Chris Highlights The Huge Energy & Work Potential From The North Sea
Q142 Sir Christopher Chope: Our job as a Committee is to hold the Government to account. We cannot do anything about the Administration in Holyrood; that is for Scottish MSPs to do. However, it seems from the picture you are painting that a lot of the problems are caused by the Government. I just want to drill down into that, to an extent.
In Norway, which shares the North Sea basin, it seems that they are exploiting their oil and gas reserves so that they are more self-sufficient than we are. You say that the Climate Change Committee concedes that we need 15 billion barrels of oil and gas by 2050. If we really exploited what is available in the North Sea basin, and perhaps west of Shetland, could we not increase our domestic supplies significantly and thereby provide more secure jobs for people already employed or wanting to be employed in the oil and gas industry?
Russell Borthwick: Yes. I think we have talked through some of this kind of policy-not-geology thing. It is reckoned by experts—and I am not one, but the geologist Professor John Underhill, who was with us this morning, is—that the North Sea could reasonably yield 9 billion barrels of oil and gas, mainly gas. We also talked about how our dependence on oil will start to decrease significantly in the mid-2030s. Our dependence on gas does not. It largely stays out to 2050. So that is where the requirement comes and although our overall energy use is declining and the impact of electricity, much of it powered by renewables, increases, it is only an increasing part of the mix.
I will very quickly tell you an anecdote about Norway. I was invited to Stavanger earlier this year. They asked me to speak at a conference. The subject they gave me to speak to was: how do we avoid ending up like Aberdeen? Terje Aasland, the Norwegian Energy Minister, was there. I spent some time with him.
It turned out that there were a few cracks appearing in the long-term cross-party consensus that has driven Norway’s energy policy following last year’s election. They were quite keen to point out that any breaking of that coalition might lead to some of the challenges that we are discussing today in Aberdeen and the wider UK. I did not realise I was being used as a patsy for that, but when I left the room it was quite clear that that is what they had in mind all along.
The answer is, yes, we could, and by doing so we can retain jobs and drive huge economic value—£165 billion of GVA is the difference between the 4 billion barrels that is the current trajectory to come out of the North Sea and the 8 billion or 9 billion potential. If that is cleaner than importing the equivalent, the question we ask again is why do we not choose to do that for energy security, for job security, for tax take? For all those reasons, that is a choice that this Government can make.
Q143 Sir Christopher Chope: Can I pursue you on the tax issue? One of the problems seems to be that in Norway there are more fiscal incentives to explore and exploit their natural gas and oil resources, whereas here our fiscal regime seems to be designed to disincentivise investment. Would you agree with that?
Russell Borthwick: Yes. I think that Professor Paul de Leeuw may be equally or better placed to talk about this, but there are some voices that will say that the headline tax rate in Norway is 78%, the same as it is in the UK. That is where the comparison ends because the incentives that are in place there for activity make it a workable long-term system in Norway, and the long term is probably also part of that. There have been so many changes in the UK that investors are not clear what is going to come next.
To be clear for those who do not know, the 78% is effectively made up of the 40% standard tax rate for oil and gas operators in the UK, which is still 15 points higher than any other sector pays corporation tax at. This is a levy of 38 points above that. However, the new oil and gas price mechanism that was brought forward at the last Budget by the Treasury accepts that the current premise is incorrect and that this is the new way forward.
The question we cannot understand is: why not put that in place now? At times of high prices, additional taxes will be paid. At times of normalised prices it will give the industry the opportunity to undertake the activity that you are asking me about and provide that additional energy security, job security and tax take. The Government then have a choice of how to deploy that additional tax.
One more point is that the OBR has said that this year the tax take from the North Sea will be somewhere between £4 billion and £6 billion. In 2030-31, the OBR says it will be £0.1 billion—£100 million—which is hardly worth a rounding in the national statistics. That is the current trajectory, and it does not need to be that way.
Richard Hardy: As a union, we do not necessarily have a policy position developed on oil and gas taxation. Comparing the UK with how Norway has approached oil and gas seems a bit odd. Norway has a $1 trillion sovereign wealth fund by doing things differently from the UK. Would I support us doing things more like Norway? Yes, but I think it is a bit late.
Russell Borthwick: We cannot turn the clock back on that, but the opportunity is there going forward.
Q144 Sir Christopher Chope: Obviously we have a national Government, and I am asking about what the national Government policy should be. Although we have come up here to discuss the plight of businesses in Aberdeen and the people working for them, this is a UK national issue. I know from the chart you were showing this morning, even with my constituents in the south of England, there are quite a lot of people who are actively employed in North Sea and in the Aberdeen economy.
What do you think can be done to try to alert the UK Government to the strength of feeling that there is in this area on this issue? It seems that the people of Aberdeen—and, most recently, specifically the people of Aberdeen South—understand these issues much better than quite a lot of other people across the United Kingdom.
Donna Hutchison: When we put in our written submission, we asked the Committee to recommend that the Government recognise real-time financial indicators as well as official warning metrics. There are no shortages of them in the third sector, I can assure you. We have to recognise that benefit claimant data is a crude metric. Not everybody who is affected will claim. There is also a lag. I think there are metrics and indicators available out there, and if there had been engagement with the third sector, I have a dozen case studies that I could provide but I really do not want to depress the room. There is that data out there.
It is about that place-based, person-centred, trauma-informed piece, and the metrics that go around that to provide that information so that we do not end up repeating what we have seen elsewhere in coalfields and things like that. We can absolutely mirror things such as the “State of the Scottish Coalfields” report on things like health expectancy. The population needs assessment that exists for Aberdeen gives a pretty stark trajectory for the next 10 years, and all that information is available publicly through the local authority.
Russell Borthwick: If we could not convince the people of Aberdeen South of the strength of our argument, we probably do not have a very strong argument. These are people affected every day running businesses, working for those businesses. Did that make any waves nationally? It was on the same day as a certain other by-election that might have taken more of the headlines.
It is about appearing before Committees such as this, continuing to hopefully make a reasoned case, backed up by evidence, for the Government saying, “You have choice A. You have choice B. This is something within your gift. There are economic and social opportunities that you can drive here linked to industrial strategy”. We need to keep telling that story as convincingly as we can, because there really is jeopardy but there also does not need to be and there is opportunity.
Q145 Sir Christopher Chope: It is about getting the message across that the age of oil and gas is not over. We still need oil and gas. We need to support oil and gas resources being exploited, and not just talk about clean energy.
Russell Borthwick: We do. The Climate Change Committee and politicians say that we will need oil and gas for many decades to come, so the choice we have is where that comes from and I think we have laid out a pretty strong case. As much of it as possible for economic, social and job reasons and for environmental issues should come from our own waters.
Q146 Sir Christopher Chope: Will you be inviting Mr Burnham to come to Aberdeen to discuss these issues with you?
Russell Borthwick: Yes. I don’t know if we can call him the incoming Prime Minister—I don’t know if we are allowed to do that—but we were happy that Aberdeen received a mention when he spoke in Manchester earlier in the week. He did bracket us with Scunthorpe and Port Talbot, which we were not quite so sure about because I think the economy here is still relatively strong, or could be strong.
This does not need to become a post-industrial region. We still have it within our power to not let that happen. This is different from some of the examples that we have talked about, the north-east of England or some of our coalmining communities. This is a choice that we have in our gift to make right now. We will invite Mr Burnham to come up to talk about what he meant when he mentioned us on Monday. Certainly his predecessor has not made it since he has been in No. 10. That invitation will be extended, possibly around 17 July.
Q147 Sir Christopher Chope: When do you expect decisions to be made on the Jackdaw field, for example?
Russell Borthwick: I cannot answer when I expect them to be made. One of the things the Government did say when they came into power is that they would not interfere with previously awarded licences. Both Jackdaw and Rosebank meet that. There have been some legal complications, but it still comes back to the scope 3 emissions point. The operator, Adura, has made a pretty strong economic, climate-based case for why that is good. The gas that is produced by those sites can be 10% of the UK’s total gas requirement, giving us much increased energy security. That will be eight times cleaner, with eight times lower carbon footprint, than imported LNG from Qatar or the States. I do not know why we would choose to not take that option.
Q148 Graeme Downie: Is there a way we can include the case studies that Donna Hutchison talked about in the written evidence? That would be helpful to make sure we are keeping the discussion on the communities and the individuals, if that is something that can be anonymised sufficiently.
Donna Hutchison: We can anonymise it. That is not a problem.
Chair: I want to go back to one or two of Russell’s answers to Christopher Chope, who was an Energy Minister when the decision was taken not to go ahead with a sovereign wealth fund.
Sir Christopher Chope: I was never an Energy Minister.
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Later in the same evidence session...
Q174 Sir Christopher Chope: Dr Grant, how many courses in oil and gas are currently being run in your college?
Dr Grant: We do not label things for oil and gas. I think that is quite important.
Sir Christopher Chope: You do not label them?
Dr Grant: We do not label them, and they are not specifically run for oil and gas. We have done in the past, and for many years we ran the oil and gas training programme for OPITO, which was specifically for oil and gas offshore technicians, but that has now evolved into a more general energy-based programme. You will not look at our website and see lots of things labelled for oil and gas. We are very much delivering courses for energy, but we are also delivering transferable skills so that people can go to work in the industry of their choice. There is very little that is specific to oil and gas.
Q175 Sir Christopher Chope: The reason I ask is because Neil Cowie, the principal of your college, told the Scottish Affairs Committee that he is concerned that the courses aimed at oil and gas were not being taken up with such enthusiasm by students, so implying that there were courses aimed at oil and gas. Do no such courses exist?
Dr Grant: As I said before, we used to be inundated with people wanting to do a mechanical or electrical engineering programme. They were never labelled for oil and gas specifically. The only thing that we delivered specifically for oil and gas was the old TAP training programme. That, like I say, is not labelled as such anymore. What we are doing is very much delivering on that wider energy.
Q176 Sir Christopher Chope: Okay, he said that the way we are currently treating the North Sea and those operating in it is a cause for concern. Is it not a cause for concern for you?
Dr Grant: Yes, it is. I suppose part of our job as a social anchor is to provide opportunity for young people. I suppose it is going back to that basic thing: if there are no jobs for young people in the region, what are we training them for? Whether we call it an energy technician course or an oil and gas technician course, is not as important as the fact that there is or is not a job for them at the end of it.
Q177 Sir Christopher Chope: Can I ask the professor about this university?
Professor de Leeuw: Today is a quiet day because we had graduations, but we have students from over 30 different nations. It is normally like a mini-United Nations in this building. We all are at different stages of our energy journey, so we have people who are just starting their oil and gas journey, and we have people who are finishing their oil and gas journey, so we have courses across the whole energy spectrum. With undergraduate it is mainly generic, but in postgraduate and short courses we have a combination of new energy as well as traditional oil and gas courses.
Q178 Sir Christopher Chope: These are transferable skills that can be used in Aberdeen or elsewhere in the UK or overseas?
Professor de Leeuw: Yes, absolutely. What we recognised is there is a duality of purpose here. There are a lot of countries that have started or are in the middle of their oil and gas journey, decarbonising and are getting the latest technology, the latest insight, the latest capability. It is hugely important to help other people on their decarbonisation journey. We are at the heart of the offshore energy industry, and we have been providing that knowledge for decades and still do.
Q179 Sir Christopher Chope: What proportion of your students would be from Scotland or the UK compared with from overseas?
Professor de Leeuw: You have put me on the spot. I cannot answer that now, but I will follow up if that is okay.
Q180 Sir Christopher Chope: Roughly? Are we talking half and half?
Professor de Leeuw: No, it is far more domestic. It is probably 70% or 80% coming from the UK, and the remainder is overseas.
Q181 Sir Christopher Chope: When you are discussing educational establishments, do you think there will come a time when oil and gas is no longer a feature in the curriculum?
Professor de Leeuw: The tricky bit is if you look at the hard data, currently 75% or 80% of the world’s primary energy comes from oil and gas. That is a historic element, and you cannot change it. If you look at the UK, 70% or 75% of primary energy comes from oil and gas at the moment. It is a fundamental part of the energy mix, so providing the core skills is important, but because of the transferability I talked about earlier, what you learn here can be very easily transferred to other areas. This is about good industry practice, and that is what we see happening. It is part of the curriculum, but like anything else, we follow what the demands of students and employers are going to be in the future.
Q182 Sir Christopher Chope: Do you think there is an issue about the teaching at schools not inculcating in pupils the importance, or the continuing importance and relevance, of the oil and gas industry as a potential career path?
Professor de Leeuw: The focus is that we all need energy. Energy has lifted billions of people out of poverty. We realise energy is part of the core mix. If you think about which economies do well around the world, it is the economies that have access to abundant cheap energy. What we see when school kids come here for open days is that they absolutely get that energy is part of the story. It is one of the most exciting things you can do. It is one of the most investment-intensive areas in the world now.
I think people get the energy story. What we need to ensure is that the narrative is very clear that it is a very exciting future. Some of the things we do here is the equivalent of taking people to Mars. Some of the excitement we have around energy we just need to get out and make it far more infectious to people, so that they think that is the career they want to be in.
Q183 Sir Christopher Chope: They are well-paid jobs as well.
Professor de Leeuw: As I said, offshore energy jobs are, by our analysis, paid twice what the average jobs are in this area, and they are more or less related. Yes, they are highly paid jobs, very attractive careers, in demand all over the world, and it is a fantastic career opportunity as well.
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