Wanted: Less complacency about our energy needs

As far as energy is concerned, potential Brexit tariffs and the sterling exchange rate are red herrings. Tariffs — as opposed to transport costs — are no big deal in the oil, gas or electricity exploration and production industries.

Wanted: Less complacency about our energy needs

Even trade in Russian gas, through Ukraine and Belarus, are not affected by tariffs, and a post-Brexit UK will likely be no different. That’s because gas prices are set in dollars and the British currently import over 60% of their gas, and so they are effectively re-exporting Norwegian and Russian gas to Ireland.

Meanwhile, Ireland imports 40% of its gas needs.

David Horgan Before the delayed Corrib gas project came on stream, we depended on imports for 95% of our gas needs.

Yet, people shrugged when Shell last month sold off its 45% stake in Corrib after 21 years, accounting for a loss of €1bn. Shell is now gone from the Irish exploration scene.

We have about five trillion cubic feet of recoverable ‘tight-gas’ across the northern and southern border counties and maybe four trillion cubic feet in Co Clare.

Yet, all onshore fracking is banned north and south even though no operator proposed to frack at depths shallower than 1,000m. The deepest water well is just 290m. Mother Nature’s hydraulic fracturing continues despite the ban.

Meanwhile, President Trump’s America cuts emissions and attracts energy-intensive jobs through cheap, clean gas. In short, we are leaving jobs on the table.

Ireland has two Scottish gas interconnectors. So far, the Scots have been reliable suppliers. The cost premium is only 4% when the costs for transport and British export tax are taken into account.

However, the UK itself is heavily dependent on gas imports. Norway’s North Sea gas output lags the UK’s by 20 years, but will soon decline unless there are major new economic discoveries. EU gas dependence on Russia has now crept higher to 44%. The imports come through three main routes. Diversification to Qatar and North Africa no longer looks wise.

Liquefied natural gas will compete with pipeline gas, but needs a very long time period of 25 years of stable prices to justify its capital investment. The Irish courts and regulators discouraged the Shannon liquefied natural gas project by effectively forcing it to subsidise its competitor, the state-backed gas inter-connectors.

Likewise, they penalise Irish gas exploration. So Irish policy has discouraged diversification and subsidised vulnerability. Only the EU and the oil and gas industry address Ireland’s import dependence for energy.

We import 100% of our oil. Yet, few seem to care that a well is being drilled 220km off the Kerry coast at a record depth of 2.25km of water. There is a shallow target 1.75km below the sea bed and a technically riskier target at 2.75km.

Potential targets are large but so are the costs and risks. Exploration leaves Irish punters yawning. Shares in explorer Providence fell last month when it announced a successful ‘spudding’ of a well. Likewise in zinc, a metal which China craves, eight companies entered Ireland recently but all are listed on stockmarkets in Canada or Australia.

High global oil stocks were slow to fall due to soft demand growth this year.

However, I contend, that the market is not pricing in political risk with Venezuela, Nigeria, and the Middle East. And any random setback will turn sentiment.

In contrast to the worldwide downturn, there is increased petroleum exploration in the Irish Atlantic region, particularly the Porcupine Basin off the south-west coast.

Major oil companies including Exxon, Statoil, Total, Woodside, and Nexen have assembled acreage in the area as they are excited by the parallels with west Africa and eastern Canada.

As with any frontier province, a major discovery in this basin will transform industry perceptions and the farmout projects. However, we need a dozen wells since the chance of hitting a ‘wild cat’ discovery is 10/1.

David Horgan is director of Irish exploration company Petrel Resources.

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