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Sunday Business Post (Ireland): Corrib: Does David need Goliath?

30 July 2006 
By Richard Curran

The growing momentum to solve the issues over the Corrib gas field might see the multi-billion-euro project actually move forward sometime soon. The publication of the report by the mediator in the dispute, Peter Cassells, into finding a solution may not in itself fix the problems but it is another step in the direction of finally landing new Irish gas on Irish shores.

At a time when gas prices for consumers and businesses are set to rise again, progress on Corrib couldn’t be more welcome. But pumping Corrib gas into Irish homes will not necessarily be the panacea that many might think.

The ridiculous situation of having a multi-billion euro gas find off the Irish coast and not being able to process it, will come to an end in time. The big question is what difference will it make to the economy.

Delays in getting the Corrib gas project up-and-running have cost Shell and its Corrib partners, Marathon and Statoil, millions of euro.

Ironically, that cost has been more than the increase in the value of the gas in the field since then.

Shell has been quite coy about exactly how much gas is in there but reliable estimates based on current market prices suggest there is around €9 billion worth of gas in the field. This is a conservative estimate of the potential long term value of the field.

Recent rises in the price of gas on international markets mean the find has probably increased dramatically in value since the delays have taken place.

At a recent briefing of stock market analysts Shell’s chief executive confirmed that there is enough gas in the find to satisfy 60 per cent of Ireland’s current annual gas needs.

The current annual consumption of gas in Ireland is about 1.8 billion therms, the unit in which gas is traded in the wholesale market.

The forward price for the next 12 months for a therm is about 62p sterling so the total cost of gas in the Irish market would equate to about €1.6 billion for the next 12 months.

Gas prices have been increasing in the last few years and the 62p would have been about 24p just two to three years ago.

The publicly-quoted figure for the size of the Corrib gas field is 1 trillion cubic feet – this is about 28 billion cubic metres or 10 billion therms.

Based on these estimates Corrib could sell about €980 million worth of gas into the Irish market every year for six years.

The overall life of the field is harder to assess. Shell have suggested that it could have a life of 15 years, but that doesn’t mean it would produce sizeable flows for that length of time.

The pressure and flow is likely to decrease as the field gets older.

However, according to industry experts, there is no reason why Shell shouldn’t find more gas beside the current find which would ensure greater flows for longer and greatly enhance the production life of the total area.

Shell is already exploring for more gas nearby. ‘‘Even if they found just pockets of additional gas in the area, which wouldn’t generally be commercially viable, they could use it because with the infrastructure in place, these pockets would become profitable’’, one gas expert said.

If subsequent finds were enough to ensure the same gas flows for all 15 years, the field could be worth €15 billion on today’s market price.

There will be plenty of buyers for Shell’s gas, but there won’t be any bargains struck just because the gas has come from Irish waters.

Several years ago, after the find was confirmed Bord Gais reached an agreement to purchase a sizeable chunk of the Corrib gas, but that agreement has lapsed and new discussions will have to take place, not just with Bord Gais, but with other potential purchasers.

Bord Gais doesn’t really forward buy long-term into the market.

Those kind of forward agreements have a renegotiation clause along the way, therefore limiting the kind of benefit the company can get from long-term forward purchases. So Corrib gas won’t be any cheaper. It will be sold at the market price.

Paul Kelly, deputy head of energy supply at Bord Gais, said the main advantage from Corrib gas was security.

‘‘It will enhance the security of supply which is to the benefit of all consumers,” he said. ‘‘It will be priced at market value, which is fair from the Corrib partners point of view.”

Security of supply may not seem like a massive advantage, but in a European market threatened by higher prices and volatility of supply, it could be very valuable when the time comes.

Ireland imports 85 per cent of its gas needs. That figure would fall considerably if and when Corrib gets going.

Most of our imported gas is bought from Britain, which has also become a net importer of gas, so security of supply could become an issue in the future.

There are other more immediate commercial advantages for the economy from the find. According to Shell, more than 700 jobs will be created during construction and a further 50 permanent jobs will be in operation on the plant. There is also the potential to bring gas to areas of the West not connected to the national grid.

The make-up of any solution to the Rossport stand-off will be closely watched by other exploration companies drilling off the Irish coast.

Whatever solution is worked out, it will become a template for resolution of these kinds of issues with local communities in the future.

Ireland’s exploration track record has been pretty abysmal. Companies have spent close to €2 billion between 1971 and 2003 drilling 140 exploration and appraisal wells.

There haven’t been any commercial crude oil finds, and the only gas has come from Kinsale.

As long as there is a stand-off between locals and Shell in Mayo, we have billions of euro worth of gas 83 kilometres from the coast, just sitting there.

A resolution to this would send out the right kind of signals to other companies considering investing millions in drilling for oil and gas off our shores.

Shell has had to learn some hard lessons about how to deal with local communities in Western Europe.

And rightly so. But equally the government and communities in remote areas with poor employment prospects, are also learning from the Corrib experience.
 

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