Offshore Energy Industry

It is a pleasure to serve under your chairmanship this morning, Mr Hancock. We have had an extremely valuable debate. I congratulate my right hon. Friend the Member for Gordon (Malcolm Bruce) on securing it, raising a wide range of issues and bringing his expertise to the debate. The hon. Member for Aberdeen North (Mr Doran) also brought his expertise to the discussion. I hope that I can give further reassurance and encouragement to them that this is not a partisan issue. I want to work on the subject using the relevant expertise wherever it is found—on both sides of the House and all sides of the industry—to ensure that we can achieve the best possible outcome for this crucial sector of our economy. My right hon. Friend has rightly understood my reaction to some of his points, particularly those about Scottish infrastructure issues. He will know from the respect agenda that we are committed to working closely with the Scottish Government and Executive to ensure that we do not seek to influence their decisions on those issues, which are devolved. I also reassure him that we are very keen indeed to have a holistic approach to those matters. I have already had an initial discussion with the First Minister and I hope to have a further conversation with him in the next few weeks about how we can most constructively work together in those areas. That is what the industry is looking for: a seamless Government approach across Departments and different bodies. We will try to ensure that we bring the best endeavours and approach that we possibly can to securing further investment in the sector. From my time as Opposition spokesman on these matters, I hope I have managed to gain some understanding of the issues facing the industry. I assure hon. Members again that I intend to be a regular visitor to Aberdeen. If my right hon. Friend or any of his hon. colleagues feel at any point that I am not talking to the right sections of the industry, I ask him to let me know. I want to ensure that I have as comprehensive a grasp as possible of the issues involved and, as I say, I want to work constructively with those who have great expertise from working in this area. In initiating the debate, my right hon. Friend spoke about how crucial the sector is to the whole of the UK economy. Although indigenous production is declining, our oil and gas reserves remain a key element of our energy mix. On the reassurance that the hon. Member for Aberdeen North was looking for, there are a number of key pillars of energy policy without which we cannot have energy security—for example, the commitment to the North sea and the development of the UK continental shelf. Nuclear without subsidy is also in that mix, as are coal with carbon capture and renewables. All those factors are part of a balanced energy policy. I certainly hope to reassure my right hon. Friend that there is every intention of identifying the issues that will help to drive forward investment in the North sea. We will do what is necessary to bring the skills and investment to Britain, because I am very much aware that the companies that are looking to invest are overwhelmingly international. When they consider international opportunities, there is no predisposition for them to come to the United Kingdom. We have to make the strongest possible case for why they should come here instead of taking the many other opportunities that exist around the world. As my right hon. Friend said, 350,000 jobs in the UK depend on the industry, and a further 100,000 in the supply chain's thriving export business, with an annual expenditure of about £12 billion. The industry, therefore, makes an extraordinary contribution to the economy. We see no dilemma, however, in the absolute necessity of moving to a low-carbon economy and the desire to get the best out of our indigenous hydrocarbon reserves. That is essential to our energy security and our national prosperity, and particularly to the prosperity of the north-east of Scotland. We will, therefore, work closely with the industry to see what is necessary to encourage further investment in exploration, development and production, while maintaining high standards of management and minimising environmental impacts. Over recent years, an important role has been played by PILOT, the organisation set up to maintain the dialogue between Government and industry in this area. It has put in place many initiatives to help us to extend the life of the basin, and has significantly contributed to the security of the UK's energy supply and balance of payments, but we are now looking at how to take that relationship forward. I want to look more at a road map for the future, rather than at setting targets. I am nervous about targets because they tend to be set sufficiently far ahead that nobody is accountable for how they are delivered. I would therefore rather have a more specific road map for what we are jointly expected to do as industry and Government, to try to make this an attractive environment. I am also keen to broaden involvement in PILOT, to include people from all aspects of the industry. The hon. Member for Aberdeen North talked about the subsea sector, which is an absolutely critical part of the Aberdeen and north-east Scotland economy and an absolutely wonderful example of British engineering and skills providing incredible global leadership in many of these areas. I want to ensure, therefore, that PILOT contains the full range of expertise that is there, and I am also considering how we can increase the regularity of the meetings. As they are currently six months apart, I have a slight tendency to think that there can be a gap before too much is done, and a panic before the next meeting. I want to get a rather more established flow of activity. The guiding principle has to be trying to remove barriers to investment. Where we see barriers to investment, we—with the industry and my parliamentary colleagues—will actively try to remove those barriers, to make this a very attractive place in which to invest. Many things were done under the previous Government, and historically, to make this an attractive area. We have flexibility in our licensing system to attract the widest possible range of players. The hon. Member for Islington South and Finsbury (Emily Thornberry) asked about the commitment that we made about licensing in our manifesto. That was nothing to do with safety issues. It responded to a concern within the industry about how long the licensing process takes, and considers whether there are ways, taking account of the safety and environmental issues, in which we can tell investors rather more rapidly than at present what the outcome of each licensing regime will be. It is certainly encouraging that the latest round received the greatest number of applications since the first round in 1964, and we hope to be in a position to award licences later this year. The fallow initiative, put in place by the Department of Energy and Climate Change, continues to encourage companies that are not actively working on blocks or licences to relinquish them so that other companies can be given opportunities to exploit them. To ensure maximum production efficiency from North sea fields, the Department has a stewardship process, which is an annual review in which DECC works with the fields' owners and looks at individual field performance with the aim of maximising economic recovery and enhancing production levels wherever possible. We are also considering the whole issue of infrastructure, which has come through very strongly in the contributions to the debate. It is a key part of the coalition agreement. We want to work to improve on that, and we have said that we will consider legislating in that area. I would always prefer that we work through voluntary agreements wherever we can, but we have to recognise that the voluntary agreements in this area involve one party that has overwhelming strength because it owns the infrastructure and essentially has a monopolistic position, and a much smaller company that wishes to have access. We therefore need to find a better way of making that voluntary arrangement work, as I think it often does in other countries, or we will consider taking extra powers to deliver the greater access to the infrastructure that we think will be necessary. It is absolutely clear that many of the fields that are now being looked at are more marginal ones, and therefore we will not necessarily be able to attract the huge international oil companies but rather smaller specialist companies, which nevertheless have fantastic records of technological expertise and safety. We therefore have to ensure that the regime is appropriate for those smaller companies. Several questions have been asked about the fiscal situation. As my right hon. Friend the Member for Gordon will be aware, those are always matters for the Treasury, which rightly guards its leadership on such issues very carefully. I can certainly tell him, however, that there have already between discussions between the Prime Minister, the Chancellor and the Scottish Executive about the fossil fuel levy. We understand the requests that there should be a higher ability to draw down funding from that levy and the Treasury is considering the issues with an open mind.