Ireland’s Atlantic Oil & Gas

Minister Rabbitte responds to an earlier piece by Fintan O’Toole in today’s Irish Times.

It may well be that there are large amounts of oil and gas off Ireland’s west coast. It may well be that, after rapid advances in exploration and exploitation technology, these fields can be developed commercially. That would boost the Irish economy in 15 years time or so.

None of that is certain. It is clear, however, that oil and gas exploration companies have renewed their interest in the Irish part of the Atlantic. The assessment of the 1970s showed that the Irish resources are hard to develop. 20 years of low oil prices and, more recently, the Corrib controversy did not help. But with the current high oil price, the success off Brazil and the promise off Angola, the Irish Atlantic is back into the picture.

This is good news. However, Mr O’Toole and Mary Lou McDonald TD seem to want to kill the goose before it has laid its first egg, perhaps golden. I agree with the Minister. No oil or gas has been struck and this is not the right time to spook companies with talk of high taxes and nationalization.

48 replies on “Ireland’s Atlantic Oil & Gas”

“This is good news. However, Mr O’Toole and Mary Lou McDonald TD seem to want to kill the goose before it has laid its first egg, perhaps golden. I agree with the Minister. No oil or gas has been struck and this is not the right time to spook companies with talk of high taxes and nationalization”

Does it really matter whether you kill the goose or give it away for free? Either way, you’ve got nothing for your goose and you’re left without even a few eggs
And Nationalisation; – its not a swear word remember? – given that the state already owns these resources, they are nationalised by default. (FO’Ts argument is clearly that the state should be looking to exploit them on behalf of the Irish people) Anyone who wishes to argue for the full privatisation of the resources needs to set out those arguments

Rock on Rockall

Oh the empire is finished no foreign lands to seize

So the greedy eyes of England are looking towards the seas

Two hundred miles from Donegal, there’s a place that’s called Rockall

And the groping hands of Whitehall are grabbing at its walls…

After a few pints, that was always a staple to wind up the crowd.

For some, emotion always trumps facts on the subject of natural resources, GM foods and incineration – – ‘greedy’ multinationals being the common thread.

The fact that the generous terms attracted little exploration for decades speaks for itself.

About one well in 25 drilled in Ireland is commercial compared with 5 in Norway, 2 off Angola and 7 off UK.

In the period to 1987, when Ireland made 1 commercial find, Norway made 60.

@ Chamelon

As for nationalisation, it would be good for some; 15% of the company for the staff plus generous terms and a bankrupt country praying for success.

In practical terms, most of the work would have to be contracted to experienced companies

From Mr Rabbitte:

“If the basic rate of tax of 25 per cent introduced almost 20 years ago was too low, why then have fewer than 20 exploration wells been drilled in the Irish offshore in the last decade? The answer is that the international industry has by and large chosen to invest its exploration budget elsewhere on the basis of its perceived risk/reward balance.”

I’ve no knowledge of this industry, but is this right? I’d suggest ex-Soviet supply (periods of low prices etc) probably had a greater impact over this period than local taxes.

re. Comparison with Norway.
The Financial Times Lex Column reported yesterday (17th August 2011) that Statoil confirmed the biggest oil discovery (up to 1.2bn barrels) since the 1980s in 100m of water on the Norwegian Continental Shelf.

If exploration licenses under the current tax arrangements were auctioned rather than granted, how much would the auction yield? Would the Irish Times pension fund be a bidder?

I can’t agree with your view on this. True, if the oil companies are ‘spooked’, then we (the state) get nothing out of the potential wealth off the west coast; but if we just give it to them on a plate we also get nothing. It therefore seems like a no-brainer to just leave it where it is. The geology off the west coast is not going to change, as Rabbitte says in his article, but the conditions under which it becomes worthwhile for the oil companies to extract the natural resources may very well change. At that point, we gouge them. That is, assuming we have a government which serves the state as a whole, not just business interests, and foreign interests at that.

@Ahura
There’s a number of factors: (1) the cost of exploration; (2) the probability of finding oil or gas; (3) the cost of exploitation; (4) the tax take; and (5) the price of oil.

Now that (1), (3) and (5) are moving our way, we should not spoil it with (4).

By Post Author

Its about time someone set the record straight.
Given that “the total area covered by the 15 applications received is approximately 6 per cent of the area on offer” then we should take a risk by encouraging exploration in this small area and give them even more favorable terms. If the strikes are successful we can then increase the price.
Not confident about government negotiating skills though.

@ Richard Tol

can someone put in figures how much we have rec’d from oil exploration, via licences, capital gains, corporate taxes, employment taxes, and employmee wages to Irish residents, over, say, the last 10yrs, and what we expect over the next 10yrs on the basis of existing licences in place? ie by giving access (giving away?) to our oil and gas, how much have we earned and benefited from? This is, ultimately, the bottom line, is it not? Giving people access to the source material (oil/gas) for free makes sense so long as the actual indirect benefits are tangible and worthwhile. At the moment FOT is suggesting we’re giving it away for free and nothing back.

This could also then be contrasted with how much the oil/gas/exploration companies are taking out of this as a net profit after all costs.

FOT should stick to culture where he can do no harm. People like him would keep this country in Soviet style economcs where the State was the demigod. If we learned anything from the last few years is that you would not trust this State with anything including your children. Mary Lou fits in well with the Soviet style economics and we know what her Party stands for…………

@Colm McCarthy
For goods such as these, a well designed auction seems like the best way to price them. I hope the government isn’t doing another beauty contest…

As for the Irish Times pension fund…after their buyintg MyHome.ie for €50m at the height of the bubble, and no business plan to integrate it with print…I’d say the only reason the pension fund exists still, is because of all the redundancies !

@ Chamelon

Does it really matter whether you kill the goose or give it away for free?

+ infinity. Not likely to be addressed in a Richard Tol article, unfortunately.

@Eoin
I have not seen those calculations.

Corrib has yet to return any money, although Shell does employ a number of people in Ireland.

Kinsale did turn a profit. I assume that BGE did pay its taxes and royalties. The 2nd McCarthy report shows that it also paid some dividends.

By Post Author

We need a three-stage strategy (extending over next 20-30 years):

1. Attractive terms to seduce explorers to look for and find “first oil”. If needs be bend over backwards to attract their risk dollars (we are talking about hundreds of millions of dollars to find and appraise and a billion or so to produce). We need a 200-400 million bbl find during this stage and the terms could have an ROI cap and provisions to cover any possible windfalls arising from price escalation.

2. As soon as we start moving towards self sufficiency, deploy Production Sharing Contracts to stimulate further exploration/production in our emerging basins. This would result in oil companies being able to recover their capex, operating costs and moderate profits and been paid for these in oil. There is no rush here as the oil isn’t going to disappear and is increasing in value with each decade it stays in the ground.

3. Finally, use Technical Service Agreements to maintain momentum in our mature offshore oil province whereby the State owns all production and simply pays the oil companies set fees based on their services.

Finally, we don’t have reserves of 6.5 billion bbl. We *might* have potential resources of this amount in multiple fields scattered along the west coast in deep and hostile waters. Even when we find it, we *might* eventually only recover 20-30% and some of the HCs could be less valuable gas. The process of converting resources into actual proven reserves will take decades and tens of billions of euro (or maybe punts).

I suppose planning for the possible eventuality of not finding oil & gas off our coast in commercial quantities is still out of the question.
Its hard to escape the conclusion that our brand spanking new motorway network is not fit for purpose.
All new industrial development should be concentrated in Corks lower harbour in my opinion – Dublin can continue to shuffle the papers while containers are shipped out with the minimum of haulage.

@Eoin,

One would think that Shell would be on top of economic stats, if only to counteract the case made by their adversaries that Ireland’s natural assets/resources are being given away to multinationals for ‘nothing’ and to no local/national economic benefit. Also, the Dept. of Energy etc.

Killybegs also benefits, not just from marine services to the Corrib project but to oil/gas exploration in the area generally. It’s identified as a potential growth industry for Killybegs, overly dependent as it is on fishing/fish processing which has a large seasonal employment element and is also in decline in recent years.

Although there is not much public awareness at national level, the seeds of a new controversy are already being sown in the North West region over exploration licences for shale gas, particularly in the Lough Allen Basin. Prospecting licences have already been granted to two companies who are operating, mainly in North Leitrim. Environmental and health concerns – as well as the absence of a coherent regulatory regime for shale gas extraction – will likely gain momentum if the companies concerned apply for drilling rights in two years time when their current exploration licences expire. Then again those onshore explorers may go the way of most offshore prospectors to date and decide any finds they make are non-commercial. Exploration companies must also bear in mind that there is now – courtesy of the Corrib experience – an effective and conditioned protest infrastructure in situ.

I’d be more impressed with Pat Rabbitte if he commissioned a few economic reports, now, along the lines you suggest rather than just loftily dismissing the arguments of his challengers as ‘nonsense’. His arguments may be right; but being right is one thing, being wise is quite another.

For the record, the state did well out of Kinsale, because of a good contract negotiated in the 1970s with the discoverers, Marathon, who sold the gas on to a state company BGE at a lowish price. The state threw away quite a lot of gas through making fertiliser out of it at NET, which lost money, but the royalties were in effect collected through dividends at BGE. None of the other Irish discoveries has been big enough to matter and Corrib has yet to flow. The original target for gas from Corrib, incidentally, was 2001.

@Colm
I remember NET vividly – me thinks it was a product of EU agricultural practise at the time which resulted in massive overproduction.
What a waste.
I have to say state transport policey in the lower cork harbour area is catastrophic given the numbers of commuters and size of the satellite towns down there – particullary the mess that is Carrigaline.

The Dublin centric nature of this country is appalling.

@Eamonn
We give them our fish and now we want to give them our oil – it will only work out if they give us their women.
Fair trade ?

NET made sense for a given level of sense if national self sufficiency was still a consideration and provided a buffet in the agri and rural sector from foreign exchange problems.

An isolated agricultural island without control over its fertilizer scorce is not a happy place particularly in the 70s.

This whole thing gets lost in its own surrealness.

Assuming “our” elected Government is giving away what “we” own by not taxing it, how do we know they’d use a hefty tax take wisely if they got it?

For all we know, they’d just give it to the banks. And for all we know, if one Government did something like that, and we voted them out, the next lot would do exactly the same.

Sounds crazy, but it could happen.

Geologically, the fact of the matter is that the stuff is there – it has yet to be mapped. Now we simply need to figure out how to extract economic, social and economic value from such a natural gift of a resource. All discourse at the moment is open … would still like a nuclear plant on standby just the same …

@Colm
Whatever about the rights & wrongs of NET nitrate and other heavy industry of the 70s & 80s – it is wise to concentrate the remaining bits of our industry both light and possible future heavy near the best southern port rather then more inefficient rural subsidies to isolated areas.
PS – they made decent ships at Verome although Irish steel was always scrap metal in scrap metal out + a sizable electricity bill………….
Its not the time to piss around with Midland & Galway local politics – if western currencies inflate further heavy industry could be coming back.

@David
We would have to ask for a interest free loan from the French before we can replace Moneypoint with a Nuke plant……. I guess we will be waiting for some time.

@The Dork

Simply leverage some of the oil an gas revenue, subcontract it to the French and then we leverage out the French themselves for a change!

@ Aidan R

People will always find something to support an immutable view.

The statement from the Labour Party’s O’Callaghan adds nothing to the debate.

An anti-Corrib Oil activist estimates that the tax rate will be 7%.

Somewhere else it’s claimed that an oil company director said that oil from the Dalkey Prospect will be shipped to the UK and the Netherlands — so proof that no jobs will be created onshore Ireland and on it could go.

The IFSC has some shell companies creating little employment — so proof that FDI is a scam. On the other hand, 30,000 people are employed in a sector that would not exist without FDI.

So over 40 years of oil exploration is not long enough as evidence that drilling off Ireland does not have a high hit rate?

Marathon Oil’s discovery of a gas field off the Old Head of Kinsale in the early 1970s, stoked visions of an El Dorado.

There must be lots more of accessible gas/oil on the south coast and so on.

The Old Head discovery was in 100m of water; drilling during an Atlantic storm must be less fun.

One of the successful independent European oil companies is Tullow Oil, which has struck oil offshore Ghana and in several other places; it was recently listed on the Ghana Stock Exchange.

Why was Aidan Heavey, Tullow founder and a chartered accountant, lured first to explore in Senegal, rather than attracted by the ‘bonanza’ on offer in his home country?

From the perspective of the multinationals, they can invest in high risk high reward countries (like Ireland) or low risk low reward countries (like Norway). Given the cost of exploration, and the fact that it’s inherently high risk, they’re more likely to favour the latter. What they will not invest in is a high risk low reward country, and there’s no point in pretending otherwise.

@Dork
“We give them our fish and now we want to give them our oil – it will only work out if they give us their women.
Fair trade ?”
I dont remember giving norway fish. Thought that was Spain.

If it was the Swedes I would be tempted but the influx from eastern europe and asia and has done wonders for our gene pool already. But if its a choice between Nordic women and oil executives there is only one winner.

@ Kevin Walsh

It’s akin to a startup needing a few credible customer names to get motoring.

Ireland needs a few drilling successes to trigger significant market interest.

The non-state oil companies do have an interest in finding fresh supplies in stable environments as much of teh world is off limits to them.

@oneoffireland
yes, that would be silly

an oil or gas find in the Irish Atlantic would be significant for Ireland but not for the world market

the field would not be in operation before 2020, so its emissions (e.g., flaring) would be subject to future negotiations rather than current obligations

By Post Author

@Eamonn
I seem to remember seeing a graph of the Irish catch by nation with the Norwegians as the biggest by tonnage although probally not by price / quality

But perhaps the Norwegians honestly report their catch while our EU partners prefer a more subversive extraction.
Maybe Micheal Hennigan can shed some light on that rotten fish for you.

How stupid of me! I didnt realise it takes 10+ years to bring oil or gas ashore. Yes I havent been watching the news. Great sure we can continue on business as usual throughout this decade importing ever inflating fossil fuels from overseas in the vain hope we will find a minscule pocket of sweet frozen sunshine somewhere in the north atlantic. No long term systems change needed. Thanks for the reassurance.

As predicted you responded to the climate change hook but I never got your views on the below as requested?

http://www.abc.net.au/catalyst/stories/3203451.htm

C’mon he is an economist not a scientist so he is gotta be trust worthy right??

Ireland will not be signifcant. In fact it is unlikely to be anything. But, despite your eulogising, neither is Brazil of Angola. Brazil as far as I can make out produces less than 5k barrels per day. The world consumes 80 million barrels per day and it is growing. I am sure that the local Tupas in Brazil see none of the benefits. A Conquistador’s helmet would suit you.

@One off Ireland
Impressive site – although your efforts will probally come to nought – the damage has been done anyhow , was a regular visitor to Kerry in my younger days (they depend on Cork money) – but you are wasting your time , Kerry people have a very narrow view on wealth.
15 years of Pub talk frowning on development made me no friends.
Let them stew in their own excrement.
Scotland is by far a better tourist destination now.

Fintan O’Toole shows his vast ignorance of this subject whenever he writes about it. I know a bit about the industry and offshore Ireland is one of THE MOST HOSTILE places you can look for oil/gas. Apart from the problems of the physical environment, the spectacle of the Corrib development’s ongoing problems can only have damaged our prospects. The capital investments required are huge and the timescales very long.

If offshore Ireland proves to be a profitable oil/gas province then conditions can be changed on later licences. Right now we have nothing much worth taxing and no clamour to explore.

As for those who say that there is no difference between no goose and an untaxed goose, there is one huge difference. The goose. At the moment Ireland is on the end of a long chain of energy supply. Having our own goose could turn out to be very handy.

@Hugh
If we did indeed find the mother lode we would blow it anyhow , whats the point ?
It not as if we would use the surplus to create a French style electrical grid
It will be a interesting Ireland when / if we get down to 1983 oil consumption figures again.
The post 1987 expansion was just a loss of good agricultural land – nothing permanent will come of it.

@The Dork from Cork. Thanks. As I write on my holidays from rural County Norfolk I agree that it is a forlorn task. I was in Kerry last week and believe it is (just about) still worth fighting for. Besides what else will I do!

@Oneoffireland
Well backpacking along the Kerry way except perhaps on the first day is a dispiriting task – best left to suburban seeking masochists , only along the tops of the Reeks and outlier hills is there still beauty.
On the positive side sheep grazing pressure seems to be much reduced this year for some reason.
Good luck with your endeavours , word of advice – Tralee people are far more honest then the Killarney sort – any progress will be in that old industrial town rather then that wretched Victorian parody of a place.

Anyone who wishes to read and analysis by Norway’s leading critical expert on the industry Helge Ryggvik on how the Norwegians moved from a weak position vis-a-vis the oil companies to being able to do their own exploration and exploitation and use the profits for social betterment can do so here.

Warning: it may jar with the ideological predispositions of the majority on this site.

@ Pope Epopt

Warning: it may jar with the ideological predispositions of the majority on this site.

Given the alarm with which the suggestion of getting the Norwegian state to help out is being greeted in some quarters, I’d have to agree with you.

Mr. O’Toole appears to have struck a nerve.

@EWI
One of the most common complaints from people like FOT against Ireland’s current licencing conditions is that the Norwegian state – owner of Statoil – will potentially make more money from fields like Corrib than the Irish state…..so I have no idea what “nerve” FOT might strike with his latest proposal to give Norway rights over half our continental shelf from the beginning.

The “nerve” FOT strikes with me is one of competence and responsibility. As deputy editor of Ireland’s supposed newspaper of record he ought to learn something about a subject before he writes editorials on the topic. It’s apparent he hasn’t bothered.

you people have just give up if the ECB get control of are finance which they are trying very hard too the oil and gas off the west coast will be counted as the E.U’s they’ll be taxing it at about 75% which will go to the ECB and end up in the hands of them greedy German bankers who started the whole financial crises

Ireland has
no State participation in the exploration, development and sale of
natural resources, including gas that happens to be in Irish
territory. Therefore there is not and can not be a ‘let’s dig for our
own gas’. There is an EU gas
network which in Ireland is owned, managed and operated by Bord Gais
who don’t own the gas it contains.
The Corrib gas partners own
the entire gas content of the field and are legally entitled to offer
it to the international market with no legal obligation to ring fence
it to Irish consumers.
‘Enable us to become an exporter’ is a statement that sadly highlights
how misguided politicians and commentators are, while Shell, Statoil and Vermillion,
owners of Corrib gas, or maybe in the future any company who ownes
fracking wells, may well be become exporters of gas exploited from
Ireland, indeed Vermillion promotes the construction of an export gas
pipeline out from Ireland, the Irish State/people will never be
exporters of gas or oil for that matter, as WE don’t own any of it. But all gas and oil exploring companies are permitted to offset all exploration and development costs 25 running.
The trading arrangements and shipping tariff structure for the EU gas
network include virtual trading and swapping of gas.
Pay attention to the Bord Gais Networks recent
concern that using the current tariff structure “means higher prices
for Ireland’s gas users”. It said the regulator must address the
network charges in order to avoid customers paying more for their gas
when Corrib and Shannon LNG flow.”
Far from providing security of gas supply the current legal system for
the exploration of oil and gas in Irish territory leaves it entirely
to the private companies who naturally have an obligation to their
shareholders and not to the Irish people. Minister Pat Rabbitte’s mantra of ‘apples and oranges’, i.e. Ireland and Norway, can’t be compared fails consistently to apply the correct test: before any find in Norway the Norwegian Geological Society advices the Norwegian Government that ‘Norway will never be an oil industry’ – just like Minister Rabbitte’s department official adviced ministers that ‘Ireland has no oil, no oil at all’, in 2001. It is true to say that the working conditions in Irish waters are not easy, but it was always prudent to wait for the time and modern technique and prices were advantagious to Ireland. A late, but still good start would have been for the Irish government to buy Marthon’s 18.5 % share in the Corrib gas field, when Ireland had money to spend.

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