Good afternoon, everyone. The first item of business this afternoon is a statement by Fergus Ewing on oil and gas. The minister will take questions at the end of his statement. There should therefore be no interventions or interruptions.
The oil and gas industry has been, is now and will continue to be an enormous asset to Scotland. It has contributed more than £300 billion in tax revenues to the United Kingdom and has turned Aberdeen into a global hub of innovation and engineering ingenuity.
With fields such as Clair and Mariner expected still to be producing beyond 2050, the sector will continue to operate for decades to come. Although the North Sea is a mature basin, there are also frontier regions such as the west of Shetland with huge prospects and a diverse range of development opportunities. However, the current fiscal regime is a barrier to such development.
In 2011, I asked industry and academia to help us devise a modern oil and gas strategy. That strategy set out a clear vision for the industry’s long-term future and it set priorities for future action. It has guided this Government in its actions in relation to its on-going support to the industry.
I will summarise the progress that has been made. First, on enterprise, Scottish Enterprise has already achieved the target set in the strategy to engage with an additional 100 oil and gas companies for account management in the period from 2012 to 2015. SE now has 344 oil and gas companies within its account management portfolio. In addition, Highlands and Islands Enterprise account manages more than 50 companies.
Secondly, on innovation, working with industry leaders such as Paul de Leeuw and Ian Phillips, as well as Professor Albert Rodger of the University of Aberdeen, we launched the oil and gas innovation centre in November 2014. The centre has £10 million of funding over five years, and it is already up and running, developing and delivering solutions to the key challenges that are faced by businesses.
Thirdly, on internationalisation, Scotland’s oil and gas supply chain is an international success story. Total international sales grew to £10,000 million—not £10 million but £10,000 million—in 2012-13. That is an increase of 22 per cent on the previous year. International activity now accounts for just over half of the total oil and gas supply chain sales.
Scotland is now an international hub for oilfield services. For example, we have led the way in areas such as subsea, safety, integrity and supply chain management, giving us a significant competitive industrial advantage. I have led two trade missions to Houston, and I am confident that, due to the support of Scottish Development International, SE and HIE, our supply chain companies are well placed to capture new high-value activity.
Fourthly, we continue to support skills development in the sector. The Scottish Government, Skills Development Scotland and the Scottish Further and Higher Education Funding Council are all working with OPITO and the industry to deliver the immediate and long-term skills needs of the sector. Progress has been made with the establishment of energy skills Scotland and the publication of the energy skills investment plan, which is currently being refreshed and will be published in the coming weeks, taking account of the recent Ernst & Young report, “Fuelling the next generation: A study of the UK upstream oil and gas workforce”, and identifying key actions to be taken forward collaboratively by industry, academia and Government.
Fifthly, on infrastructure, the Scottish Government is targeting investment in local infrastructure in the Aberdeen area—city and shire. For example, the £745 million project to upgrade the Aberdeen western peripheral route will benefit communities and business and remove a serious impediment to economic growth in the area.
Sixthly, on decommissioning, we are committed to supporting infrastructure that will help offshore activity. For example, this Government and our agencies contributed £2.4 million to the nearly £12 million quayside project at Dales Voe South. That will enable Shetland to become a leading decommissioning hub.
I have summarised some of the measures that this Government has taken. We are making the best use of our devolved powers, and we continue to examine every further way in which we can possibly do more. However, it is crystal clear that it is the fiscal regime that needs to change, and the responsibility for that rests with the UK Government.
We have consistently called for a competitive, predictable and stable fiscal regime. In 2011 we published proposals that included the introduction of an investment allowance to help to mitigate the Chancellor of the Exchequer’s shock tax grab in which he raised the supplementary charge from 20 to 32 per cent.
In 2013 we published “Maximising the Return from Oil and Gas in an Independent Scotland” in which we set out the approach that we would take to stewardship. Following the publication of Sir Ian Wood’s interim report in 2013 and the Wood commission’s “Education Working For All! Commission for Developing Scotland’s Young Workforce Final Report” in 2014, we made clear our full support for his recommendations, which included the recommendation that a shadow body should be set up immediately. That did not happen.
We commissioned an independent expert commission to consider how best to maximise the value from the sector. It recommended that the Government consider the total contribution that the industry makes to the economy and society: the total value added. I sent the commission’s recommendations to the chancellor.
Today we have published a paper that sets out the fiscal changes that we believe are necessary to support investment, encourage exploration and ensure that the North Sea is a competitive investment location. That reflects the range of challenges such as declining production efficiency, rising costs and premature cessation of production.
First, we are calling for an investment allowance, as recommended previously by the Scottish Government in 2011 and by the expert commission in 2014. That will simplify the fiscal regime and potentially boost investment by between £20,000 million and £37,000 million.
Secondly, we are calling for a phased reversal of the increase in the supplementary charge alongside a clear timetable to provide clarity for investors. That will provide a strong signal to investors that the North Sea is open for business and could encourage more than £7,000 million of investment. Scottish Government analysis based on industry data shows that those measures can potentially support up to 26,000 jobs and 5,600 jobs respectively.
Thirdly, we are calling for an exploration tax credit. Exploration is already at an historically low level, and failure to address that will mean that we do not maximise the economic recovery of oil from the North Sea.
We will now consult stakeholders on those proposals, but I make it clear that speedy action from the UK Government on those areas is vital. Put simply, those measures must be delivered in the budget this March.
There is a long-term sustainable future for the North Sea, and the Scottish Government is committed to using every lever at our disposal. It is time for the UK Government to follow suit.
The minister will now take questions on the issues that he raised in his statement. I intend to allow around 20 minutes for questions, so it would be helpful if members who wish to ask questions could press their request-to-speak buttons now. We are extraordinarily tight for time this afternoon, so short questions and answers would allow us—I hope—to get everyone in.
I thank the minister for advance sight of his statement. When Jim Murphy and I met representatives from Oil & Gas UK in Aberdeen on Tuesday, they told us that 2,000 jobs had already gone and that many thousands more were at risk. The word “crisis” was used at meeting after meeting with operators, service companies, trade unions and local government, yet there is little sense in the minister’s statement of the potential crisis that we face.
There are many things in the statement on which we can agree, but there is almost nothing that is new. The price of oil has fallen by almost half during the past few months. It is now slipping below $50 a barrel. That is a new feature of the issues facing the oil industry and it must be a new feature of the Government’s response. We cannot simply have business as usual.
Mr Ewing has today published an assessment of the fiscal impact of changes in the tax regime at Westminster but we have not yet seen or heard the Scottish Government’s assessment of the impact of the falling price of oil on the Scottish economy. Can Mr Ewing tell us what assessment he has set in train of the impact of $50 oil on jobs and business in the Scottish economy? Will he tell us whether he intends to assess the potential impact of $40 oil on jobs and business in the Scottish economy?
The minister has said today that the Government will examine every further way in which it can do more, and I welcome that. Will he undertake to assess the value and contribution of Scottish Labour’s proposal for a resilience fund to help industry in exceptional circumstances such as these? [Interruption.]
I note from the Scottish National Party back benches a sceptical response to that suggestion. I want to hear from the minister in the spirit of what Nicola Sturgeon said to Kezia Dugdale just before Christmas about the SNP Government being open to ideas from other parties. I do not want SNP members laughing at the possibility of examining other parties’ ideas about how to save jobs and business in the Scottish economy.
You must come to your question.
It is not the Government’s duty to say to Westminster what Mr Ewing thinks Westminster should do; it is the Government’s responsibility to provide proper stewardship for the Scottish economy, and that should start here today.
Perhaps I could start with the resilience fund that has been mentioned. It is reasonable to say that Mr Murphy did not say how much the fund should be, so it is, as yet, an unspecified sum for unspecified beneficiaries from an unspecified source. If, in the little that he has said about this fund thus far, Mr Murphy is now a convert to an oil fund, we welcome that, no matter how late in the day.
It is important not to work ourselves up into a panic as Mr Macdonald seems so intent on doing. We should remember that, as he well knows, Aberdeen has been here before. The oil price went down to $10 in 1986 and 1999. More recently in 2007 and 2009 it was also as low as the $40 to $50 mark.
The price of oil fluctuates. We have always said that; we have always recognised that. None of us here controls the oil price any more than any of us here is able to predict the price. If we did, we would all be multimillionaires, would we not, Presiding Officer?
The fact is that Labour had 13 years in which to set up an oil fund. During that time, it had £93 billion of revenue from oil. That is three times as much as the annual Scottish Government budget and 10 times as much as was spent in Iraq, and Labour did not invest one bawbee. Meanwhile, back in 1999, when oil was $10 a barrel, Norway was just setting up its fund. How much is that fund worth now? Around £540 billion sterling.
There is a tale of two countries’ stewardship of an enormous and invaluable asset: the poor stewardship of successive Labour and Conservative Governments that has resulted in no oil fund; and the successful stewardship of a smaller country that has managed over that period to build up a fund that helps to stabilise their figures.
With respect, therefore, I do not think that the proposal for a resilience fund can be taken too seriously, especially as Jackie Baillie has not signed up to it. As the First Minister pointed out, in August this year, Jackie Baillie said:
“Setting up an oil fund will take money away from public services.”
What an utter shambles.
That is a sufficient answer for the time being, Mr Ewing. We are now five minutes into the 20 minutes that I allocated for this part of the afternoon. Can we have short questions and answers please?
I thank the minister for his statement and, indeed, for advance sight of it, although I note that in more than 1,000 words he did not once mention the fall in the oil price.
We are all aware of the serious challenges facing the oil and gas sector and, in particular, the economy of north-east Scotland. Those involved in the industry want Scotland’s two Governments to work together on this issue to try to find practical ways of helping those affected. What they did not want to hear today from the minister was a repeat of his previous performances in the chamber, in which all he did was grandstand and try to score political points against Westminster. Sadly, they will have been disappointed this afternoon. What we have had today is yet another example of the minister refusing to take responsibility and trying to pass the buck entirely to Westminster for action. That is not good enough.
The minister knows that we support the call for the introduction of a new investment allowance, and we have made that clear to our colleagues in the UK Government. However, what we want to know today is what this minister and this Government are going to do to help the industry, because this statement is totally devoid of a single practical new measure in that respect.
Okay. Over the past 18 months, Highlands and Islands Enterprise has supported developments in 23 companies, which, it is estimated, have created more than 1,000 jobs, and Scottish Enterprise has invested £9.7 million against total project costs of £68 million. Over the past couple of years, we have invested around £6.5 million in energy skills, and we have invested £10 million in innovation. Nearly 100,000 companies in Scotland receive our small business bonus; and we work ever more closely with the universities and colleges involved in oil and gas.
I myself have set up two joint meetings between the Scottish and UK Governments to arrange sessions for small and medium-sized oil and gas businesses to access finance. We did not do that with a fanfare of trumpets or publicity—we just did it—and hundreds of companies were there, many of which, we believe, were helped. Over the past three years, I have attended five PILOT meetings, and I have worked constructively as far as I can and to the best of my ability with the UK Government.
However—and this, I am afraid, is what Mr Fraser does not seem to get—the trouble is that it is not just us in the Scottish Government who are saying that there is a pressing need for these fiscal changes and that they are urgently required to tackle exploration, which is at an all-time low, and address the desperate need to instil and reinstil confidence in the industry. The industry itself is saying it, too. Malcolm Webb has said:
“We have experienced repeated and increasingly aggressive tax hits ... All of this has weakened the international competitiveness and resilience of the industry”.
Over a period of 57 days in the past three and a half years, I have met more than 110 oil and gas companies in and around Aberdeen. I can tell the chamber beyond any shadow of a doubt that the clear consensus of all businesses in Aberdeen is that these proposed tax changes, which will bring back exploration, as has happened in Norway, which will reinstil confidence in the UK and which will undo the damage of the Danny Alexander tax—the Danny tax—in 2011, are what the industry wants and needs, and it needs them this March.
Companies have told Aberdeen and Grampian Chamber of Commerce that the current fiscal regime is unpredictable, unnecessarily complex and simply too burdensome. Jeremy Cresswell, The Press and Journal’s energy editor, has said today that
“the London Government ... doesn’t grasp the immense strategic value of our offshore oil & gas resource.”
Does the minister agree that, in order to help the oil and gas industry, the chancellor should follow Mr Cresswell’s advice to get a move on and slash the tax burden now?
I do agree, and I pay tribute to Aberdeen and Grampian Chamber of Commerce. I have been reminded by my office that I met it formally on 8 February 2013, but I have met it and its members on many other occasions. I also pay tribute to The Press and Journal, whose coverage of the oil and gas industry in Scotland is second to none.
This is simply not a matter of party political claim and counter-claim; it is just a matter of fact that what the industry now needs—and by this March budget—is implementation of the tax changes that are necessary to help address the very serious predicament that it faces.
There is nothing new in the statement and no actions have changed or appeared since the dramatic fall in oil prices in the past few months. So, I will ask the minister again about the risk of job losses and hope that he treats the question more seriously than the First Minister did. The Scottish Parliament information centre has an estimate of 15,750 job losses, which is one in 12 jobs in the industry and on a scale that is worse than when Ravenscraig closed. Given that the oil price is now below $50 a barrel, what will the Scottish Government do to help to ensure that we do not risk those jobs?
If Jackie Baillie has read the Ernst & Young report “Fuelling the next generation: A study of the UK upstream oil and gas workforce”, she will be aware that between this year and the end of the decade there will be between 10,000 and 20,000 extra job opportunities and requirements for new entrants into the industry. This is a complex and fluid situation, and therefore we are working with the industry and academia to ensure that the future requirements for recruitment, especially of young people, are met—that is clearly set out. If Jackie Baillie had read the Oil & Gas UK report, she would see the large number of projects that are going on stream that will require people to work both onshore and offshore.
We are working with the industry, Oil & Gas UK, Subsea UK and all the other representative bodies to tackle their recruitment needs. We will continue to do everything that we possibly can to address the needs of both the industry and the people who face redundancy at this time. That includes working with bodies such as Scottish Engineering and the manufacturing sector to see what opportunities there are for the traditional industries in the north-east to provide a solution by taking on young people. Of course, the work that we are doing is part of the solution. I agree that it is not new; we have been doing it for the past three years and we will just carry on doing it.
I thank the minister for an advance copy of his statement. Does he accept that Chevron’s west of Shetland Rosebank field was not sanctioned at $110 a barrel because the cost of production in the oil and gas industry has risen by 62 per cent over the past four years? That is one major factor that needs to be confronted. Does Sir Ian Wood need to be called into action to challenge on that issue?
Does the minister accept that as well as his writing to the energy companies, as the First Minister made clear this morning the minister is doing, his Government should undertake to write to shipping companies and airlines, such as Loganair, to ensure that the lower fuel bills that they now face are passed on in lower ticket prices for those of us who use their services?
I have spoken to Chevron on numerous occasions and have met its representatives twice, and Tavish Scott is absolutely correct to say that the major Rosebank field, which is one of the largest fields that there will ever be, was not going to go ahead even before the oil price fall. He makes a reasonable point with regard to Loganair, and I will look into that with the Minister for Transport and see what action requires to be taken. Of course, we will continue to work very closely with the likes of Sandra Lawrenson of Lerwick Port Authority and Murdo MacIver of Peterson SBS to continue the good work that they are doing to exploit the opportunities of Lerwick and Shetland’s excellent position for doing decommissioning. On shipping, which Tavish Scott also mentioned, we will work with Douglas Craig of Craig Group, who provides leadership in Aberdeen and opportunities to a great many young people.
To deal with the serious question about the real threat to many people’s jobs, I should say that if we can bring in exploration tax credit measures to do what Norway did in 2005, we can emulate its success, which saw a fourfold increase in exploration and appraisal drilling. After Norway introduced its tax breaks, there were four times as many drilling rigs as hitherto. That is the way to tackle the jobs difficulties that we face.
We have nine questions left and five minutes.
I thank the minister for detailing the six streams of action that the Scottish Government has taken and I ask him for assurance that those actions will be intensified as the need arises, given the threat of job losses in the industry.
Of the tax changes that he proposes, I commend the exploration tax credit, which the minister rightly said had a dramatic effect in Norway when it was introduced in 2005. Will he say how we can impress the urgency of this matter on the Treasury, given its tendency when prices are high to move like lightning to increase tax, as in 2011, and when prices are low to move at a snail’s pace to reduce the tax burden and offer an incentive such as the exploration credit, which would do a massive amount to protect and expand jobs now and to help discover new fields for the future?
Alex Salmond is exactly right. I will relay those points to the PILOT meeting that I will attend on Tuesday, which I believe the industry minister, Mr Hancock, will attend. I will put those points very clearly to him.
It is instructive to remember that as a result of the enlightened exploration tax credit policy in Norway—which had 78 per cent uplift, I believe—some of the largest ever discoveries were made, including the Johan Sverdrup field. In fact, some of the discoveries were made in the midst of existing fields; people had not known them to be there. If that can be done in Norway, it can be done across the other side of the international boundary very well.
The day rates of the rigs are at a far lower level than they were, so commercially this is the right time to stimulate such activity. I will, therefore, highlight the point that exploration tax credit measures are absolutely essential if we are to address the jobs challenge that Aberdeen and Scotland face. It is absolutely essential that this is not delayed beyond March. If there is one message that I want to convey, it is that one.
Thank you. Point made.
Given the significance of this issue to Aberdeen’s economy, will the minister agree that the proposal for an oil and gas summit, made by Aberdeen City Council leader Jenny Laing, is important and will he and appropriate colleagues agree to attend? Does he agree that governments at every level must examine what more they can do to bring forward new, vital infrastructure investment in Aberdeen?
I have always sought to work closely with representatives of Aberdeen City Council in a number of ways and, at my behest, I have met them on various occasions to address some of these matters. Of course we want to work extremely closely with Aberdeen City Council and we will continue to do so, as we do with all local authorities.
I am extremely pleased that my colleague Shona Robison has been able to announce an increase in the proportion of health budget spending in the north-east. That is not my responsibility, but I know that the matter has been raised by north-east members over a long period.
I remind Richard Baker of the commitment to the peripheral road in Aberdeen, which is not just another road project; it is a project that will address in part the worst road transport problems in Scotland, as I can say from my observation in Aberdeen on 57 days in the past three and a half years. Let us not beat about the bush. The measure that we are bringing forward in Aberdeen—the western peripheral road, which, at a cost of £745 million, is one of the largest schemes in Scotland—is seen by Aberdeen and Grampian Chamber of Commerce and people in all circles, not just businesspeople, as the key infrastructure change for that city. I am proud that a Scottish National Party Government will deliver it.
In his report, Sir Ian Wood, one of the world’s leading experts on the industry, encouraged young people to seek careers in the oil and gas sector. Does the minister agree that they should continue to seek careers in the sector?
Yes I do, and I pay tribute to the work that Sir Ian Wood has done in the youth commission, working with Angela Constance. I was struck by the passion, determination and knowledge that he brought to the task, and that work is being taken forward by colleagues.
As Dennis Robertson has mentioned Sir Ian Wood, I point out that he has said that he expects, as I think most leading commentators do, that the oil price will recover—towards the end of this and the beginning of next year, I believe. The Organization of the Petroleum Exporting Countries has predicted that the oil price will recover to around $110 a barrel and, in the long term, $100 a barrel.
Aberdeen has been here before. It is big enough and strong enough to survive. What it needs is the support of the UK Government that it has never had.
As we have heard today, there may be inevitable cost cutting in the jobs and earnings of Scotland’s offshore workforce. I expect that the minister will readily agree that, whatever pressures that cost cutting brings, they should not extend to cuts in health and safety. We forget Piper Alpha and the 167 dead, five of whom were from my constituency, at our peril.
Will the minister give a commitment that he will bring together trade unions, contractors, operators and the Health and Safety Executive to confirm categorically that, whatever the pressures that befall the oil industry, there will be no compromise on the safety of the offshore workforce?
Mr McNeil makes an important and valid point. The standards of safety apply irrespective of the oil price. They must be of the highest order.
In response to Mr McNeil’s question about working with trade unions, I meet trade unions regularly. I met several trade union representatives in the final parliamentary week before Christmas. As a result, we agreed to do further work in engagement with the Health and Safety Executive. Although the standards that apply are extremely high, we need to be constantly vigilant in Scotland.
I point out that some key areas, such as specialist and small businesses and the skilled workforce, are exporting our standards to many other parts of the world.
The Scottish Government has again called for a competitive, predictable and stable fiscal regime. Does the minister agree that reckless decisions by UK Governments over the years, such as the supplementary charge hike in 2011, have damaged the prospects of the oil and gas industry? Does he further agree that the devolution of powers over the North Sea fiscal regime to Scotland would deliver the best outcome for the industry and the public finances?
One particular company, whose name I will not mention, described the 2011 Danny Alexander tax increase as “expropriation”. Just before Christmas, another leading company in Aberdeen said that the UK has
“the worst tax regime in the world.”
Colleagues in the UK parties represented in this place may think that that is politics. However, that is what the industry says and that is what it thinks. That is wrong. We need confidence to get the jobs back—we need to win back that confidence. The way that I have set out, with the exploration tax credits, the investment allowance and a phased reversal of the Danny Alexander tax hike of 2011, is quite simply what the industry wants, what it needs and what it deserves in March this year.
Yet another discussion of fossil fuels without the words “carbon” or “climate” being so much as uttered; and this, just one day after yet more evidence, this time from University College London, demonstrates that the bulk of the world’s fossil fuels are unburnable if we are remotely serious about climate change. How can the minister fail to acknowledge the vulnerability of a Scottish economy that is overexposed to the carbon bubble? How can he want to get back to business as usual when business as usual is what brought us to this perilous position?
I strongly suspect that Mr Harvie and I will not see eye to eye on all of these matters. I respect his position but I do not agree with it.
I would point out one simple fact: the opportunity for us to meet the carbon emissions targets can be achieved only if we are able to deal with carbon emissions and store them. According to the International Energy Agency, carbon capture and storage is the only means by which that can be achieved. The depleted oilfields in the North Sea are the only place where that carbon can be stored and, therefore, the opportunity for carbon capture and storage in the North Sea, combined with enhanced oil recovery, is, in one sense, the greenest policy of them all.
Absolute rubbish.
This morning, Mike Tholin, Oil & Gas UK’s economic director, told BBC Radio Scotland that the single biggest beneficiary of high oil prices has been the UK Government, because more than 60 per cent of profits go to it in taxation. Given the vast benefit over the decades, does the minister agree that it is vital that the UK Government puts in place the fiscal regime to ensure that the industry remains strong?
I appreciate what Mark McDonald says. I am sad to say that the oil and gas industry in Scotland has been regarded by the UK Treasury—of whatever hue—as a gigantic cash machine instead of as an excellent industry. That approach, mindset and attitude must change.
Many thanks. I offer my apologies to the several members whom I have been unable to call, but we must move on.
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