Michael Colreavy (Sligo-North Leitrim, Sinn Fein) | Oireachtas source

Reports are reports, whether they come from an Oireachtas committee or from Wood Mackenzie, but let us look at what is happening in this country at present.

The gas from the Corrib field is expected to start flowing next year or in 2016. Do we know how much income the State will receive once the operation is in full production? Do we know how much it will cost the State in facilitating the company to bring that gas ashore? Do we know how many permanent jobs there will be for Irish workers once the gas is flowing? Do we know how much profit the company will make from the field once it is in full operation?

After the allowable write-offs, do we know how many years it will take before Irish taxpayers seen any financial return from our national resource? Do we know how many years it will take for Ireland to recoup its expenditure on this project? I suggest the answer to these six questions is that we do not know.

Ireland’s oil and gas terms have been the subject of much controversy over the years. Some people feel that while the country is broke, there is a lot of change at the back of the couch in the form of our oil and gas reserves. While this might not be entirely true, it is fair to say this State has not exploited its natural resources to a level where the public and the public coffers see a significant return. This has been the result of poor policy decisions in this area for many years, coupled with the State allowing private industry to call the shots while shirking its own responsibility.

The Government may not have a comprehensive strategy on maximising the return from our natural energy resources but the companies certainly do. In the absence of a detailed, comprehensive strategy outlining the State’s vision and plan for our natural resources, the companies simply run rings around us. In fairness to the Minister, Deputy Rabbitte, he has initiated the development of a Green Paper and policy for natural resources and renewable energy. I hope that my endorsement and that of Deputy Ó Cuív do not damage the Minister’s political prospects but it needs to be said he has recognised the need for a good, detailed comprehensive strategy for Irish natural resources. He is to be commended on that but the work needs to be expedited.

There is a common misconception among the public that Ireland needs its low oil and gas taxation take in order to promote exploration and develop our oil and gas industry. Successive Irish Governments and the oil industry lobby have propagated this myth for many years. The successful oil and gas lobby, with the help of the Independent News & Media group, have spun the myth that Ireland’s current system of taxation is the best deal there is in the exploration of our natural resources. The line which this lobby group spins is that the more oil and gas that is extracted from Irish waters, the more jobs there will be for Ireland. This lobby also claims that the current system of oil and gas exploration off the Irish coast will ensure energy security for Ireland and the State will not be so reliant on imported fossil fuels. Oil and gas company PR spokespersons also subtly imply that Irish homes will have access to cheap fuel if oil and gas companies are allowed to proceed under the current rules. This is not true; it is a myth.

Ireland’s offshore oil and gas reserves have the long-term potential to be a significant source of revenue for the economy. According to a 2006 report carried out by the Department of Communications, Energy and Natural Resources, there are approximately 10 billion barrels of oil equivalent off our western coast, composed of 6.5 billion barrels of oil and 20 trillion cu. ft. of gas. At current oil prices, this would be valued at approximately €540 billion. We should stop apologising or explaining the technical difficulties in gaining access to that oil or gas. While it is true that the actual amount of oil and gas brought ashore has been small, those reserves exist. At present, there is very little gas and no oil being extracted from Irish waters, but we have the potential to do so.

Companies that discover oil or gas in Irish territory are not obliged to supply these resources to the Irish market. Not only that, our licensing terms are so weighted in the industry’s favour that they do not require the companies to bring a single drop of our oil or gas ashore in Ireland. Ireland’s licensing terms do not award the country with fuel security. When the Government awards oil and gas companies with a licence, ownership and control of Irish oil and gas is transferred to that company. It other words, it is abdicating. Under the current licensing terms, the Government cannot guarantee that the oil and gas will be sold to the Irish market, that the oil and gas will be landed in Ireland or that the companies will use Irish workers. Irish consumers must pay the full international price for oil and gas found off Ireland’s coast. In a period when the world is nearing peak oil production, it is important that Ireland secures its fuel supply.

By international standards, Ireland's licensing terms are extremely generous to oil and gas companies. A report carried out in 2007 by the US Government Accountability Office studied the licensing terms of 142 fiscal systems. The report found that Ireland has the second lowest government take of all the countries studied. In the United States, there is a minimum government take of 42%, and in Norway, the government take amounts to 75%.

As new technologies emerge and develop, along with the rising price of oil and gas, reserves that were previously dismissed are now becoming commercially viable. However, at present companies are entitled to rely on their own data in assessing commerciality. The current system governing the control of Ireland's oil and gas reserves cannot be allowed to continue.

Under the 1992 and 2007 licensing terms, a 25% tax on the net profits of oil and gas is applicable. However, oil and gas companies can write off 100% of costs against tax, including costs incurred up to 25 years before field production begins and including the cost of any unsuccessful wells drilled anywhere in Irish waters in that 25-year period. Under the 2007 licensing terms, a profit resource rent tax, PRRT, was introduced. PRRT is payable on a profit ratio calculated by the cumulative after-tax profits on the specific field divided by the cumulative level of capital investment on the specific field. Oil and gas companies may be subject to pay PRRT on after-tax profits of between 5% and 15%. This means that an oil and gas company may pay up 40% tax on its profits. However, in reality only the largest of oil and gas exploration fields would pay the higher tax, and small and medium-sized fields would pay little or no PRRT.

The changes to the fiscal regime announced recently by the Minister are welcome in some respects. They show that those who protested against Ireland’s poor tax terms on offshore oil and gas have been proven correct. However, the changes announced will not have a major impact. The 5% royalty on finds is welcome but it could hardly be described as a burden on the oil and gas industry. The increase in the maximum rate of PRRT falls far short of what the report produced by the Oireachtas Committee on Communications, Natural Resources and Agriculture proposed in 2012.

The report of the Joint Committee on Communications, Natural Resources and Agriculture, entitled Offshore Oil and Gas Exploration and published in May 2012, outlined a number of recommendations. While it stated that retrospective changes to fiscal and licensing terms can risk long-term reputational damage, it also agreed that "future agreements can reflect policy changes necessitated by significant changes in the policy context and circumstances, for example a large increase in the number of commercially viable finds or the size of fields".

The report went on to state:

the Joint Committee believes that the overall tax take should, in the case of future licenses, be increased to a minimum of 40%. The PRRT should increase from existing levels according to a sliding scale based on the rate of profit (i.e. to give an overall tax take of 40% for small commercial discoveries, 60% for medium commercial discoveries and 80% for very large discoveries).

I intended to outlined the recommendations made in the report but I probably do not have time to do so. It is clear that the issue of our offshore oil and gas has not gone away. Our oil and gas reserves may not be the quick fix to our economic woes that we would wish them to be but that is not how we should view them. Instead, we should view our natural resources as part of a long-term project aimed at a securing financial return for the State and developing an energy policy for this nation.

I will conclude by speaking about an energy project that we should not be considering regardless of the fiscal system put in place. I refer to hydraulic fracturing, or fracking. We all know that pressure is growing from vested interests who want to push fracking onto the unwilling people of Ireland, most immediately in the west and north west of the island. Ministers in both jurisdictions are telling us not to worry or get alarmed because nothing will be done until the EPA publishes a report indicating whether fracking can be carried out safely. They say they will agree to nothing until they are sure the technology is safe.

The demand to introduce fracking came from a company or companies with a vested interest in getting as much money as possible for the shareholders. There was no public or political conversation. The request to submit tenders for exploratory licences was issued in the dark of night by temporary Ministers in both jurisdictions just days or weeks before they faced the electorate. The matter stinks to high heavens. The Minister, Deputy Rabbitte, argues that fracking can be a game changer if it can be done safely and that it would be foolish not to carry out research to prove whether it can be safe. I advise the Minister, however, that some things are so self-evidently bad for this and future generations that they should not be considered by the EPA, the Government or anyone else.

I challenge anyone to look at the beautiful unspoilt scenery of counties Leitrim and Fermanagh and argue that the few years of shale gas supply which may be available can be extracted without destroying our landscape. I challenge anyone to say that tourists would continue to visit the deserted industrial wasteland that would be left behind once the frackers have taken our gas and money, and ran. I challenge the EPA to justify how an area so susceptible to water contamination that a man cannot build a family home with a domestic septic tank could be considered suitable for fracking. I challenge anyone to convince me that agriculture and property values would not be destroyed in this area if we permit fracking. Irrespective of the illusory promises of jobs, revenue for the State and increased energy security and regardless of the bribes paid, the companies putting this forward will not and cannot enforce the conditions set or the promises made. Their sole role is to get planning permission, sell it on, take the money and run. We cannot inflict this on future generations of Irish people.

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