Our gas supply is at risk as UK quits the EU

For an oil and gas explorer, the news that the Brexit referendum result was a “seismic” shift in favour of Leave made compelling reading. Brexit is a timely reminder of the potential future energy issues that might be faced by the island of Ireland.

Our gas supply is at risk as UK quits the EU

These issues are all the more important because Ireland is connected to the UK energy market via gas and electricity interconnectors.

The UK is currently part of the larger EU energy market. However there is no absolute guarantee that this market relationship will function in the same way after Brexit, should trade tariffs be re-introduced as a result of political bargaining.

The reality is that Ireland imported over 85% of its energy needs in 2014.

By 2019, it will need to import over 350 million cubic feet per day of gas from the UK via the gas interconnector.

Gas production from the Corrib gas field is forecast to be declining by 2019, coinciding with the possible execution of Brexit.

It is not sufficiently emphasised that the 1-in-50 peak daily demand, normally during winter months, may require over 800 million cubic feet per day of gas from the UK.

Ireland’s only strategic gas storage facility at Kinsale is also set to have shut down within the next four or five years, and will cease to contribute to the security of supply.

Wind energy, as the main component of Ireland’s renewable energy investment programme, is assumed to have little negative impact on the winter peak day demand. It is sobering to note, however, that one evening, at 7pm, in February 2015 electricity demand peaked at 4,500 megawatts.

Despite the installed wind-generating capacity in the Republic of 2,122 megawatts, wind accounted for an average of only 1.1% of system demand.

The overriding balance of supply was made up of electricity from thermal generation, according to Gas Networks Ireland’s 2015 development plan.

By comparison, 2014 total demand for gas in the UK was 70 billion cubic metres of which 57% was imported. In turn, Europe imported 33% of its gas from Russia and 21% from Norway. During the final three months of 2015, the UK also exported the equivalent of 12.2 terawatt-hours of gas to Ireland and 24.2 terawatt-hours of gas to Belgium.

Therefore, the impact of Brexit on the UK’s security of gas supply would seem to be less problematical as it is not reliant on EU countries for gas. Ireland, however, remains heavily reliant on the UK for gas.

In March 2014, Centrica, a UK (and potentially non-EU) company, together with Brookfield and Icon announced the acquisition of Bord Gáis Éireann’s energy supply business for a reported consideration of €1.1bn.

The proceeds contributed to reducing and managing increased national debt created by the 2008 financial crisis.

Costs would rise if this had to be imported from continental Europe. The all-island electricity market which has been in operation since 2007 could be more difficult to sustain in the event of an interruption of supply, if the UK is not in the EU.

Securing readily-available energy from diverse sources at competitive prices is critical for longer term investment and economic growth.

Encouraging indigenous gas exploration and development provides for security of supply during 1-in-50 peak daily demand events that cannot yet be guaranteed to be satisfied by renewable energy.

Ireland needs to strategically focus in the short term on those areas where existing offshore infrastructure at Kinsale and Corrib can be efficiently used with minimal environmental impact.

This shortens the lead-time for development whilst also reducing initial capital and operating costs and thereby accelerated the profitability which in turn also accelerates the State’s tax return under the new petroleum taxation regime.

Currently, this is the only gas exploration model that can positively impact security of gas supply under Brexit.

Paul Griffiths is a director of Predator Oil and Gas Ventures Ltd, a licensing option recipient in the Government’s recent Atlantic Margin Licensing Round.

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