Opinion article in Evening Echo: ‘Ireland will not reap the reward of oil finds’

Below is an an opinion article by me that appeared in the Evening Echo (a daily newspaper published in Cork) on May 1st, about the fact that Ireland has very little control over its oil and gas resources. The article came about because of a news report in the newspaper three weeks previously, on April 8th, titled ‘Oil must be refined in Ireland for financial benefits’, in which I was quoted at length. Unfortunately, because of an error by the newspaper, that news article misquoted me in a very significant way. It gave the impression that I was mistaken about a key aspect of Ireland’s licensing terms for oil and gas.

Here is my article from May 1st in full:

Ireland will not reap the reward of oil finds

WILLIAM HEDERMAN questions the benefit to the Irish taxpayer of off-shore oil exploration

Will oil finds in Irish waters make Ireland rich? Will the Barryroe oil field will turn Cork into a mini-Dallas? Media coverage often gives that impression, as it tends not to probe beneath oil industry spin.

Against this background, the article in the Evening Echo of April 8th, titled ‘Oil must be refined in Ireland for financial benefits’, was a welcome departure. It highlighted the simple fact that oil companies are under no obligation to supply the Irish market with oil or gas found in our waters, or even to bring it ashore in Ireland.

However, the article misquoted me on a crucial issue: the tax that oil companies will pay. The article claims that the 25% tax on profits from oil production would accrue to the Irish exchequer only “if it was brought ashore to Whitegate in east Cork”. This is not true.

The 25% tax on profits must be paid regardless of whether or not the oil or gas is brought ashore in Ireland.

The point I made to your reporter is that, since companies are not obliged to supply the Irish market or bring the gas ashore here, there are no jobs, infrastructure or other economic spin-offs guaranteed. In other words, the 25% tax is the ONLY guaranteed return to the state. Of course, this tax take will amount to far less than 25% of the value of the oil (see below).

Irish resources are more likely to boost the oil industries of countries such as Scotland and Holland than to create an oil industry here. Ireland’s ‘security of supply’ would also not be improved.

Providence Resources has previously stated that if it finds oil in Dublin Bay, it would probably ship it directly from the rig to a refinery overseas. The company has not yet stated categorically whether the oil from Barryroe will be brought to Whitegate, Ireland’s only refinery.

The company will do whatever suits them commercially. The best the Irish government can do is cross its fingers and hope that there is some Irish involvement in the process and that some economic activity is generated in Ireland.

This is important for several reasons. Firstly, it makes a mockery of the government’s (and oil industry’s) main justification for maintaining Ireland’s giveaway licensing terms. Ireland takes a much lower share of revenue from its own oil and gas than other countries do. The government defends this by arguing that “attractive” terms will lead to more exploration, more discoveries and in turn the creation of a thriving oil industry with thousands of jobs.

Secondly, if oil from Irish waters is shipped directly from the rigs to refineries overseas, there will be no increase in skills and expertise among Irish workers. This means Ireland will continue to be dependent on oil multinationals to exploit its own resources.

Irish-based workers are rarely hired on oil or gas rigs. A 2007 Irish Times article about the rig at the Corrib Gas field noted: “Currently there is only one Irish person on the rig … with the majority of workers flying in from Aberdeen via a helicopter flight from Donegal.”

Returning to the question of the State’s ‘take’, that 25% tax on profits: Ireland’s licensing terms allow companies extremely generous tax write-offs before declaring these profits. For example, when calculating its profits from the Barryroe oil field, Providence will be allowed to write off the cost of all its other exploration anywhere in Irish waters in the past 25 years.

So, how much tax will companies end up paying? A private consultants’ study, carried out for Shell in 2003, projected that the Corrib Gas project would pay just €340 million in tax over its lifetime, this from a field that is now valued at up to €13 billion. (At the time of the study, the field was worth considerably less, but I estimate that €340 represented around 7% of the revenue Shell would generate by selling Irish gas back to the Irish consumer).

Many people will also assume that having our own oil and gas fields will result in lower prices for these commodities here. Alas, further discoveries of oil and gas will not bring down prices here. Companies will sell these resources to us at the current international market price.

For example, when gas from the Corrib field eventually comes into production, consumers in Ireland will buy it from Shell, via Bord Gais, for the same price that we currently buy gas from Norway (our gas doesn’t come from Russia, that’s an industry myth). If the international price of gas were to double in the next 10 years, then the price we pay for gas from Corrib would double. If Bord Gas doesn’t pay the going rate, Shell is at liberty to export the gas to the UK.

Minister Pat Rabbitte and oil industry executives argue that low revenue is better than no revenue: if giving it away with minimal returns is the only way to get at it, then give it away we must. This short-sighted approach ignores the fact that allowing companies to extract our oil and gas involves great costs.

Aside from the obvious environmental risks and the social and community costs, as witnessed by those resisting Shell in north Mayo, there is also an economic cost. Extraction means the depletion of resources that would be vital in decades to come, when security of supply becomes a more pressing issue.

The starting point for this debate should be: why should we extract these resources at all? Considering the various costs associated with extraction, if Ireland is to allow private companies remove our valuable assets, the Government needs to be able to point to significant benefits to Ireland in order to justify that extraction. Under our current terms, it cannot.