My Lords, I will say a few words in support of the spirit, at any rate, of this amendment from the noble Baroness, Lady Worthington. I declare an interest as chairman of the Windsor Energy Group, adviser to various energy companies, as in the register, and president of the Energy Industries Council. As the noble Baroness has rightly said, this is a sensible requirement for the future because, as she has also said, the North Sea is a mature province and the industry is clearly undergoing huge change—probably the biggest period of change since the 1970s and early 1980s. Most of the talk in the industry at the moment is about the impact of the halving of the oil price. Even in this morning’s papers, we see some pronouncements by experts on the possibility of whole areas of the North Sea shutting down unless completely new arrangements and management structures can be devised to cope with the new situation.
Obviously, behind this lies the question of whether the price will stay down. My own view is that, barring high-impact events like huge new political upheavals beyond the ones we already have in the Middle East, there will be no obvious bounceback in the price for a very long time. People talk as though the OPEC countries had some choice of policy—they could just cut production and the price would go up. Well of course that would not happen. They have lost control of the price. Russia has no intention of co-operating, and the shale industry in America, although there have been a few bankruptcies, will come back again and increase production as soon as the price rises. So the OPEC countries would gain nothing. Iran of course may be coming on stream as well. All this means that the industry in the North Sea is now facing a period when, on the supply side, there will be a lot more oil. On the demand side, there will probably be rather flat demand, whether from China, from Japan—which is going back to nuclear so will not need so much—or, indeed, from the United States or us, where the demand for oil is flat or even falling.
This is a completely new management challenge. We must have some reassurance, at least in a year’s time but preferably from the start, that the new regulatory authority—the OGA, with its expanded powers into a separate agency, as is now proposed—has the facilities, opportunities and abilities to manage completely new requirements. We have to see a province that is going to adapt to low prices, that develops completely new opportunities and new technologies, not unrelated to the points made by the noble Baroness about the possible disposal of carbon dioxide through CCS techniques, and that learns from other countries. Norway in particular may have a lesson or two for us on how to maintain a mature province and develop new opportunities at sea.
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When I had some responsibility for these things in the 1980s, I was told that the oil in the North Sea was going to run out in 1989. That was the experts’ forecast, but it turned out to be spectacularly wrong. Today we
have seen a fantastic triumph of UK engineering over 20 or 30 years, a vast contribution to our revenue—I think it is estimated in today’s money at about £330 billion—and we have seen the ability of the industry to cut costs in the face of new challenges. It will have to cut costs dramatically in the immediate future if many areas are to stay in business. It will need major help with decommissioning, which would have arisen whether or not the oil price had fallen because a lot of the platforms and infrastructure in the North Sea are coming to the end of their life.
We will need to see much greater emphasis on and encouragement for rapid and extensive new drilling. We are not drilling nearly enough in the North Sea, and again the Norwegians could teach us a thing or two about this. The incentives for new drilling seem to be much too targeted and fussy, and perhaps should be more general and allow all kinds of new innovations in drilling and discovery to go on. Various figures are given but there are said to be between 12 billion and 24 billion barrels of oil still in the North Sea. This is big money, and that oil could still contribute a vast amount to both our revenues and our national production.
Against that background, we certainly need to see in a year’s time another very close review of how the new Oil and Gas Authority is getting on. I hope therefore that either the amendment or its spirit can be accepted and incorporated by Ministers.