HL Deb 11 February 1985 vol 460 cc31-8

4.24 p.m.

The Minister of State, Scottish Office (Lord Gray of Contin)

My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Energy. The Statement is as follows:

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

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

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

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

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

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

My Lords, that concludes the Statement.

Lord Stoddart of Swindon

My Lords, I should like to thank the noble Lord for repeating that Statement in this House. Will he not agree that the Statement begs as many questions as it answers? Above all, does he realise that I find it astonishing that the Secretary of State has made no mention of the issue of price in the Statement? What was the price around which negotiations took place—can the noble Lord tell us that?

The Secretary of State has based his decision on a major revision of North Sea gas reserves, but the question is not just the size of reserves but whether they can be developed to meet gas supplies in the 1990s. The noble Lord will of course know that in recent reviews it was assessed that 45 new fields could be developed between now and the year 2000. But that would still leave a significant gap between supply and demand. Indeed, the latest figures that I have seen indicate that the gap between supply and demand in the year 2000 will be 1.2 billion cubic feet per day, and it was this gap that Sleipner was intended to fill. Can the noble Lord tell us which additional fields he is identifying to fill this gap now that Sleipner has been ruled out?

In view of the potential demand for gas in the 1990s, will the noble Lord at least confirm that British Gas will be allowed to consider future imports of gas if they then find that they have insufficient supplies? Will the Minister make it absolutely clear that now there will be no question of exporting North Sea gas from Britain? I hope that he will take particular notice of that last question.

Turning to the question of the future price of gas, will he indicate whether supplies from the North Sea will he significantly cheaper than those offered under the Sleipner contract? Will he also tell us what role the collapse of the pound had played in the Government decision? Is the present depressed state of the pound relevant, bearing in mind that payments for Sleipner gas would not have to be made until 1992?

I am sure that the noble Lord will accept that his right honourable friend the Secretary of State has taken a risk and a calculated gamble on the nation's future gas supply. I believe that Parliament deserves a much fuller assessment than he has included in his Statement. Will the noble Lord prevail upon his right honourable friend to provide this assessment as urgently as possible so that Parliament as a whole can make a proper judgment on just how much of a gamble he has taken?

Lord Ezra

My Lords, in thanking the noble Lord for repeating the Statement, I, too, should like to express some apprehensions about the subject notified to this House. In the first place, it would be helpful if the noble Lord were to tell us what is the opinion of the British Gas Corporation of the Government's decision? According to press reports, the Gas Corporation, which must presumably contain the leading experts in this field in the country, was keen for reasons of security of future gas supplies to proceed with this negotiation. It would appear, therefore, that it has been overruled. If that is the case, I feel we ought to know about it.

Secondly, there is the position of the Norwegian Government, a very friendly power. They have been in negotiation for some time for the supply of a large part of their gas reserves. They can be justified in having thought that there was some prospect of achieving a successful conclusion, although it is true that Her Majesty's Government reserved their position. This would particularly have been the case after the Government intervened, according to the Statement, to ask that the off-take should be reduced, which implied that if it were reduced there would be the prospect of making a contract. Will not the Norwegians now be in serious difficulty in finding alternative uses for the gas which they had, over a considerable period, reserved for this country?

Thirdly, I should like to join the noble Lord, Lord Stoddart of Swindon, in expressing concern about the basis on which this contract has been overruled, namely, the risk taken on so far unproven reserves in the North Sea. These are prospective reserves and we are by no means certain that they are there. Even on the Government's own Statement, before we reach the end of the 1990s we are likely to be in a situation of deficiency.

It appears that we are progressively closing all alternative options. There was the option of the gas-gathering pipeline, which was under negotiation for some time by a consortium of oil companies and the British Gas Corporation, and that was negatived. Now we have the Sleipner deal having been set aside as well. There seems to be no prospect opening up for imports from other sources, although these take some time to negotiate.

I should like to conclude by expressing grave apprehension as to the way this matter appears to have been handled, contrary to the professional views of the British Gas Corporation, as far as one can determine from press reports; and to express further concern about the way in which major issues of energy policy seem to be dealt with on a purely ad hoc basis without reference to any overall energy strategy.

4.36 p.m.

Lord Gray of Contin

My Lords, I am grateful to the noble Lords, Lord Stoddart of Swindon and Lord Ezra, for their comments on the Statement I have just repeated. I shall try to deal with as many of the points as I can. First, Lord Stoddart asked me about price—what price was negotiated or on what price base did discussions take place. I am sure he will appreciate that price is a matter of commercial confidentiality and a matter for the British Gas Corporation and the Norwegians.

Concerning the development of possible reserves in the 1990s, it is not only the Department of Energy which has made new forecasts. The Statement mentioned that, as shown in the Brown Book published in April 1984, the reserves have increased by 6.2 trillion cubic feet. In addition, other sources have all indicated a revision in their estimates for both oil and gas. This is a continuing process. It is not uncommon to find changes in the estimates from one Brown Book to another.

The estimate of Shell, for example, is similar to that of the Department of Energy, while the estimate by BP is rather more and by Esso rather less. There is little doubt that everybody has had a revision, including the British Gas Corporation itself. In its forecasts it has increased substantially the quantities of gas available.

The noble Lord also asked me about imported gas. I can confirm that the Government do not intend to ban the importation of gas. The situation will be treated on a year-to-year basis, and if the time comes that the British Gas Corporation finds it requires additional imported gas to meet its contract commitments, of course the Government would not rule that out.

On future price, we believe that the availability of gas in the United Kingdom continental shelf is such that it can be made available at a price which would be commercially competitive with the price which was being negotiated with the Norwegians for the Sleipner field. Indeed, some sources feel that it probably could be even more competitive.

The question of the depressed state of the pound was also mentioned by the noble Lord, Lord Stoddart. It would be very unusual if the present state of the pound was not a factor which was considered in these negotiations, but I assure him absolutely that the scales were undoubtedly tipped by the latest forecasts which have been made all round concerning the potential of the continental shelf.

There is a final point on that. There is no doubt that the concessions given by the Government in the 1983 Budget have made it abundantly clear that oil companies are now prepared to explore in the North Sea for gas. The result of this exploration is there for everybody to see in the increase in forecasts which have been made. We now hope that companies will go ahead and produce the gas which will be required.

The noble Lord, Lord Ezra, mentioned the Norwegians and that over the years we had built up a good relationship with them. We have no reason to believe that that relationship will be impaired in any way. The Norwegians will obviously be disappointed that the negotiations failed to be concluded and that their sale of these very large quantities of Sleipner gas will not now take place.

But they are realists and they are practical people. My right honourable friend the Minister of State at the Department of Energy returned from Norway only last night having seen his opposite number over there and explained in great detail what our position was. He found that the Norwegians, while disappointed, fully accepted our position. The noble Lord also mentioned the question of the view of the British Gas Corporation. The British Gas Corporation have spent a very considerable time negotiating, and I have no doubt that those who were directly responsible for the negotiations will obviously feel a degree of sadness, too, that we are not going ahead with this. But they, too, are realistic, and they will now concentrate their attention on finding alternative sources of supply when they are needed. But this is some distance ahead. The British Gas Corporation are not in short supply at the present moment. We are confident that any deficiency that may appear can be accommodated from the United Kingdom continental shelf.

The Earl of Lauderdale

My Lords, will my noble friend not agree that the upgrading of gas reserves in the continental shelf is a cause for great rejoicing: that an extra seven trillion cubic feet is not to be sneezed at although it was forecast (I think three years ago) by some of the North Sea companies, notably Phillips, to the surprise of the Select Committee of this House, on which I sat? But, having said that, will my noble friend not agree that the loss to the BGC of some 30 per cent. of the supplies which they hoped they had contracted for the period after 1991—and that after two years of negotiations and a further year of Government deliberation—is a very serious blow to the Norwegian Government, however staid and brave a face they put on it? Is it not a case that Norway's loss in this matter may well prove in the years ahead to have been the Soviet Union's gain?

Could my noble friend first of all assure us that this is not in fact going to lead to the BGC having to cut hack on supplies, particularly to the customers on interruptable contracts? Secondly, could my noble friend not take back to the Secretary of State the thought that it would be much better in the long run to allow the export of British gas but at the same time to accept the contract with Norway for a definite, positive supply guaranteed over a period of years?

Lord Gray of Contin

My Lords, I take the point made by my noble friend but I would suggest to him that in fact there would be a much greater danger of the potential of the United Kingdom continental shelf (as far as the supply of gas is concerned) not being achieved if the Sleipner deal were to go ahead than is likely to be the case now that the Sleipner deal is not to go ahead. I would suggest to him also that the BGC are not likely to have to cut back. Indeed, there has been no suggestion of any likelihood of a cutback. For some considerable period ahead the BGC source of supply is secured, and it is probable that from our own continental shelf they would be able to make good any deficiency which occurs. I believe that the decision not to go ahead will not in any way impair our relationships with the Norwegian Government. It may well be that in the years ahead a further deal from some other Norwegian gasfield may be mooted, and that will be looked at and considered on its merits at the time.

The Earl of Lauderdale

My Lords, if I may take up one further point to which my noble friend referred, there would be no danger to further development of the gas fields on the United Kingdom continental shelf if our producers were given the assurance that they could export.

Lord Gray of Contin

My Lords, I apologise to my noble friend. In no way did I try to avoid this question; I merely omitted to mention the question of export. As my noble friend knows, the landing requirement is still in existence and at the present moment there are no immediate plans to waive that; but in the course of time, as more gas is developed on the United Kingdom continental shelf, the situation regarding the question of export will be kept in mind. But there are no plans at the moment to waive the landing requirement.

Lord Bruce-Gardyne

My Lords, when one contemplates the consequences of the last deal, the Frigg field deal, which British Gas carried out—which, as my noble friend knows, has always obliged us to maintain artificially high taxation on fuel oils—are the Government not greatly to be congratulated on finally deciding that it is wiser not to encourage the British Gas Corporation to make these kind of deals? Further- more, would not my noble friend agree that the huge and very desirable growth in estimated reserves of gas reflects what happens when the British Gas Corporation is gradually obliged to pay something more nearly approaching commercial prices for its gas supplies? In that context will my noble friend therefore think very hard about the desirability of waiving the present rules governing landing requirements in regard to gas so as to allow greater exploitation and to ensure that in future the gas corporation pays a genuine market price for its supplies?

Lord Gray of Contin

My Lords, I am grateful to my noble friend for his comments. If I may take the last one first, I would merely repeat what I said earlier: that there is no plan at the moment to waive the landing requirement. I explained that this is something which will be considered in the light of circumstances as more gas becomes available; but there are no plans at the moment to waive that requirement.

I thank my noble friend for his congratulations to the Government. He is perfectly correct. It is more beneficial to this country for us to explore and develop our own gas resources on the United Kingdom continental shelf than it is to import gas. There is a further advantage and that will be seen in due course with the orders which will accrue to our yards for the platform building and all the other bits and pieces which go along with the development of a gas field and an oil field. This means that our own companies will have the opportunity to prove themselves competitive in the world market for the various requirements of the development of these fields.

Lord Gisborough

My Lords, my noble friend the Minister will be aware of Statoil's opinion that by the 1990s there will not be enough oil and wet gas going through the pipelines from Ekofisk alone. Perhaps I may quote: If we don't get new products that can go through the pipeline, we may have to close down the pipeline system as well as the terminal installations in Teesside and instead buoy-load the oil on the Ekofisk field. Can my noble friend say what the timescale of this present decision is likely to extend to? Is he fully aware that if Ekofisk gas is not piped in, this will lead to a further 600 jobs being lost in Teesside, where we already have 25 per cent. to 30 per cent. unemployment?

Lord Gray of Contin

My Lords, I appreciate the concern of my noble friend. I respect the technical competence of Statoil, but I am not prepared completely to accept its predictions without having them checked. I am sure that my noble friend will accept that. As for the timescale of the development of gas fields on the United Kingdom continental shelf, these could start being developed almost at any time. As I indicated, exploration has been extremely successful. In 1983 a record number of wells was drilled. That record was beaten in 1984, and this augurs for the development of these fields. The lead-in time for the development of a gas field is not particularly long. From the time that the discovery is made we should begin to see orders from such developments fairly quickly.

With regard to the capacity of the pipelines, I do not think that there is on our continental shelf any gas field which is in danger of not being developed because capacity cannot be found on the Ekofisk line. As these developments take place so companies will join one with the other, as they have done in the past, and find facilities to bring the gas ashore.

Lord Stoddart of Swindon

My Lords, I have just two very short supplementaries—

The Earl of Swinton

My Lords, if the noble Lord will not mind giving way, I should say that we have had 26 minutes "gassing" on this subject. The noble Lord, Lord Stoddart, asked a great many questions at the beginning and had quite a lot of time. Perhaps in view of the fact that we have, first, another Statement and, secondly, a great many speakers still to come on the Eyre Report—and, if that were not enough, an unstarred Question at the end of the day—it might be considered convenient to move on to the next Statement.