Terry Brennan (Fine Gael)

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.