North Sea Oil (Hansard, 6 December 1974)

§ Mr. Varley

North Sea crude oil production is expected to be between 100 and 150 million tons a year by the early 1980s. At current oil prices this represents a gross value of up to £5,000 million p.a.

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As the House knows, I have been reviewing our policies on the disposal and refining of this oil, in order to ensure that the United Kingdom gets the maximum advantage.

Demand in the United Kingdom is forecast at about 120 million tons of crude oil; in other words, rather above the low estimate of North Sea oil production.

We shall not wish—nor would it be technically feasible—to meet all our demand from North Sea oil. Firstly, North Sea oil is unsuitable for making bitumen and lubricating oils, and some imports of heavier crude are needed for this purpose. Secondly, it is very low in sulphur. In some uses the low sulphur content is important, and the oil is likely to command a substantial premium. There will be a demand for some North Sea oil for such purposes in the United Kingdom. There will be a ready market in Europe and elsewhere for the remainder and we shall be able to get the benefit of the sulphur premium.

In deciding on our refinery policy I have given weight both to these considerations and also to the advantages of refining the oil in the United Kingdom, so as to realise the higher value of refined products. This extra value is uncertain in the next few years since there may be a world surplus of refining capacity and that may tend to depress product prices. There would, moreover, be an offsetting increase in transport costs because refined oil products are more expensive to ship than crude.

I have come to the conclusion that we might reasonably expect up to two-thirds of North Sea oil to be refined in the United Kingdom depending on the level of production. But our planning must remain flexible to cope with changes in the market and in the world oil supply situation. This oil will be refined at existing refineries and at those already planned or under construction. If projects now under consideration go ahead, including those at Canvey Island and Cliffe, which are needed to meet demand in the South-East, I expect our refinery capacity in the early 1980s to approach 150 million tons a year. This should be enough, overall, to meet our own needs and provide for some exports. It is, however, quite possible that companies 648W might be able to demonstrate a need for additional projects, for instance to supply new export markets or to link with petrochemical developments, or to fill a gap in an integrated company's European operations.

Furthermore, with the existing pattern of refining, we should still find ourselves importing a substantial amount of petrol and naphtha and exporting heavier products. I do not regard this as a healthy situation. I shall, therefore, be looking for an increase in upgrading capacity to convert heavier fractions into petrol and naphtha so as to avoid the need for costly imports of refined products, and to provide a good base for an expanding petrochemical industry. The Government recognise the potential for jobs and exports from a petrochemical industry based on a secure feedstock source.

I believe that these policies will largely coincide with plans which some oil companies are already making. I shall be discussing the Government's objectives with the companies concerned in the near future.

At present refinery developments are, of course, subject to the usual planning procedures, as well as other controls from the point of view of safety, pollution and regional policy. There is, however, no stage at which the implications for national oil policy of a proposed refinery development are separately evaluated, and it is vitally important for the national economy that they should be. I propose to seek powers in the forthcoming Petroleum Bill to remedy this. The details of this new control over refinery construction are still being worked out, but I can give an assurance now that it will in no way conflict with, or unduly delay, existing procedures or affect projects already the subject of planning applications or which receive planning permission before the necessary legislation is passed. A project authorised as being consistent with the policy I have outlined in this statement would still be subject to the present planning procedures and safeguards on amenity, pollution and other aspects.