Oil companies plan to export directly from Irish oil fields

Oil might never come ashore here: no security of supply, no jobs, no investment

Currently the stock defence offered for Ireland’s excessively generous licensing terms for oil and gas is that they encourage exploration, which in turn will create jobs, investment and secure supply when the resources come ashore. There’s just one problem: the oil companies don’t plan to bring them ashore in Ireland. William Hederman investigates

On April 19th and 20th last (2011), the Dáil debated a Sinn Féin motion calling for, among other things, a review of Ireland’s licensing terms and the establishment of a state exploration company. The contributions from the government benches were dismal, even by the traditional standard of misinformed debate on this area. Fine Gael and Labour TDs queued up to cite the “jobs” and “investment” that would result if Ireland encourages more exploration with its generous licensing terms.

A typical example was Fine Gael’s Tom Hayes: “Let us bring ashore what has been discovered and then go and discover more in order that we might create jobs for the 450,000 people who are out of work and the 200,000 who have left our shores for America and Australia.” The minister overseeing this charade, Pat Rabbitte, made it clear he would be maintaining Ireland’s controversial licensing terms: “Without an increase in the level of exploration activity Ireland will not benefit from its indigenous natural resources.”

The official doctrine

Government politicians – and the civil servants who write ministerial speeches – effectively speak with the same voice as the oil industry. Their pitch goes something like this: oil and gas is becoming scarcer globally. Ireland produces no oil of its own and almost no gas (95% of our gas is now imported). So Ireland needs to create its own supply of these commodities to protect against threats to supply and against price increases. Due to the low level of exploration in Irish waters, we must continue to offer “attractive” terms to encourage exploration. When more oil and gas is found, bringing it ashore will create huge investment in the form of jobs and infrastructure. Finally, a quarter of the value of these resources will return to the exchequer in tax.

In fact, a little investigation reveals that none of these promised benefits is likely to materialise. Under our current licensing system – which remains largely unchanged since it was put in place 20 years ago by ministers Ray Burke and Bertie Ahern – Ireland might never have its own oil supply, no matter how much oil is found offshore.

The hand of the oil companies is all too visible in those infamous licensing terms drafted on Ray Burke’s watch in the late 1980s. The result is that when multinational oil companies find oil or gas in Irish waters, not only are they under no obligation to supply the Irish market: they don’t even have to bring it ashore in Ireland.

So, will these resources leave Irish waters without ever reaching land in Ireland? I spoke to several oil men at a government-sponsored conference at the Burlington Hotel in Dublin last November (2010). They were remarkably candid about their plans to export Ireland’s resources directly from the field.

Why Dalkey won’t be the new Rossport 

Let’s take one example. Providence Resources, owned by media baron Tony O’Reilly and his family, is planning to bring up oil in the next few years from the Dalkey Prospect, just off the Dublin coast. The company estimates that the prospect contains “up to 870 million barrels of oil”, a third of which might be “recoverable”. When Providence announced the prospect a couple of years ago, a question was quickly posed in jest: would Dalkey/Killiney be the new Rossport? Would Gardaí be beating Bono and his neighbours off the road to get the pipeline ashore?

John O'Sullivan of Providence Resources: oil from Dalkey likely to be exported directly from field

Sadly, that scenario will never come to pass. As Providence’s technical director, John O’Sullivan, explained to me, modern technology means that oil can put into “tanker-ready form” at the rig. There’s no need to pipe it ashore. Once in the tankers, the oil from Dalkey could be shipped to Milford Haven in the UK or Rotterdam, he said. “It depends on what kind of oil it is.” The Whitegate refinery in Cork (Ireland’s only oil refinery) “may not be able to take the oil”.

What will this mean for the Irish jobs, investment and supply that Rabbitte and colleagues promised? The answer is zero. The Dalkey Prospect will result in no onshore jobs, no new infrastructure onshore, no supply of oil to the Irish market and no protection against further rises in the global price of oil and gas.

Of course, extracting oil from under the seabed does provide employment, but jobs on oil or gas rigs would not necessarily be given to people in Ireland. In recent years, almost no Irish-based workers have got jobs on rigs, as illustrated in this 2007 Irish Times article about the Corrib Gas rig. Shell had brought a group of journalists on a helicopter junket to the rig, 80km west of Rossport. The Irish Times reporter noted: “Currently there is only one Irish person on the rig – a female well engineer – with the majority of workers (mainly men) flying in from Aberdeen via a 70-minute helicopter flight from Donegal.” In other words, the economic spin-offs of exploration and production in Irish waters will benefit countries other than Ireland.

Will Irish gas come ashore here? 

So what about gas? I spoke to Prof John FitzGerald, economist with the ESRI, a man regarded as an expert on energy policy. He warned that because of what he called the “regulatory failures” with Corrib, companies might in future consider piping gas from Irish waters directly to the UK. (This is a warning he later issued on page 41 of his Review of Irish Energy Policy in April 2011.)

I asked several industry sources about this. They offered conflicting opinions about whether or not gas from fields off Ireland’s west coast could be piped as far as Britain. But all were agreed that a find off the east coast could easily be piped to Wales. A consultant who advises the government, and who would only speak on condition of anonymity, pointed me in the direction of a new technology. Speaking in a whisper, he said that a process known as Floating Liquefied Natural Gas (Floating LNG) was “coming down the tracks pretty fast”.

A ‘game-changer’ for the industry

Floating LNG allows gas to be processed and liquefied at sea, shrunk by 600 times and transferred to tankers for export. The technology is being pioneered by Shell at its Prelude gas field off northern Australia. Described in Shell PR material as “a game-changer for the energy industry”, Floating LNG will mean that gas does not need to be piped ashore. The following page contains a Shell corporate video about this technology: Shells Prelude FLNG.

Of course, what Floating LNG would mean for Ireland is that gas from fields off Ireland’s west coast could be exported directly. This would be a very attractive option for oil companies keen to avoid “another Rossport”. As in the case of the Dalkey Prospect above, this would mean future discoveries of gas would not result in any improvement in Ireland’s “security of supply”. It would also mean that any jobs or investment would be offshore or in other countries.

The ministerial signature

I put these concerns to the Department of Energy and Natural Resources. In response, they said: “Any future oil/gas production project in the Irish offshore would require the approval of the Minister for Energy and Natural Resources for the Plan of Development for the project. The methodology proposed for producing the oil/gas would be central to the Minister’s consideration of a proposed Plan of Development.” In other words, if the company was proposing to pipe the gas away from Ireland, the Minister could choose not to approve the project.

How solid is this safeguard? Considering the poor record of Irish ministers in facing down powerful oil corporations, it is hardly comforting to know that the withholding of a ministerial signature is all that stands between a multinational and the maximisation of profits that direct export might bring.

Paying the full price for Irish gas

Even when gas is piped ashore in the Republic, it could be exported via one of the interconnecter pipelines linking Ireland to Scotland. Indeed, turning Ireland into a “net exporter of gas” is an element of Government policy. What this means is that Bord Gais must bid against buyers in other countries to secure gas from Irish fields. Ireland’s licensing terms do not require oil companies to sell gas at a reduced rate to Irish consumers. So, if the international price of gas were to double in the next 10 years, the price Irish consumers pay for gas would double, even if that gas comes from Irish fields.

For example, if and when the gas from the Corrib field ever comes ashore, it will not bring down prices, something  confirmed to me by John FitzGerald. It was also confirmed by the ESB’s outgoing chief executive, Padraig McManus, speaking on Pat Kenny’s radio show on 24th March 2011: “But, it’s an international commodity you know, Corrib, we are not going to get Corrib Gas cheaper than gas from anywhere else, you know gas is an international commodity so we’ll pay the same price as getting it it from the UK.”  See also this post.

What is Ireland left with?

If oil companies do export oil and gas directly from the field, then exactly what guarantees is Ireland left with? The answer is a very small proportion of the revenue generated from the sale of the oil or gas. The precise figure is hard to determine, as no oil or gas has yet been produced under the 1992 or 2007 terms. However, I have discovered the existence of a study that suggests that, under the 1992 terms, roughly 7% of the value of a gas field in Irish waters would return to the exchequer in tax. Read the detail in this article: Ireland’s share of revenue from Irish gas fields could be as low as 7%

Surely, the Irish state’s management of its hydrocarbon reserves should guarantee supply, jobs and investment or else it should return a decent share of the revenue generated by the sale of these resources? Under our current system, it gets neither.

Climate change 

Compelling arguments can be – and have been – advanced for leaving our fossil fuels in the ground, at least in the short term. The contribution made by fossil fuels to harmful climate change provides a strong case against the hurried extraction and burning of these resources. There is also a good case to be made for hedging our oil and gas as a reserve against future global supply shortages.

Bearing these arguments in mind, there would need to be very real benefits to justify the extraction of these resources. We have seen above that the supposed benefits to Ireland from this sector are virtually non-existent. As called for by SIPTU last week (June 30th, 2011), the government should implement a moratorium on the granting of oil and gas licences until an Oireachtas review of the issues has been completed.

If we can’t be guaranteed some level of control over what happens to our resources upon extraction, then the licensing terms should be changed so that either Ireland earns a reasonable share of the revenue generated by the sale of these resources, or that the resources are left in the ground.