Stephen Timms MP

All Party Offshore Oil and Gas Group AGM

The UK is likely to become a net importer of gas by around 2006 and of oil by around 2010. That means we shall need to ensure continued security of supply through new diversity of sources and routes.

But we still need to maximise our own resources. North Sea capital expenditure was around £3.5 billion in 2002 and is likely to remain above £3 billion this year. But the province is entering maturity. Increasingly fields coming forward for development are small, geologically complex, remote and difficult to exploit.

I am the Chairman of PILOT so I have a role in the response to this, not least through our current consultation with industry, Treasury and Inland Revenue, which is gathering evidence on barriers to exploration, and exploring how to address them. I think we can see a threefold challenge to ensuring continued profitable activity on the UK Continental Shelf.

The first is maintaining investment. That means the right licences must be in the hands of the right players. We need a good mix of players. The major operators play a vital role in operating the larger fields and key infrastructure, so that smaller developments can come forward.

But we are also giving priority to attracting new investors. Many new companies, particularly from the USA and Canada, have recently started activity on the UKCS. This is reflected in the excellent response we had to the 21st Offshore Licensing Round.

This response also reflects our introduction of a new form of licence alongside the traditional form. The "promote" licence is designed to attract smaller niche players to the UKCS, by giving companies with new ideas an exclusive interest for two years in a full production licence, at 10% of the traditional cost. I hope to announce the licence awards later this month.

Through the PILOT fallow initiative we have also been pressing industry to release the licensed but unexploited fallow areas to those prepared to exploit them. A number of major companies have given up nearly 40% of licences they previously held. 3 batches of fallow areas have been released in the last 9 months, and further acreage will be released every quarter.

The second challenge is about working differently. PILOT's work on behavioural issues is being followed up in the consultation on barriers through a workgroup to identify all the commercial barriers to development. This will report to PILOT later this year.

The third challenge is about attracting new people into the industry. The workforce is ageing rapidly. This is not unique to the oil and gas industry, but the future competitiveness of the UKCS depends on recruiting and retaining young and able people.

Industry and Government are tackling this through COGENT, the Sector Skills Council for the industry, with the aim of:

• Securing an increase of up to 150 a year in the number of technician apprenticeship places.
  
• Attracting more graduates to the industry.
  
• Understand labour availability from other industries.

But it is obviously the case that we are going to have to look well beyond the UKCS to meet our future oil and gas needs. Our co-operation with Norway is important in enhancing our security of supply.

Obviously increased access to the UK gas market is a considerable prize for Norway. But our negotiations are not just about facilitating the delivery of Norwegian gas through a new line. We also want a balanced package, which creates value for UK and Norwegian industry. We see two main ways of achieving this - clarifying the potential for delivering future volumes of wet gas to the UK, and using UK infrastructure to land additional quantities of Norwegian dry gas.

The private companies who need to decide whether to press ahead with the Ormen Lange development need some regulatory clarity before taking those decisions, and we are working hard with the Norwegians to resolve those regulatory issues.

Russian gas can also play an important part in ensuring secure supply to the UK. This was underlined by the focus on energy during President Putin's State Visit, when he and the Prime Minister attended a UK-Russia Energy Conference jointly hosted by my Department and the Russian Ministry of Energy.

The conference was the forum for:

• An agreement on closer co-operation on energy at government level, with a view to increasing security; improving the climate for investment; preserving the environment; and tackling climate change;
• and also for a memorandum of co-operation which I signed with my Russian counterpart on a North European gas pipeline between Russia and the UK.

Both documents recognise the value of Russia to us as an energy partner and its growing importance in international fora.

I should like briefly to mention Iraq. We are beginning to see substantial political progress, with positive effects on commercial life. We want to see British companies involved in the redevelopment of Iraqi infrastructure. The oil and gas sector must be the base for Iraq's redevelopment and the UK has experience and talent in the sector and in the Middle East.

It is for the companies to decide on their involvement in this work. We have established an Industry Working Group on Iraq on which the oil and gas sector is represented. This group will advise Trade Partners UK on how best to help UK companies play a significant part in this work. In Iraq itself there are around 70 British officials working alongside the US in the Office of the Coalition Provisional Authority, whose objective is to ensure UK views are registered.

As I said, I am glad to have this early chance to meet this group of people interested in securing an active and prosperous future for the UK Continental Shelf, and to confirm that the Government shares this aim.