Policy on natural resources could be a waste of energy

Although the Republic's North Sea neighbours sit on vast seas of oil, the only commercial fuel deposit so far discovered in Irish waters has been a pocket of natural gas off Kinsale, due to run out around 2004.

Years of optimism that the largesse found in Scottish and Norwegian waters could be captured off Irish coasts have proved unfounded. Low prices on world oil markets combined with hostile drilling conditions in the Atlantic have deterred most international oil companies from venturing into Irish seas, despite a highly favourable tax and licensing regime.

And while hopes are high that last year's find in the Corrib gas field off Mayo will prove commercially viable, critics say the Government is missing the boat.

"We contend there's huge potential in oil and gas. We've told the State on countless occasions but they've never listened to us," says Mr Padraig Campbell, SIPTU's oil and gas representative. "The State seems to be just happy with getting another gas supply to replace Kinsale. We're saying they're missing the point."

Government policy has been to try to find indigenous sources of energy to reduce the State's dependence on imported fuel which can be subject to price fluctuations, as happened during the oil crisis of 1973. The Kinsale discovery in the early 1970s offered the opportunity to develop a natural gas industry.

Since Kinsale went into production in 1978, it has produced 1.5 trillion cubic feet of gas - about 20 per cent of the Republic's energy needs. This amounted to cumulative savings of £3 billion (€3.8 billion) on imported energy during the period, according to a spokesperson for the Department of the Marine and Natural Resources.

But although more than 130 exploratory wells have been drilled around the coast since Kinsale was discovered, none has shown real promise - until last year's Corrib find. Enterprise Oil, the primary licence holder for Corrib, has said there could be up to one trillion cubic feet of gas there.

But the find is in deeper waters than Kinsale and the cost of bringing the gas ashore could be prohibitive. The company plans to dig a third appraisal well during the summer, although industry sources widely expect the find to be declared commercially viable later this year.

SIPTU and ISME, the small business association, are concerned that the spin-offs from the Corrib exploration could go to Ayre in Scotland where Enterprise Oil has its main service base, rather than to port towns of the west coast.

ISME wants an overhaul of the tax regime for exploration as well as strategies to maximise the spin-off to local business. SIPTU wants the Government to focus on what it sees as the job-creating potential of the oil and gas support sector.

But it's not that simple, say officials. "Under EU law, you can't make an oil company use Irish services. All you can do is make it attractive for Irish companies to get the work," says Gerard Keane, principal engineer in Enterprise Ireland's offshore engineering division. Between 1970 and 1998, the offshore oil and gas industry spent £183 million with Irish companies to service and maintain their offshore exploration wells, says Mr Keane.

The overall contribution to the economy, however, was higher. A study commissioned by the Irish Offshore Operators Association, the oil industry body, estimates that total expenditure on offshore exploration in Irish waters since 1970 was £642.5 million - £1.4 billion in 1998 terms. The study estimated that direct expenditure in Ireland was £392.3 million in 1998 terms, rising to £976.8 million when indirect impact was included. Total average annual employment was equivalent to 247 full-time jobs.

But the excitement about Corrib and the controversy over where Enterprise Oil may base its services and workers may mask a more serious issue: international oil companies are not particularly interested in drilling in Irish waters.

After a flurry of activity in the 1970s and early 1980s, exploratory wells tapered off. By 1992, most international companies had pulled out, causing the government of the day to amend the licensing and tax requirements to entice them back. Under the 1992 rules, no royalties would be paid on any oil or gas finds and corporation tax would be capped at 25 per cent.

"A lot would say the regime was too generous but it was realistic for the situation at the time. Our primary responsibility was to get companies in. There's not much point in having gas or oil under the seabed. Exploration is the only way to get it out," says the Department of the Marine spokesman.

THE new regime encouraged licence applications but this has not translated into additional wells being drilled. Oil companies take several factors into account in deciding whether to drill: the stability of oil prices on world markets, the likelihood of finding oil in a given location and then being able to extract it and the licensing terms and conditions.

"A lot of people say the fiscal regime here is favourable, but it's much of a muchness with the UK, and the actual attractiveness in terms of finding oil is much less. That's why there's only one company currently exploring here," says Mr Fergus Cahill, chairman of the Irish Offshore Operators Association.

The so-called Atlantic Frontier, which stretches from the Faro Islands to the south-west coast of Kerry - hyped by some as the next great frontier in exploration after the North Sea - remains of marginal interest to oil companies due to the water's depth and the drilling conditions, Mr Campbell says.

"If it was a frontier, there would be a lot of people exploring. But it's still very risky. It requires big money and there's very few companies with the financial resources to do it," he says.

The future is not necessarily rosy for Irish exploration.