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    Ireland removes upstream threat [NGW Magazine]

Summary

The Irish government has blocked a bill banning drilling. It argues it could jeopardise security of supply but the sigh of relief from the upstream might prove shortlived. [NGW Magazine Volume 4, Issue 14]

by: Joseph Murphy

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Featured Articles, Europe, Premium, NGW Magazine Articles, Volume 4, Issue 14, Political, Supply/Demand, Ireland

Ireland removes upstream threat [NGW Magazine]

Ireland’s oil and gas industry has welcomed the government’s recent prevention of a controversial bill that would have blocked new oil and gas drilling permits. But while the country’s offshore operators can breathe a sigh of relief for now, antipathy towards upstream activity in Ireland and elsewhere in Europe remains a threat to development.

The Climate Emergency Bill, if passed, would have made Ireland the fifth country in the world to block new oil and projects by preventing the issue of new licences, following the lead of Belize, Costa Rica, France and New Zealand. The bill was put forward two years ago by opposition MP Brid Smith of Ireland’s People Before Profit (PBP) party and was passed by two majority votes in the Dail, Ireland’s lower house of parliament.

After a period of mounting uncertainty for oil and gas developers, the government managed to stop the bill in its tracks this month, however. Prime minister Leo Varadkar’s cabinet achieved this by applying a “money message” – a provision in the Irish constitution used to block legislation if it leads to an increase in spending. Explaining its decision, the government warned that the bill, if adopted in law, would cause the state to incur losses from obligations to existing holders of offshore drilling permits. It also warned of legal pay-outs if these operators challenged the legislation, as was deemed likely.

“The government has not supported the Climate Emergency Bill because it does not reduce Ireland’s greenhouse gas emissions, it does not help us meet our 2030 emissions reduction target, it does not encourage renewable energy and it undermines our security of energy supply,” a spokesperson for the government’s department of communications, climate action and environment, told NGW.

Ireland relies on gas to generate more than half its electricity. It currently draws 60% of its gas supplies from the Corrib field off the coast of Mayo, along with several smaller fields, while the rest is imported.

Corrib and other existing projects would have been unaffected by the bill but new discoveries are needed to replace these fields as they reach maturity. Corrib itself, first brought on stream by Shell in 2002 after a lot of local opposition from landowners, is expected to become depleted by 2030.

Reactions

Supporting the government’s decision in a statement, the Irish Offshore Operators’ Association (IOOA) noted that Russian gas supplies to Ireland emitted 34-38% more greenhouse gases than domestic supply, while LNG imports from Qatar created 22-30% more.

“There is recognition by the government of Ireland that we need to ensure energy security post Brexit and that further development our offshore sector is a vital element in achieving this,” IOOA CEO Mandy Johnstone told NGW.

She went on to say that the oil and gas sector had a role to play in ensuring that discussion of offshore exploration was “based on evidence, science and fact.”

“Too often those who shout the loudest have been allowed dominate, even though many of their claims do not stand up to any scientific or even logical scrutiny,” she told NGW.

Shares in London-listed Europa Oil & Gas surged 24% on the afternoon of July 5, after the government’s decision was announced. The company operates six licences in Ireland’s Atlantic zone containing six drill-ready prospects. It is also negotiating to farm out stakes in three licences to a major international oil firm. Greater regulatory certainty is likely to speed up this process.

Another gas explorer poised to benefit from the bill's demise is Predator Oil & Gas, which said on July 8 that the “pragmatic” political development had sharpened its focus on the Ram Head gas discovery, assessed to hold up to 38.8bn m³ of prospective gas. Farm-ins will now become easier to arrange.

"The Ram Head prize is potentially large enough to attract interest from substantive parties," CEO Paul Griffiths commented. “Conditions are right in Ireland now to re-approach some parties." 

Irish outlook

Asked what more the Irish government could do to spur investment, Johnston had some suggestions. “The primary requirement is for a transparent, robust and legally binding administrative and regulatory regime for field development, so that all stakeholders have a clear understanding of the issues involved and how they are to be addressed,” she told NGW. “This should include consultative mechanisms, defined time lines for permitting, and unambiguous definition of the technical standards to be applied to the various aspects of field development.”

In the event of a major discovery, she said a mechanism should be put in place to co-ordinate the input of various state agencies, in order to facilitate development.

“Most importantly there must be the assurance of a reasonably predictable field development process,” she said.

Still, Johnstone was upbeat about Ireland’s prospects offshore, noting that new entrants and existing operators were investing significant sums in data acquisition.

“These new data, together with new ideas driven by the vibrant geoscience research sector in Ireland, have led to increased prospectivity in offshore Ireland that is reflected by the recent conversion of licence options to frontier exploration licences,” she said.

Frontier exploration licences require operators to drill at least one well in order to proceed with the second phase of exploration.

“This, along with rising oil prices, is likely to result in an increase in drilling activity of the coming few years,” she said. “There is a very real prospect that we will see a repeat of the success of the Kinsale Head and Corrib fields,” she concluded. “Their impact on the Irish economy and energy security cannot be overstated.” 

Prospects across Europe

While the government’s rejection of the anti-drilling bill is a positive step, that the draft law made it so far is testament to the level of public and political opposition to oil and gas exploration in the country.

Hostility towards upstream development in Europe in general is on the rise, with Italy’s new populist government announcing plans in January to block the issue of 36 oil and gas exploration permits, as part of efforts to curb the country’s carbon footprint. Geologists have argued that Italy could potentially have the resources to significantly raise its gas output, which fell 1.6% last year to 5.2bn m³. But development has been stifled for decades by red tape.

Elsewhere Scotland is reluctant to lift a moratorium on hydraulic fracturing, which has been in place since 2015. This has frustrated Grangemouth-based petrochemical giant Ineos’ plans to target shale gas to the south and west of Falkirk. The company earlier this month had its exploration and development licence for the 400-square area renewed for another 12 months until the end of June 2020. But the project’s prospects look dim, with the Scottish government now working on a finalised ban on unconventional oil and gas exploration.

Even in places where the drilling technique is permitted, operators still have to contend with numerous local regulatory and planning issues, as Cuadrilla Resources has found in northwest England.

Back in Ireland, while anti-drilling legislation is dead for now, there is a risk that a successor government – there are calls for a snap election this year – could reverse the country’s course. This uncertainty weighs down on development prospects.

UK shale explorers see ‘huge opportunity’

Private equity-backed Cuadrilla, the first company to hydraulically fracture its wells to produce gas in the UK, has made favourable comparisons of the Bowland shale under Lancashire with similar shales in the US. It fractures well, producing grid-quality gas; but it is thicker, and closer to pipelines than those in the US. It calls shale a “huge opportunity” for an import-dependent UK.

But it has two obstacles in its path: the government, whose regulations are too tight to allow a fair test of commerciality; and protesters.

Last month it won a victory over the latter, as three were found guilty of contempt of court for trespassing and breaching an injunction. Cuadrilla CEO Francis Egan said local communities found the main problem for locals was “the disruptive activities of a small group of activists,” not Cuadrilla or the “exaggerated claims about micro seismicity which causes no more vibration than that experienced everyday by standing by a busy road and not the hydraulic fracture process itself, which the wide ranging and comprehensive regulatory monitoring of our operations has proven to be safe.”

The regulations remain challenging though. The government appointee supervising the compliance resigned earlier this year, saying that the allowed limits on seismicity, a tiny fraction of what is allowed in other jurisdictions, were tantamount to a ban. Another explorer, Ineos, has given up on the UK shale for that reason.

Cuadrilla will do more hydraulic fracturing and flow testing of natural gas, remobilising equipment in the third quarter of 2019 and, subject to all required regulatory approvals, complete the work programme by the end of November. It is however planning to ask for an extension to the licence for its first well, as there has been so much down-time.

It said in July that the programme will provide the evidence needed to bring induced seismicity limits on shale production into line with other UK industries such as quarrying, construction and geothermal.

“We are also working to demonstrate that natural gas produced from UK shale is likely to be the most environmentally sensible and economically beneficial long term feedstock for hydrogen generation, essential if the UK is to hit net zero COemissions by 2050,” Egan said.

Another shale explorer, Igas, has also had good results from its east Midlands well. CEO Stephen Bowler said the positive dataset was “highly promising and materially advances our understanding of the hydrocarbon resources contained within the shales in the Gainsborough trough, where Igas holds a large acreage position.” And good operational performance during drilling cut the budgeted well costs by a fifth. It will provide an update this quarter.

He said that as the independent Committee on Climate Change recently reported, by 2050 the UK will still need 70% of the gas it uses now. Of that, the UK will need to import 86%, if it neglects its own shale; it will also forgo the employment and tax benefits, and the lowering of greenhouse gas emissions.

NGW