Opinion: Who would have though that there could be 850 billion cubic feet of natural gas waiting to be brought ashore off the west coast and nobody really seems all that interested. The locals don't want it to happen; SIPTU's not that impressed and Bord Gáis doesn't seem to care, writes John McManus.
Now it appears that Shell - which owns the gas - is not really that bothered either. Certainly the not-very-subtle signals emerging from the company are that if things do not go its way shortly on the planning front it will be off. With the exception of the ever-restless natives of north Mayo it is hard to understand the logic behind the nonchalant position adopted by all the other players in this drama.
SIPTU - which represents offshore workers - explains its lack of enthusiasm for the project as a reflection of the fact that the economic benefits to the State of the project are minimal. It argues that the only tangible benefit will be a handful of jobs in the west. The reason for this is the over-generous terms granted to Shell and all the other oil majors involved in exploring for oil and gas in Irish waters.
There is no doubt that the terms do seem generous. Shell and its partners - Statoil and Marathon - will have to pay no royalties and are subjected to a corporation tax rate of 25 per cent, which SIPTU believes is one of the lowest the in the world. In addition they can write off 100 per cent of their capital expenditure in the first year of operation and have unlimited carry forward of unused allowances.
Similarly, 100 per cent of operating expenses are deductible while 100 per cent of exploration costs can be written off in year one or as early as possible thereafter. In addition, any other exploration costs incurred in the 25 years before the development of the field can also be written off against Corrib profits. These generous terms are justified, according to the Government, by the difficulty of attracting oil companies to explore Irish waters and the immense problems they face when operating there.
On the face of it, it is hard to seek any income flowing to the State as a result of the development of the field and given the relatively small number of jobs involved SIPTU's position makes some sense. The Corrib project is more use to SIPTU as a tool to lobby for changes in Government policy that will lead to more jobs in the sector down the line.
Somewhat harder to understand is why Bord Gáis is sitting quietly on the sidelines when it might be expected to be jumping up and down at the prospect of losing a gas supply so close to home. A possible explanation is that Bord Gáis will presumably pay Shell the same price for gas that it pays North Sea suppliers to import gas through one of the two interconnectors under the Irish Sea. If this is the case, then it makes little difference to it whether Corrib goes ahead or not.
In fact, It might have a vested interest in not seeing Corrib go ahead. Thanks to the liberalisation of the market Shell will also be allowed to sell Corrib gas directly to Bord Gáis's largest customers via Bord Gáis's own network. The final irony being that Bord Gáis is footing much of the bill to connect the national gas grid to the onshore terminal in north Mayo. When you consider that the field will supply only 8 per cent of Bord Gáis's needs over the next 10 years, you understand why it might not care if it goes ahead or not. Shell's sudden coolness towards the project is a bit easier to fathom.
It is directly linked to An Bord Pleanála's refusal in June to sanction the onshore terminal Shell wants to build in north Mayo. The terminal will process and then pump the gas into the national grid. The board was very critical of the planned terminal and asked for information, including the data on the possibility of siting the terminal somewhere else.
Shell is to report back to the board by September 20th and in the meantime it has suspended work on the laying of the undersea pipeline from the Mayo coast to the Corrib field. Lest it be thought that this was just a tactic to put pressure on An Bord Pleanála it has been made known that Shell could be hit for up to €31 million in damages by the owners of the barge that had been lined up to lay the pipes.
Shell appears to have rather ominously linked the review of the terminal plans with a wider review of the whole project. According to Mr Andy Pyle, the managing director of Shell's Irish operation, a refusal by An Bord Pleanála to sanction the terminal could lead to a reconsideration of the project. Shell only acquired its 45 per cent controlling interest in Corrib earlier this year as part of a €5.7 billion takeover of Enterprise Oil and the subtext presumably being that what made economic sense for Enterprise, might not make sense for Shell.
This seems pretty unlikely. Shell and its partners, Statoil and Marathon, estimate that it will cost some €650 million to develop the field. They have already signed up Bord Gáis to buy some 60 per cent of the gas for a reported €470 million. This puts a value on the entire field of just under €900 million, which means that Shell and its partners will turn a profit of some €250 million. The tax bill on this would be minimal given the sort of write-offs that are available. In addition there is a reasonable chance that the field will turn out to be larger than is currently thought. The icing on the cake is that the Corrib partners are getting Bord Gáis to stump up the €127 million that it will cost to connect the Mayo terminal to the national grid.
It seems rather good deal to throw away merely because the locals in Mayo are doing what locals do everywhere in the world where Shell operates: kick up over environmental concerns. But maybe Shell has run the slide rule over the project and decided that a bit of planning hassle, a less than enthusiastic local gas company and stroppy unions are not worth their share in a virtually tax free profit of €250 million. I don't think so.
