in their licences. To take up these options, as the Board and the Government wish, the Board needs the additional powers provided in the Bill.

The extent of the powers to be given to the National Coal Board has required careful thought. The Government have 'wished to give proper scope for the Board to conduct a successful commercial enterprise, while limiting it to the search for oil and gas and activities directly connected therewith. A point to which I would particularly invite your Lordships' attention is that the powers pro- posed to be given to the National Coal Board by the Bill do not include those of refining the crude oil or gas, of distributing petroleum products, or of making petrochemicals. The Board is to be empowered only to search, bore for, and get, oil and gas in the sea bed and subsoil of our territorial waters and our share of the Continental Shelf; to make the oil or gas saleable in its crude form, and to sell it.

The Board will be able to operate in partnership or alone. It will also be able to operate in relation to any international agreement for the joint exploitation of fields extending across the international boundaries of the Continental Shelf, so that it may secure its full share of the oil or gas in the areas in which it is licensed. While precluded from refining, petroleum distribution and petrochemical manufacturing, the Board will be able to use any oil or gas got under this Bill in works or installations it already operates under its main powers contained in the Coal Industry Nationalisation Act 1946.

Under the Coal Industry Act 1949, the Board is prohibited from operating outside Great Britain, unless with the Minister of Power's consent. A similar restriction is contained in this Bill, with the result that any oil or gas got under the proposed powers may not be treated or disposed of other than at the well head, or in Great Britain, unless the Minister makes an Order authorising it to be done elsewhere. Such an Order, if made, would require the approval of Parliament. In using or supplying any natural gas found, the Board will be governed, as are all other North Sea operators, by the somewhat complex provisions of Section 9 of the Continental Shelf Act 1964. Thus it will need the Minister of Power's consent to sell the gas other than to a Gas Board, or to use the gas itself. I am bound to say that under this section the Minister has to give his consent to the supply or use of gas for industrial purposes as set out in subsection (4).

The activities of the Board under the Bill will be governed by licences on the same model as those which bind all other operators in the United Kingdom part of the Continental Shelf. In addition, the Board will operate under the general provisions of the Coal Industry Acts. Thus the Board will be required to settle the lines of expenditure on capital account with the Minister from time to time, and any borrowings by the Board must be within the statutory limits on borrowings which are at present laid down by the Coal Industry Act 1965. The Minister has power to direct the form in which the Board's accounts shall be kept, and as the Board's activities under this Bill will be regarded as a main ancillary activity, the Board will distinguish them separately in its annual accounts. The House can be assured that there will be a full disclosure, in the Board's accounts, of the money it invests in oil and gas activities and the return it receives.

Your Lordships are entitled to ask what the scale of expenditure by the Board on these activities is likely to be, but as the House will appreciate, financial plans can be made only when the Board has the powers sought under the Bill and can negotiate with its partners. Purely as an indication of the expenditure on exploration over the first few years, my right honourable friend the Minister of Power has given a figure of not more than £6 million. If, as we hope, the Board and their partners are successful in finding oil or gas, expenditure by the Board on development could substantially exceed this figure.

Coming to the provisions of the Bill, I feel that there is little that I need add about the provisions of what is virtually a one clause Bill. The clause is an addition to the National Coal Board's existing powers to enable it to search for, and bore for, natural gas and oil; to make such products saleable and to sell them; provided that it cannot sell overseas without the agreement of the Minister. Any borrowings necessitated by the exercise of these powers will be governed by the Coal Industry Act 1965, and are subject to the overall limit on all the Board's borrowings set out in that Act. This is a small but important Bill, likely to increase the benefit to the nation of the treasure lying hidden in the sea around our shores, and it is in that belief that I commend it to your Lordships. I beg to move that the Bill be now read a second time.

Moved, That the Bill be now read 2a.—(Lord Stonham.)

6.54 p.m.

EARL FERRERS

My Lords, we are grateful to the noble Lord, Lord Stonham, for introducing this Bill and for explaining its purpose to us. As I see it, the Bill has two great merits: it is short, and one can understand it. Therefore I have no hesitation in wholly commending it to your Lordships—on those two grounds only. I wish that my enthusiasm for the way in which it was drafted could be matched by enthusiasm for its contents, but there are one or two drawbacks of a major nature to which I should like to draw the attention of your Lordships. I listened carefully to the noble Lord's justification of the Bill, and from what he said one might consider that it was a perfectly innocuous Bill. But what in fact does it do? The noble Lord explained that its sole purpose was to allow the Coal Board to drill for oil and gas in the North Sea. This poses a whole posse of questions, such as: should a nationalised industry drill for oil and gas? If so, should the nationalised industry be the Coal Board? And if so, why?

The drilling which has been done in the North Sea and the strikes which have been obtained are thrilling and stimulating to everyone. It opens up the whole possibility of finding cheaper gas over the next decades, far cheaper than from the fuels which we have had to use. This is wholly good, and one would like to see much—and more—British participation in this. The noble Lord argued forcibly that the Bill offers just that. It can be argued that outside the Civil Service the National Coal Board is the biggest employer of labour, second only to General Motors. In terms of assets, it is the third largest concern outside the United States. In terms of sales, it is the third largest outside the United States. This may probably put it in a good position to enter the gas prospecting field. But is this so?

The Coal Board was set up in 1946 for one specific purpose, which was to take over the coal mines, run them and sell the coal which they produced. If we look at the Coal Industry Act 1946, we see in the very first paragraph that its purpose is the "working and mining of coal", "to secure the efficient development of the coal mining industry","to make supplies of coal available", "to search and bore for coal". It was set up not to run the railways or atomic energy or, indeed, to prospect for gas. This is a wholly different purpose from that for which the Coal Board was set up.

LORD PARGITER

My Lords, may I suggest to the noble Earl that we live in a changing world. Because the Coal Board was set up for a certain purpose in connection with the securing of coal, must it be tied to that purpose for all time?

EARL FERRERS

My Lords, that, with respect, is what the Act says.

LORD PARGITER

My Lords, I said that we are living in changing times. No one envisaged at the time of the Act—or did they'?—the drilling of the North Sea for oil.

EARL FERRERS

My Lords, I dare say they did not. If this is to be an extension of nationalisation, we should be told so. Because this Bill is really introducing the nationalisation of oil drilling. That may be a suitable thing to do, but let us be perfectly clear that this is what is happening. My noble friend Lord Erroll of Hale said in the debate on the last Bill, "We must watch closely for any further State intervention in industry". And that is what is being done by this Bill. It could well be argued that it is desirable for more British participation in the oil drilling industry, but, if that is so, why do the Government choose the Coal Board. Would not the drilling for gas be better done by the Gas Council? After all, the Gas Council is concerned in the manufacture of gas and in the economics of gas extraction; it is concerned with the economics of natural gas versus manufactured gas. It was set up to deal with gas. It must know more about gas than the Coal Board. It is facing increasing demands for gas and is confronted with an enormous potential of raw material on its doorstep, but yet, for some reason, the Government choose to allow the Coal Board to do this drilling. One wonders why.

I have come to a number of conclusions, and one of them is that in all probability this is an attempt to shore up the finances of the Coal Board, because, let us face it, the coal industry is a shrinking industry. This is a fact which I think the noble Lord, Lord Blyton, at least, would not like to acknowledge; but, nevertheless, it is a fact. This does not mean to say that it is a defunct industry, because it is not; but it is a shrinking industry. When one looks back to the post-war years and thinks of how we could not get enough coal, it seems almost ironical that nowadays we are producing less and requiring less. About ten years ago we were producing something like 223 million tons of coal a year, and this year we are down to 170 or 175 million tons.

The Coal Board are seized of this situation and are trying, like a prudent business organisation, to diversify their assets and diversify their interests. It may be prudent for a public company operating on commercial terms with private money to diversify its interests, but I question whether it is prudent for a nationalised undertaking, operating with public money obtained at cut-price rates, which has just had £415 million written off, has been allowed to increase its borrowing up to £700 million, and has, at the same time, had its worst financial year since its inception, making a loss of £24.8 million.

But this is, of course, stated Coal Board policy. Indeed, the noble Lord, Lord Robens of Woldingham, says in Coal News: The whole object of our diversification is to defend the vast investment back at the pits. We are not branching out into any business which does not clearly serve this end. I am bound to say that I fail to see how investing in the gas business and stimulating the development of a rival fuel is defending the vast investments back at the pits. But in order to find out how this is defending this investment we have to look a little further into the Coal Board's perambulations, and we look into some of the other ways in which the Coal Board have made investments. I wonder whether many noble Lords would know that the Coal Board have, for instance, a vast stake in Barcross Ltd., or the British Creosote Company Ltd., or Pitch Polymer Products Ltd.; whether, indeed, many people are aware that the Coal Board even owns shares in a firm called Farm Way Ltd., which used to be the Northern Farmers' Trading Association. This seems to be an extraordinary firm for the Coal Board to invest in.

Indeed, how many people would know that the Whittlesea Central Brick Company is owned 90 per cent. by the Coal Board, with an investment of nearly £2 million; and J. H. Sankey is owned 60 per cent. by the Coal Board, with an investment of something like £1 million. Of course, the argument goes that Sankey's, for instance, make boilers; boilers use coal, and therefore it is a good idea that Sankey's and the Coal Board should join up. But if you look into that further, you find that Sankey's are not just boiler builders; they are building material manufacturers who manufacture a great range of things like plaster board, and I think baths and flush lavatories, which are far removed from anything to do with coal.

Then there are other companies which the Coal Board have taken and absorbed into their subsidiaries. So gradually the Coal Board have been putting out their fingers further and further into industry. One of the companies in which the Coal Board are interested—and I would stress that this is germane to this Bill—is a company called Staveley Chemicals. This is a harmless enough sounding name, and in fact it is a company which was set up jointly by the Coal Board and Stewart & Lloyds in June, 1965. So when Stewart & Lloyds become nationalised this will be a wholly nationally owned company. If one looks at the memorandum of association of Staveley Chemicals Ltd., one sees that the company has very wide powers indeed—powers far wider, I might say, than the Coal Board have. They are allowed: To manufacture, prepare and sell chemicals and chemical products and to treat, refine, process and deal in all such substances and to buy, sell, export, import and deal in all substances, apparatus and things capable of being used in such business as aforesaid. They are allowed: To manufacture, buy, sell, improve, repair, alter, prepare for market, treat, and deal in all kinds of plant machinery, implements, tools, utensils, apparatus, hardware, rolling stock, materials, products, fittings, appliances, substances, articles and things necessary or required in, or useful, or capable of being used, in any of the above specified businesses, or in connection therewith, or usually dealt in by persons engaged therein. To carry on any other businesses, whether manufacturing or otherwise, which may seem to the Company capable of being conveniently carried on in connection with any of the above-specified objects, or calculated directly or indirectly to enhance the value of or render profitable any of the Company's property or rights. And so it goes on.

As I say, this Company has very wide powers indeed. But, according to the Coal Board's report of 1965–66, the company is being set up to make benzene and cyclo-hexane. Cyclo-hexane is a derivative of benzene and is used as a raw material in the production of nylon. Benzene comes from benzole, which in turn comes from coal, and so we get back eventually to the slender link with the Coal Board. It would be a perfectly valid argument, which I do not propose to pursue this evening, to discuss whether the Coal Board should be allowed to enter the field of petro-chemical business, even when the chemicals so derived are coal-based. But the memorandum of association of Staveley Chemicals gives the Company wide powers for the manufacture of any chemicals, even those from gas.

Your Lordships know that all the drilling in the North Sea is guided, constructed and legalised by the Continental Shelf Act, 1964. Under Section 9(2) of the Continental Shelf Act the holder of the licence may not use the gas which he produces in Great Britain without the consent of the Minister. Anyone who drills for gas may not use this gas in Great Britain without the Minister's consent. But the holder of a licence may apply for consent if the gas is to be used for a process in which the gas is used otherwise than as a fuel. So if you are going to use it in that way, you may apply for a licence to the Minister; and in this case, the Minister, under subsection (3), shall give his consent. Your Lordships will note that it is not "may" give his consent, but "shall"; he has no option. Then subsection (5) of Section 9 states that: For the purposes of this section gas provided by a company for the use of any subsidiary or holding company thereof, or of any subsidiary of such a holding company shall be deemed to be used by that company.

LORD STONHAM

My Lords, may I interrupt the noble Earl? I think he should add that when the Minister has given his consent he does not discriminate between whether the owner or user of the gas is a public undertaking or a private enterprise undertaking.

EARL FERRERS

No, my Lords; the noble Lord must contain himself a little longer. I am aware of that, but the point is that under this Bill as it is now drafted the National Coal Board may drill for gas and may subsequently pass the gas to its own company of Staveley Chemicals, which may in turn produce petro-chemicals. In other words the State, under the ægis of the National Coal Board, is entering the field of oil drilling and the field of the petro-chemico business in direct competition with private industry. Again, this may be desirable. We on this side of the House do not think it necessarily is, but let us be perfectly clear that this is what the Bill is doing, and therefore it is not quite so innocuous as the noble Lord, Lord Stonham, made out when he made his opening speech. It is an extension of the nationalised industries into the field of oil drilling and chemical manufacturing, and the great difference between this and private enterprise is, of course, that this is to be financed out of public money borrowed at advantageous rates for purposes wholly different from that for which it is going to be used.

In my opinion, the National Coal Board is hugely involved financially in the coal industry. It has a tremendous operation of closing down many pits, rehousing miners, retraining them, re-placing them. This is a vast undertaking economically, socially and politically and it seems to me that the National Coal Board has enough on its plate without going into this new and differing sphere.

When the Bill was in another place the Parliamentary Secretary to the Minister of Power said, when the Opposition were objecting to this, that they were looking for lions under the bed. I thought this was rather a graphic description, but of course the Minister was quite right; we were, and I think we found some. It is sometimes necessary to look under the bed to see what is there, and I think in this Bill there is a lion sitting there and I hope we have been able to pull him out a bit. Naturally, we do not intend to divide the House on this Bill, but I cannot pretend that we can give it quite the blessing that the noble Lord would like us to give it.

7.13 p.m.

LORD AUCKLAND

My Lords, like my noble friend I have a good many misgivings about this small measure. First of all, I should like to ask the noble Lord, Lord Stonham, how many personnel are expected to be employed in this operation, which has far-reaching implications, and added to that it is going to need a considerable amount of training which will presumably be financed with public money, so that the cost to the Exchequer will be a good deal larger than is implied in the Bill.

I should also like to ask the noble Lord (and I apologise for not giving notice of the question) whether there have been any consultations with the oil companies, such as B.P., regarding these operations, because presumably the oil companies have sunk a good deal of private capital into this project, and I do not know what the legal position here is regarding compensation for any work which may be taken from them.

I agree with my noble friend Lord Ferrers when he says that the National Coal Board is already very much committed, as it is; one reads of the problems at Bevercotes colliery. I am the last person to run down the National Coal Board which under the noble Lord, Lord Robens of Woldingham, has been doing a very good job; but so much remains to be done within its own industry. For these reasons, while we would hesitate to divide the House on Second Reading a good deal more examination of the Bill will be necessary during its further stages.

7.15 p.m.

LORD STONHAM

My Lords, perhaps, with your Lordships' permission, I may reply briefly. The noble Earl, Lord Ferrers, spoke about discovering lions under the bed. If he discovered them I do not think he really produced them. He raised my hopes when he started off by highly commending the Bill, but then dashed them by expressing extreme displeasure and unhappiness throughout his speech. That was the very reverse of the mongrel at the dog show, who, of course, was not highly commended but highly delighted; and I should have preferred it that way.

I expected the noble Earl in his very interesting speech, to discuss the Bill, but almost the whole of his remarks were devoted to what I feel is the exploitation of a deep-seated difference of opinion in these matters which exists between the Government and the Opposition. The noble Earl asked: should nationalised industries drill for oil and gas? If so, should it be the National Coal Board? If so, why? He said he would like to see more British participation. How much more British could you have your participation than to have the National Coal Board participating, which has ancillary undertakings but which in the main exists to exploit Britain's one major indigenous mineral? It could hardly be more British than that.

With regard to the nation benefiting, in what more direct way can the nation as a whole, meaning the people of this country, benefit than if the exploitation of this discovery is in the hands, in large measure, of a national, publicly-owned undertaking? I put this forward with some diffidence, but it seemed to me, as I listened to the noble Earl, Lord Ferrers, to be more and more clear that his fundamental objection to this Bill and to the acquisition by the National Coal Board of a share in these two licences is that it will limit the possible area for private profit. If that is the main objection, it leaves me quite unmoved. In fact, I and the Government rejoice in the possibility that the British participation in this enterprise should have a greater percentage of public ownership through the National Coal Board than would have been the case if they had not been offered these two licences and if we did not have this Bill. And before the noble Lord, Lord Auckland, considers opposing the Bill to the extent of rejecting it, I hope, since I agree with him so much on many matters, that he will search his heart on this particular point.

LORD AUCKLAND

My Lords, may I assure the noble Lord, Lord Stonham, that I have no intention of opposing it; I was merely stating the reservations which I have regarding it. I would certainly not advise a Second Reading Division.

LORD STONHAM

I am very glad to hear that; it was a misunderstanding of what I heard the noble Lord say about opposing the Second Reading, but obviously that was not his intention. The noble Earl, Lord Ferrers, asked me why the Gas Council were not to be the people concerned. He must surely be aware that the Gas Council are already very much concerned in this field, and in fact— again I rejoice in this—the three fields in which the Gas Council are participating and have a share are so far likely to be the three most productive ones of all. I should hope that if these two also turn out extremely well the noble Earl will rejoice with me, because it is something for the British people.

EARL FERRERS

My Lords, may I interrupt the noble Lord for one moment and ask him to explain, if the Coal Board is going to do so well out of this, to whom it is going to sell its gas? Is it going to "milk" the Gas Council?

LORD STONHAM

The noble Earl must be aware that the Coal Board, for other than the uses for its industries to which he has referred, must offer it to the Gas Council.

EARL FERRERS

In other words, make the Gas Council help to pay for the business of the Coal Board.

LORD STONHAM

If the noble Earl is not aware he ought to be that in this matter, whether these wells are explored by private enterprise or by public money, there must be an agreement, which the Minister must approve, about a reasonable price. There is no question of exploitation, as the noble Earl ought to be aware, because his noble friend Lord Erroll of Hale made the original arrangement, and it is a very good arrangement. I think it is a good arrangement, even if it was made by a Conservative Minister. After all, one gets very few opportunities to praise the Opposition, and I think one should do so whenever possible.

EARL FERRERS

It was opposed by noble Lords opposite when they were in Opposition.

LORD STONHAM

Not completely, and certainly not in this House. Part of that arrangement is that the State gets a 12; per cent. royalty on the proceeds of all these wells or boreholes, whoever owns them, and after six years 50 per cent. of the enterprise reverts to the State anyway. So that basically, in the arrangement made originally by the noble Lord, Lord Erroll of Hale, when he was Minister, he, too, felt that although it was right in the first instance to have diversification of enterprise, public and private, everybody having a fair opportunity to apply for licences, in the end if this thing was going to do well the State should profit.

The noble Earl asked me why the Coal Board got this opportunity. The answer is, simply because it was offered to them by two commercial firms, doubtless because it suited them, just as it suited the Coal Board. I should have thought that a very happy amalgam of interests. Then he spoke about the Coal Board's diversification—and I congratulate him on his research, which I shall read again with the greatest of interest and I am sure approval; in fact, my approval was growing the more he went on.

But there is some inconsistency, because where he was talking about a firm named Sankey, which manufactured everything from the kitchen stove to "what-have-you", obviously that was good because it was enterprising. But I cannot understand why the noble Earl thinks that when the Coal Board diversifies it is not in the national interest. The noble Earl said he could not see why the Board should concern itself with gas, when its main job was to get coal. But I should have thought the connection was obvious: because so much coal is used for the production of gas, and all coal for the production of heat and energy. So the connection is a very direct one. With regard to the Gas Council, they will be very fully occupied in this matter, and I am quite certain that, although, as I understand it, the options were not offered to them they have no kind of objection to the Coal Board's taking part in this way.

The noble Lord, Lord Auckland asked me two questions; first, what would be the number of personnel employed. I am sorry to say I cannot give him that figure, not because it is not immediately available but because so far it is not possible to make an estimate; and in any case, as I said in my opening speech, the Coal Board itself cannot get down to the final negotiations until after this Bill is on the Statute Book. The noble Lord asked whether there had been consultations with other companies, such as B.P. Everybody had a chance to apply for a licence and to have apportionment of an area of exploration, and the two companies, Allied Chemical and Gulf Oil, were two of the successful applicants. They have decided that they would like to have the participation of the National Coal Board. So that the question of consulting B.P. or some other enterprise does not arise. All companies had the same chance; and, subject to their skill, efficiency and enterprise, I hope, that they will have the same good luck.

My Lords, this is, in total, one of the most exciting economic discoveries, I think, of our lifetime, at least in or around our own country; and this Bill will provide that a great industry, headed by a great public corporation, will increase its prosperity—or, shall we say, in view of the losses that were mentioned, get nearer to viability. And, despite what the noble Earl said, it is still a great industry and will be for many years to come. I hope that, despite your criticisms, and the misgivings that have been expressed, your Lordships will welcome this Bill and give it a Second Reading.

On Question, Bill read 2a, and committed to a Committee of the Whole House.