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Corrib – Ireland’s Last Offshore Development for a Generation

Printed below is an article by Tony Allwright, a retired Irish Shell EP manager. (SOURCE ARTICLE)

26 November 2011

Protests – overwhelmingly unfounded and politically unchallenged –
have trebled the cost of developing Ireland’s offshore Corrib gasfield.
This huge “
political risk” will deter further such investments for a generation.

Many years ago, in the late 1970s and early 1980s, there was a Dutch company with an Irish name, Shell Teoranta BV, whose raison d’être was to seek and hopefully find oil offshore Ireland (“Teoranta” is Irish for ““Limited”).  It drilled a number of wells – for  example, on 19th December 1979, the Irish Times featured a photo of a jack-up rig drilling an exploration well just offshore Dublin – but to no avail.  All the holes were dry.  Concluding that Ireland was a lost cause, Shell Teoranta packed its bags and shut up shop, though not before claiming a huge write-off from the Dutch taxpayer for all its futile Irish expenditure, a provision of Netherlands law which explains why Shell Teoranta was registered there. Shell reckoned it had better uses for its shareholders’ money than to fritter it away on the ultra-long-shots of Irish exploration.

Fast forward a few decades and Enterprise Oil, a significant independent British oil company though not in the same league as the majors, disproved Shell’s pessimism by discovering, in 1996, a small-to-medium sized gas field offshore Mayo, which it called Corrib.  Containing natural gas reserves eventually calculated to be around one TCF, ie a trillion cubic feet (equivalent to the energy of about 170 million barrels of oil), it lay 3,000 metres below the seabed in waters 350 metres deep some 83km off the north west coast of Ireland.  Notwithstanding that weather and sea conditions are among Europe’s wildest, and that Ireland possesses the barest of offshore oilfield infrastructure, the economics were nevertheless positive – albeit marginally so – thanks largely to the improved (from the oil industry’s standpoint) contract terms promulgated in 1987 by Energy Minister Ray Burke.

Enterprise Oil had never before attempted such a demanding project.  Yet in the year 2000 it decided to go ahead with bringing Corrib’s hydrocarbons ashore anyway, quickly busying itself with organizing finance, drawing up engineering plans and ordering equipment.  Yet its inexperience manifested itself early on and remained long undetected when it failed to discuss in any detail its plans with the local people, listen to their concerns and secure their enthusiastic support.  This is an elementary but vital step in the project process that the international oil industry has learnt the hard way over many decades.

The world-wide eruption of protests in 1995 at Shell’s environmentally sound decision to sink the North Sea platform Brent Spar in the far Atlantic was one of that company’s bitterest lessons.  This reputational catastrophe showed in starkest terms that it was no longer sufficient for the industry to be right; it must convince those who might be affected (even if only emotionally) by its plans that it is right.  Even Greenpeace eventually acknowledged that Shell’s original plan would have had minimal ecological impact – Brent Spar had been comprehensively voided of all toxic material and there is anyway little life on the Atlantic seabed at a depth of 2½  kilometers.  Shell realised that its prior philosophy of “Trust me” must be replaced by one of “Show me”.

Enterprise Oil’s failure to ensure that the locals were onside over the Corrib development was a mistake with enormous long term implications, as anyone with but a passing interest in the activist Shell-to-Sea organization will be aware.

In April 2002, Shell, chastened no doubt by the voracious acquisition of the US oil companies Arco and Amoco in recent years by its arch-rival BP, splashed out £3.5 billion to buy Enterprise Oil, whose portfolio of assets fitted rather well with Shell’s.

But like someone sitting down to a lunch of two dozen luscious Gillardeau oysters, the world’s most expensive, only to discover a bad ‘un among them, Shell found itself responsible for delivering a demanding major offshore development project in Ireland, by no means a blockbuster, in the country it had with good reason foresworn twenty years earlier.  Oh, and its return to Ireland meant it had to refund Shell Teoranta’s juicy rebate from the 1980s back to the Dutch taxpayer.

Nevertheless, Shell in good faith put together a team, including some Enterprise personnel, to take over the Corrib project.  Drawing on its extensive experience and expertise in this type of deep water harsh environment, it reviewed the Enterprise plans and in 2003 agreed a budget of €800,000 and four years.  First gas, as it is known, was expected in 2007.

So all was looking rosy.  What could possibly go wrong?  Well, quite a lot as it turned out.  None of it technical or financial or labour-related, the classical reasons most big projects run into trouble.

Shell’s first error was not to realise that there was a potential problem with the residents in the Ballinaboy area of County Mayo where the onshore pipeline was to be laid and the gas plant built.

Understandably, families were initially fearful that gas explosions might destroy their houses or even kill them.  They strongly preferred that the gas plant be located offshore (out of sight out of mind).

Enterprise Oil had done very little to explain to the residents not only the project, its robust safeguards and the virtual impossibility of the disaster scenarios they imagined, but also the benefits it was likely to bring to that relatively impoverished area in terms of employment, regeneration and reputation.

Thus a properly designed, operated and maintained pipeline simply will not fail, and speculation about failure is pointless.

Though the onshore pipeline was (initially) to run within 70 metres of some homes, as for the plant itself, it was sufficiently remote from residents’ buildings for them to be unaffected even in the highly unlikely event of a disaster.

But by the time, Shell recognised it had a problem with the locals, that problem had transformed from a rational fear to an emotional fury.  With the fury came press attention, with that came international interest, with that Corrib became a cause célèbre, and an opportunity for professional objectors everywhere to vent their manufactured spleen at a wicked multinational oil company whose only desire is to destroy the lives of simple natives.

The professional objectors have on several occasions been joined by overseas protestors, including the son of Mr Saro-Wiwa.  And with the inauguration in November of the left-wing Michael D Higgins as Ireland’s new president, the objectors now number the First Citizen among their supporters.  Though some funds are raised via websites, it is unclear who provides the bulk of its funding, but Sinn Fein and other sinister sources have been cited.  I have asked the major anti-Corrib pressure group “Shell to Sea” where it gets its money and am still awaiting a reply.

Meanwhile, from the moment Shell got involved with Corrib until the present, it has been on the back foot in trying present its side of the story to the world while simultaneously progressing the project.

I first wrote about these objections, in some detail, almost two years ago, in a piece titled “Organizational Dementia”.

The project itself has been exemplary in its technical aspects, and indeed in many ways is an industry trailblazer.  Shell, and particularly Ireland, should be in the position of bragging to the world of its prowess.  Ireland should be using the success of Corrib as a means to attract not just future investment in offshore (and indeed onshore) exploration and production, but also the vast, highly technical contract industry that supports such activities.

Instead, the project is conducted almost behind closed doors and talked about in whispers, in the shadow of continuous low-level but toxic protest, for fear of unleashing another round of hysterical tabloid agitation.  Earlier this year, a private, low-key purely technical presentation about the project to a select group of about fifty interested engineers had to be cancelled when Shell-to-Sea got wind and threatened to disrupt the meeting and call in the media.

For Shell, all these difficulties has pushed up the price tag from €800m to €2.5 billion.  But the nation is also paying a terrible cost that, both now and in the future, that no country can afford in these times of financial crisis and meltdown.

It is instructive to compare Corrib with other recent major offshore development projects.  One such is Norway’s Ormen Lange, in which Shell holds 17% and recently took over the running of the field:

So Ormen Lange, by any measure a bigger more complex project even than Corrib, was delivered on budget in just 3½ years.  Corrib, on the other hand, is expected to take twelve years – three times as long as originally planned – and to cost three times its original budget.

Have a look at another major construction project in an entirely different industry – aircraft construction.  Boeing dreamt up its 787 Dreamliner in January 2003 and eventually delivered it in October 2011.  This was 3½ years behind schedule, a big overrun, which was solely due to technical problems, apart from a two-month Boeing Machinists Strike.

Corrib’s far greater delay, by comparison, is due not to technical problems at all, nor financial ones nor labour ones.  Local politics, and the way they were handled, are entirely to blame.  How embarrassing is that?

The local politics boil down purely to those objections by local people, and their national and international supporters, to the onshore elements of the project, objections with only the thinnest veneer of legitimacy to start with, and none at all following substantial concessions instituted by Shell, principally

Meanwhile, for the past eight years the politicians have steadfastly looked on with, at best, bemused disinterest and without the slightest concern for Ireland’s industrial reputation.  Moreover, enforcement of the law has been low on their priorities and many (including the current president) have overtly supported the activists.

So view Corrib from the standpoint of outside investors.  A major, innovative project that has encountered no substantive problems in terms of technology, finance or industrial relations, is nevertheless delivered three times over budget and over time, due entirely to local impediments and the complete lack of political will to overcome them.

People will look at Ireland, and surely assign it a massive political risk of 200% to 300%.

The Corrib experience is such that there will undoubtedly be no further major investments of this nature in Ireland for at least a generation until this one has been forgotten.  Even industrial investors in other heavy industries will be looking askance at Ireland and asking themselves if the favourable corporate tax rate of 12½% is really worth the enormous cost of all the political hassle it can expect from local objectors and the spinelessness of politicians.

Far better to sink your money in havens such as Somalia and Iraq where the political risk will be much less punitive than in the erstwhile Celtic Tiger.

Ireland’s chance to showpiece its technical expertise and perhaps secure for itself a permanent corner of the massive, lucrative and long-lasting offshore market for the future is gone.

Meanwhile, Shell is licking its wounds and battling on.  Eventually, once natural gas finally begins to flow in 2015 (?) it will get its money back as it supplies Ireland with 60% of its gas, but it will be a long long slog.

Declaration of interest:

I worked for Shell for thirty years, though not through the Corrib period

SOURCE ARTICLE

RELATED REPORT BY A FORMER ROYAL DUTCH SHELL EXECUTIVE, MR PADDY BRIGGS

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