Hansard

I do not look at the figures in that way. I will deal with the tax issue in due course.

Since large-scale production commenced in the North Sea in the 1970s, more than 39 billion barrels of oil equivalent have been extracted from the UK continental shelf. This is not a story of decline; significant unharvested reserves remain. Estimates, by definition, vary. Oil & Gas UK estimates that up to 24 billion barrels have yet to be recovered, and forecasts from Professor Alex Kemp at the University of Aberdeen and others suggest that oil and gas production will continue well into the 2040s. By volume, just under 40 per cent of Scotland’s reserves remain in the ground. At current prices a potential £1.5 trillion in reserves are left. That is extraordinary potential—one and a half million million pounds of reserves are still to be returned to these shores. It is imperative, therefore, that we push to maximise recovery of our precious resource.

In the latest round of North Sea oil and gas licensing, the Department of Energy and Climate Change offered 167 new licences, covering 330 North Sea blocks, with a further 61 blocks under environmental assessment. This is an exciting period of new investment and new discoveries. There have been a number of recent investment announcements. On 24 October last year, Talisman announced investment of £1,600 million to prolong North Sea oil fields. Also in October, Shell announced the development of the Fram field, which is one of the biggest Scottish North Sea energy projects of the past decade and will pump 5 per cent of Britain’s gas needs at its peak production. In December last year, Dana Petroleum announced a £1 billion development for nine wells in the Harris and Barra fields 100 miles east of Shetland, and it aims to double its production to 100,000 barrels a day by 2016. Just before the Christmas period, Statoil announced a £4.3 billion investment in the North Sea, which will create 700 new jobs—and the Mariner field is expected to produce for 30 years.

Investment on that level is unparalleled in our economy. There is a vibrancy to the sector that we must celebrate and encourage in these challenging economic conditions. That is why I have spent the past 20 months as minister visiting all those companies and many others.

I want to dispel the myth that the oil and gas sector is just an offshore industry. Each of those companies supports a long supply chain offshore and onshore, providing Scottish jobs and commercialising Scottish technological advances. Our offshore industry is the basis for a vibrant economy onshore, and Aberdeen is now established as one of the world’s most important energy hubs. It has an enviable reputation throughout the world in the engineering disciplines for its innovation and subsea skills.

Aberdeen is truly an international centre of excellence, but the energy industry stretches far beyond the north-east. There have been new developments—for example, from FMC Technologies, which has located in Bellshill and Dunfermline; Glacier Energy Services, whose new office I opened last year in the Clyde Gateway; Oceaneering in Rosyth; and the Global Energy Group in Nigg, which has expanded its existing 800 personnel with an announcement before Christmas that it is creating 400 more jobs. The sector is truly a pan-Scotland industry.

In our oil and gas strategy, the Scottish Government seeks to support the industry in all the ways that we can. Our strategy has been developed with—in fact, almost devised by—industry, and sets out a compelling long-term vision for the sector’s future.

The most important element of the strategy is its focus on innovation to improve recovery rates. Scotland’s historical recovery rate is only 40 per cent on average, while 60 per cent of our precious resource remains in the ground. By contrast, the recovery rate in the Norwegian territory is 48 per cent. Our oil and gas strategy sets an ambition to improve average recovery rates to 50 per cent, so that we take out more than we leave behind.

To put that into perspective, an increase of just one percentage point in our recovery rates would result in a rise in economic output of £89,000 million, and a rise in taxation revenue of £22,000 million. An increase in recovery of one percentage point over the lifetime of fields equals £22,000 million more in taxation, which is money that we would all wish to be used for such things as vital public services.

There are six key themes in the strategy: the domestic supply chain; the international supply chain; innovation; skills; new opportunities; and industry promotion and place. The strategy focuses on technology and innovation within the industry, as well as developing the supply chain internationally.

The focus is now on delivering the strategy with industry, Government, academia and the economic development agencies. Scottish Enterprise has identified £10 million from its existing budget to support industry innovation with a series of calls over three years. The first call was aimed at innovative projects that can improve the integrity and reliability of oil and gas industry assets, and I expect the first awards to be made within the next few months.

Future research and development calls will take place in the spring and autumn of 2013 for proposals to address subsea challenges and improve reservoir imaging. I anticipate a further two calls in 2014, and more beyond if the outputs continue to merit that approach. Scottish Enterprise is working with industry to leverage in additional support and expertise from industry so that we can make the value of those awards even greater.

Here in Scotland and worldwide, hydrocarbons will remain a central element of the energy mix for some time to come. Our draft electricity generation policy statement gives our clear view on the need for both rapid expansion of renewable electricity throughout Scotland and the underlying requirement for new efficient thermal capacity. Carbon capture and storage is the only technology that is capable of cutting fossil fuel emissions by up to 90 per cent.