Private Members Business regarding Natural Resources

These are just some of the examples of woolly thinking and wrongheadedness in this motion.

I am nearly 20 years in this House. I have never seen a Private Members Motion that has been so badly prepared, badly researched and based on such misconceptions.

I'm prepared to accept that my colleagues were caught on the hop with the bank holiday weekend. How else could you explain that in the initial draft of the motion the proposers didn't know the corporation tax rate on exploration was and is 25% not 12 ½% as they originally suggested?

How else could one explain the fact that they don't know royalties are being paid for the Kinsale Gas field? Or the statement that we "allow oil companies to sit for up to 20 years on exploration and still do no exploration” ... a statement that is totally untrue and that they have now amended.

Ignorance or willful ignorance? ... I'll be charitable and say it's just what happens when you put deputies from many different ideological backgrounds together.

Then based on this level of ignorance the motion asks us, at a time of growing concern over the availability and price of hydrocarbons, to completely freeze the issuing of any further exploration licences and the establishment of procedures and bodies that would ensure no indigenous supplies of gas or oil ad infinitum.

This group of intrepid parliamentarians seem to believe that we should leave ourselves at the mercy of the volatile market situation we now face indefinitely and refuse to exploit our own natural resources for the benefit of this country.

This State has a relatively clear set of choices when it comes to the exploitation of oil and gas resources.

The first is to do nothing. To leave the resources where they are because to touch them means having some impact on the environment.

Some people, admittedly a small minority, advocate this course of action.

Given that it is clear that the commercial production of oil and gas can make a major contribution to Ireland's economic development, this is clearly not a sensible or logical course of action.

The positive contribution made by natural gas from the Kinsale Head and Ballycotton Fields alone demonstrates this. Moreover, in an era of substantial energy price volatility and in the face of pressing security of supply concerns, access to our own resources is now more critical than ever. On that basis, the Government is fully committed to realising the full potential of oil and gas resources in offshore Ireland.

That leaves us two further choices.

Option 2 is to prospect for, extract and process these resources ourselves, as some on the Opposition benches would have us do and as this motion advocates. This would be a huge, costly and very, very risky exercise. The risks for this state, financial and otherwise, of such a course of action, would be immense.

Ireland has proven in the past to be a very difficult territory to in which to prospect successfully, because of geology and geography, with less than 1 in 20 of exploratory wells resulting in commercial finds. And remember, these highly expensive wells are only drilled after extensive and expensive geotechnical surveys.

Even if such a state company were to be successful in locating commercially viable wells where so many international companies have been singularly unsuccessful, the company would then have to make massive investments in machinery, equipment, recruitment and training to put itself in a position to exploit this putative resource --- all before any of that resource could be extracted. And all the time, our energy dependence on other countries would be growing.

The costs of doing this ab initio, particularly in maritime environments as harsh as those found off the Irish coast, would be astronomical.

We would end up paying the very firms the framers of this motion resent, millions in consultancy fees as the state agency tried to set up and upskill.
If we had such a State Company, can you imagine the reaction I would get from the very deputies across who have tabled this motion if I was going to the Minister for Finance every year for a €100m or €150m to drill exploration wells off the West coast of Ireland, rolling the dice with less than a 1 in 20 chance of success?

I, for one, can think of a great number of more productive uses for public money than speculating in this way. Option 2 is not an option as far as I am concerned.

The third option, I mentioned is the one that has been the foundation of Government policy in this State for decades.

We have encouraged competent private sector companies to invest in the search for and production of oil and gas in Irish waters and we have benefited financially from that. We spread the risk across these agencies and as a result derive some benefit from our natural resources. The Opposition would have the taxpayer take all the risk - where a find in one field would be negated by the nineteen other failures. And they would have us start from square one, with no experience, no equipment and no structures in place, in one of the most challenging marine environments on the planet.

A piece of advice to the deputies opposite - stay out of the casinos and away from the ponies.

The private sector is recognised as having the resources, expertise and practical experience essential for such a task. These companies have decades of experience of this type of hazardous and financially risky operation. This State does not. It is not a difficult choice to make.

Some of my colleagues in the House have a habit of stressing the need for Greater Self Sufficiency. And yet, for some strange reason, they think that stopping all prospecting in Irish waters is going to help?

At present Ireland imports about 85% of its gas requirements. This is in stark contrast to the position ten years ago, when about 95% of our gas requirement came from indigenous supplies through the Kinsale Field.

We need an indigenous gas supply for the very obvious reason that, in the future, Ireland will be at the very end of a very long supply chain bringing gas from Russia to Europe. We are going to be vulnerable, as a direct consequence of this.

In fact, the EU as a whole is becoming increasingly reliant on imported oil and gas, much of which is sourced from geo-politically volatile regions. In addition, increased demand has highlighted deficiencies and bottlenecks in transportation networks, further contributing to price instability.

Increasing energy costs are already having an effect on our economy. They are a central factor in driving inflation, which in turn has an adverse effect on our competitiveness and our ability to create jobs.

We can offset some of the effects of our reliance on imported energy by turning to renewable and sustainable sources. We have doubled our renewable generating capacity over the past two years - we now have 846MW of capacity. In the same vein, I have recently announced measures to double the amount of renewable electricity on the grid by 2010 through the Renewable Energy Feed in Tariff System or REFIT, a programme that will cost €119m over the next 15 years.

Furthermore, new measures to grant aid domestic renewable heating, the Greener Homes grant programme, has also recently been launched by my Department. On top of this, following the 2005 pilot mineral oil tax relief scheme for biofuels, which will see the introduction of 16million litres of biofuels placed on the market, a further package of €205 million has been agreed for the period until 2010, and will enable us to reach the target of 2% market penetration by biofuels in 2008

However, and despite all this, for the foreseeable future we will be reliant on fossil fuels in several important sectors of our economy.

Therefore, we must do everything in our power to reduce our dependency on imports of these fossil fuels. In that context, the Corrib project must be seen as being strategically important for our long term security of supply.

Existing gas resources, including that of Corrib, are only capable of making a substantial contribution to Ireland's requirements for a number of years. Given current demand, these will quickly decline and must be met from elsewhere.

The proposal to freeze future licensing rounds, and removing the possibility of discovering further resources is both mad and bad for this country and its people.

If, as some deputies claim, they are interested in making Ireland more self sufficient, why are they trying to insist that we remain dependent on imported energy, and remove the possibility of discovering our own supplies of oil and gas?

Future licensing is an imperative if Ireland is to deal with security of supply, an issue that is becoming more acute by the month.

Fiscal Terms

There has been a lot of uninformed comment and insinuation about the fiscal terms under which exploration companies operate in this country. Much of that comment is patent nonsense. Nonsense which fails to recognise any of the realities we have discussed today. I would politely ask the opposition to at least do some research.

The current licensing terms are merely a reflection of the relative difficulties experienced by those prospecting for hydrocarbons in Irish waters in the past.

In other words they are set to attract the only companies in the world capable of finding and drilling our natural resources and thus benefiting the Irish consumer.

This fact has been accepted by every government that has taken power since 1992.

The situation facing those prospecting for oil and gas off the Irish coast bears repetition. Out of a total of 121 exploration wells drilled in Irish waters since the 1960s, there have been only 4 commercial finds. Up to 1987 when the present terms were introduced, Ireland had made one commercial find.

Over the same period Norway had made 60 commercial finds, on average each was significantly larger than Kinsale.

A comparison of success rates for exploration drilling carried out for my Department in 2003 showed that the UK and Norway had 1 in 8 and 1 in 10 success rates respectively between 1982 and 2001. In the same period, Ireland had a 1 in 20 success rate.

This lack of success has been reflected in past difficulties in sustaining exploration effort. For example, in January 1999 there were a total of 25 offshore exploration licences including 19 Frontier.

Today there are 13 offshore exploration licences including 11 Frontier. The conclusion - the industry do not regard attractive terms as compensating for the lack of prospectivity.

This conclusion is supported by the facts that all of the 8 Frontier licences which were issued in the 1995 Porcupine Round are now relinquished. All but one of the 11 licences issued in the 1997 Rockall Round are now relinquished.

In addition the cost of drilling exploratory wells in Irish waters is high because environmental factors require the use of deep water drilling rigs. These are much more expensive to operate than shallow water rigs.

In the North Sea the average water depth is less than 200 metres and an exploration well costs about €8 million. The last 2 exploration wells drilled offshore Ireland were in 1500 metres of water and cost in the region of €20 million each.

Also, the relative lack of existing infrastructure for handling these resources means that the cost of exploiting the fields, should finds be made, are much higher.

The rationale behind the current terms is to encourage exploration in the Irish offshore. Despite the fact that some people view them as excessively generous, there have been very low levels of exploration over the last 30 years and much of our offshore remains under-explored.

If we were as generous as the ideologues claim, surely we would have a greater response and interest. However, the reality of the situation is that it still difficult to sustain interest in prospecting in Irish waters. Of the twenty six Frontier Exploration Licences awarded between 1994 and 1999, each to run for at least fifteen or sixteen years, fully 21 have been relinquished. Surely, if we were sitting on these huge reserves, and were intent on giving them away, we’d be under siege from people looking for licences?

That said, there are indications that current prospects may prove to be more successful. One can only assume that commercial finds would increase the attractiveness of Ireland to those looking to prospect. On that basis, these licensing terms are, and always have been open to review.

If, at some point in the future a reform of the Irish fiscal system is necessary to redress the balance and to obtain a greater share of petroleum rent for the State then that will be done. If it is possible to extract a royalty payment without killing off interest in exploring Irish waters, then that will be done. But before we get to that point, we must have a viable sector to tax. I would remind deputies that 40 per cent or 50 per cent of zero, is still zero.

The fiscal regime we have in place must be sufficiently progressive to accommodate both future variations in oil and gas prices and the high cost of deepwater field development. I have recently put a review of the current scheme in motion and my Department will shortly be seeking tenders to have an expert review of proposed changes to the Irish Exploration and Production fiscal regime.

But these licensing terms were not always the same.

Until 1987, the terms did not exempt gas and oil developments from royalty payments. Therefore, the Kinsale gas field, from the outset, paid royalties in relation to its production. This is still the case.

While this field is now in its depletion stage, royalty payments received to date amount to just over €150 million.

However, by 1987, prospecting had almost completely dried up in Irish waters because the terms were regarded as unfavourable by comparison with those in operation in other jurisdictions. The decision was taken to change them. These changes tracked changes made in other North Western European countries. Royalty payment schemes ceased to apply in the United Kingdom, Norway the Netherlands or Denmark - the major oil and gas producers in North West Europe. When these countries, each a much more inviting prospect to oil companies, changed their tax system, Ireland had no choice but to do likewise.

It is worth pointing out also that the tax system in Ireland was not changed until 1992.

Deputies also came up with the bright idea of forcing companies to use certain Irish ports.

As these deputies should be aware, the government of any EU member state may not demand the use of certain ports by petroleum companies.

EU Directive 94/22/EC of 30 May 1994 addresses anti-competitive measures by national governments in the prospection, exploration and production of hydrocarbons, and sets out a narrow range of areas where conditions may be set. It is simply not an option for the state to demand that companies operating in Irish waters base in one port or the other.

However, for reasons of practicality, a number of Irish ports have been used in recent years and this is likely to continue. For example, Killybegs has been a major beneficiary of offshore exploration off the west coast and a number of other ports, such as Cork and Foynes, also have the facilities to provide service ports for exploration activities.

Moreover, Cork Harbour has been used to service the Kinsale gas field since that field began construction.

I would also like to address some of the nonsense being propagated around the public consultation process for the next allocation of licences ... It is alleged and repeated in this motion that we did not meet our obligations under the Strategic Environmental Assessment Directive (2001/42/EC) and S.I. 435 of 2004. This is plainly untrue. My Department advertised the process in the Irish Independent on 11th April, and local papers in Counties Donegal, Sligo, Mayo and Galway later that week.

It held regional consultative meetings in Sligo on 20th April and Galway on 21st April. Three meetings were also held in Dublin on 18th and 19th April for the industry sector, non government organisations and State to present the draft Report, to explain its methodology and conclusions and to hear any concerns.

The Report was made available on the internet and in county libraries and a 4 week period for the receipt of responses to the report from the public.

General Comments

I want to take this opportunity to emphasise to the House that our regime for the governance of oil and gas exploration and production is the best fit for our unique circumstances. Current high energy prices present us with both a series of challenges and a series of opportunities. The challenges are obvious, but the opportunities may be less so.

We have an opportunity now to foster a new environment for oil and gas exploration in Irish waters. We can, through careful use of the policy instruments available to us, take advantage of increased interest in areas like Ireland because of high prices, and of new technologies in deep sea exploration, and, with a little luck, dramatically reduce our dependence on imported hydrocarbons.

But this can only be achieved if we continue to strike the best balance between royalties for the state, and the possibility of greater energy independence.

Equally, this state must retain the confidence of its people in its competence to deal with any international company that operates in this jurisdiction. As I have explained in this House before on a number of occasions, there is a complex and comprehensive range of regulatory and legal instruments in place which must be fully complied with by any company if they are to operate.

It is clear that there is a comprehensive and thorough regime in place for the management of these projects, and, as deputies will be well aware, developments are in train in relation to the Corrib project that will further strengthen this.

However, because of the concerns expressed by local residents and the fact that this was the first use of this type of pipeline in this country, and not withstanding the aforementioned list of consents, I ordered a further comprehensive safety review of the onshore pipeline in August of last year. Advantica, world leaders in the field of pipeline safety, were appointed to carry out this work.

They conducted an exhaustive and highly professional review of the project as a whole, looking at all aspects of the design and manufacturing procedure. Additionally, and with the aid of my Technical Advisory Group, they conducted two separate phases of public consultation with the community in the area, the first to elicit general queries on the subject, and the second to present a draft report and hear responses.

I received the final report of the safety review in the second half of January. I have been considering it in consultation with a special Technical Advisory Group within my Department who I also asked to report to me on it.

I published both the Advantica Report and two separate TAG reports today. Advantica found that proper consideration was given to the route and design of the project, and, if certain conditions are met, that the project “should be accepted as meeting or exceeding international standards”. It also set out a series of recommendations, which I am accepting. Central among these recommendations is that setting a pressure limit of 144bar on the pipeline would, in combination with the very thick wall, dramatically reduce the risk to those living in the vicinity of the line.

The second report published today is from the Technical Advisory Group or TAG. Apart from accepting all the Advantica recommendations and recommending to me that they be adopted, TAG has also made some recommendations in its own right. In particular, they made one in relation to redesign of the landfall isolation valve to incorporate a further stage of pressure limitation over and above Shell’s current design proposals. The effect of this is to demonstrably guarantee that Advantica’s recommendation on limiting the pressure is achieved in practice.

Moreover, on the recommendation of both the Advantica and TAG Reports, the future responsibility for the safety of the Corrib pipeline and for policing the conditions under which consents are granted, will be transferred to the energy regulator, CER, under new legislation. Until that time, that function will continue to be exercised by TAG.

The policy and regulatory environment in this country for this type of projects is therefore not static, it develops in response to new technologies and new ways of doing things. This safety review process should be regarded as an example of how an Irish government can take on board, and deal with change.

Obviously, there remain some deeply felt local concerns. Some time ago I appointed Mr. Peter Cassells as mediator in the Corrib dispute. Mr. Cassells was former General Secretary of the Irish Congress of Trade Unions from 1989-2001 and was one of the main architects of the Social Partnership Agreements. He continues to work in that role, and he has my full support.

In other words I have done everything in my power to ensure this piece of vital infrastructure is safe. At every juncture, I have tried to ensure that the concerns of local residents were taken into account. They have been. Now my mind turns to the people of the North West who will benefit from the pipeline.

I hope that the ongoing mediation process will allow all those concerned to work together to resolve the difficulties that have arisen. It is crucial that the project proceeds as a matter of urgency and I urge all sides to engage constructively in the mediation process.

The Corrib Gas Field is a major infrastructural project, which has the potential to play a significant role in the economic and social regeneration of Mayo and the northwest region. It will facilitate the improvement of the region's infrastructure and increase local employment, in both the short and long term. The development will also increase Ireland's security of supply by providing a reliable, secure and indigenous source of gas. It remains a national priority.

Proposed Counter-Motion

I move to delete all words after “Dáil Éireann” and substitute the following:

Recognises:

• that the development of Ireland’s natural resources benefits the citizen of the State:
• that the present fiscal terms for petroleum are based on the present perception of prospectivity in Offshore Ireland and recognise that we compete with other jurisdictions for exploration investment
• that the State is in receipt of royalties in relation to its major production facility at Kinsale
• that the completion of a comprehensive (and expensive) work programme is a requirement of frontier licences and failure to complete such a programme will result in either relinquishment or revocation of the licence
• that in practice Irish ports are widely used by petroleum companies but an obligation for the compulsory use of Irish ports would be anti competitive and contrary to EU law
• the need for the State, as part of its energy policy, to increase the share of petroleum to be provided from indigenous resources in Offshore Ireland
• the implementation by the State of its requirements under the Strategic Environmental Assessment Directive (2001/42/EC)

Notes:

• that work is already underway by the Minister for Communications, Marine and Natural Resources on a review of the State’s present fiscal terms to ensure that the State receives its appropriate share
• that the Department of Communications, Marine and Natural Resources is engaged in the monitoring of petroleum exploration and production operations to ensure that the State is fully informed and fully benefits from these activities
• that proper and comprehensive consultation is carried out in relation to petroleum activities
• The continuing enhancement of policy in relation to renewable and alternative energy

Rejects:

• a freeze on the issue of any further exploration licences including Frontier Exploration Licences which would not be in the national interest.
• the need for the establishment of any new agency or inspectorate in light of the structures currently in place and being put in place
• the need for any change in existing Government policy in relation to petroleum activities other than the review of fiscal terms currently underway and any changes which might be necessary following the publication of the Advantica and other reports.

ENDS