Oil Policy (Hansard, 13 February 1986)

§ Lord Ezra
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To as Her Majesty's Government what is their policy on oil in present market conditions.

§ The Minister of State, Scottish Office (Lord Gray of Contin)
My Lords, there have been no changes in Her Majesty's Government's policies that production levels of United Kingdom oil are a matter for the producers, and that the prices of United Kingdom crude oil are determined by the world market.

§ Lord Ezra
My Lords, would the noble Lord not agree that in view of the fact that there is a present world oil surplus which could continue for some time, and that the reserves of Britain's oil in the North Sea are limited, there is a good case for considering a policy of conservation?

§ Lord Gray of Contin
My Lords, I fully appreciate the concern which the noble Lord expresses in view of the present world oil surplus. But I think the noble Lord should bear in mind that it is to everybody's advantage that the levels of oil production are determined by producers. Arbitrary cuts in production would damage investment confidence and our prospects for oil production in the 1990s and beyond.

§ Baroness Seear
My Lords, would the noble Lord the Minister agree that there is a close connection between the level of oil prices, the sterling exchange rate, and the level of the interest rate, and that being so the Government cannot fail to have a policy about oil prices?

§ Lord Gray of Contin
My Lords, I am sorry that I cannot take the point which the noble Baroness seeks to make because there is no question of the Government not having an oil policy. I have already this afternoon stated twice that the Government believe that it is in the best interests nationally that the production of oil should be left to those who have made the investment and are producing the oil rather than for Government to interfere.

§ The Earl of Lauderdale
My Lords, would my noble friend agree that the first casualty resulting from upstream losses in the oil industry is likely to be in cuts in the exploration budgets of companies involved in this field? Would my noble friend therefore bear in mind, and take the point on board, that at this time it may be very important for the Government to look out for possible easements of the tax burdens, in order to maintain the impetus of exploration despite the discouraging losses which producers are now facing?

§ Lord Gray of Contin
My Lords, I certainly accept the first point which my noble friend has made. However, as far as the second point is concerned, I am sure that he would not expect me to follow him down this route. This must be a matter for the Chancellor of the Exchequer's judgment.

§ Lord Stoddart of Swindon
My Lords, is the noble Lord aware that he has admitted that the Government have no oil policy? In fact he says that the only oil policy which exists is that of the oil companies. Is he now sorry that BNOC was disbanded? If BNOC was still available at least the Government would have some input in relation to talks with OPEC. Does the noble Lord think that it is a profligate waste of this country's resources that we should be selling oil now at 16 dollars a barrel and over-producing it, when in the 1990s oil will probably be double that price?

§ Lord Gray of Contin
My Lords, with regard to the first point, I would say to the noble Lord that if the creation of more than 100,000 jobs, 65,000 of them onshore and the remainder offshore, is the result of not having a policy, then perhaps we should dispense with a few more policies.
I would also say to him that I happened to be on the Opposition Front Bench at the time that that corporation was created and, far from being concerned about the abolition of the British National Oil Corporation, ever since the day of its creation I have felt that it was unnecessary, and I am delighted that we have now been able to dispense with its services. I believe that the way in which we are proceeding with the development of North Sea oil is a very great credit and a very great tribute to the private sector and private investment.

§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that to have a policy on anything does not mean that one has to promise legislation? It is just as clearly a policy to announce that one is not going to introduce legislation; it is equally effective. As I understand it, a policy is not always calling for new statutes.

§ Lord Gray of Contin
My Lords, as so often is the case, my noble friend has summed up the situation very well indeed. Of course I agree with him entirely.

§ The Lord Bishop of Birmingham
My Lords, does my noble friend not think that we have a moral duty to have some kind of policy over the stewardship of oil and conservation of supplies?

§ Lord Gray of Contin
My Lords, yes, I certainly would be hesitant to become involved in an argument with the right reverend Prelate about where the moral responsibility in various aspects of life lies. However, as far as the oil industry is concerned, I am satisfied that if we were to hold back, as some would suggest now, the effect on the investment in the North Sea and the consequent result on jobs—in which I know the right reverend Prelate is very interested—would be very serious indeed. To hold back at this stage on production and to take away the incentive of the oil industry to make investment in the North Sea would be very serious. It would have exactly the effect which the right reverend Prelate would not wish it to have.

§ Lord Cledwyn of Penrhos
My Lords, is the noble Lord aware that one aspect of the Government's policy is quite clear—namely, that the revenue from oil of f 17 billion should go to meet the cost of the dole, which is £17 billion?

§ Lord Gray of Contin
My Lords, I would be reluctant to spell out precisely what is being done with some of the oil revenue; but it would be quite wrong to suggest that it was all being used for one purpose. I am sure that the noble Lord will appreciate that much of the help that is given to industry comes from the Treasury, and of course if the Treasury did not have access to oil revenues it might not be possible to be as generous as has been the case in many instances.

§ Lord Taylor of Gryfe
My Lords, would the Minister confirm that the same considerations as he has outlined in relation to the exploitation of North Sea oil apply in the case of the Norwegian fields? Is it true that the Norwegians have decided to cut back on the exploitation of this finite resource?

§ Lord Gray of Contin
My Lords, with great respect, I do not think that the noble Lord—and I acknowledge his close involvement in the oil industry through his other interests—is comparing like with like. The requirement for self-sufficiency, for example, by Norway so far as concerns their oil production can in no way be compared with that which this country requires; and nor can the extent of the reserves, nor the areas for which they are being explored and exploited. Therefore, I would not accept the point that the noble Lord seeks to make.

§ Lord Gisborough
My Lords, would my noble friend agree that the revenues have been spent largely on the formation of foreign investment? Can he give an indication of by how much foreign investment has gone up in the last period during the present Government?

§ Lord Gray of Contin
My Lords, I am afraid that without notice I cannot give the noble Lord figures in answer to the question that he has put to me. However, I can certainly guarantee to him that the attitude of this Government since 1979, and particularly since the Chancellor of the Exchequer's Budget in 1983, has had a very good effect on the continued investment by the oil industry in the North Sea.

§ Lord Barnett
My Lords, given the finite nature of the oil reserves in the North Sea, would the noble Lord the Minister care to spell out for us the case for selling more for less against selling less for more?

§ Lord Gray of Contin
My Lords, I certainly would not go into figures with the noble Lord, Lord Barnett, because he has had such intimate contact with the Treasury and the industry over the years that I know that he will know the figures. Regarding his reference to selling less for more, or selling more for less, perhaps I may say this. It is a fact that a good many of the fields in production in the North Sea at the present moment, despite the low oil price at this time, were decided upon when the oil price was substantially lower than it is today. I go back to my first point, that if we were to follow what many noble Lords have suggested today we would be inhibiting rather than stimulating further investment in the North Sea with all the ill effects that that would have.

§ The Earl of Lauderdale
My Lords, can my noble friend assure the House that the Government are keeping in close touch with the leading OPEC countries, particularly Saudi Arabia and the Gulf States, on the whole problem?

§ Lord Gray of Contin
My Lords, the Government have always followed the policy of keeping close contact with those countries. Those contacts are of course unofficial since we are not members of OPEC; but I have no doubt that that policy is still being pursued.

§ Lord Mellish
My Lords, whether or not the Government have a policy, may I ask whether the Minister is aware that the world price of oil has dropped from 31 dollars a barrel to 16 dollars a barrel? Would the Minister be good enough to explain to the House when the poor old motorist is really going to get some advantage from that? I am sorry that this is not one of those esoteric arguments about policy; but when is the motorist going to get the benefit of the fall in price? Is it not about time that all oil companies reduced the price of petrol at the pump?

§ Lord Gray of Contin
My Lords, my information is that there has been quite a substantial fall in the price of petrol at the pumps. and I have little doubt that this will continue. If the price of oil continues at its present level, it is not beyond the bounds of possibility that there may yet be another price war, and it is only the motorist who can benefit from such a situation.

§ Lord Stoddart of Swindon
My Lords, I am sorry to come back to the Dispatch Box, but the noble Lord has not yet explained why he thinks that it is good policy to maximise the output of North Sea oil at a time when the price is at its lowest, rather than to conserve the North Sea oil over a much longer period of time when the price is likely to be very much higher in the long term. That is the question we asked, and we have not yet had the answer. Can the noble Lord give that to us?

§ Lord Gray of Contin
Yes, my Lords. I shall try to do so as briefly as I can. Oil production has been more or less stabilised for about two years. The oil price has dropped very suddenly within the past few months. There is no guarantee that the oil price will remain low and at that level. If we were to institute production cuts, there would undoubtedly be many fields in which production would fall away considerably. It might be very difficult for those fields to get back up to their present production and that might have inhibiting effects on companies in the future. For those reasons, I do not take the noble Lord's point. We do not know how long the oil price will be down. We saw what happened in 1973, and what happened again in 1979; and the price can rocket up just as easily as it can tumble down.

§ Lord John-Mackie
My Lords, would the noble Lord tell us what is the difference between an oil quota and a milk quota?

§ Lord Gray of Contin
My Lords, we do not have cows in the oil fields.

§ Lord Airedale
My Lords, if we exploit North Sea oil too rapidly, what is going to happen to the employment situation, about which the Minister is so concerned, when the oil is exhausted?

§ Lord Gray of Contin
My Lords, I do not think that the point that the noble Lord seeks to make is relevant here because there is always an argument as to the speed at which oil is depleted and the speed at which production is allowed to advance. At the present moment we are doing all that we can to ensure that the jobs which have been created in the North Sea will not end when our own North Sea oil production ceases. We are trying to export our technology to the best of our ability, and it is to be hoped that many of those who have learned their skills in the North Sea will be able to use them in due course in other parts of the world.