Oil and Gas Sector Co-Investment
Speech in the Scottish Parliament debate
23 February 2017
Motion : That the Parliament understands that the number of jobs lost as a result of the downturn in the UK oil and gas sector could be over 120,000 by the end of 2016; considers that the sector is of vital economic interest and cannot be left exclusively to market forces; further considers that the sector needs to have confidence that it can invest for the future; supports the use of Scottish and UK Government borrowing powers to leverage money into the sector, including active consideration of strategic public stakes in infrastructure investment, and notes calls on the Scottish Government to facilitate and take part in discussions with the UK Government, industry and trade unions to create a plan for co-investment that will support jobs, including in the north east, increase confidence and create returns to the public sector.
The last two years have been tough for North Sea workers.
Thousands of people have lost their jobs—perhaps as many as 120,000 across the UK. Many more have lived with the fear of unemployment, or the prospect of a longer working week or less take-home pay.
Jobs have been lost in the supply chain and in manufacturing right across Scotland, and in the service economy in and around Aberdeen.
Some people say that the worst is behind us and that confidence is recovering, but as major contracts come to an end this year, more jobs will be put at risk.
The figures that have been produced by Oil & Gas UK are stark: capital investment is down nearly 40 per cent in two years, exploration and appraisal drilling is at an all-time low, and new oil and gas that was found in 2015 is equivalent to only a quarter of annual production. Less investment this year means less production next year. Oil & Gas UK therefore concluded that new investment is vital in order to sustain long-term activity.
It is right about that.
The question is this: what can be done to achieve that new investment, and what else needs to happen?
Trade unions are a vital source of support for working people in tough times.
I am delighted that offshore members of Unite are here today, with Scottish secretary Pat Rafferty, and regional organiser Tommy Campbell.
I know from experience that many more will be tuned in to the debate on BBC Scotland’s “Holyrood Live”.
Oil and gas industry unions have had their work cut out in the past two years.
Their activism and vigilance will be just as important in the period ahead.
The industry itself has accepted the need for change.
High costs in the North Sea before 2015 were not down simply to the maturity of an oil province, far less to the cost of labour; they were down to a culture of competition for its own sake.
Too many companies spent too much time and money doing the same things as each other in lots of different ways, while strategic thinking about the big picture was put off until another day.
That day arrived with the price crash two years ago, and there has been some new thinking going on since then.
The industry has bought in to maximising economic recovery, and to cutting the costs of inefficiency and duplication to make that happen.
That must not put the whole burden on the shoulders of the workforce, nor should cost-cutting ever be at the expense of training, maintenance or safety.
A petrochemical production plant in a hostile offshore environment is no place for compromise in any of those areas.
I want to take the opportunity to pay tribute to the late David Doig, who was chief executive of the Offshore Petroleum Industry Training Organisation, whose achievements will be commemorated tomorrow in Aberdeen.
The Press and Journal reported his untimely death last month, saying:
“His vision helped make the North Sea workforce one of the most skilled and professional in the world. David Doig worked tirelessly for the oil and gas industry to build a modern apprenticeship scheme that will stand the test of time.”
OPITO raised concerns this week that the way that the Scottish Government plans to use the funds raised in Scotland from the new apprenticeship levy will take money out of training in oil and gas.
The best tribute ministers could pay to David Doig’s legacy would be to ensure that that does not happen.
Government, of course, has a number of responsibilities in the field, alongside industry and trade unions, and that is at the heart of today’s debate.
Over the past two years, I have called many times for action from the Scottish and United Kingdom Governments.
The Scottish Government and its agencies have offered help to some of those who have lost their jobs, which is welcome, and the UK Government has acknowledged that tougher times require a different tax regime, which is welcome, too. They have also acted on the recommendations of the Wood review to establish a new and powerful regulator in the Oil and Gas Authority, but there is more that the two Governments can do.
The OGA has got off to a strong start.
It is actively encouraging a more collaborative culture and is promoting transfer of assets to companies that are willing to invest.
It has spent £40 million of public money in shooting new seismic surveys and it has made the data available to any company that is willing to use it.
The two Governments should now work together to build on that model and use their access to capital to invest in critical infrastructure, just as the OGA has invested in vital new data.
Critical infrastructure offshore means networks of platforms and subsea facilities that are connected by pipelines and flowlines.
The biggest risk to future economic activity is a key piece of infrastructure being shut down because it no longer makes money, and its closure having a knock-on effect.
Premature decommissioning of infrastructure can block oil and gas production upstream, so that one early closure leads to another.
Rational planning to avoid that is part of the remit of the OGA, which has promised to produce an overall decommissioning strategy, a decommissioning plan and ten-year road maps, including more detailed area plans.
Those can all help to sustain critical infrastructure by planning ahead, so I hope that we will see it all soon.
Tavish Scott (Shetland Islands) (LD): I am very grateful to Lewis Macdonald for that point and for the tenor of his remarks this afternoon. In the context of forward planning, does he welcome the EnQuest takeover—for want of a better expression—of the Sullom Voe facilities, because it is a company that will, we hope, extract more with BP now seeking to develop west of Shetland, rather than in the east Shetland basin?
Tavish Scott is quite right.
It is about the onshore infrastructure in Shetland and the offshore infrastructure in the North Sea itself.
When that gets into the hands of companies that are prepared to invest, the problem is addressed.
However, that is not yet happening across the board, which is what I am keen to pursue today.
Co-investment by public and private sector partners can make a difference in those circumstances.
PWC recently published “A Sea Change—the future of North Sea Oil and Gas”, which is a report on the future sustainability of the North Sea that drew on interviews with 30 senior industry executives.
Those industry leaders called for Government to address the ownership of critical infrastructure, which could be run and maintained on a nationalised basis.
They said that the end goal should be a national grid of North Sea pipelines and hubs and they proposed that a national shared pool of critical equipment could be managed by a further Government-backed entity, “UK Offshore Equipment plc”.
The state must act where markets fail to deliver, but that does not mean giving public money away.
Public sector operators of infrastructure or equipment can charge competitive prices and make a return, but they can also act in the public interest to maintain production and to spread risk.
The north-east economy and the oil and gas workforce have shown tremendous resilience in getting through the past two years.
Now is the time to offer fresh hope for the future, which is what I call for today.