LAST year saw a renewed focus on the possibility of Irish economic salvation lying beneath the rocks in our territorial waters.
About 1.8bn barrels of oil were discovered at Barryroe off the coast of Cork in October. A month later, Petrel Resources said it found a further 1bn barrels in the South Porcupine Basin off the Kerry coast.
Tests show the possibility of a sizeable deposit at the Exxon Mobil-operated Dunquin field off the south-west coast, while Providence Resources, the company that is leading this new flurry of exploration, has been granted a license to drill an exploratory well 10km off Dalkey in south Co Dublin.
The fact that there’s oil in them there seas is nothing new. A 2006 study said in the Atlantic margin alone there were potential reserves of 10bn barrels of oil/gas equivalent. At today’s prices, 10bn barrels would sell for nearly a €1tn. A more recent study however has made even that life-changing sum look small.
In September, the pressure group Dublin Shell to Sea published a report which surveyed the total of Irish offshore and onshore resources. It estimated the total volume of gas and oil available in the 69 designated exploration areas at 21bn barrels of oil. That’s more than €2tn worth of black gold.
Several of the fields on which prospectors are now focusing were drilled as far back as the seventies. Though oil was found in a number of locations, it was either too inaccessible or of poor quality or both. However, time has moved on and the steady depletion of global supplies has brought the oil companies back to re-appraise what had once been considered uneconomic. The maths have changed, and we’re now looking at the very real possibility of an indigenous Irish gas and oil industry.
But even if we manage to extract a fraction of these resources, it’s extremely unlikely that flowing oil will wash away our economic woes.
Ireland has one of the most oil-company-friendly tax regimes in the world. In 1987, disgraced TD Ray Burke was minister for energy. He rejigged the fiscal incentives for exploration companies by reducing the share due to the State for extracting oil in our waters from 50% to 0%.
Five years later, then finance minister Bertie Ahern went a step further, reducing the tax rate on the profits made from the sale of these resources from 50% to 25%. Thanks to subsequent changes made by Green Party energy minister Eamon Ryan, a highly profitable field may attract a top-up levy of 15%.
Despite even that premium, our tax rates are among the lowest of any country in the world. In the UK, the state takes more than 50% of taxable oil revenue. In Norway, the government takes 78% and in Venezuela and Iran, the equivalent rate exceeds 90%.
As if that weren’t bad enough, here, the State allows exploration companies to write off all costs and exploration losses going back 25 years against tax payable from the sale of oil. Providence, for example, has said that so far, it has laid out €600m in exploration costs. All of this would be knocked off any tax liability arising from the proceeds of the Barryroe field, no matter when it came on stream.
The oil industry disputes the contention that the state has sold the family silver. Fergus Cahill of the Irish Offshore Operators’ Association says given the low possibility of success, which he rates at 25:1 compared to 5:1 in Norway, the State needs to provide a favourable environment if exploration is to go ahead at all.
He also denies that the lack of domestic expertise in the sector means any employment dividend accruing from a fledging oil or gas industry would involve flying in professionals from overseas.
“Nonsense,” says Cahill. “If you go to Mayo, 80% of the people working [on the Corrib gas project] are Irish. If you go to the Kinsale gas field in Cork, everyone is Irish. And the argument that we don’t have expertise in the oil industry is nonsense. The oil industry internationally is populated by Irish people to quite an extraordinary degree.”
Though it has been argued that the discovery of oil will improve our security of supply, oil companies are under no obligation to bring products ashore here. It’s possible any oil could be shipped from the rig to anywhere. While it may make more sense to land gas here there are no obligations. It may be taken from our territory but it is not Irish.
Exploration inevitably carries environmental risks. The Dalkey find is only 10km out from shore; any operation would be visible all along the Dart line. If there were to be a spill, the oil would be onshore within an hour, devastating habitats and tourism for miles along the coast. Moreover, given the ample, proven sustainable energy resources around that same coast, the social and environmental implications of extracting and burning more fossil fuel have to be questioned.
Then there’s fracking. Not all the fuel under discussion is offshore. The Lough Allen Basin is thought to contain 9.4tn cubic feet of gas and 1.5bn barrels of oil. The favoured method of extracting it is hydraulic fracturing, or fracking, a process vehemently opposed by environmentalists. Banned in France, the first company to explore for shale gas in the UK suspended its fracking activity in Lancashire in 2011 as it caused two minor earthquakes.
Though banned by Sligo and Donegal County Councils, Richard Moorman, chief executive of Tamboran Resources said on Ocean FM last year that fracking would go ahead in the area.
The stage is set for another Corrib-style stand-off.