The next item of business is a statement by Fergus Ewing on future prosperity for the North Sea. The minister will take questions at the end of his statement; there should therefore be no interventions or interruptions.
14:05
Last week, I attended the Offshore Europe conference. My reflection from that event is that there is a shared determination in the industry to collaborate and overcome the current challenges, which are made more difficult by the low oil price—not that that should compromise safety; as Lord Cullen remarked in his speech to the Piper 25 conference in 2013, the industry must never forget to be afraid.
The Oil & Gas UK economic report suggests that industry efforts are starting to bear fruit. First, costs are decreasing, with a 22 per cent reduction in the cost of operating existing assets expected by the end of 2016. Secondly, annual production is expected to rise for the first time in 15 years.
In my engagement with the industry, I am encouraged by some of the great work that is going on. For example, I have met the new chief executive of Statoil to discuss the Mariner project; I have met Philippe Guys of Total to discuss Laggan and Tormore; I have met Maersk to learn about its Culzean project; and I have met Trevor Garlick of BP, which is taking forward Clair and the eastern trough area project—ETAP.
However, job losses remain a huge concern. The First Minister took decisive action in that regard by setting up the energy jobs task force. The task force will publish its latest update report shortly, and I want to share some of the action that has been taken so far. The task force has engaged with more than 1,700 individuals and more than 100 employers to help people who are affected to move into new employment, new ventures or training. Much of that support, including one-to-one redundancy support for 1,300 people, has been delivered through the partnership action for continuing employment—PACE—programme.
The task force has also considered structural challenges, making cost efficiency a priority and looking at best practice from other sectors, as well as considering challenges around leadership. That has led to initiatives that will lay the foundations for improvements across a wide range of action areas. Examples include a groundbreaking cross-sector workshop, which was attended by more than 70 industry leaders in Aberdeen in May and was led by Trevor Garlick of BP and Andy Samuel, chief executive of the Oil and Gas Authority; five business events over the past six months in Aberdeen for more than 200 delegates, which covered topics such as financial resilience and leadership through change; and a business start-up support programme with 13 new businesses in the north-east. I am grateful to Dr Lena Wilson and her team for the work that they have undertaken, which has made a significant difference.
However, further action is required. The Oil and Gas Authority has an important role to play in improving stewardship of the North Sea. I met Andy Samuel again last week, when he gave me an update on progress. I support the work that he and his team are doing at the OGA and reaffirm our commitment to playing a constructive part. I am pleased that the OGA has accepted, in its work, the principle of total value added, which the Scottish Government put forward last year.
The OGA has made protecting critical infrastructure and avoiding early decommissioning a priority. It is imperative that so-called production hubs are not decommissioned prematurely. I completely agree with that approach. There is still plenty to come from the North Sea. Oil & Gas UK estimates that there could be up to 22 thousand million barrels of oil remaining. Statoil’s CEO believes that there are opportunities, as is evidenced by the company’s massive investment in the 250 million barrel Mariner project—with, possibly, Bressay to follow.
Decommissioning will provide opportunities for our supply chain, but we need to think creatively if we are to maximise opportunities for Scotland while taking all steps to avoid premature cessation of production. Critical infrastructure must be protected, to stop a domino effect of fields being decommissioned unnecessarily. That means having the right businesses, with the right skills and resources, to manage late-life assets.
That in turn requires the optimum fiscal environment. We welcomed the introduction of a basin-wide investment allowance and reduction in headline rates in the March and July budgets, but that was a missed opportunity to commit to the wider fiscal reform that is needed.
To drive further reforms, decisions on fiscal policy should be underpinned by the principle of maximising economic recovery. The Scottish Government has supported the MER strategy from the start, and we argued for that approach long before the UK Government did, first in our oil and gas strategy in 2012 and then in our 2013 report “Maximising the Return from Oil and Gas in an Independent Scotland”. I believe that decisions on fiscal policy should also be underpinned by the principle of MER. The MER policy will work only if the UK explicitly commits to using its fiscal levers appropriately. Without that, the operators will simply invest elsewhere. I therefore call on the UK Government to consider ways to make that as strong a statutory commitment as possible.
There also remain a number of specific reforms that must be addressed with urgency. Ten months ago, the UK Government committed to undertake further work on the fiscal incentives for exploration, infrastructure and late-life assets, and we still await a consultation on all those issues. The OGUK economic report indicates that only seven exploration wells have been drilled in the first half of this year—a record low that underlines the urgency of incentivising exploration.
I completely agree with Statoil’s chief executive, Eldar Sætre, who commented two months ago that
“it’s important that the government continues to look at ways to incentivise the industry for exploration, because it all starts with exploration”.
That the UK Government has delayed for 10 months is a failure, and shows lack of urgency.
We also need the correct policies to ensure that new investment happens. There is a range of existing discoveries waiting to be developed, such as Rosebank, Bentley and many others. Discoveries such as those will require a collaborative approach and the right incentives, but they will also require a stable fiscal environment, not subject to damaging tax raids like those of 2011. I therefore reiterate the call made by the First Minister in June in Aberdeen by saying that it is imperative that the UK Government commits to no tax rises during the lifetime of the UK Parliament and that any significant policy proposals are consulted on with industry and with the OGA.
Finally, innovation remains of paramount importance. I have met representatives of more than 200 innovative companies during the past five years. Last Tuesday, I launched the new Plexus wellhead system, which provides a new technological solution for deepwater high-temperature drillings. We must continue to harness that excellence and expertise.
In conclusion, the oil and gas sector in Scotland has succeeded over the past 40 years and can, with the right policies, continue to succeed over the next 40 years. The Scottish Government will continue to support it.
The minister will take questions on the issues that were raised in his statement. I intend to allow around 20 minutes for questions, after which we will move to the next item of business. It would be helpful if members who wish to ask a question were to press their request-to-speak button now.
I thank the minister for advance sight of his statement. I am glad that, like me, the minister went to the Offshore Europe conference in Aberdeen last week, and I am glad that he agreed to make a statement today. However, I am disappointed that he had so little to say today about the impact of the oil jobs crisis on the wider Scottish economy. The energy jobs task force is, of course, very welcome and I am glad that it is to continue its work, but the minister will recognise that engaging with 1,700 individuals and offering one-to-one redundancy support to 1,300 touches only the tip of the iceberg, when so many more people have already lost their jobs.
Oil & Gas UK’s economic report last week estimated that there are 65,000 fewer people in the oil and gas industry and its supply chain compared with those who were employed at the start of last year. That is a scale of job losses across the UK that is comparable with the rundown of coal or steel a generation ago. Many thousands of those jobs have been lost in the north-east and many thousands more have been lost in the supply chain across Scotland, and thousands more may well be lost in the months to come.
Will the Scottish Government therefore now carry out a full assessment of the oil jobs crisis in every constituency and region of Scotland, to lay the basis for action to mitigate its economic impact? Will the Scottish Government now take action to help those businesses throughout the country that are struggling because oil and gas producers are cutting back their costs by £2 billion by the end of next year, and will ministers agree to work with supply chain companies to help them to find new markets for their products and services at home and abroad and to protect jobs throughout Scotland?
The work that Dr Lena Wilson has been doing in leading the task force has achieved several things, including, as the member is aware, helping the individuals who are most directly affected. I think that it has reached out to 1,600 or 1,700 individuals at the PACE events, which have been the best-attended PACE events that there have ever been. I remind members that the success of PACE is marked, with 72 per cent of people who are made redundant finding other opportunities and jobs within six months.
We have estimated the impact, as has Oil & Gas UK—the member referred to that—and there are 6,000 direct job losses. Oil & Gas UK’s estimate of the induced jobs lost is based on a calculation of 15 per cent of the total number of jobs in the sector. We absolutely accept that the downturn has had huge impacts. However, the member talks about the position of Scotland as a whole, and we would point to the fact that the employment rate is higher in Scotland than in the rest of the UK. That is, in part, because of the economic strategy that is being pursued by the Scottish Government, which focuses on innovation, internationalisation, fairness and economic growth. Scottish Enterprise, Highlands and Islands Enterprise and Scottish Development International are delivering that work throughout Scotland day in, day out.
We are absolutely not complacent. I have outlined the main planks of work that have been achieved by Lena Wilson and the industry working together. I believe that, on the wider Scottish stage, we and our enterprise agencies have stepped up to the challenges that the Scottish economy faces, one of the major ones being the downturn in the oil price, and we have done so in a way that has been both appropriate and effective.
I thank the minister for advance sight of his statement. When I learned yesterday that the statement had been scheduled, I wondered why it was being made and expected that the Scottish Government would have something new to tell us. However, having listened to the minister, I am none the wiser.
The UK Government has taken steps to help the oil and gas industry, with substantial tax changes that have been warmly welcomed by the sector and which are already paying dividends. Rather than complain about our other Government, why can the minister not tell us what new steps he will take to support jobs in the industry and the supply chain?
Scotland’s Conservative member of the European Parliament, Ian Duncan, has raised in the European Parliament concerns about the impact of a new European Union-commissioned planning brief on hydrocarbon exploration and production that could add extra costs to the industry. Does the Scottish Government share those concerns? If so, what action is it taking?
I am well aware of the EU’s request for not a brief but a BREF—best available techniques reference document—and I have written to the UK Government indicating that we do not believe that the case has been made for the necessity of that.
Why are we here? I am making a statement today substantially because the Labour Party requested that we make a statement, and it is appropriate that the Government responds to reasonable requests that are made by Opposition parties. That is called democracy and accountability, and it is why I am here today.
Murdo Fraser is entirely wrong to say that we have nothing new to say. If he had listened more carefully to the statement, he would have heard me refer clearly to the need for the UK Government, in amending its legislation on MER UK, to ensure that, within that, there is—as I outlined in the statement—an explicit pledge on the part of the UK Government to use its fiscal levers appropriately in relation to MER.
I suggest that Murdo Fraser read Sir Ian Wood’s report on MER UK. He points out that, if we do not take action to prevent premature cessation of production, especially in production hubs, the consequences for the UK Exchequer could be absolutely catastrophic. Sir Ian outlined the prize as being an additional £200 billion—admittedly, at last year’s prices; equally, the penalty is exactly the same amount unless the UK Government rises to the challenge.
Murdo Fraser is an intelligent sort of guy and, once he has had the opportunity to reread my statement, he will see that it contains a very important and new reasonable call on the UK Government to work with us to maximise the economic recovery and thereby do the best possible thing to preserve and protect the supply chain and jobs in the oil and gas sector.
We are extremely tight for time all afternoon, so I would appreciate it very much if we could have short questions and short answers.
The oil and gas industry is supported by a significant supply chain, which includes many small and medium-sized companies. What support can the Scottish Government give those businesses to enable them to take advantage of opportunities outside Scotland to support the industry across the world?
Mark McDonald is exactly right. The backbone of the oil and gas industry is the several hundred small and medium-sized enterprises that are providing cutting-edge engineering, drilling and subsea solutions worldwide. I have seen that on three visits to Houston and on visits to Norway and elsewhere. The industry in Scotland is hugely respected, as Mark McDonald knows.
Scottish Enterprise, SDI and HIE help those businesses in a number of ways. First, they help them to internationalise. Secondly, they help them by providing access to global Scots—100 interviews were conducted by global Scots during my most recent visit to Houston, and they were mostly with SMEs. Thirdly, they provide an account management system, which most SMEs in the oil and gas industry that I have spoken to cannot praise highly enough, as it helps them to open doors, to access markets and to learn from others how not to make mistakes in doing business in new locations. SE, SDI and HIE are playing a blinder in the very practical work that they do for SMEs, and long may it continue.
Given the importance of skills for the future of the industry, have any apprenticeships been lost in the industry in the wider supply chain? How many apprenticeships is the Scottish Government directly supporting? What assessment has been made of the risk that exists to the future of apprenticeships? What plans does the Scottish Government have to ensure that we have a sufficient number of apprenticeships across the industry and the supply industries?
That is an extremely important issue, and we share the member’s sentiments on it. We have enhanced the adopt an apprentice scheme, which was launched by SDS on 16 February. I can tell Sarah Boyack that, of the 22 apprentices who were unfortunately made redundant, 17 have already secured alternative employment. Twelve of them are being supported through the adopt an apprentice scheme and SDS is continuing to support the remaining five.
When the First Minister announced that the task force was to carry out this work, she outlined that our absolutely priority is to help apprentices. After all, there are few things more callous than the laying off of an apprentice while he or she is undertaking his or her training. To be fair to the industry, despite the difficulties, almost every business that I have met has expressed the view that the First Minister’s sentiments are absolutely correct.
What update has the Scottish Government received about the potential production figures for the significant Clair ridge oilfield west of Shetland? Has it received an interim report on the current geological exercise regarding exploration for further potential oil finds off the west coast of Scotland and the Atlantic margins?
The Clair project is one of the largest ever in Scotland. It is a giant field. According to BP, it is likely to continue in production until 2055—that is 40 years hence. It is also located in a region where there are a great many other fields, so that particular project is a terrific success story. It should also be remarked that its excellence relates to the high level of technological skill that is being brought to bear. That is a feature of a great number of the new projects.
On Chic Brodie’s second question, we are of course mindful of the opportunities of new discoveries around our shores. Chic Brodie has made a bit of a campaign of ensuring that we do not neglect to examine whatever opportunities there might be on the west coast. Perhaps through his industry, a group of leading academic experts in geology recently visited Scotland, and I engaged with them in Our Dynamic Earth, across the road from the Parliament, specifically to look at west coast opportunities. I believe that we are having an event or forum in which they can be taken forward.
Nobody thought 60 years ago that there was any oil around our shores—how wrong they were. There might well be substantial new discoveries on the west coast of Scotland.
I thank the minister for advance sight of his statement. Does he accept that consistent lower oil prices at levels below production costs in the North Sea put the long-term viability of oilfields, pipelines and processing at risk? Will he acknowledge the need for the industry, the UK and Scottish Governments and the Oil and Gas Authority to redouble efforts to find a range of creative solutions that extend the lifetime of the UK continental shelf oilfields and protect the thousands of jobs in the industry and the supply chain, including the very many at Sullom Voe in Shetland and at Flotta, which is in my Orkney constituency?
I agree with the sentiment expressed by Liam McArthur. We cannot control the oil price, nor can the UK Government. Bob Keillor wrote a piece in The Press and Journal recently saying that he cannot control the oil price nor predict what it is going to be. What the industry can do is what it is doing—adapt to the challenges, reduce costs and move beyond that into attitudinal change as to how to get the best.
For example, an operator has increased wrench time by 30 to 40 per cent offshore by listening to its workforce as to how best to organise matters offshore. That is a good practical example, and it is imperative that, if the oil price is to stay around the current level, the industry responds to that change. The impression that I got in Aberdeen was that it is indeed responding to that change and viewing matters positively, although there are still very serious challenges ahead in the next year or so.
Can the minister expand on what he said in his statement on the work of the energy jobs task force and say what work it is doing and what work it expects to do in the near future?
Yes, I can. The task force is chaired by Dr Lena Wilson and has met monthly since it was formed. It has reached out to a huge number of people within the industry. The report to which I alluded earlier, which will be published shortly, will highlight case studies of people who have found jobs as a direct result of the work that the task force has done.
The task force is also looking at balanced messaging because it is necessary to promote, as Mr Robertson most certainly does, the truth that this is an industry that has a very successful future ahead of it as well as an extremely successful past. The task force is aiming to do that as well, as indeed am I in these statements.
We join the Scottish Government in supporting further tax incentives for the industry. However, has the minister done any analysis of cost? If so, will he publish it? Given that the tax revenue from oil is at an all-time low and much less than the Scottish National Party assumed in its white paper, will the minister tell us how much tax he is prepared to forgo to help the industry?
I am very pleased to hear that the official Labour position is that we should recognise the reduction of costs as a requirement for the oil and gas industry. I was not in a state of entire certainty about that, in light of the election at the weekend of the new Labour leader, who I believe previously expressed the view that the industry should be nationalised. If there were to be any mention of that, the future of the exploration and production companies, which is challenged at the moment, would be dire indeed.
What I can say regarding the cost of tax measures is this: although it pays in effect for 78 per cent of the cost of exploration, the exploration tax credit system that Norway brought in, and which led to the discovery of the 1.8-billion-barrel Johan Sverdrup field, has brought in several billion pounds extra. In other words, the right tax regime does not cost: it brings in revenue. That is why Norway has an oil and gas fund that is in excess of £500 billion, while the UK has an oil fund of zero.
I was also at the Offshore Europe conference last week. I am happy to report that there are a lot of new things happening in the industry.
Does the minister agree that the oil and gas workforce is very much getting younger, that a lot more women are now in senior positions and that everyone at Offshore Europe was becoming confident that the industry will come out of its present challenges leaner, more resilient and more diverse than ever before?
Yes. I have been keen to try in every possible way to promote gender equality within the oil and gas industry, and I have attended many events with that purpose in mind. There is an organisation of females who work within the oil and gas industry. Of course only a relatively small minority of the jobs are actually offshore, but females work offshore and do the job just as well as males.
I am very pleased to have the opportunity to restate that. We will continue to press for progress. After all, some say that the oil and gas industry continues to neglect around one half of the population far too often.
I am grateful for the advance copy of the statement, and I am surprised that it contains no hint of recognition of the downsides of the fossil fuel industry—neither the environmental destruction that it is driving nor the economic vulnerability that comes from our overreliance on an unsustainable industry.
Honestly, how can the minister come to Parliament with a statement titled “Future Prosperity for the North Sea” and have literally not one word to say about the transition to marine renewables, which can generate prosperity without destroying the life support system that we all depend upon?
That is because the statement is about the oil and gas industry. If Mr Harvie cares to come along this evening or on Thursday, he can hear me talk about the renewables industry.
I know that Mr Harvie is very passionate about fossil fuels, and we know his position. I must admit that I was surprised to see that there seems to be some difference of opinion within the Green Party: I have read that Mr Robin Harper apparently thinks that there are circumstances in which hydraulic fracturing would be a good idea. While we see a moratorium on hydraulic fracturing in Scotland, we see political fracturing within the Green Party.
In planning for the future, it surely is important that the minister today gives details of how the Scottish Government is working specifically to support the development of transferable skills for marine renewables and wind turbines for when the oil rigs are finally decommissioned, in order to ensure that those opportunities go to Scottish workers. I believe that we should be seeing a plan now.
We recognise that workers, whether from Scotland or other parts of the world, are welcome to play a part, although obviously our efforts are on people who live in Scotland, and that is the objective to which our efforts are primarily devoted.
With regard to the offshore wind industry, of course we support it. We have left no stone unturned in doing so. We hope that Beatrice, Moray, Inch Cape, Seagreen and Neart Na Gaoithe will go ahead. Sadly, the power for that rests entirely with the UK Government. Instead of seeing progress with the electricity market reform in the announcement of the second round of strike prices, and instead of seeing an energy policy that goes beyond 2020, what we have seen is dithering, delay, prevarication and what appears to be an out-and-out attack on renewables by the UK Government.
In his statement, the minister talked about maximising economic recovery. Can he tell us what expectations he has that we will see a UK policy on that subject any time soon? How is he going to help?
I hesitate to speak for the UK Government—I am not sure that I would be its anointed spokesperson—but it is abundantly clear to anyone who has studied Sir Ian Wood’s final report, which I have with me and parts of which I have reread in the past couple of days, that there is one fundamental truth that the UK Government has not acknowledged. That is that, if we are to achieve the objective of maximising economic recovery, the UK Government must step up to its role of using fiscal policy as a lever—nay, a precision tool—to get the maximum from the North Sea.
The UK Government must therefore make a commitment in the Energy Bill or the Infrastructure Bill, which are currently going through the UK Parliament, to do that. It has not done so yet, but I hope that, after this statement, it will begin to think very seriously. If it does not collaborate, why should it expect industry to collaborate? That is what it is asking.
We will pursue that argument vigorously with our MPs in Westminster and in Scotland so that we achieve the best for the industry and thereby secure tens of thousands of jobs in this country.
I give my apologies to the two members whom I simply could not call, as we need to move on to the next item of business.
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