Speech: Matthew Hancock energy speech to the NOF Conference

By HM Government

It’s a pleasure to be here in Newcastle today, and to be addressing you on the crucial subject of energy.

From car fuel, to electricity, to spin-off products like plastic, your industry is what makes modern civilisation possible.

As Energy Minister my priorities are to maintain our energy security while meeting our international carbon obligations at the minimum reasonable cost to bill-payers.

Investing in our domestic resources is a key part of this. More domestic energy production can reduce our reliance on imports and provide a significant boost to our economy as we move to a prosperous low carbon future.

Home-grown energy is something the North East knows a lot about. As a centre of British coal-mining for hundreds of years, this region provided the raw materials of industrial revolution. Later, those heavy engineering skills evolved to play a major role in the development of North Sea oil and gas.

Today the North East has significant expertise across the whole spectrum of offshore engineering and manufacturing, supporting thousands of skilled jobs across the region.

You’ve got a great track record in engineering and building complex structures for the North Sea. Past successes include the Bonga FPSO and UKCS platforms such as Shearwater and Forties Alpha.

Offshore fabrication capability is now returning to this region, supporting 2000 local jobs right here on the Tyne.

Only last month we saw the naming of the Enquest Producer FPSO, after it had been fitted out on the Tyne.

Today the North East is the only part of the UK exporting more goods than it imports, a trade powered by this region’s resurgent manufacturing strengths.

I want to pay tribute to the work of NOF Energy in helping to drive the growth of the energy sector and develop the regional supply chain and international opportunities.

Your impressive membership of nearly 500 is a real testament to your vision of building on our strength in oil and gas while embracing the opportunity of nuclear and renewables.

Perhaps more than any other part of our economy, energy requires a partnership approach between industry and government.

You work with long time horizons, make huge upfront financial commitments, and are highly exposed to the vagaries of global markets.

As we’re in Newcastle, I’m reminded of the story of Timothy Dexter, a Massachusetts entrepreneur who lived in the 18th century.

One day, for a joke, some local businessman convinced Dexter that there was a huge demand for coal in Newcastle. He set sail for England with a large shipment of coal and his rivals were certain that he would make a loss.

Yet by the time Dexter arrived, an ongoing miners’ strike meant he was able to offload his shipment at the considerable profit of a barrel and a half’s worth of silver.

Two hundred years later markets are no less unpredictable.

So what you need from us is certainty, stability and a clear direction of travel.

In other words, a long-term economic plan.

Today I want to talk about three parts of that plan: oil and gas, low carbon energy, and broader energy supply chain.

Let me take oil and gas first.

This year we’ll be celebrating the 50th anniversary of one of the UK’s greatest industrial success stories, 50 years since BP discovered natural gas when it drilled the West Sole prospect in the Southern North Sea.

Since then 42 billion barrels of oil have been recovered so far, and with another 20 billion or more to still be drawn from our mature basin it’s clear that oil and gas will form an integral part of the UK energy mix for decades to come.

We are committed to helping investors deliver on this. The North Sea may be maturing, but it still has many advantages and remains an enormously attractive place to invest.

But there are real challenges. The falling oil price has already led to job losses and this is a worrying time for those who care about the industry.
As a Government, we’re determined to do everything that we can to help, and will work in partnership with stakeholders to provide all the support we can for those affected by losses.

Already good progress is being made in the establishment of the OGA under the leadership of Anudy Samuel. We are setting out the governance and the details of OGA’s operation. And today I can announce that Sir Patrick Brown has been appointed as the Chair.

He will have a big task. As the OGA’s own Call to Action report which was published on 25th February identified, there are two key risks requiring urgent focus:

‘The risk that the profitability of producing fields will be insufficient to attract continued investment, leading to premature decommissioning of assets and the risk that confidence in the future potential of the UKCS will continue to decline, resulting in the critical long-term investment not being committed.’

These are stark warnings, and it is vital that Government, Industry and the OGA work together to deliver.

We’ve already introduced a range of fiscal measures to stimulate further investment in the UKCS. These measures have been successful, with almost half of the record £14bn investment in 2013 incentivised by field allowances.

And we all look forward to the Budget next week.

But industry can’t just wait for fiscal changes. This is a partnership, and we need industry to step up and address rising operating costs and reverse recent declines in operating efficiency.

I pay tribute to the workforce, who brave a difficult environment on our behalf every time they go out to work. But I also call on everyone who has a stake, to work together.

Despite the challenges, it’s important to recognise that the majority of investors make long term assessments, taking into account potential fluctuations in prices.

We have recently seen BP start production from the Kinnoull field in the central North Sea and Total announced in January the startup of West Franklin phase 2. We’ve also seen recent announcements on contract awards from Chevron for its Captain EOR project and Statoil for the provision of subsea services for their Mariner project.

And of course, the silver lining to a falling oil price is lower fuel bills for consumers.

I recently wrote to the major suppliers, asking them why they had not passed on lower prices to consumers, and I’m delighted that all have responded with price cuts.

Oil and gas are an integral part of the UK energy mix, but to meet obligations on carbon reduction we need to develop more low carbon sources of energy too.

That’s the second point.

We’re supporting significant levels of offshore wind deployment now to enable industry to drive down costs, invest and innovate so that offshore wind is well positioned to expand in the 2020s and beyond.

The Offshore Wind Industrial Strategy and the recently published Supply Chain Review by Matthew Chinn, sets out how the industry & Government will work to deliver economic growth, including actions to build a thriving UK supply chain.

Nuclear too can help us tackle carbon at a reasonable cost, as well as being essential for energy security now.

We’ve prepared the ground for new nuclear power stations with a package of reforms that remove barriers to investment and give developers the confidence to take forward projects, and we’re already seeing the results at Hinkley and Moorside. Between them, these two sites will generate 3,500 permanent jobs and power 24 million homes.

Another interesting technology is Underground Coal Gasification which has potential to unlock untapped resources beneath the waters surrounding the UK.

Given that offshore UCG is a relatively new technology, the relevant environmental regulators are exploring the regulatory regime and permitting. DECC will consider the issue too to build up an evidence base.

So you can be certain that we will continue to stand behind oil and gas, certain that we backing are low carbon forms of power, and you can be certain too that we will promote the UK supply chain to deliver on this agenda.

Helping us with this is a Cross Party Industry Promotion Group, chaired by Charles Hendry MP.

I want to pay tribute to his work with you on identifying the capabilities and resources of the supply chain. An update on the fabricators guide has just been published and is a great example of Government and Industry working together for the good of the energy sector.

We are also looking at more ambitious ways to get a share of the larger projects, many of which previously have gone to Asia.

There’s still a lot of work to do, but we have to get this right and I know that your industry will rise to the challenge.

The North Sea may be mature but it’s not yet in its twilight years. I think of it as the Colin Firth of offshore oil and gas.

By working collaboratively under the guidance of the Oil and Gas Authority there are still many barrels to recover from the basin which will sustain this great industry for years to come. I fully expect companies from the North East of England to be at the forefront of this future prosperity.

As many of you know the UK offer is also important and the international opportunity for UK companies is huge, a recent forecast by UKTI identified over 5 trillion US$ in foreign investment opportunities to 2020.

I also know that British firms, here and across the UK, are at the cutting edge of research into the low carbon energy sources which will power our country’s future.

We are richly endowed with natural resources: our lengthy coastline, offshore oil and gas, and deep underground an untapped layer of shale. But a richer blessing still is the ingenuity we’ve acquired over many centuries of energy production on this island.

So let us now harness both these forces and work together to ensure the coming generation can enjoy energy that in both senses, doesn’t cost the earth.

Source:: Speech: Matthew Hancock energy speech to the NOF Conference