My Lords, I thank the noble Baroness, Lady Worthington, and the noble Lord, Lord Teverson, for these amendments. I wish to speak to the non-government amendments before addressing the government amendments. Following discussions held during the dinner break, I am happy to revisit Amendment 72, which we looked at before the dinner break.
Amendment 19 seeks to amend Clause 5 to give the Secretary of State the power to direct the Oil and Gas Authority to postpone or prohibit decommissioning of infrastructure until such time as she determines that a carbon capture and storage operator is in a position to utilise the infrastructure. I must first clarify that it is not the intention that the Bill will give the OGA the power to prohibit or postpone decommissioning. The ultimate power to approve, or disapprove as necessary, a decommissioning plan lies with the Secretary of State under Part 4 of the Petroleum Act 1998, and will continue to do so.
In any event, taking a power to delay or prohibit decommissioning on an open-ended basis for the purpose suggested would appear to require an owner of relevant infrastructure to pay for the ongoing maintenance of the infrastructure on an indefinite basis until the CCS development is ready. These would be significant costs, running to tens of millions of pounds for ongoing maintenance every year, simply to keep the relevant infrastructure safe until such time as it might be reused for CCS. When, as we all hope will quickly become the case, CCS is a proven technology, we can be certain of how and when relevant infrastructure can be reused for CCS and a commercial deal is viable, preventing decommissioning of existing assets to make way for CCS may be sensible and permissible under the current proposals the Government have made. However, as we debate the merits of this amendment
today, we cannot say with any certainty when or how such infrastructure could be reused for CCS. I fear that this amendment risks making the United Kingdom continental shelf less attractive to investors and jeopardising the vital investment we need for the future of the basin. This would put us in significant conflict with the recommendations set out in the Wood review, and would be perilous given the challenging economic realities in the United Kingdom continental shelf today.
I hope that this explanation is helpful in setting out why this amendment is not workable from a structural perspective, since it will be the Secretary of State, not the OGA, who will hold the key power to decide whether to approve or reject an abandonment programme. In addition, as I will outline shortly, the government amendments brought forward on Report today aim to strike the right balance between keeping the continental shelf open for business while putting rigorous checks in place to ensure that the preservation and reuse of North Sea infrastructure, including for CCS, is appropriately considered before any decommissioning can take place.
The Government’s proposals would allow the Secretary of State to ensure that decommissioning takes place in accordance with an approved decommissioning plan, enabling her to ensure that alternatives to decommissioning are taken into account and that the costs of plans are kept to the minimum reasonably practicable. The intention is very much to bring consideration of such reuse to the forefront of the process and ensure that opportunities are identified early, allowing for adequate commercial arrangements to be made between parties and preventing situations requiring a party to maintain an asset against their will.
I turn to non-government Amendment 21. This amendment seeks to insert a new clause after Clause 7. The new clause would require the Oil and Gas Authority to report to the Secretary of State if the operability of any element of critical oil and gas infrastructure is at risk due to the financial condition of the owner, or for any other reason. It would also enable the Secretary of State to provide financial support to maintain such assets, if she considers the asset is at risk of closure or becoming inoperable, and it is in the national interest for it to remain in operational order.
I, too, am concerned to ensure that critical oil and gas infrastructure is properly identified and safeguarded in the national interest. This is an area already being addressed by the Oil and Gas Authority. Its recent Call to Action: Six Months On report highlighted actions being taken to protect critical infrastructure. However, we will continue to monitor this work and provision in this Bill will already enable the Secretary of State to require action from the OGA if necessary.
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The existing drafting of Clause 5 “Directions: national security and public interest” and Clause 6 “Directions: requirements to notify Secretary of State” cover all the circumstances and issues identified in proposed new subsection (1) of the amendment. If this is not the case, the Pepper v Hart case of 1993 can be used on the basis of the debate today to indicate that that is the view of the operation of the clause.
Under Clause 5, the Secretary of State has the power to issue a direction to the Oil and Gas Authority as to the exercise of its functions, if the direction is either necessary in the interests of national security or otherwise is in the public interest. We believe that the operability of critical oil and gas infrastructure is in the public interest, and as such it is something in respect of which the Secretary of State could issue a direction. In support of this power, Clause 5(7) requires the OGA to notify the Secretary of State of any cases, matters or circumstance which have arisen or are likely to arise in relation to which she may issue a direction. The potential closure or shutdown of a nationally significant oil and gas infrastructure asset is an issue on which the Secretary of State would expect the OGA to report to her under the above provisions.
Where infrastructure is critical, there will almost certainly be a commercial deal to be done. It will be the role of the OGA to facilitate this by bringing parties together. Only once the market had failed to provide such a commercial deal would the Government step in. We are not yet in that place but, should it be necessary, we are of the view that sufficient financial mechanisms already exist that, in the event that such support was necessary, it could be provided by government, subject to approval by Her Majesty’s Treasury. However, before such support could be given, the Government would need to ensure that they were acting in compliance with state aid rules. I hope noble Lords have found this explanation reassuring.
Non-government Amendment 77 seeks to insert a new clause into the Bill requiring the Secretary of State to report annually to both Houses of Parliament on the estimated cost of decommissioning North Sea oil and gas infrastructure. As we have discussed previously, the inevitable consequence of a maturing basin means that the future cost of decommissioning activity in the North Sea is expected to be substantial. This forthcoming increase in decommissioning activity presents a major opportunity to increase efficiencies and reduce costs to both the industry and the taxpayer.
We recognise that the reporting of costs plays an important role in this. Most importantly, we recognise the need for transparency regarding the costs that may ultimately fall to the taxpayer as a result of tax relief mechanisms for decommissioning costs mentioned by the noble Baroness, Lady Worthington. Our current estimates are that between 2015 and 2041, the cost to Her Majesty’s Treasury would be £16 billion. Industry’s costs would be well in excess of that. Those are, of course, estimates. To this end, Her Majesty’s Revenue & Customs provides a detailed account of expected decommissioning liability in its annual accounts, which are publicly available.
The approach by which that liability is accounted for has recently been revised in order to provide a more long-term estimate of the costs of decommissioning. This provides both industry and government with a much fuller picture of the expected future cost landscape, allowing these costs to be robustly managed and ensuring that decommissioning is executed as efficiently as practically possible. I hope that this explanation, coupled with the relevant government amendments aimed at ensuring that the cost of decommissioning plans is
kept to the minimum reasonably practicable, reassures noble Lords that the reduction of decommissioning costs is at the forefront of the Government’s agenda. For these reasons I ask that Amendment 77 be not moved.
Government Amendment 84 inserts a new schedule into the Bill relating to decommissioning. This schedule is introduced by Amendment 73, and Amendment 85 amends the title of the Bill to ensure that Amendment 84 is within the scope of the Bill. We agree that decommissioning is an integral part of the life cycle of oil and gas infrastructure. There is a real need to manage the interrelationship between extending economic production, retaining facilities and utilities to optimise decommissioning, and preserving assets for future use where appropriate. As the inevitable consequence of a maturing basin, decommissioning activity in the North Sea is expected to ramp up significantly in the coming years. This increased activity will bring increased cost, as I have indicated. While the industry will bear the upfront cost of the decommissioning, a significant portion will be borne by the Government, as I have set out.
The forthcoming increase in decommissioning activity presents a major opportunity to increase efficiencies and reduce costs to both the industry and the taxpayer. It is imperative that costs are robustly managed and that decommissioning is executed as efficiently as practically possible, while ensuring that the highest safeguards for health and the environment are satisfied.
As noble Lords have recognised, there is also a need to preserve such infrastructure for reuse, where viable, as an alternative to decommissioning. The consideration of such reuse is essential in ensuring that key North Sea infrastructure is not decommissioned prematurely. I am sure we all agree it is vital that we also consider the viable reuse of relevant infrastructure for purposes not related to those for which it was originally put. Not only does the consideration of such reuse help to maximise field life but it facilitates the essential development of technologies such as carbon capture and storage. As such, the provisions in this amendment seek to provide a legislative framework within which these twin aims of viable reuse and reduction of costs can be achieved.
The provisions seek to ensure that the viable preservation and reuse of assets is considered by owners of relevant infrastructure as an alternative to decommissioning. As mentioned in the Wood review, and as discussed in Committee, this concept plays, and will continue to play, a crucial role in maximising economic recovery from the North Sea. As such, these provisions ensure that reuse is considered throughout the decommissioning process; for instance, the provisions set out in proposed paragraph 4 of the new schedule inserted by Amendment 84 require any person planning the decommissioning of an asset to first consult the OGA with regards to viable alternatives to decommissioning,
“such as re-using or preserving it”.
A similar consultation duty is imposed on the Secretary of State, when deciding whether to approve a decommissioning plan, by paragraph 5. In addition, such a duty applies when a revision to a decommissioning
plan is proposed, as in paragraph 6; when amendments are proposed under an approved plan, as in paragraph 7; or when, in response to a failure to submit a plan, the Secretary of State imposes her own plan, as in paragraph 5.
As has been mentioned, it is essential to note that consideration of reuse at each stage of the decommissioning process should include reuse for purposes other than those for which the infrastructure was originally put. Importantly, this includes reuse for purposes related to carbon capture and storage. Viable reuse in this vein provides industries such as CCS with crucial opportunities for development, which these measures aim to ensure we do not miss.
Turning to how the provisions in the amendment seek to minimise the costs of decommissioning activities, it is vital we ensure that the costs of decommissioning are controlled and minimised throughout the decommissioning process, not least to ensure that the ultimate bill borne by the Government is minimised, a matter that noble Lords are rightly concerned about.
It is also important that costs are reduced in a way that is consistent with our domestic and international obligations regarding the environment and health and safety. These provisions seek to do this in the following ways. First, they create a consultative role for the OGA throughout the decommissioning process. Paragraphs 3 to 7 and paragraph 9 of the Schedule inserted by Amendment 84 oblige both those preparing to decommission and the Secretary of State to seek advice from the OGA at each step of the process regarding how to frame decommissioning plans to ensure that costs are minimised. From planning through approval to implementation, the OGA will have the power to scrutinise decommissioning activity to ensure that it represents the best value for money.
Secondly, the provisions create a duty on both those preparing decommissioning plans and the Secretary of State to ensure—whether by means of the timing of the measures proposed, the inclusion of provision for collaboration with other persons, or otherwise—that such plans are framed so as to ensure that the costs of carrying it out are kept to the minimum that is reasonably practicable in the circumstances, while ensuring the strongest safeguards for health and the environment are satisfied. Again, provisions in paragraphs 3 to 7 give effect to this.
Thirdly, the Secretary of State is given the power to require action to ensure that the costs of decommissioning are minimised while the plan is being implemented. The provisions in paragraph 8 allow the Secretary to State to intervene in the decommissioning process to ensure that specific measures are taken to reduce costs.
I hope that noble Lords will agree that the cumulative effect of these amendments relating to the reuse of infrastructure and the reduction of costs is a more robust and cost-effective decommissioning process that aims to ensure that suitable alternatives to decommissioning are considered at every possible opportunity and that decommissioning plans represent the best value for money.
Government Amendment 74 inserts a new clause after Clause 62 adding a further duty on owners of relevant offshore installations and upstream petroleum
infrastructure beyond those in section 9C of the Petroleum Act 1998, to act in accordance with the MER UK strategy when planning and carrying out decommissioning of such infrastructure. As I have mentioned, there is no doubt that ensuring the preservation and viable reuse of infrastructure—for example, to facilitate use for carbon capture and storage—as well as reducing the cost of carrying out decommissioning, is of crucial importance in our quest to maximise economic recovery from the North Sea. This amendment, coupled with the decommissioning obligations to be included in the draft strategy to maximise economic recovery of UK petroleum, will provide a clear legislative framework within which these vital decommissioning goals can be met.
This amendment, together with government Amendments 8 and 9—which I shall discuss further shortly—seeks to address this by ensuring that all owners of relevant offshore infrastructure are obliged to act in accordance with the strategy when planning and carrying out decommissioning of that infrastructure. Importantly, this amendment also clarifies that consideration of alternative uses of such infrastructure—including its reuse for purposes other than that to which the infrastructure was originally put, such as carbon capture and storage—plays a crucial role in this process.