I. Achievements of the Oil Industry
I often feel the national vice of we British is to talk ourselves down, sell ourselves short, to fail to give ourselves credit for all that is going right. It is a pleasure, therefore, to speak to an industry which suffers none of these inhibitions. For the oil industry in Britain not only has marvellous achievements of which to boast, but is not afraid to tell the world of them. [end p1]
The history of the oil industry in Britain is a remarkable one. It is now just over twenty years since the first well was drilled offshore for Gas and only ten years since the first oil came ashore. Thus within twenty years, less than the time that I have been a Member of Parliament, Britain has achieved self-sufficiency in oil and has become the world's fifth largest producer. A fantastic tribute to private enterprise. [end p2]
I noticed that one of the major oil companies recently ran a full-page newspaper advertisement. The theme was that their huge North Sea venture had started from modest beginnings—above a bookshop in Aberdeen … . I, too, know something about starting above a shop! And I am pleased we both met with a measure of success.
Last year was a record in many ways: —Record production of oil. [end p3] —Gas reserves upgraded by 20 per cent. —More drilling than ever before. —And, of course, record receipts for my friend, Nigel Lawsonthe Chancellor of the Exchequer.
But I know you have faced difficulties, too. Your margins have been squeezed by surplus [end p4] refining capacity and the fierce battle for motorists' custom at the petrol pump. But what is impressive is that you have not come running to Government demanding subsidies from the taxpayer's purse, even though you have done a lot to fill it, but have got on with the task of closing or adapting capacity to current needs. [end p5]
[And, may I say a word of thanks to those who, quietly and without fuss, have responded to the electricity industry's need for additional oil over the past year. You have paid a vital part in helping to resist a determined but unprincipled challenge to democratic values and the rule of law.] [end p6]
II. Lessons for the British Economy
What lessons can the rest of the economy draw from our successes?
First, they illustrate that the scope for change is boundless. In the space of two decades, your enterprise in the North Sea has generated some 100,000 jobs where they could not have been imagined a generation ago. The security which so many people long for comes not from obstructing change but from [end p7] exploiting it; not from rejecting new ideas but from using them to advantage.
We have learned, Secondly, British enterprises will respond to opportunities if there are profits to be earned. In the North Sea, oil and gas have to be won in a Harsh and unpredictable climate. There is little I can do to help there. But industry has to cope with another climate—the business climate, where Government does have an important role. The Government recognises fully the importance of a stable and fair regime for taxation and licensing. [end p8] The right balance between the return to the nation and the profits retained by the companies is a difficult one to strike, but, with exploration drilling at record levels, development proposals being accelerated, and an enthusiastic response to the Ninth Licensing Round, the industry seems to be giving a favourable verdict and I am pleased that approval has been announced today for Shell and Esso's Tern field.
Thirdly, the successful development in the North Sea demonstrates that if profitable opportunities [end p9] are there, finance can and will be raised. As the corporate treasures among you will know only too well, the sums involved in new developments are immense but the banks and financial institutions in the private sector have met this challenge, providing the enormous sums needed and developing new methods of finance on the way.
Fourthly to be learned from your success British technology can take on and meet the toughest challenges. Eighteen months ago, I had the privilege to inaugurate the Magnus field—a remarkable feat of engineering. [end p10] Solutions are being found to the problems of recovering more oil and gas from increasingly complex reservoirs, in deeper and deeper waters, keeping Britain at the forefront of offshore technology.
And the last lesson British Industry can meet the requirements of the oil companies, and exacting requirements they are too. The growth of our offshore supplies industry over the past ten years has been outstanding, and in this I pay tribute to the work of the Offshore Supplies Office. It is a source of great satisfaction that in a highly competitive industry, nearly [end p11] three quarters of North Sea supplies are met from Britain.
In short, the history of our oil industry illustrates what can be achieved here when all the elements of a modern successful economy—technology, acceptance of change, enterprise, and finance—come together.
But there is another more general lesson to be learned from the history of the last twenty years—that market forces work and we must be ready to respond to them. [end p12]
One of my first assignments as an Opposition spokesman was to shadow first Ray Gunter and then Dick Marsh on energy. I remember clearly the battles we had on the 1967 White Paper on Fuel policy. Oil was expected to remain cheap and abundant, and to increase its share of total supply—hence the investment in oil-fired power stations made at that time.
There is no need to recount what has happened since then to the price of oil, nor to rub in just how wide of the mark those projections of the late 1960s proved to be.
Projecting the future proved just as difficult after the second oil price rise. [end p13] I well remember the 1980 Economic Summit in Tokyo when a lot of time was spent arguing about oil imports President Carter pledged that the United States would limit its imports to no more than 8.5 million barrels a day. Many doubted that his target could be achieved. But in fact the United States is importing less than half that, even though its GDP is nearly 10 per cent higher than in 1980. In the industrial world the amount of energy used per unit of output has fallen by 20 per cent in a little over a decade as expensive [end p14] oil led to economy in its use.
Yes, the laws of supply and demand have worked as we should have known they would, slowly at first, but inevitably.
And we have had yet again to learn the fallibility of forecasts. It was George Eliot who wrote that:
“Among all forms of mistake prophecy is the most gratuitous.”[end p15] Obviously plans have to be made but it is no use treating them as a blueprint, still less as written in tablets of stone. If circumstances change, plans must respond. And that goes for coal just as much as oil.
III. The Prospects
But however proudly one recounts the achievements of the oil industry in Britain, the professional pessimists, those who see a calamity in every opportunity, will say “How will we cope if North Sea oil reaches a peak this year and declines thereafter?” [end p16]
Well, the first phase of North Sea development may be nearing a peak but far from being in decline, oil and gas investment in the North Sea is entering a new lease of life.
As many as eighty new fields could be developed before the end of the century, which could mean drilling over a thousand new wells at a cost of £60 billion.
Everyone in this room will be doing their utmost to see that Britain is a major oil and gas [end p17] producer well into the next century. And that's an instruction!
It may be the very success of the oil industry in Britain that has produced a false impression of the extent to which Britain depends on North Sea oil. Those whose eyes are glued to the screens and ears to the telephones of the foreign exchange dealing rooms around the world seem to forget that even at present levels of production, North Sea oil and gas account for only 8½ per cent of Government revenues and about 5 per cent of GNP. [end p18]
But let's not forget also that Britain is not just an oil producer but is a major energy economy. Our energy balance sheet is one of immense strength. Our combined resources in oil, gas, coal and nuclear power are the envy of our industrial competitors.
Such are the energy resources at our command that, despite the coal strike, power has continued to be supplied to our homes and industries, even while output has increased. But equally let us never forget that the nation owes a debt of gratitude to the working miners whose courage and [end p19] sense of a responsibility have made this possible.
“What” those pessimists will say “Have we to show for the past ten years of North Sea Oil?”
Well, Britain has increased the value of its overseas assets, from £13 billion in 1979 to £70 billion in 1984. As a nation, we will enjoy a stream of income from these assets for years to come.
And we have brought into existence new industries and new companies who can not only continue [end p20] the development of our own resources but can travel abroad in pursuit of new opportunities.
There are the small and medium-sized oil companies who having established themselves in the North Sea can now do what Shell and BP have done for decades—earn profits for Britain around the world.
And our offshore supplies industry, now the second largest in the world after the United States, is wonderfully placed to take advantage of the enormous new opportunities abroad. [end p21]
The domestic economy
You will also want to hear from me how I see the prospects for the rest of the economy—the 95 per cent which isn't oil. The Government has built a stable financial framework and will stick to it. Public expenditure and borrowing will be kept in check.
We have brought inflation down, reversing the steady upward trend that had defeated all previous [end p22] Governments; and we will bring it down further, for even at its present level it is still too high.
We aim to reduce taxation, so that companies can make and keep profits. And we have improved the rewards for effort and initiative so that the best managers and entrepreneurs, who are essential for success, will stay in this country.
New technology in our manufacturing industry means that more output can be achieved with fewer people. [end p23] That's why we are doing everything we can to promote small businesses and the service sector.
Like many other countries in Europe, we suffer from high unemployment; but we cannot have the low levels of unemployment of the United States and Japan unless we also have their attitudes to enterprise, their attitudes to work and their attitudes to meeting the needs of the customer and their attitudes to success.
Transforming our attitudes to match theirs will take [end p24] time, but we are making progress. —output is at a record level; —productivity in manufacturing is 15 per cent above its previous peak; —companies are again making good profits; —investment is at a record level; —despite the miners' strike, the current account was in surplus for the fifth year in a row. [end p25] Beginning of section checked against BBC Radio News Report 0700 8 February 1985
The present low level of sterling cannot be explained either by the performance of the economy, or by doubts about the Governments commitment to sound finance. Sterling is backed by low inflation, a growing economy and substantial overseas assets, this a country to invest in for the future. End of section checked against BBC Radio News Report 0700 8 February 1985.
Peroration and Toast
May I remind you, Mr. President of the words of Hotspur: “By heaven methinks it were an easy leap, [end p26] To pluck bright honour from the pale-fac'd moon, Or dive into the bottom of the deep, Where fathom-line could never touch the ground. And pluck up drowned honour by the locks.”
It was our friends the Americans who went to the moon and returned with honour, but here in Britain, in the North Sea, the oil Industry has been to the bottom of the deep, and has won not only honour but oil. [end p27]
To all who work in this industry, from seabed to garage forecourt, I therefore pay tribute to your vision, skill and sheer physical courage which have contributed so much to Britain. But while I congratulate you on your past achievements, I relish still more what is yet to come.
Finally, Mr. President, Members of the Institute, fellow guests, may I ask you to rise to drink to the health of the Institute of Petroleum and the Petroleum Industry.