The Corrib gas field - did we get it all wrong?

Maskhadov

In the last number of months Shell Oil Company started to build its on shore refinery to remove the gas form the Corrib gas field. There is a lot of discussion over whether it should be off shore or on shore but that is not the topic of this thread.

The government in recent years gave out generous contracts for companies to explore for oil /gas off the coast of Ireland. They only have to pay something in the region of 20% corporation tax on the profits of oil / gas which they take out. The companies exploring off the coast of Ireland can write off all of the expenses that before they give a cent to the Irish people.

In contrast to this generous Irish model, Norway had ensured that they receive a great deal more than Ireland. There has been numerous wells found off the coast of Norway and the Norwegians charged a great deal more from the company than a marginal increase in corporation tax. It funded most of their infrastructural development along with things such as pensions and the like since they found the oil all those years ago.

The Irish government reckons that no one would have looked for oil or gas if they didn’t enhance the profits which the companies could make. I personally think that companies would have explored the region if they knew a resource was there. Once they do find something the Irish people are losing billions each year.

What is everyone’s opinion on this ? Do you think the government has made a mess of the whole situation ?

cal29

I think your right If they believed that the gas/oil was there they would have drilled for it it might have delayed the finding of the gas as the companies may not have been in a hurry to look for gas they would have to pay for as they were for gas they can have for nothing.
But if it was there and they could make money at it then they would have drilled for it one way or the other

It should not be forgotten who signed this sweetheart deal for the oil comapnies Ray Burke formerly of Mountjoy prison

Maskhadov

This may come back to haunt Ireland in later years. Especially if Shell start taking billions out of the sea and give us peanuts. We will be the laughing stock of Europe.

Maskhadov

RTE are covering this story on their 6.1 news. It is highlighting the fact that regarding gas in Norway, things were done properly. This off shore development wouldnt have been allowed to happen in Norway and we got it all wrong.

daveirl

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daveirl

daveirl wrote:

This post has been deleted.

I did not see that news report.
However it would be very easy for a norwegian mp to criticise a campaign like the R5's if Norway doesnt have a similar pipeline running inland and near houses.

Ajnag

You can easily think Ray Burke's deal was a disgrace while thinking the R5 are completely wrong.

True, but this has been boiling under the surface for years, afaik its been 3-4 years since magill released a fairly good article on how the current situation came about, but even before that many were watching it. Ive a feeling that many have been taking the r5 as an oppertunity to make this an issue.

Reguardless of what you feel on the r5, this is a good opertunity to publisise and adress the issue and try to obtain a better deal. We all know about peak oil, we all know that those resources will be a hell of alot more viable in the next twenty years then they have been in the past twenty, and we know that in the face of this we have no obligation or motivation to provide incentive to exploration companys.

So whys everyone being so complacent?

Indymediphobia?

Maskhadov

its important to note there are two stories here, one is Ray Burke's deal to hand over the gas fields which was terrible/is terrible and a disgrace and the other is the current Rossport 5 stuff. You can easily think Ray Burke's deal was a disgrace while thinking the R5 are completely wrong.

I concur. I think burke just ripped the county off and we will be hard done by in the future years

John_C

I think that it is a little bit disingenuous to wait untill gas is found and then complain that there is a profit being made from that particular well without including in your calculations the wells which were drilled without finding gas.

Feel free to link to the correct numbers as I'm only remembering these from an article I read a good while back but my understanding is that 2 billion euro worth of gas has been found in Mayo and that including the failed wells the cost of finding and extracting it is 2.5 billion. Using the Norwegan model proposed the government would be 500 million euro out of pocket.

Is this correct?

John_C

John_C wrote:

Is this correct?

It depends when you read the article.The price of Gas is tied to oil.A year ago a barrel was less than $40 and now it's $70 and predicted to go to maybe $90 or $100 so it's already doubled.

Taking that into account, then Burke had to negotiate something special in the early days to get them to consider exploring it in the first place as the oil price was so low back then.

Right now I'd have no sympathy for them with the price so high and rising-they are in my view and rightly so capitalising on that.Theres no reason why the government couldnt look at all options though to get an increased part of this new pie.
Mind you they are anyway given that tax is in proportion to the value.

bonkey

Maskhadov wrote:

The companies exploring off the coast of Ireland can write off all of the expenses that before they give a cent to the Irish people.

Why is this viewed as somehow unfair or unusual?

Isn't it absolutely normal for companies to write-off start-up costs over a period of time? Why should oil- and gas-exploration costs be any different?

In contrast to this generous Irish model, Norway had ensured that they receive a great deal more than Ireland. There has been numerous wells found off the coast of Norway and the Norwegians charged a great deal more from the company than a marginal increase in corporation tax. It funded most of their infrastructural development along with things such as pensions and the like since they found the oil all those years ago.

This is correct. The Norwegians nationalised their resources, and then invested the money in developing their own technology and expertise in order to exploit their own resources. As the sevent-largest oil producer and third-largest oil exporter in the world (figures here) this made economic sense. To suggest that a small number of small (in the global scale of things) gas finds means we should do anything similar is stretching credulity, especially when a financial estimation of how it would be profitable to take this path seems to be noticeably absent from anywhere these claims are made.

The Irish government reckons that no one would have looked for oil or gas if they didn’t enhance the profits which the companies could make.
I personally think that companies would have explored the region if they knew a resource was there.

At the risk of pointing out the obvious, you do realise that your argument here is that people would have come looking for oil and gas once they knew it was there? Exactly how does one look for something thats already been found?

Once they do find something the Irish people are losing billions each year.

No, they're not. Not until you can show what the relevant costs and profits would have been from nationalising the resource. Oh - and bear in mind that you don't know how much or how little gas is out there when working
out whether or not it will be profitable to spend billions over who-knows-how-long to gain the ability to extract the stuff as a national resource.

What is everyone’s opinion on this ? Do you think the government has made a mess of the whole situation ?

I think the government may have made a less-than-optimal deal, but that the criticism being made of it is almost entirely incorrect and based on a vision of how the hydrocarbon economy is structured which has little to do with reality.

Ajnag

I think the government may have made a less-than-optimal deal

Which is the crúx of the issue to us as the taxpayer reguardless of how accurate our view of the issue is.
Also, Although ray burkes other criminal activitys should be enough to at least merit an investigation of the issue. Unlike tribunals and other ongoing investigations of the state, this may actually have financial returns.

In reguards to nationalisation, your points re norway are valid, however we also have mechanisms of public private partnership to consider as well. In any case an examination of our options to maximise profit from our resources would do no harm.

bonkey

Exactly Anjag...

my point was that while the deal is open to criticism, suggesting that a better deal would be the Norwegian model strikes me as unsupported and - quite frankly - over simplistic. There may be better deals we could have struck, but the problem is there are very few people to strike deals with.

Take a different perepective. Assume our government were faced with a choice of the deal they struck or leaving the gas in the ground, should we have taken it? I'm not saying that was the case....just asking.

jc

Ajnag

Assume our government were faced with a choice of the deal they struck or leaving the gas in the ground, should we have taken it? I'm not saying that was the case....just asking.

And it's a valid question. The answer of course depend's on context, In terms of the agreements struck in the past, It was a valid option to try and get someone extract the resources based on the energy market of the time. Ironiclly tho, 20 years later we are only now just getting to do that, just as the value of the resources is increasing in such a way that we can be confident that it will be worth doing and not nessisarly with incentives to do so. In any case, the goverments obligation to us is to obtain the greatest possible profit, and as such any deals should be open to continuous review.

There may be better deals we could have struck, but the problem is there are very few people to strike deals with.

Im not so sure of this, Anthony O'Reilly now has a resource company called providense who are exploring offshore. If he can do in the midst of the giants of Oil, then we may have a better bargaining postion then we are giving ourselves credit for.

Thomond Pk

AJ has had a stake in Providence for a long time as an exploration company involved in the very early stages of exploration.

The exploration scene off the West Coast was extremely shambolic until the First marine geological survey was completed in about 2002 or so. From both a governmental and corporate view it was pure risk as no-one could say with any certainty what the risks were.

My own view is that one must look no further than the government minister who signed off on it. It is also known that Statoil are extremely embarressed about this, I hope that their embaressement is converted into compensation and technical improvement. Shell have behaved terribly and will face Section 35 treatment henceforth.

John_C

Ajnag wrote:

In any case, the goverments obligation to us is to obtain the greatest possible profit

You must also consider the non-profit benefits of the gas. It's likely that in the near future energy supplies will become more scarce. If our only source of gas was through the interconnector with Britain we would only get any gas when Britain had some to spare. The ESB and other users can now plan for the future with more certainty. Even if the government makes very little from the well in tax we are still significantly better off that if the gas had never been found.

Thomond Pk

John_C wrote:

If our only source of gas was through the interconnector with Britain we would only get any gas when Britain had some to spare.

One of the benefits of EU membership is linkage to the European gas grid; quite frankly your talking ..............

John_C

Thomond Pk wrote:

One of the benefits of EU membership is linkage to the European gas grid; quite frankly your talking ..............

Maybe I am, I'm not an expert in any of this. My common sense does tell me that a supply from Mayo is much more relyable than a supply from Arabia via Europe and Britain. There's a thread here about peak oil issues and, while I don't believe that the world is coming to an end, it does seem that energy could get more scarce in the future. If this does happen I'd have more faith in a big pile of gas coming ashore in Mayo than I would in an EU directive forcing foreign countries to sell us their own scarce supplies.