Acting Chairman (Senator Paul Coghlan): I welcome the Minister for Communications, Energy and Natural Resources, Deputy Pat Rabbitte.
Minister for Communications, Energy and Natural Resources (Deputy Pat Rabbitte): I thank Senators for giving me the opportunity to contribute to the debate on the report of the Joint Committee on Communications, Natural Resources and Agriculture on offshore oil and gas exploration. The report focuses on an interesting and topical area of public policy and a range of diverse subjects and issues. The joint committee invested considerable time in the preparation of the report. Detailed evidence was taken from a range of parties and considerable time was spent in considering the information gathered. The work of the joint committee culminated in the publication of a detailed report which makes a total of 11 recommendations.
I am sure the joint committee’s report will make a valuable contribution to the debate on how we should manage our indigenous oil and gas resources to ensure the best result for the people of Ireland. The 11 recommendations included in the report reflect the broad nature of the report and address a number of themes, including the following: recognising the importance of Ireland’s legislative and strategic policy approach being fit for purpose; bringing a focus to specific aspects of the non-fiscal regulatory regime; considering interactions involving the public in general, as well as those relating to the communities of areas where development activity is planned; and the tax terms that should apply in the case of future commercial discoveries.
This is the first opportunity for either House to debate the joint committee’s report since it was published last month. I look forward to listening to the contributions of Senators on the report in general and the recommendations contained therein. I commend an important aspect of the report, namely, the inclusion therein of a detailed amount of factual material on Ireland’s historical experience of offshore exploration. This information is presented in a well structured, helpful and accessible manner to the reader. There have been occasions when debate on this subject area has been premised on myth rather than facts and it is a positive aspect of the report that it captures so much detail in a single document. Understanding Ireland’s petroleum exploration experience in the past four decades is important to a balanced consideration of what fiscal terms are appropriate for the country. Understanding our experience relative to that of neighbouring jurisdictions is, however, critical. It is helpful, therefore, that the reports contains considerable detail of Ireland’s exploration history and some detail on neighbouring jurisdictions, in particular, Norway.
Before engaging in a discussion of the report and its recommendations, it would be useful to, first, consider the wider environment within which policy and the regulatory framework is set. While the report recognises that the principal national legislation governing exploration licensing is more than 50 years old, a broad range of more recent national and European legislation also applies to activities in the sector. Much of this legislation addresses health and safety and environmental issues and is not specific to the oil and gas exploration sector. This is of relevance to some of the recommendations and a point to which I will return.
At a general level, I can make the following observations about the report’s recommendations. On initial consideration, there are recommendations that appear both sensible and desirable, while others are already covered by the existing licensing conditions and regulatory regime. Some recommendations need to be explored further, including several which have wider public policy implications, while there are others in respect of which I have strong reservations and remain to be convinced that they offer the right way to proceed.
I will address the recommendations in the context of the four general themes I have outlined. The report proposes that there be a clear and transparent fiscal and licensing regime which provides certainty for the State and the industry alike. It goes on to recommend that the 1960 Petroleum and Other Minerals Development Act be reviewed and that changes not be made retrospectively to the fiscal licensing terms. It also stresses the need for a clear strategy governing Ireland’s approach to petroleum exploration, pointing to the merit in such a strategy having an input in other initiatives such as the public consultation on the “Our Ocean Wealth” document.
The 1960 Act is important in setting out the high level exploration licensing regime and the rights conferred by the various authorisations. In the period since it was enacted a broad body of legislation at national and European Union level has also been enacted which is of direct relevance to petroleum exploration and production activities. This includes planning, safety and environmental legislation and against that background, my Department commenced a review of the 1960 Act earlier this year, which is ongoing.
I agree with the joint committee that it is important to have a licensing regime that communicates both stability and certainty to industry. This is especially true in circumstances in which Ireland is competing with other countries to attract exploration investment in the case of an industry where the nature of the business requires the taking of a long-term view. For this reason, I welcome the recommendation of the committee that no retrospective change should be made to the licensing terms.
Ireland has a very clear strategy in this sector, key elements of which are to seek to maximise the benefits to the people of Ireland from its indigenous natural resources, to provide opportunities and encourage private industry to take the risk associated with investing in exploration, to take initiatives to deepen knowledge of the potential of its offshore, in particular through supporting key research projects and to seek to have a robust regulatory regime in place to ensure that activities are carried out in a safe manner that does not harm the environment. In the future, it will be necessary to keep our strategy under review to ensure it remains fit for purpose in what is a constantly changing environment. As today is the first debate on what is a substantial and detailed report, I do not propose to dwell in detail on each individual recommendation. I will, however, comment briefly on the recommendations relating to the maximisation of production from a commercial field, the principle of unitisation and the issue of flaring of gas. If I am clear in my understanding of what the committee had in mind with each of these recommendations, then these issues already are addressed to a considerable degree by the existing licensing terms, together with the Department’s own industry-specific rules and procedures.
I wish to discuss the recommendations relating to public consultation and “community gain”. The statutory obligations requiring public consultation in the case of petroleum-related projects are very detailed and extensive. I do not know whether the recommendation is a statement recognising the value of public consultation and advocating continuance of the status quo or a suggestion that adequate public consultation is not already provided for. While I appreciate the latter might be perceived as being the case by some who made submissions to the joint committee, the reality is that all major infrastructure consent processes involve a public consultation phase, generally including an oral hearing. These requirements are not industry-specific and the obligations result from both national and European legislation. This means that any future oil or gas development project would be subject to a number of consent processes, each of which would have a detailed public consultation phase. The “community gain” concept is interesting. As a concept it is clearly not industry-specific. It also is complex, as communities are not homogenous and as a result what some may consider a gain, others may consider a loss. An Bord Pleanála, in granting planning consents under the Planning and Development (Strategic Infrastructure) Act, has included specific “community gain” conditions in some cases. The question of introducing such a provision on a statutory basis is a far broader question and would of course have implications well beyond the subject matter of this report.
I will turn to the recommendation in the report that has generated the greatest level of interest since its publication, that is, the recommendation for an almost doubling of the existing tax rate applying to petroleum production. As I already acknowledged, the report includes a good deal of useful historical information in respect of Ireland’s experience of offshore exploration. While the report recognises that “Ireland’s petroleum potential is largely unproven”, it does not address how this situation should be remedied in the future. The changes in the tax regime proposed are not of a minor or modest nature. What is proposed is a fundamental re-positioning of Ireland’s tax terms, bringing its tax on profits from petroleum production to a similar level as that of the United Kingdom and, in the case of very profitable fields, imposing a higher tax level in Ireland than that which applies in Norway. Norway, Members will recall, is the country to which some people advocate the Government should hand over the running of this industry. The proposal is that this new tax regime would apply in the case of discoveries made under exploration licences granted in the future.
The report sets out four main reasons for proposing these tax changes, namely, high oil prices, the impact of advances in technology on exploration success rates, the fact that not all regions with petroleum potential are politically stable locations for investment and recent positive indications from exploration off Ireland’s south coast. The first two of these factors, namely, high oil prices and new technologies, do not give Ireland any comparative advantage. They do not make investing in exploration in the Irish offshore more attractive relative to investing in the North Sea or elsewhere. I should add that advances in technology in the exploration sector, like most other sectors, tends to be of an incremental nature. It is still a fact that without exploration drilling, no new discovery will be made. This is a critical factor for Ireland, as drilling levels in the Irish offshore remain very low. Incremental advances in technology may help but more drilling is essential. Political stability as a location for investment is an advantage that Ireland has over certain other regions. However, this is by no means a new or indeed an exclusive advantage. It is also an advantage that is enjoyed by our neighbours, Norway and the United Kingdom, which have better prospectivity that has been demonstrated through decades of successful exploration.
The final factor that would appear to underpin the report’s tax recommendation is the positive news from recent drilling off the Cork coast. While the drilling results are encouraging, further work is required to establish whether this discovery can be declared to be commercial. If this discovery is declared to be commercial, that could be expected to have a positive impact in attracting more exploration investment to the region. However, the potential impact should not be overestimated and needs to be put in context. It would be positive as a new commercial discovery and Ireland’s first commercial oil discovery. It would, however, also only be Ireland’s first commercial discovery in well over a decade, with the last commercial discovery, the Corrib gas field, not yet in production. While it would be positive news, it would not by itself make Ireland the new North Sea.
I do not wish to be negative or to undersell Ireland as a location for exploration investment, quite the contrary, but one must deal in realities. The reality is that the Irish offshore is underexplored and its petroleum potential is largely unproven, particularly when compared with other petroleum regions such as Norway and the United Kingdom. The statistics on exploration drilling and on producing fields speak for themselves. A total of 156 exploration and appraisal wells have been drilled to date in Ireland’s offshore, compared with more than 1,200 wells in Norway and 4,000 wells in the United Kingdom. The United Kingdom has in excess of 300 producing fields while Ireland has only three, with a fourth in development. Norway is the second largest gas exporter and the seventh largest oil exporter in the world. Ireland on the other hand imports more than 95% of its gas and 100% of its oil requirements.
In my view, Ireland’s focus should be on how to encourage an increase in the level of exploration investment and exploration drilling in particular. This is what is needed if we are to establish the true petroleum potential of the Irish offshore.
It is important to recall that the principal factor driving exploration investment decisions by industry is the likelihood of making a new discovery. The challenge is how to improve the industry’s perception of Ireland’s prospectivity relative to that of other countries. Exploration drilling is the key. Last year we had one exploration well and this year there may be none. That is the backdrop against which we are having this debate. We have to recognise that Ireland is competing with countries such as Norway and the United Kingdom to attract mobile international exploration investment and cannot set its tax terms in isolation or we risk discouraging potential investment.
I thank the joint committee for its detailed report and look forward to hearing the views of the Members of the Seanad.
Senator Marc MacSharry: I welcome the Minister and I am glad to have an opportunity to make a few points on the report. I am not a member of the joint committee that prepared it. However, I commend the work of Deputy Andrew Doyle and the committee, including Fianna Fáil Senators Paschal Mooney and Mark Daly who would have participated in this debate but are unable to be here for it.
The points made by the Minister are not lost on me. We do not want to scare away the few prospectors who come our way. More should be done to attract exploration companies to Ireland. There are, clearly, scientific reasons certain areas are more rich in natural resources than others, but when one considers that there are 300 fields in the United Kingdom and three in Ireland, it makes sense that we should do all we can to increase the drilling taking place and ensure we extract the maximum amount.
I am also conscious that we must obtain an appropriate return from the resources at our disposal. While a 40% figure is radical, it is something that could be looked at. Oil and gas are finite resources and their supply will decrease rather than increase. In that context, we would have little to fear in striking a rate that was higher. Exploration companies would still come. As the Minister pointed out, we enjoy political stability and a number of factors are in our favour. The Minister has said they are not exclusive to Ireland, but they will become more exclusive as time passes. Because we are dealing with finite resources we would have nothing to fear in underlining the return we must get for them. Large companies are prepared to put considerable resources into what may turn out to be fruitless drilling expeditions.
I am interested in the report’s recommendation that we engage with our Norwegian and Portuguese colleagues and other countries with which we have direct relationships and which might be more intimately involved in exploration and not as dependent on the expertise of exploration companies as we are. We might learn from them how to increase our involvement, or about the potential for joint ventures with exploration companies in order to maximise our return. If we are not prepared to charge 40% on profits, there may be scope for us to have a piece of the action if we are prepared to take some of the risk. We may be able to enjoy some of the profits of fruitful offshore exploration.
In Ireland we tend not to have retrospective legislation or taxation. While I appreciate that reputational issues are at play, I would not overvalue reputation. The entire world’s reputation has been damaged in recent years on a great many levels. Doing the right thing can supersede any reputational damage. We might look to South American countries, although the reputations of some of them might not be great. Venezuela completely redesigned its hydrocarbon legislation to the benefit of the state. The Minister has said he is not in favour of upping the return to 40% for all new licences, but is there potential to look at existing licences to see if we could extract more from them? Resources are finite and a limited number of revenue streams are available to us, particularly in these times of recession. Is this something at which we could look? Is there a commercial angle for the State in existing licensing arrangements? It would be foolish not to throw our eyes over this, in the event that an opportunity could be spotted.
I agree with much of what the Minister has said. I commend those who participated in compiling the report and hope the Minister and his officials will be able to reflect on some of the points I have raised.
While we have him here, the Minister might comment on the fracking issue which is important in my part of the country. Senators Paschal Mooney, Imelda Henry, John Kelly and Diarmuid Wilson also come from the part of the country affected by it. I know the Minister is aware of the huge fears in the area, which I share. My stated position, for now, is that I am against fracking. There seem to be mixed messages and individual and group agendas at play. Listening to media interviews with representatives of the company, I am not imbued with confidence by their car salesman approach. I heard the chief executive of the company on Ocean FM, speaking from Hong Kong. The fear of people in the north west and the Shannon basin is justified, when one considers that France, a country hardly noted for its energy conservatism, has suspended all fracking activities, pending further investigation. A longer term study in the United States will not produce conclusive results for quite a few years. I know the Minister has spoken with the EPA. It is being suggested that if it wants more resources from the Department, it should give more detailed answers to the questions people are asking.
I have always promoted western development. The north west, being peripheral, needs extra help. If there is a bounty in the earth that can help that region and be extracted safely, we will all cheerlead for it. For now, however, there are so many variables at play that I am concerned about damage to the water table and other environmental by-products of this activity. On the one hand one has the polished car salesman approach of the company and, on the other, one has what people might describe as propaganda-type films - one was shown previously but I have never seen it. In the middle there are many people who have genuine concerns. I hope the Minister can enlighten us somewhat on it. Sometimes the enlightenment might be that we cannot do anything currently because the information is inconclusive. In the event that the information available to the Minister is inconclusive then the safest thing to do is to do nothing until such time as we have conclusive, detailed information available to us. I apologise for going off on a tangent on fracking but I took the opportunity to say it given the presence of the Minister.
Senator Tony Mulcahy: I welcome the Minister back to the House. It is important that we are addressing the work that has been carried out by the Oireachtas Joint Committee on Communications, Natural Resources and Agriculture as access to oil and gas could be welcome components of a successful economic recovery. The committee has produced an informative report stretching to more than 200 pages arising from various hearings the committee held between September 2011 and March 2012. I hope the Minister and his departmental officials will take much of what it contains on board and that he will work on the findings.
While the Department has responsibility for the exploration of oil and gas, it must be borne in mind that an independent body, the Commission for Energy Regulation, CER, has responsibility for the regulation of the activities of the oil and gas industry with respect to safety. The separation of responsibility was identified as a necessity during the Corrib dispute by Peter Cassells who said that it was an unsatisfactory position that the Department was charged with promoting gas and oil exploration and the monitoring of the construction and inspection of the pipelines. This shows that there have been problems in the past but that we are learning from them for the better. The report adds to the bank of information.
This country imports more than €6 billion worth of fuel every year, some from parts of the world that are currently experiencing much upheaval thus resulting in higher fuel costs. I have spoken many times previously about the problem and how we should examine renewable, indigenous sources of energy. We must also look for potential sources of hydrocarbon fuels in this country both onshore and offshore to reduce our dependence on imported oil and gas.
This country has not been a successful destination by international standards for offshore exploration companies with only four commercial discoveries since the 1970s, namely, Kinsale, Ballycotton, Seven Heads and the Corrib gas field. In terms of the number of exploration companies operating, the report indicates that this country is just about managing to avoid a net loss and that there was only one new entrant in 2011. According to the committee’s report we have had 182 wells drilled but only 24 have been for development and production. In its appearance before the committee in September 2011, the Department recognised the poor number of wells drilled when it said that we are typically doing one mile per year which is extremely low. It said that we needs tens if not hundreds more wells to make an impact. The way to change those figures is to create the conditions, be it through our taxation policy and-or how we award licences to exploration companies. The more wells drilled, the better the odds of finding more commercial fields. That will be achieved by issuing more licences, which will follow from attracting more licence applications, which will happen when the conditions in this country are attractive for the location of the industry.
We should look at the number of applications under the 2011 round of licensing when 15 applications were received. In comparison, in the recent round of applications in the United Kingdom 350 applications were received. The comparison might be similar to comparing apples and oranges as the United Kingdom has proven vast commercial finds since the 1970s but it is an indication that we must work harder to get the applications. No one is suggesting that we sell off the options for buttons but we must look at the models we use while protecting the resources for the State and the taxpayer.
The report makes 11 recommendations. They were developed to encourage the exploration of the natural resources for the benefit of the nation. We must do everything in our power to encourage both domestic and overseas exploration companies to identify this country as a location in which to set up operations. Some of the recommendations include a review of the Petroleum and Other Minerals Act 1960 to enable a clear and transparent fiscal and licensing regime; that the State should keep those regimes under constant review; the obtaining of geological data from all licensees is of paramount importance; that the State should consider ways of controlling production volumes as part of its resource management; and there should be a clear and comprehensive public consultation process at the first substantive stage, thus avoiding situations such as the Shell to Sea campaign.
It is recommended that the tax take should be a minimum of 40% but I agree with Senator Mac Sharry that I would be flexible on it if it meant getting more business. We must examine that issue. An important recommendation is that the Minister would draw up a strategic policy document for petroleum exploration in addition to maintaining the ongoing contact with other countries such as Norway and Portugal with a view to the exchange of ideas and to learn from their experiences. A recommendation that makes much sense is the prohibition of gas flaring. How many times has one seen on television shots of oil platforms burning off considerable amounts of valuable gas? One could run a lot of barbecues with all the wasted gas.
The offshore island gas industry has contributed to the development of the economy through discoveries such as the Kinsale gas field which was discovered by the exploration ship Glomar North Sea in 1971. The find resulted from the search for oil which started in the 1960s in the Celtic Sea. No oil was found then but the international exploration company, Marathon, discovered gas in waters only 100 m deep and a further 1000 m below the sea bed. The field was developed in 1976 and the first gas was brought ashore. Currently, it supplies approximately 15% of this country’s natural gas needs and when new fields such as the Corrib gas field come on-stream we will further reduce our need for imported fuels.
With advances in technology, fields once considered non-commercial can now be harnessed. The Barryroe field, which was discovered in 1973 by Esso in shallow waters off the Cork coast was classified as non-commercial. I believe it should now be included in the commercial finds column as data released by Providence Resources since the report was published in May forecasts 12,500 barrels of oil per day and 11 million cu. ft. of gas per day. The economic threshold for market viability of a field is 1,800 barrels per day. This model allows for horizontal wells, which while more expensive than conventional wells are much more productive and have less well heads, thus ensuring that significant savings can be made on extraction. It is believed that a potential saving up of to €650 million could be made on that find alone and the money could be invested in further exploration and development.
In addition to the Barryroe holding, Providence Resources has holdings at Spanish Point and the Burren. In the 1940s we were told that this country had little if any natural resources. We had low grade coal, lead, silver and a lot of turf which has become an issue in the recent past. The notion that oil or gas could exist onshore or offshore was laughed at, yet many things have changed in the past 70 years. I commend the report to the House. I especially thank the members of the Oireachtas joint committee, the oil and gas industry for the figures, SIPTU, community groups, the Norwegian Government and officials from the Department of Communications, Energy and Natural Resources for their work in preparing the comprehensive report.
Senator John Whelan: I wish to share time with Senator Kelly.
Acting Chairman (Senator Paul Coghlan): Is that agreed? Agreed.
Senator John Whelan: I too welcome the Minister to the House and – not unusually – his pragmatic and sensible comments and observations on the report. I commend the committee, of which I am a member, on the report, in particular the Chairman, Deputy Andrew Doyle. The report is an important volume and a benchmark which allows us to have an informed debate on this important issue.
I feel a little out of my depth discussing offshore oil and gas exploration. Coming as I do from the most landlocked county in the country, it is not something that will bother us unduly.
Senator Trevor Ó Clochartaigh: Senator Whelan could do a bit of surfing.
Senator John Whelan: The report is important in that it puts to rest much of the wishful thinking and fanciful discussion that often surrounds debate on the issue. Every once in a while information appears to suggest that oil has been found off Dalkey but we must remind ourselves that it is Dalkey and not Dallas we are talking about. I concur with the Minister’s position in that I am reluctant to race to imposing more stringent or severe tax penalties on energy exploration. We must encourage exploration rather than discourage it.
Senator White is not present but some years ago when Mr. Padraic White was chief executive of the IDA he pointed out that one of the difficulties they had in attracting investment was that people were reluctant to give up any portion of their idea or project and would rather see it wither on the vine than hand over any element of it. What I am saying is that 20% of an enterprise that is productive is better than 100% of an idea that is not realised.
Sometimes we have a very strange view of things. I am not someone who is in any way dismissive of environmental concerns - on the contrary - but one would have to ask whether these can act as a deterrent. We hope for all sorts of discoveries off our shores, but the minute we do find something - we have done so only sparingly so far - we try to impede it by protesting and objecting. We must consider the practical realities and try to achieve a balanced and sustainable way of using our resources if we strike oil off the west coast.
With the permission of the Acting Chairman, I would like to deviate slightly from the subject of natural resources. Rather than talking about resources we would like to have, we should concentrate on exploiting properly the resources we actually have. The finest and best natural resource in this country is water. No one can dispute this, as it does not seem to have stopped raining this year. I will take this opportunity to ask the Minister, through his good offices around the Cabinet table and as Minister with direct responsibility for the semi-state company, Bord na Móna, to expedite and embrace its project to establish at Garryhinch the first reservoir to be built in this country in 70 years, because Dublin and the Leinster region are running out of water. It is our most important natural resource and is central to all industrial development as well as being used for agricultural, domestic and commercial purposes. It is absurd to have any further delay on this project, which has been kicking around for the last decade. In terms of natural resources, that is something we need to expedite.
With regard to resources we do have, there is a proud tradition in the Castlecomer-Crettyard area of coal mining. Its coalfield has become redundant over recent decades, but with the advent of modern technology and machinery, it could be revived. There is a tradition of coal mining in the area and there are men who have first-hand knowledge of mining coal, many of whom are unemployed. Ireland is importing coal, but there is a viable coal seam in that region. Perhaps the Minister would find out within his Department why there is such an undue delay in issuing a licence in the Castlecomer-Crettyard area to extract the resources that are there, which would result in import substitution and eliminate the need to bring in coal from Poland and elsewhere. This would result in the production of hundreds of tonnes of coal, worth tens of millions to the economy, and would put 50 to 70 men back to bountiful work. I beg the Minister’s indulgence on these points, which are connected to the issue we are discussing.
Senator John Kelly: I welcome the Minister to the House again. Similar to Senator Whelan, I am a little out of my depth on this issue. I am no J. R. Ewing but I do want to talk about some of our energy resources. I would like to question the Minister on the Corrib natural gas field. I know he received a report from the Western Development Commission some months ago which contained recommendations about bringing natural gas to the west and north west. It suggested that this would save millions for local businesses. As I have mentioned before, the Shannonside Co-op in my own town of Ballaghaderreen uses more electricity than the whole town of Castlebar, so it would be very important for this gas to go along the natural route east.
The issue of fracking was raised by Senator MacSharry. The problem with fracking is fear of the unknown. We do not really know what is likely to happen if we allow companies to engage in it. I welcome the report that has been commissioned in the US, and the sooner we see it, the better, because this issue is of grave concern to many people, especially in my part of the country.
With regard to our energy resources, there are many new technologies coming on stream, and I am conscious that things will keep changing over the next 20 to 25 years. I gave an example of that today by mentioning companies that are creating energy in different ways, and as time goes by there will be new initiatives and technologies. The one I presented today was an example of cheaper electricity generation. It is green, clean and neighbour friendly and it does not create an eyesore in the landscape.
On that subject, as the Minister knows, wind energy is my pet project at the moment, but I am concerned that unless we start to consider other technologies to generate electricity, our landscape will be destroyed by wind turbines. I know it is the Minister’s opinion that we will not have wind farm developments at every crossroads in the country, but I am concerned about something that happened in Donegal County Council last week. Councillors were asked to lift the 500 metre restriction on the distance between wind turbines and houses, and they were sold the story that unless they did so, Donegal would not achieve even 3% of its wind energy targets. If Donegal cannot achieve 3% of its target while maintaining the 500 metre restriction, I can guarantee that turbines will be at every crossroads in the country, and particularly in Donegal. I have grave concerns about that.
The Minister has been helpful, suggesting to me that there should be public consultation on these issues and that there should be community gain, and I agree with him. Unfortunately, to date, public consultation has happened only after the deal is done. I welcome yesterday’s announcement by Mainstream in which it provided details of a proposed project. That is what I call public consultation. It did not do things in reverse order, signing sweet deals with farmers and saying what is in it for them before telling the public what it proposes to do. I welcome the announcement, although I hope the project does not affect the human right of people to live in peace and harmony in the countryside. I hope there will be community gain, public consultation and public agreement.
In addition, I hope that when such companies announce the creation of, for example, 4,000 jobs, these are actual jobs. When it comes to such announcements, there is always a certain amount of spin attached.
When I met the Finnish ambassador to Ireland in this House recently, I asked him about wind farm developments in Finland. He said that when wind energy was first introduced in Finland, everybody was happy with it as it was green and clean and they liked the turbines and so on, but now there are many objections to such developments, and if there are objections to a project, it does not go ahead. They do not force such projects on people who do not want to live beside them. We must think hard before we decide to destroy our landscape with wind turbines that will be an eyesore for years into the future.
Senator Pat O’Neill: I welcome the Minister to the House, and I compliment Senator Kelly on his achievement in getting wind turbines into the discussion. I thought this was a discussion of offshore oil and gas exploration.
Senator John Kelly: The Senator can stay offshore.
Senator Pat O’Neill: We know it is his pet hate. As a member of the Joint Committee on Communications, Natural Resources and Agriculture, which was responsible for drawing up this report, I am delighted to have the opportunity to speak on this issue today, as I participated in the discussions that led to its publication. Offshore oil and gas exploration has become a more topical issue in recent years owing to activities around our coastline, including the recent work that I hope has led to the discovery of an oilfield. I am relieved that offshore exploration remains somewhat uncharted territory for two reasons. First, the Constitution vests ownership of all natural resources in the State which is in the driving seat and sets the criteria for exploration and tax regimes. It has a heavy responsibility in ensuring licences are awarded in a transparent way that prioritises the common good. Under other regimes, too often decisions were taken for the wrong reasons and, as the late Seamus Brennan put it, matters were worked out on the back of an envelope. The people are fearful of what gas and oil exploration means for them. They are sometimes distrustful of politicians and fear that vested interests will win the day. Everywhere they can see examples of inappropriate projects being given the green light because of nod and wink politics.
The most controversial part of the Minister’s contribution relates to the tax regime. He mentioned that the proposed changes to the regime were not of a minor or modest nature. I am one of those who drew up the report and went through it in detail. It proposes four tax bands. The larger the find, the more profitable it is and the higher the tax paid. The proposal depends on profit ratios. The Government’s approach differs from that of its predecessors, in that it prioritises transparency and accountability. For this reason, the committee’s report was important. It was produced by a democratically elected group representing the full spectrum of opinion within the Oireachtas. Informed by consultation with many relevant groups, the report takes account of a carefully considered range of factors. It also makes a clear recommendation on the need for greater public consultation. We need an informed public debate. Oireachtas Members have a responsibility to inform themselves on these matters, given the potential economic and environmental importance of offshore oil and gas exploration to the State.
My second reason for welcoming the report is that for the first time it brings these issues to the forefront of Government decision making. We will look to some of our neighbours to determine best practice. As the Minister and other Senators have stated, the committee studied the position in Norway and Portugal, with particular emphasis on fiscal regimes. It has identified Norway which has a more developed offshore sector than Portugal as a model for how the exploration industry can be managed to a country’s best advantage. We are fortunate that we can learn from our Nordic neighbours in this regard and I urge the Minister to take full advantage of the Norwegian experience.
I emphasise the need to build public trust and confidence in this area. The committee has recommended that the Minister establish a forum of key stakeholders through which a policy on offshore exploration could be devised to ensure Ireland’s hydrocarbon resources are maximised for the benefit of the people. We do not need another situation similar to that in respect of the Corrib gas field. Policy formulation and licensing must be characterised by transparency and informed discussion. I wish the Minister well in this important work.
Senator Trevor Ó Clochartaigh: Tá céad fáilte roimh an Aire. Fáiltím go mór roimh an tuarascáil seo. Cé nach ball den chomhchoiste mé, shuígh mé isteach le haghaidh cuid mhaith den díospóireacht a bhí ar siúl agus tá suim faoi leith agam sa díospóireacht seo. Cuireann freagra an Aire an-díomá orm, mar gheall ar an meoin atá ann agus mar gheall ar an easpa soiléireachta atá ann maidir lena sheasamh i leith moltaí atá déanta.
I welcome the opportunity to participate in this debate and hope it will form part of a wider debate that will lead to the Government implementing the report’s proposals on the taxation of oil and gas profits and its other recommendations. The report was the consequence of the Minister agreeing last year during a debate on my party’s Private Members’ motion in the Dáil on oil and gas exploration to establish a review. While it does not naturally embody all of Sinn Féin’s recommendations for changes to the licensing and review terms governing oil and gas exploration, it goes a considerable distance in that direction. It is highly significant that it won all-party approval at the committee. This proves that, regardless of the sarcastic references during the Dáil debate by some Government Deputies to Sinn Féin’s alleged Darby O’Gill economics, most Members came to realise that the current regime was a travesty. Anyone familiar with the current terms will know of the political background to the changes and the role played by the former Minister, Mr. Ray Burke, and others who did not exactly cover themselves in glory in other areas of responsibility. The claim that the changes were made in the best interests of the State and its citizens is no more accurate than the claim that certain planning approvals were granted in the best interests of anyone other than the developers involved and their political cronies.
The report recommends a minimum tax rate of 40%, increasing in certain circumstances to 80%. That would bring the State into line with other states and take us out of the lower range of international oil and gas profit tax rates. There are also recommendations in respect of greater public supervision and involvement in exploration. Unsurprisingly, the companies’ response was to claim that any change would act as a disincentive. I was disappointed to note that, yesterday in the Dáil, the Minister appeared to support this line in response to a question. It is true that exploration off of our coast is difficult and costly. As the estimates of the value of what is forecast to be brought ashore from the Corrib gas field prove, however, there are significant payoffs. This explains not only why exploratory drilling continues but also the eagerness with which companies take up licences. This is indicated in the report which states 2011 saw the highest number of licences ever awarded. It was crazy that these licences were issued under the old terms before the Minister had received this report. The companies are not taking up licences for the good of their health. They are doing it because they know that they will make handsome profits. It is not a hobby or charitable undertaking. They have calculated the risk and the investment and have decided that it is worth their while continuing. This confidence has been repaid recently, as exploratory drills have confirmed large deposits in fields off the Dublin and Cork coasts. These finds will bring the companies involved considerable profits. Given that they are extracting natural resources, it is only correct that they be expected to pay a reasonable rate of tax.
My party proposes that the State take a majority 51% share in all finds and establish an exploration company. It is essential that it have the same direct input as other states such as Norway have. The success of the Norwegian state’s involvement is illustrated, perhaps ironically, by the fact that Statoil is one of the licensees in the Corrib field. Apart from ensuring the State is directly involved in the extraction of oil and gas, the establishment of such a company would ensure it would have full knowledge of the results of exploratory drills. This is essential, given that anecdotal evidence from people who have worked on rigs suggests the full results of oil and gas finds have not been disclosed. This also suggests that, in some instances, the companies involved have decided to sit on the finds as part of future reserves.
I was disappointed by the Minister’s statement. It was waffle and he did not make a major point or give any indication as to where he stood on the recommendations made. The tone of his flippant and dismissive reply is an insult to the work of the committee which spent hours working on the report and its recommendations. His only concrete statement was that he did not wish to be negative or undersell Ireland as a location for exploration investment, but he is underselling Ireland. Is he acting on behalf of citizens or the oil companies? His statement today and previous statements seem to place him on the companies’ side.
The report is in line with the opinions of many of the Minister’s trade union colleagues in SIPTU which recently published a report on the oil and gas industry. Its recommendations on using the industry to derive benefits and create employment in the State need to be taken on board. Not only should we benefit from the tax regime, but we should also ensure the creation of as much employment as possible in a unionised sense. Security of supply is an issue. From my reading of the licences, there is no such security. The companies could choose not to sell the oil and gas to the State. Where are the Justin Keating principles? Which Minister will stand up for the right of the people to ensure the greatest value for the State is derived from our natural resources? It should not be done to the companies’ benefit. They are not out there for the craic; they are there to make significant profits. The Minister is following the line of previous Ministers by siding with the companies as opposed to citizens who have a right to a just reward from the State’s natural resources. Beimid ag tacú go hiomlán leis na moltaí agus déanaim comhghairdeas le gach duine den choiste a rinne obair na gcapall ar an tuairisc seo. Tuairisc fhada chuimsitheach atá inti agus feictear dom go bhfuil sé náireach nach an tAire ag tógáil na moltaí ar bord i ndáiríre agus go bhfuil an cur chuige atá aige ag déanamh beag is fiú dóibh ar fad.
Senator David Norris: I welcome the Minister. I was very interested in the comments of my colleague from Sinn Féin who has reservations about the Minister’s position. I would probably share some of them.
I will go back to the beginning. My interest in the issue was first sparked by the Keating principles. That was a long time ago, in 1975, when I was beginning to get interested in politics. I knew Mr. Justin Keating who was the son of the great painter Seán Keating. He was a man of incisive intellect. He was a vet and an academic. He also had a strong commitment to the social values of the country and the constitutional notion that the wealth of the country should belong initially to the people. I know my colleague, Senator Trevor Ó Clochartaigh, mentioned the Keating principles, but it is worth putting more flesh on them.
The first substantial legislation on the use of Ireland’s oil and gas reserves was introduced in 1975 by Mr. Justin Keating during the term of office of a Fine Gael-Labour Party coalition Government. He was part of the Labour Party element. It was modelled on international best practice to ensure the people would benefit substantially from their own oil and gas reserves. Under the legislation, the State could acquire a 50% stake by right of viable oil and gas reserves discovered. In addition, production royalties at a rate of between 8% and 16% and corporation tax at a rate of 50% would accrue. In exceptional cases the 16% rate could be increased. The legislation also attempted to prevent the energy companies from sitting on exploration licences by specifying that they should begin drilling within three years of the date of issue of an exploration licence. I take it, or I hope, the Minister supports this and perhaps he might indicate his attitude towards the Keating principles which seem extremely fair.
In our experience of exploration we have got into bed with some very peculiar people, although they are powerful and large, buying publicity all over the place. I am speaking about companies such as Shell. I dissociated myself from and ceased my subscription to National Geographic - a wonderful publication - when it was bought by Shell for propaganda purposes and to show that it was environmentally clean, etc. We will not ever forget what the company has been doing and continues to do in Nigeria or the dangerous situations it has provoked all over the world. There was a murky case in which the company admitted complicity in the murder of Ken Saro-Wiwa and fined. These companies need much governance.
I accept that there is a judicious balance to be struck because until recently this was a marginal area and there was a problem in attracting companies with the necessary wealth to engage in highly technical deep water drilling. The rewards potentially are enormous. I compliment Senator Pat O’Neill and Deputy Andrew Doyle for producing this report which contains much information. The potential can only be realised if we understand the level of exploration required. There are potential reserves of 10 billion barrels-of-oil equivalent in the Irish Atlantic margin. I know it may be difficult to get at it, but technology is increasing in its sophistication, such that reserves that were inaccessible years ago are now well within economic range. Oil prices are also continuing to rise; therefore, what might not have been commercially exploitable ten years ago is now most certainly commercially exploitable because we have the technology available.
I have sympathy for the people involved in Shell to Sea, although attempts were made to discredit them by argumentum ad hominem, or looking at the people they mixed with. I was warned that I was associating myself with Eirigí, etc. but I am not scared by this if the idea is right. It is as simple as that. It is clear that we have much potential in our position. Looking at the map, we have an enormous segment of the Atlantic shelf. We are concerned with oil and gas exploration, but there are many other elements that can be taken into consideration. The scientific unit in Galway, with the two research ships, is doing an enormous amount of extremely valuable work in understanding how these elements could be used to the benefit of the people. The principle must be that they are used to benefit them. I am sorry the Minister has, apparently, set his face completely against retrospection. The Russians had no difficulty, in dealing with the same company, in introducing retrospection and renegotiating the entire deal. I suggest this could be considered in the case of Shell and the Corrib field.
What is the current position on Rockall, the ownership of which is disputed? It is probably the focus of a mineral rich area under the seabed and its position in international law is unclear. I remember attending a conference in the Royal Irish Academy a number of years ago at which international legal experts teased out the issue. We appear to take one view and the British another, as they want it too. Our claim seems to be much stronger. I ask the Minister to update us on the position. If it has not yet been clarified, I ask him to make a very strong defence of Irish interests.
The Minister has indicated he has examined the recommendations made in the report which, on initial consideration, seem both sensible and desirable. He has been positive, detailing the ones which have been covered and those that need further exploration. He has also outlined the recommendations about which he has strong reservations; I take it that retrospection is one of these but perhaps he has further information to give us.
The strategy outlined by the Minister, if carried into effect, is reasonable, but it is a statement of intent rather than anything directly practical. Seeking to maximise the benefits to the people is clearly in tune with the Keating principles and I very much hope the Minister will be in a position to comment on this. I have a motion on the Order Paper requesting the Government to revive and implement these principles. The Minister has also indicated a wish to provide opportunities and encourage private operators to take the risk associated with investing in exploration and deepening knowledge of the potential of offshore resources. I have referred to the work being done in Galway in this regard. The Minister has also outlined the need for a robust regulatory regime.
As I have been involved in the business of the House for the entire day from the Order of Business onwards, I have only had a little time to glance at the Minister’s speech. I do not intend any discourtesy if I misrepresent or misunderstand what I have read quickly. I am not sure if he referred to regulation, not just in the financial sense in order to produce the maximum yield for the people but also in terms of safety. In the case of Shell, there were a number of violations of safety regulations, environmental protection and planning laws. The BP oil spill was referred to in a report produced by SIPTU which might be recommended to the Minister. It sought proper safety regulations. I hope the Minister will take this into account.
It would be useful to receive an update on fracking. This is a new method of exploration, particularly for gas, and it involves the introduction of water at high pressure into the geological strata at a considerable depth. It has been successful in both Canada and Poland in producing significant gas yields. On the other hand, there are serious concerns about the environmental impact of this method of mining, particularly the effects of the unanticipated release of gases into the atmosphere and pollutants into the water table. Perhaps the Minister might refer to this. I may have to go somewhere else, but I will read his reply. I encourage him to use everything at his disposal, including the weapon provided by this excellent report, to extract the maximum benefit from our natural resources.
Senator Denis Landy: I apologise to the Minister for coming in half way through. I was at the seminar in the audiovisual room on the decreasing number of eels in our rivers, which is not unrelated and is subject to matters outlined by Senator David Norris. The Senator has been here since 10.30 a.m. and if he is taking a break, it is well deserved.
Deputy Pat Rabbitte: He needs a bite of an eel at this stage.
Senator David Norris: Did the Minister say I would take a bite at him?
Deputy Pat Rabbitte: At an eel.
Senator Denis Landy: I was going to suggest smoked eel.
Senator David Norris: I raised that issue about three years ago in the House.
Senator Denis Landy: The main issue I wish to mention is that of community gain, the term used by the Minister and to which the report of the committee refers. We have not been good generally where an industry has affected communities. There was a programme on TG4 on ore mining in north Tipperary, around Nenagh, and the lakes of leachate and other materials left behind which have since destroyed the environment of the area. The community did not gain from that project. I am also thinking about the mining of coal in the Slieveardagh area, specifically around Ballingarry and the Commons, where communities were depleted of their resources and when the mine was closed, the communities never recovered. We have, however, a shining light in the area. While there is a lot of criticism in some areas of the pharmaceutical industry, my experience in County Tipperary is that the pharmaceutical companies have become involved in the community, not just through financial sponsorship but by becoming involved with community efforts, driving environmental projects and generally being of benefit to the community. Will the Minister tell us how he sees this issue progressing and how the petroleum and other offshore industries can help out in this regard?
I have had some contact with people involved with the liquid gas project in Tarbert. To the best of my knowledge, the project is ongoing and the Minister inherited it. There is great potential for job creation and I would like to think there is also an opportunity for community gain. Something, however, is blocking the project. We are talking about the report today, but I would appreciate it if the Minister commented on this project also.
Senator Paschal Mooney: I was a member of the committee that prepared this report and we met a variety of stakeholders, both in committee and externally. Therefore, I welcome the opportunity for the House to discuss this important element of the Irish make-up, particularly if we manage to have a successful flow from the Atlantic seabed, as seems to be initially indicated. Perhaps we are in for better times.
The report debunks the notion that the tax regime introduced and altered by various Governments, dating back to Justin Keating’s first regime, is somehow overly generous. In comparison with the regimes in other European countries, it is generous, but time and again the report points out, not just from its own sources but from independent sources, that the Atlantic seabed is an inhospitable place, as we can see from the lack of success so far.
The most important issues relate to community interests. We should be getting a flow from the Corrib gas field by now. We are two years late at this stage, which is primarily, although not exclusively, a result of local protests. I fully support the right of anyone to protest and if I lived where those who are most active in protesting live, I might have a different perspective. Having said that, the last Government and the Government before it were negligent in the manner in which they dealt with local community interests. One of the major recommendations of the report is that we consider the vital issue of how best we can ensure community consultation and consent which can be considered to be independent by all of those concerned. When a resource is found, there should be a system in place to ensure agreement on how it is to be developed in such a way that it maximises the take for the State and its citizens, while, at the same, being sensitive to local needs in the host community.
In our dealings with the Norwegians we discovered they did not put the cart before the horse, as happened here. They went out first and looked after the planning, environmental and community issues. Everything was put in place and all the building blocks were laid before the go-ahead was given to drill. This relates primarily to significant offshore drilling where the results are processed offshore. There are only one or perhaps two onshore processing plants, but they went to great trouble to ensure they were accepted. We asked them about the onshore processing plant located about half way up the Norwegian coast and were told the objections were from people who did not like having it in the line of sight. That reminds me of what is happening in Dalkey, where people are complaining that they do not like the notion of a drilling platform in their line of sight in the beautiful vista out over the coast. That was the only objection expressed. When asked how far residents were from the onshore processing plant, the question was not fully understood by the senior Norwegian official until we asked if they lived a mile or two miles from the site. She replied that they lived beside it, that it was part of the community and had not generated the same opposition as the Corrib site. I am not comparing like with like; I am simply pointing out that has been their experience.
The history of how we arrived at this point makes for interesting reading.
I commend those elements of the report to Members. The report states quite baldly that Ireland has serious disadvantages with regard to offshore exploration for oil and gas reserves by comparison with other locations. In 1985, the 1975 exploration and production terms, as referred to by Senator Norris, were changed by the then Minister through reducing State royalties. In 1986, the coalition Government introduced further changes by abolishing State participation rights for marginal fields. In 1987, there was a change of Government and a new Minster for Energy. Later that year, the then Fianna Fáil Minister announced new fiscal terms that included the exemption of all oil and gas production from royalty payments and a 100% tax write-off against profits on capital expenditure for exploration. In 1992, the then Minster for Finance made a further change. In 1997, the current regime, under which the current Minister, Deputy Rabbitte, is operating, came into being. The outcome of the licensing round as a result of those changes suggests the strategy of offering two-year licensing options rather than offering frontier exploration licences has a positive result. The number of proposed awards is the highest of any frontier round, the first of which was in 1994.
I will leave Members with the following caveat: although the State was more successful in attracting applicants than previously, an article in the Financial Times in 2011 did, however, highlight the fact that none of the world’s major oil players applied under the licensing round. Therefore, those who perpetuate the myth that Irish exploration terms are so generous that they are bleeding the country dry need to go back and read this report. They will find the facts therein. I fully support what the Minister is doing in this regard. What will happen will benefit the Irish taxpayer in the medium to longer term.
I concur with the remarks of Senator Norris. The Minister may have an update on hydraulic fracking, to which subject I do not have time to devote today. I gather the issue is still dormant in that the company in question has not yet applied for a drilling licence. If the Minister has further information, I am sure the House would welcome it.
Senator Susan O’Keeffe: I welcome the Minister. I commend the committee and its report. I am not a member of the committee but particularly welcome the clarity of the recommendations, the manner in which they are laid out and the work members have done to achieve this.
I am interested in hearing the Minister’s view on a couple of the observations of the committee, particularly on the consultation process involving local communities. We all know now that there is no way in which any project of this nature can be embarked upon without consultation with local communities. We have almost arrived at a position in which we need to know what constitutes best practice for consultation, such that it will be genuinely effective and in order that some parts of the community will not believe others have usurped their opportunity to speak. Given the sorts of arguments that break out at community level, we need to ensure that when the process is put in place, it will have been put in place in the best possible way to ensure it will have real meaning. The people in local communities must feel they have genuinely been consulted and that they will be listened to.
Let me consider the idea that legislation should be kept transparent and simple. I am sure this is welcome. Those who examine legislation always wonder what most of it means. There is much at stake, as Senator Mooney reminded us. It is not as if companies are queueing up and that we are bleeding the taxpayer dry. This is not the case. What we want to do is have an industry and develop it correctly and appropriately.
The recommendation for the prohibition of the flaring of gas is very specific. It is worth making and I am heartened to see it in the report. Has the Minister any observation on it?
Other Members have referred to the relationship we may have with Norway. I am sure the Minister stated in the past that the circumstances of Norway and Ireland are not the same, but I hope the Department will draw on Norwegian experience and expertise, if it is available and if the Norwegians are willing to assist us. That would be good.
I welcomed the news earlier this week on the wind farms being set up in Offaly. While this is not directly related to the committee’s work at this point, I recommend the investment and welcome the export opportunities that were mentioned. This sort of progress is a reminder to us all that hydrocarbons are ultimately going to run out.
Like many other Senators, I will take the opportunity to mention fracking. One item of information I have been looking at relates to reports from Alberta, Canada, earlier this year. The relevant authorities have become very concerned about recent reports about water contamination and the use of methanol. Fracking is a new form of exploration and has been described as a “brute force technique”. These are probably good words to describe the process.
The 2011 US Congress report discloses that fracking fluids often contain substances such as coffee grinds, salt, ceramic balls, walnut hulls, lead, petroleum distillates and methanol, thus showing that anything can be used in the process. Therefore, it renders it unsafe. We need to have a serious debate on this. We will raise the issue again. We acknowledge that it will be part of the debate on how we look after our future energy needs. Consultation will be extremely important because this is such a difficult area.
Senator Terry Brennan: Cuirim fáilte roimh an Aire ar ais go dtí an Seanad. The offshore petroleum industry, as yet undeveloped, has the potential to be an important contributor to the State’s economic recovery if substantial discoveries are made. I am sorry I was not present for the Minister’s speech and, therefore, I hope I do not repeat some of his points.
The Irish Offshore Operators’ Association is concerned that a key recommendation of a recent report includes a proposal for a tax take as high as 80% of profit, which seems excessive. The proposed tax rates are comparable to or higher than those in Norway, which has an established industry and a high rate of commercial discovery and which refunds 78% of the cost of unsuccessful exploration. Taxing a fledgeling, undeveloped industry in Ireland at the same rate as a mature, developed industry significantly discourages companies that are currently considering Ireland as a location for exploration.
The Irish offshore industry effectively commenced in 1973. At that time, despite the drilling of numerous exploration wells, there was not a single commercial discovery and interest in Irish offshore exploration more or less petered out. It was proposed to reduce the tax rate to 25% but the poor discovery rate persisted and industry interest in Irish offshore exploration continued to decline. Of the 30 companies that have operated wells off Ireland, only five remain in any way involved, and of that five, only two are active in exploration.
There has been a lack of drilling success between 1975 and 2011. Only one significant commercial discovery, the Corrib discovery, was made. By contrast, in 2010 alone in the UK sector, eight new fields came on stream, with a further 13 new projects approved for development. In terms of drilling success, and notwithstanding the recent announcement regarding the Barryroe discovery, Ireland lags far behind the North Sea, unfortunately, and is seen as a poor bet for exploration investment. For instance, mobilising a rig from the North Sea and installing it off the west coast will cost around €6 million before a meter is drilled. A single deep-water well off the west coast can now cost between €70 million and €80 million. Ireland is perceived as an unrewarding and difficult place in which to do business. The extreme difficulties and delays in bringing a discovery into production in Ireland are well appreciated internationally. This is a country which depends on imported oil and gas for over 90% of primary energy. The new companies that have been awarded licences, while most welcome, are relatively small and, with one exception, there is an absence of companies which could be described internationally as household names. Norway is averaging approximately 50 explorations and appraisal wells per annum. It has 71 producing fields, with a further 64 at various stages of planning and approval, and another 49 discoveries awaiting evaluation. As far as the international oil and gas industry is concerned, Ireland continues to have serious reputational problems.
The offshore industry has already brought significant benefits to Ireland, at both national and levels, and has the potential for much more. Since 1978, the Kinsale Head gas field, together with its satellite fields, Ballycotton and Seven Heads, has provided energy security, clean fuel, taxation revenues and employment. Bord Gáis Éireann was established, and the original national gas grid constructed, on foot of the Kinsale Head development, as were the Nitrigin Éireann plant at Marino Point and the ESB gas-fired plants at Aghada and Poolbeg. The significant concentration of process industries, such as pharmaceuticals and food, in the Cork Harbour area was facilitated by the availability of Kinsale Head national gas. The original and subsequent capital expenditures on the field amount to more than €1.5 billion in today’s money, which is no mean fact.
The Corrib gas field, from now until completion of construction, will sustain 1,465 full-time jobs. During production it will sustain 175 full-time jobs. The extension of the natural gas grid to the north west, which would have been uneconomic without the support of the Corrib gas, has already brought natural gas to 12 towns in north Galway and Mayo, with the possibility of more. A report by the Western Development Commission in September 2011, which examined the benefits of extending the gas grid to a further 11 towns in the north west, estimated that €20.6 million could be saved annually in fuel costs between commercial and domestic users if natural gas were made available in these towns.
Senator Denis Landy: Whatever about gas, there is much hot air here.
Acting Chairman (Senator Marie Moloney): As there are no other Members indicating to speak, I call on the Minister to respond.
Minister for Communications, Energy and Natural Resources (Deputy Pat Rabbitte): I thank the Members of the House who contributed and repeat my appreciation of the Members of this House who were members of the committee that compiled the report.
I regret that one Member of the House seems to consider that I ought to have come in to the debate today with decisions already made on the report before the debate on the report commences. That is not a reasonable position. That is what I was accused of last year when I stated it would take some considerable time for the joint committee to do its work and that I had to get on with the business. The joint committee now has done its work and this is the first time the report has been debated. It has not yet been debated in the Lower House or in the committee itself. It is right that I should listen to what Members have to say before I make any decisions.
I also commend the House on the extraordinary creativity that brought in wind turbines, fracking, water reservoirs, Rockall, eels and LNG.
Senator Paschal Mooney: Fracking is specifically referred to in the report.
Deputy Pat Rabbitte: I stand corrected. If Senator Landy does not mind, I will give the eels a miss. On the LNG matter he raised, I can inform him that I sincerely hope and expect the regulator will announce a decision before the end of the month. It was delayed again, as the House will be aware because I was here recently, as a result of complaints lodged with Brussels but the expectation is that it will make the decision by the end of the month. I hope that will be good news for Tarbert and Kerry and for diversity and security of supply for Ireland.
I do not disagree with what Senator Whelan stated about the capacity of Bord na Móna, with thousands of acres of cutaway bog at its disposal, to deal with the water issue.
There is no fracking. That is important. There will not be any fracking until we have evidence-based advice available to us. I am sure most Members of the House agree with that. The EPA has made an initial report and the funding has been assembled to enable the EPA to conduct the kind of extensive study that would seek to allay the fears of people or produce scientific evidence on the practice by which Senators Mooney, MacSharry, O’Keeffe, Norris and Kelly can be assured, one way or the other. We do not yet have that scientific advice available to us. Indeed, it is not available elsewhere, although in certain states of the United States it has had the most dramatic impact on prices. Whenever we discuss the bigger picture, I will come back to that issue in terms of energy.
I will proceed to some of the more major points. First, I agree entirely with Senators MacSharry, Mulcahy and Whelan who stated that the issue is how to balance attracting investment and getting a return for the people. Senator Ó Clochartaigh advocates that I take a 51% stake and impose a tax level of up to 80% and he completely ignores the fact that there is no drilling going on. He stated that there are significant pay-offs which explains why exploratory drilling continues. Sadly, exploration drilling does not continue. There was one well drilled in 2011 and none so far in 2012. It is difficult to have this debate if, as Senator Ó Clochartaigh communicates to me, like some others, that he would be far happier going to bed at night in the comfort that we have a 51% stake in anything that is found, we have established a State oil company and we have an 80% tax rate, but we have no find. It seems to be entirely irrelevant that we do not make any find. The fact is we need the comfort blanket of saying: “By God, those large oil companies will pay through the nose if they come to Ireland.” Sadly, they have not been coming to Ireland.
Senator Norris raised with me the Keating principles established in 1975. The expectation in 1975 was that, as a result of what Senator Terry Brennan described, Ireland would have an offshore experience similar to that in the North Sea. Sadly, this has not been the case and only one find, the Corrib field, has been made since. I do not propose to discuss the Barryroe field and ask Senator Trevor Ó Clochartaigh to bear with me in this regard because neither he nor I has information from that field yet. I wish the company involved every success and will await the outcome of drilling there. The position remains that the Corrib field is the only find made since 1975.
I have genuine difficulty understanding how anybody can argue with the necessity to increase economic activity by attracting companies which will carry out exploration and drilling. Without them, we will not find whatever oil or hydrocarbons are in our waters. Senator David Norris spoke of there being 10 billion barrels of oil in Irish waters. We do not know if that is the case because it is an unproven, unestablished figure that featured in a report on potential oil finds in Irish waters. I sincerely hope 10 million barrels are available, but we must first find them.
Ireland does not have sufficient investment capacity to establish a State oil company to drill empty wells at a cost of €80 million per attempt. We do not have that kind of money. The question is how one pitches a tax regime that is consistent with attracting serious players into our waters to undertake the drilling and prospectivity required. My mind is not closed in this matter and I am happy to listen to arguments in this and the Lower House about what should be done. However, the fact of the matter is that the Keating principles did not produce results and it was my colleague, Mr. Dick Spring, another Labour Party Minister who held office after Mr. Keating, who loosened the terms governing exploration in the mid-1980s precisely because we were not having any success.
I have been accused of many things but never of being on the side of the oil companies. If that is the way Senator Trevor Ó Clochartaigh wishes to see it, that is fair enough. Dick Spring was not on the side of the oil companies either when he made the decision he had to make in the mid-1980s. Unfortunately, we still did not get results. We heard a passing reference to the former Minister, Mr. Ray Burke, and innuendo and so forth. There is no evidence that less restrictive terms produced results in bringing oil companies flocking to our shores to engage in drilling on the Irish continental shelf or elsewhere in Irish waters. This brings us to the decision by the then Minister for Communications, Energy and Natural Resources, Mr. Eamon Ryan, to alter the tax base in the Finance Bill 2008 by implementing a sliding taxation scale ranging from 25% to 40%.
Senators who are also members of the joint committee did not take the opportunity to explain the reason they had selected Portugal and Norway as comparators. There are similarities with Portugal which has, from memory, a tax rate of 27%. The joint committee decided to recommend a tax rate of 80% which exceeds the Norwegian rate of 78%. Why did it compare Ireland with a country with which it did not have a similarity? If one drills an empty hole in Norwegian waters, one is refunded 78% of the costs incurred and the strike rate in Norway is beyond our wildest dreams. If we only had the Norwegian strike rate for one year, it would make a considerable contribution to resolving our current difficulties. I do not understand the reason the joint committee did not recommend adopting the Portuguese tax rate, as distinct from the Norwegian rate. It is the uniquely advantageous geological structure of Norway that produces its extraordinary strike rate. One could go into a Paddy Power office and place a bet on having one strike in four drills, whereas one could drill around the Irish coast for a long time before finding another Corrib field.
While I have not made up my mind on this matter, I have a genuine difficulty in understanding how it would be a source of comfort to some people or how they would sleep easier in their beds at night if we had a tax rate of 80%, took a 51% stake and did not find any oil or gas. I would prefer to find some gas, if it is to be found, and some of the 10 billion barrels of oil to which Senator David Norris referred. Let the Minister for Finance of the day then decide what he wants to do about it.
Senator David Norris has stated I appear to have set my face against retrospectively making changes to the tax regime. I remind the House that for reputational and other reasons the joint committee, in one of its 11 recommendations, proposes that I should not change the tax regime retrospectively. This is not my recommendation but one made by the joint committee. The Senator also made some sensible remarks. He has stated he does not mind with whom he is associated and that he will continue to support the Shell to Sea campaign. It is correct that the companies involved in the Corrib field took their eye off the ball and there were genuine local community interests which should have been addressed. Since that time, however, the State has bent over backwards in every way it can. In so far as it is known to man to make safe the bringing ashore of gas, this has been done. Uniquely on the planet, we are engaged in constructing a tunnel under Sruwaddacon Bay at a cost of €400 million. What else can one do to improve the safety prospects locally? The €400 million cost will be written down against the costs of developing the field, which means the Exchequer must forgo €100 million in taxation. This cost is only a small element of the difference between the €1 billion anticipated cost of bringing the gas ashore and the €3 billion costs incurred as a result of delays. This is supposed to be a victory for the people. Is it a patriotic achievement that the project has cost €2 billion more than anticipated, that immense reputational damage has been done to Ireland abroad and that we have not yet brought ashore one cubic centimetre of gas? Something about the sea brings out a soft-headed romanticism in Irish people with which I find it very difficult to deal. We are either serious or not about exploiting an indigenous resource that may be available but difficult to find and achieving from it the optimum benefit for the people. I hope we can also develop an industry in the process.
Senator Marc MacSharry counselled a joint venture. If we have an industry and make a number of finds, that appears to be a sensible approach to take. However, we are trying to get companies with expertise, deep pockets, skills and a track record to engage in prospecting and drilling off the Irish shoreline. We could very well do with a find. Three finds since the days of Justin Keating is a very poor return, especially when compared with the endless finds made off the coast of Norway and elsewhere. This is the comparison that must be made and I am glad of the opportunity to start this debate because the report from the joint committee deserves to be debated in both Houses. Members should regard this as the beginning of this debate. I do not have a closed mind on it but people who have definite views on this matter must deal with some of the questions I have raised because I have practical decisions to make. The decision is whether to frighten off any prospect of drilling off our shore or whether I should be persuaded to impose a tax regime that has the probability of attracting heightened economic activity off our shore and, hopefully, the better prospects of making a find in the interests of the people.