SOUTHERN NORTH SEA CONFERENCE
17 May 2018
Good morning ladies and gentlemen. It is an honour to be asked to speak to you this morning. It’s great news that the weather has not thwarted us on this occasion.
At the outset I should emphasise that I don’t speak for the Government and whilst I am a Government-supporting MP my main focus is on the Waveney constituency.
In Lowestoft, the main town in Waveney, what happens in the Southern North Sea is extremely important. Essentially it is the bedrock of the local economy.
We have traded across it for centuries; with the Low Countries, the Baltic and beyond.
Fishing has been taking place out of East Anglian ports for nearly a thousand years.
More recently the oil and gas industry from the 1960s and offshore renewables in recent years have brought significant benefits and opportunities to the area.
We live in very interesting time.
The UK energy sector is going through a period of disruption on a scale that has not been seen since the emergence of the combustion engine or the advent of nuclear power.
The disruptors are renewables, energy storage, electric vehicles and digital systems.
This moment of change presents significant opportunities, which it is vital that we realise for the benefit of the East Anglian region and the people who live here.
2. Two industries in two very different places
I shall start by providing a brief overview on the current position with regard to the two key energy industries in the Southern North Sea; oil and gas and offshore wind.
Whilst the two industries are in many respects in very different places, their futures are inextricably linked and it is vital that they work together for the wider benefit of the area.
In the last four years the oil and gas industry has come under considerable pressure and many jobs have been lost. The industry has adapted and whilst challenges remain, it continues to be a vitally important component part of the UK’s economic base. It still supports hundreds of thousands of jobs and it delivers more than half of the nation’s oil and gas.
There are up to twenty billion barrels of oil and gas still to recover and the UK’s supply chain continues to be a world leader with unrivalled experience in maximising economic recovery from a mature basin.
The industry makes a consistent contribution of around £1 billion per annum in tax revenues and the wider tax contribution from across the supply chain is immense.
The Oil and Gas Authority’s Vision 2035 confirms that the extraction of oil and gas on the UKCS is not a sunset industry. It has a vital role to play in adding to the UK’s energy security, ensuring a smooth transition to a low carbon economy and creating highly skilled jobs which we can then take around the world.
In 2017 UK upstream deals exceeded £8 billion, and the UKCS’s production remained stable despite some start-up delays and unplanned outages.
Average unit operating costs have halved from around $30 per barrel equivalent in 2014 to $15 in 2017.
There were at least five exploration successes in 2017 with a combined discovery of 350 million barrels equivalent.
Around £5.5 billion of post-tax cash flow was generated on the UKCS, more than any year since 2011.
There is considerable potential to build on these successes, with at least 12 new developments, worth around £5 billion of capital investment expected to be sanctioned this year. Production is forecast to increase by 5%.
That said, considerable challenges must be addressed if this potential is to be realised.
Just 94 wells were opened up on the UKCS in 2017, the fewest since 1973.
Development drilling has fallen by around 45% in the past two years, with supply chain revenues falling by more than £10 billion from 2014 to 2016.
The fall in investment from 2014 to 2017 means that production decline is likely in the 2020s.
Sustaining energy efficiency gains is vital if the basin is to continue to attract investment.
Moreover it is important to improve exploration success and the commercial viability of existing discoveries.
Turning to offshore wind.
In the past few years offshore wind has very much “stepped up” to the plate as the industry has got on with the job of planning, developing and operating wind farms which are now meeting a significant amount of the UK’s energy needs, at prices which have halved in the last 2 – 3 years.
Subsidy free offshore wind is not very far off; a welcome prospect at a time when there is heightened focus on energy security.
Offshore wind generates 5% of UK electricity, enough to power over four million homes, and it is expected to generate 10% by 2020. By 2030 it has the potential to supply over a third of the UK’s power needs.
2017 was a milestone year for the industry. The results of the Contracts for Difference auction in September saw strike prices as low as £57.50 per megawatt hour for capacity delivered in 2023, nearly 50% lower than prices at the last auction in 2015.
Innovation is happening at a rapid pace.
Developers are expecting to install 15 megawatt turbines in the future, nearly double the capacity of the largest modules currently being installed at 8 megawatts.
Transmission cables using 66kv high voltage technology instead of 33kv are currently being installed, enabling increase in power transmission back to shore from these new large-scale wind turbines.
New types of foundation technology are being developed which will drive further cost reduction.
This innovation will both create more investment opportunities and will help drive costs lower still.
3. Government Framework
The role of Government is to provide a framework within which business can plan confidently, make investment decisions, provide good career opportunities for local people and make a proportionate and reasonable profit.
By and large the Government have done this for the offshore energy sector in recent years.
In oil and gas, the Oil and Gas Authority has been set up with the objective of maximising economic recovery and the fiscal regime has been adapted to meet the difficult challenges that the sector has faced in recent years.
With regard to renewables, successive governments should be commended for their work in establishing a framework in which low carbon technologies can flourish.
Clear policy and long term vision has won the UK a reputation as a world leader in deploying such technologies.
The Climate Change Act, which has its 10th birthday on 26 November just after Offshore Wind Week, underpins the UK’s reputation as one of the leading markets for clean technologies.
It provides a clear direction of travel, whilst allowing flexibility and innovation.
The way the UK generates electricity has been transformed and the Committee on Climate Change has helped to ensure that the UK’s overall direction of travel on climate change has remained focussed on the long-term target, separate from political fluctuations.
On this sound foundation, this Government has in the past three years started work on putting in place a policy framework in which government and business can work in partnership and investors can plan for the future.
There are three parts to this.
Firstly the Industrial Strategy itself outlines four grand challenges that the UK must face and sets out 15 key policies for doing this.
Among these challenges is maximising the advantage for UK industry from the global shift to clean growth.
A policy, which I highlight, and to which I will return later, is that of agreeing Local Industrial Strategies, which build on local strengths and deliver on economic opportunities.
Secondly the Government have introduced the Clean Growth Strategy which sets out policies for ensuring that the UK is a world leader in clean growth.
These include improving the route to market for renewable technologies such as offshore wind and promoting innovation so as to reduce costs still further.
Finally, it is intended that much of this work will be brought together in Sector Deals. These are partnerships between Government and industry on sector specific issues that have the objective of boosting productivity, employment, innovation and skills.
Such an approach has already proved to be a success in such sectors as cars and life sciences and it is in this context that sector deals are now being worked up in both the oil and gas and offshore wind sectors.
4. What we need to do to become a world leader
A lot of legwork and groundwork has been carried out and the foundations have been laid.
However my sense is that in East Anglia we now need to go that extra mile.
We are at a crossroads. We can turn in one direction and be a reasonably successful region ambling along or we can go in the other direction, striving purposefully towards the goal of being the world leader in offshore energy.
There is no choice … we must pursue this second course.
To achieve this goal I would suggest that we must meet five challenges.
Firstly we must have world class infrastructure.
The British talk about the weather, whilst East Anglians talk about infrastructure. This is because we either don’t have any or that which we do have is not very good and has suffered from years of under-investment.
That said, much good work has been done in recent years to address this deficit.
Funding has been obtained for third river crossings in Lowestoft and Yarmouth.
The A11 between Barton Mills and Thetford has been upgraded.
The Norwich Northern Distributor Road, so important for improving access to Norwich Airport, has been built.
Funding has been obtained for various improvements to the A47.
The Lowestoft Flood Defence Scheme is being planned.
And next year new trains will arrive on the region’s railways and we will no longer be the elephants’ graveyard for old trains from other regions.
These improvements are welcome, but we need to go further.
We need to fully dual the A47.
Further improvements are required to the region’s railways.
And we need to ensure that our digital highway is superfast, with no not-spots and future proofed to accommodate further technological innovation that will undoubtedly take place.
We need to work together; as MPs, councils, the LEP and business, to make the case to Government for this further investment, highlighting the enormous economic dividend that it will unlock.
We are competing with other regions and there is possibly a sense in Whitehall that East Anglia has done rather well in recent years and it is now the turn of these other regions.
We must dispel this myth and make the compelling case for more investment.
(ii) Education and Skills
Investing in East Anglian people to ensure that they have the necessary skills and expertise to take up the wide variety of exciting and challenging jobs in the offshore energy sector is vitally important.
Work is taking place so that this can happen.
Funding has been obtained for the new Energy and Innovation Centre at East Coast College in Lowestoft.
The East Coast Energy Internships funded by the Ogden Trust, the Royal Academy of Engineering and Suffolk County Council is snowballing, getting bigger and better each year, under the guidance of John Best.
We must drive this work forward, ensuring that businesses are fully involved so that their actual needs are provided for.
It is important that the region’s three universities are fully engaged.
If the best education, training and research is available and taking place here in East Anglia then this will be a magnet for inward investment and in turn our region’s businesses will be able to take their skills and their expertise around the world.
(iii) Supply Chain Building
The building of strong and resilient supply chains is vital for the future and from the feedback which I have received from those involved in both Sector Deals it is clear that this has been recognised.
The “them and us” approach which has divided operators and developers and their supply chain businesses must become a relic of the past. They must work together; sharing information, encouraging innovation and looking at new working practices.
The nation’s fabricators must be fully involved in this process. They have a key role to play in building up their own often very local supply chains, which help strengthen local economies in the region’s towns.
If they can have a steady stream of work they can move away from the “feast and famine” approach which has bedevilled them for several decades.
They will be able to invest in both their workforce, providing more apprenticeships, and also in their infrastructure and facilities in their yards.
There is much to be learnt from other sectors, such as car manufacturing and I understand that some exciting initiatives are in the pipeline.
(iv) Regional Strategy
As mentioned, the Government’s Industrial Strategy highlights the importance of Local Industrial Strategies which build on local strengths and deliver on local opportunities.
Whilst there will be separate Sector Deals for offshore wind and oil and gas, we must put in place our own Local Industrial Strategy for making the most of the opportunities in the Southern North Sea Energy Basin, which has its own unique offer.
With the necessary investment and right policies in place we can play a significant role in providing for the UK’s future energy needs, at a time when the security of supply is a particular concern.
The Southern North Sea has a unique offer.
Potential tight gas development.
Significant decommissioning opportunities.
8,726 megawatts of offshore windfarm developments off the East Anglian Coast; either operational, under construction or planned.
The enormous potential of the synergies between renewables and oil and gas which we must seek to unlock.
And the opportunities of cross-border working in the Dutch sector.
I shall make a few observations on decommissioning. It is estimated that there are 40 platforms in the Southern North Sea to be decommissioned by 2022. This is business worth several billion pounds, with significant job safeguarding and earnings potential for the East Anglian region.
There is a real and present danger that we will lose much of this work to other regions and countries where port infrastructure has received investment from government.
East Anglia does not have a level playing field to complete with our main competitors, whether in Scotland or the Netherlands.
What is needed is a Decommissioning Challenger Fund similar to that in Scotland to help establish a cluster of expertise as is happening in Dundee with the Tay City Deal.
Another opportunity in the Southern North Sea which has exciting potential is closer working between the oil and gas, the offshore wind and the offshore transmission sectors.
There is a need to integrate energy production activities, for example in oil and gas and electricity; sharing common infrastructure for distributing energy.
By doing this significant economic benefits will be achieved.
The co-location of gas powered electricity generation with gas production hubs would help maximise economic recovery from gas fields.
This better utilisation of common infrastructure will improve the economic value of the associated renewable and hydrocarbon production assets.
Two main issues are inhibiting more effective collaboration between the oil and gas, renewables and the transmission sectors.
Firstly the regulatory regimes are quite separate, some regulators are not used to working together and they have different objectives.
Secondly cross-sector collaboration is disincentivised as Government policy is highly sectorised.
To address these challenges we need a Local Industrial Strategy.
The offshore energy sector, the New Anglia LEP, the councils and local MPs need to come together to produce this Strategy, setting out a plan for realising the full potential of these opportunities, showing the full benefits that will be generated and detailing what is needed from government in terms of investment and match-funding.
This is work that we need to start straightaway.
Finally I come back to a theme, which I and other politicians, you might say through rose-tinted spectacles, have repeated in recent years; the need for collaboration.
Working together we can achieve so much more. This is readily apparent if you look at the most successful economies around the world.
I am talking about collaboration between business and Government.
Supply chain collaboration.
Collaboration between business, education and training.
Collaboration between different energy sectors; oil and gas, offshore wind, transmission and the rapidly emerging storage sector.
Collaboration with other industries – steel, transport and in particular fishing.
Fishing as an industry in the Southern North Sea, off the East Anglian coast, has had a very raw deal in the last 30 years. However exciting plans are emerging under the leadership of people like June Mummery and Paul Lines for REAF, the Renaissance of East Anglian Fishing. A compelling business case has been prepared and submitted to Government.
It is important that the two industries collaborate. They work in the same waters, they use the same ports and their supply chains overlap.
If they work together, manage the Southern North Sea in a prudent and responsible way there is an opportunity to transform coastal communities that have been dispossessed and ignored for too long.
With all industries working together, we can produce a blueprint for the responsible stewardship of our coastal waters, which can then be repeated around the world.
In summary the Southern North Sea is on the cusp of securing a rich dividend for our region and the people who live here. Let’s prepare that Local Industrial Strategy and make that compelling case to Government for investment.
They say that if you go to any oil and gas basin around the world you will hear Scottish, Geordie, Suffolk and Norfolk accents. I am not sure about the former two, but let’s drown them out and ensure that our voices are heard loud and proud around the globe for the next hundred years and beyond.
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