Energy

Institute
Republic of Ireland
Promoting natural resource
development for Ireland:
Hydrocarbon exploration and
production for a sustainable
economic recovery

27 April 2013



The Energy Institute
The Energy Institute (EI) is a chartered institute and is the professional
body for the international energy industry. It has a global membership of
around 16,000 individuals and 250 organisations and provides an
independent focal point for the energy community, bringing together
industry, academia and government.
The purpose of the EI is to develop and disseminate knowledge, skills and
good practice towards a safe, secure and sustainable energy system. In
fulfilling its purpose, the EI addresses a wide range of topics in detail,
from upstream and downstream hydrocarbons and renewables, through to
power generation, transmission and distribution, as well as sustainable
development, demand side management and energy efficiency.
As a charity, with membership across the full range of energy sectors, it is
not appropriate for the EI to promote specific technologies or options.
Instead, the Energy Institute seeks to assist the policy process by helping
to clarify the key issues and improve the evidence base on which
decisions will be made.
The Energy Institute Republic of Ireland, referred to as the Institute in
the body of this submission, is a branch of the EI. This submission is
made under the authority of the Institutes Committee.
The officers and members of the Energy Institute Committee Republic of
Ireland are:
David Taylor (Chairman), Pat Gilroy (Secretary), Brendan Sheehan
(Treasurer), Bob Hanna, Owen Lewis, Michael McNicholas, Neil OCarroll,
Peter Soroka and Gerry Walsh.

TABLE OF CONTENTS

1. Introduction

2. Context
2.1
2.2
2.3
2.4
2.5

Agency approach to promotion

Legacy issues
Government leadership in action
Energy policy drivers - global
Energy policy drivers Ireland

3
4
4
5
5
6

3. Energy Institute review

4. New policy options

5. Recommendations

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1. Introduction
Recent Irish energy policy successes include the creation of the single
electricity market on the island of Ireland, the deployment of wind energy,
and the promotion of energy efficiency through building energy rating.
However, by way of contribution to the review of Irish energy policy, the
Energy Institute Republic of Ireland believes that there are serious
vulnerabilities in the implementation of current energy policies.
This submission focuses on one of those vulnerabilities the relative
decline in hydrocarbon exploration in Ireland, which is exacerbated by the
lack of interest of oil & gas majors in competing for exploration licences.
It concludes with a call to Government, in the course of its energy policy
review, to consider and consult on eight enabling actions for the
development of Irelands hydrocarbon resources.

2. Context
Ireland is in a difficult position. Economic growth is below that required for
the stabilisation of the national debt. The state of the public finances is
such that the sustainability of the services provided by government is
challenged. Unemployment is high and emigration is impacting on both
domestic demand and potential for economic recovery. The prospects of a
generation of Irish citizens continue to be diminished, and there has been
an erosion of confidence in national institutions.
The Institute believes that at a time of crisis and uncertainty, good
governance is an essential part of the solution. Enabling good things to
happen while preventing the bad, is the essence of good governance.
Sound policy choices and strong leadership in implementation will
accelerate economic recovery.
The Irish Government recognised in its Energy White paper of 2007 that
natural resource development has potential to create employment, finance
infrastructure, and generate revenue.
Irelands high dependence on hydrocarbons, for the most part imported,
raises issues of security of supply, economic competitiveness and
environmental impact. The scale of effort required to mitigate these risks
whilst delivering on the mandatory EU 2020 targets is very challenging
indeed.

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In this context, energy policy must balance economic, social and
environment choices in meeting Irelands EU obligations and its
international commitments.
Oil and gas development presents governance challenges. Not all societies
have successfully contained the pressures and benefited from the stimulus
of exploration. Those that have benefited include the mature democracies
of the UK, the Netherlands, Norway and Denmark in Europe as well as the
USA and others.
While Norway and Denmark are net exporters of
hydrocarbons they also have strong renewable energy policies.
2.1 Agency approach to promotion
Aware of the hole in the public finances and mindful of the low levels of
economic growth in Irelands trading partners, the Institute, at an open
forum, asked the Minister, in the light of the success of the IDA and SEAI
in promoting industrial development and renewables respectively, if he
would be minded to consider an agency approach to promoting the
development of hydrocarbon exploration and production in Ireland.
The Minister is open to a submission on the matter. On foot of this the
Institute convened a forum of international oil and gas industry players
with a view to informing the energy policy review process.
This submission draws on, but is not limited to, those forum discussions.
The Energy Institute values its independence and respects the wider
interests and professionalism of its members. In this instance the Institute
seeks to offer a view that is well informed and evidence-based.
2.2 Legacy issues
In previous published work1 the Institute concluded that the experience of
the development of the Corrib gas field has not alone materially affected
the prospects for oil and gas exploration in Ireland but that it has had
serious financial consequences for government revenues, for oil and gas
prices in Ireland, and not least for those investors who put their capital at
risk in hydrocarbon exploration and production (E & P) in Ireland.
While the Government has addressed a number of the shortcomings
revealed by the Corrib Gas Project experience, there is a residual
uneasiness with the adversarial nature and the lack of robustness of the
licencing and consent processes.
The most recent evidence for this is the decision by Providence Resources
to hand back its foreshore licence for exploration off Dublin Bay in the
face of a High Court challenge to its legality. This is a setback for the
developer, for the wider E & P industry, and for the credibility of the
regulatory and administrative system.

1

Making the right decisions in Irish energy policy, Energy Institute, April 2011.

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2.3 Government leadership in action
At the same time there is abundant evidence of the Irish Governments
willingness to lead and of the administrations ability to prioritise and
deliver on major issues such as mitigating the reputational damage
following the crisis in the Irish banking system.
The Institute believes that a similarly strong, albeit at a lesser scale, but
none the less persistent government-led initiative to exploit Irelands
natural resources of oil and gas is necessary to avoid crippling future
energy and debt service costs.
2.4 Energy policy drivers - global
It is almost impossible to consider any aspect of energy policy without
reference to wider societal issues such as affordability, access to secure
supplies, climate change and provision of infrastructure required to exploit
new low carbon energy sources.
After more than a decade of spectacular growth followed by a serious
recession and rising indebtedness, energy is again becoming increasingly
unaffordable to many in Ireland. The affordability of energy services is a
major issue in Central and Eastern Europe and the developing world.
Over the same period of time the changing pattern of resource
distribution, technical advances, geopolitics, and sanctions have combined
with population growth to create a situation where security of energy
supply is a leading issue for Europe and for the majority of energy
importing economies.
The looming crisis of climate change is less well appreciated - adding risk
and uncertainty to what is already a complex period for the energy sector.
Nor has EU climate policy been well served by an emissions trading
scheme that, as a direct consequence of unforeseen events such as the
economic downturn and the impact of shale gas development on US gas
prices, has seen coal consumption and associated greenhouse gas
emissions rise in Europe while decreasing in the United States.
While the European Union has promoted strong and legally binding
commitments to meeting the renewable energy, energy efficiency, and
greenhouse gas emission targets of the 2020 package, the ability of
Member States to deliver is weakening. Thus, there is no hiding place
from the consequences of a loss of competitiveness.
Over the past 20-30 years affluence in Europe has combined with a
growing awareness of the impacts of industrial development, through EU
legislation, to constrain certain kinds of development. Industry has
relocated in response to these and other pressures leading to a variety of

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concerns: for example, about carbon leakage where an environmental
problem has been exported rather than addressed at source.
There are parallels in the way infrastructure cannot now be provided in a
timely fashion across Europe and in the Member States. There are calls
from industry and employer groupings to shift the emphasis from
regulation to environmentally responsible growth - from unintended
disablement to positive enablement.
In the face of these developments there is a growing desire for policy
action to help restore the competiveness of the EU and its economies.
Facilitating competition in a single market is part of the response but
there is also a perceived need to rebalance energy policy and win support
for its implementation.
2.5 Energy policy drivers Ireland
Irish energy policy should be balanced to take account of the resource
base and its attendant opportunities to reduce the cost of gas and
minimise the cost of renewables deployment.
Energy policy should rank equally with enterprise policy and
administrative efficiency as actions to, as the Taoiseach said, make this
the best small country in the world in which to do business. Such a
perception would attract inward investment, facilitate economic growth,
improve resource and asset utilisation and create jobs.
NewEra is an expression of the Governments intent to harness Irelands
natural and human resources with recourse to the talent and assets of the
Irish semi-state companies, many of which are active in the energy
sector. This is an important reform process and while its direction is not
yet firmly established and communicated, the institutional capacity to
evaluate options and inform the implementation process is in place.
In the electricity sector there is a strong emphasis on renewable energy
through wind deployment, on using the power of markets to maintain
financial discipline, and on structuring those markets for competition to
the benefit of consumers. While there are policy, regulatory and market
risks in meeting our EU obligations, the awareness of and attention to
such risks is also increasing: for example, to securing the gains of the
single electricity market (SEM) as the market adjusts to meet the
requirements of the EU target model.
However, there are risks outside the electricity sector such as i) the
security of gas supplies and ii) where in the treatment of heat and
transport sustainability the current policy paradigm is opaque and would
benefit from further study and quantification.

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The recent emphasis by HM Government and the Irish Government on
facilitating exports of renewable electricity has brought about a level of
co-operation that is to be applauded. As a policy development it has
important consequences for EU policy intent, 2020 target realisation, and
also for increased competition in the electricity market in these islands.
It remains to establish the optimum scale, cost, and the potential flow of
benefits of wind energy exports as well as overall economic, social and
environmental feasibility. Nevertheless, the two Governments are to be
commended for exercising leadership in this area of joint interest.
Undoubtedly, the scale of what is contemplated requires careful
examination. Its public evaluation by responsible institutions and
authorities is an essential for an informed public debate.
The UK is one of Irelands most important trading partners and its
appetite for gas imports is growing with the decline in North Sea
production. A large discovery of gas in Ireland would find a ready market
in the UK, and also offset North Sea gas imports from the UK - thus
dramatically reducing the price of gas to consumers in Ireland as the
burden of import infrastructure would shift to export. Thus, the social and
geopolitical benefits of oil and gas E & P in Ireland could amplify the
impact of this form of foreign direct investment (FDI) beyond job creation
and improve competitiveness. It needs to be valued accordingly.
A hydrocarbons industry, as with wind exports, should be championed as
a priority response to our current predicament: and as we have already
noted, high regard for and performance on environmental goals has not
inhibited Norway and Denmark from developing a vibrant oil and gas
sector.

3. Energy Institute review

The Institute believes that the legacy and reputational damage associated
with the development of the Corrib Gas Project is substantial and more
far-reaching in its impact than many concerned citizens might appreciate.
The saga of regulatory attrition and stranded investment has discouraged
medium and major oil and gas companies from choosing to invest in
Ireland. Instead, capital is flowing to other jurisdictions with clearer
regulatory frameworks, certainty in development timelines and less
perceived execution risk.
On the other hand, the Institute is aware of the commitment of dedicated
officials and of an Oireachtas both concerned to learn from, repair and fix
the shortcomings of earlier experiences. The Strategic Infrastructure Act,
the Petroleum Safety Act, and the Government Policy Statement on

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Infrastructure are but a part of a considerable body of evidence of
legislative and Government action and intent to improve the energy policy
scorecard. Similarly, the creation of a research fund and leveraging the
results though an annual Atlantic Ireland conference evidences practical
action.
However, the reported slow down in administration and the untimely
surrender of Providences foreshore licence for exploration off Dublin Bay
give cause for alarm; challenging the Government ambition to support
business via effective public administration. The risk that the necessary
public service reform process could derail progress is evident and
mounting: the litigants in the Providence case, in an echo of Corrib,
expressed their satisfaction at having delayed the process by a year. Such
uncertainty serves no good.
It is noted that petroleum assets are vested in the State in the public
interest and that policy is to exploit those resources for the benefit of the
Irish people, respecting always the requirements of law and the balance of
economic, social and environmental interests. Lacking capacity to locate
and exploit those assets the Government is reliant on international
expertise and investment and to this end must, as it intended, create a
stable framework for hydrocarbon exploration and production.
The Government has underestimated the effects of the reputational
damage of Corrib and has not moved quickly enough to address the
underlying weaknesses in the regulatory framework. As a result the
policy actions identified in the Energy White Paper of 2007 have not
resulted in a stable and attractive framework for hydrocarbon exploration.
The IEA in its review of Irish energy policy drew attention to the need for
new energy infrastructure and the importance of the consents processes
for timely realisation. To the Governments credit, there is evidence of the
success of the Strategic Infrastructure Act as applied to energy
infrastructure. This is by way of the number, variety and timeliness of
consents since the Act came into force.
However, while the Government has implemented a credible fiscal regime
with a rationale based on the comparative risk and costs of offshore
exploration in new basins in the EU, there does not appear to have a been
a comparative study of the planning and development processes with
other countries. While some reforms have been made in Ireland, other
jurisdictions continue to simplify their development processes without
eroding environmental standards.

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4. New policy options
The goal of natural resource development aligns well with the need to find
future revenue streams to ensure the sustainability of the States finances
and the services it provides to its citizens. Now is a time to seize and
maximise opportunity; to focus on enabling measures as opposed to
(disabling) regulation however well intended.
A policy congruent with the pressing need to stimulate growth,
investment, and create employment whilst providing future revenue to the
State and returns for investors would be a triumph for good governance;
a welcome precedent for rebuilding trust in our institutions.
Thus, a resource development policy should address immediate, near- and
medium term issues without jeopardy to the long term. Most of all, the
requirement for such a policy should be fully explained, politically
championed, and defended in the course of its implementation.
The complexity and perceived unreliability of the licencing, permitting and
planning processes in providing timely and definitive outcomes give cause
for concern.
The experience is that all outcomes are likely to be tested in adversarial
processes open to all whether impacted or not, and until that process is
complete consents are not definitive, let alone bankable. The industry
perception is that the processes are lengthy with uncertain outcomes and
that they are inflexible in terms of reconciling the interests of regulators,
communities and developers.
Among the informed legal community, reservations have been expressed
on the law transposing EU Directives, the untidy arrangement and
ambiguity of powers, and the overlapping responsibilities of institutions on
matters pertaining to energy and natural resources development.
Thus there is work to be done on the consolidation of legislation and the
provision of timely guidance for developers with integrity, experience and
track records.
Inadequate legislation and perceptions of unreliability of outcome of
consent processes are a potent threat for those with deep pockets and low
risk thresholds the very developers that a risk-averse society would
wish to attract.
The arguments for the creation of the institutional capacity to support
government in a pro-active reform agenda seem to us to be compelling.
Replicating the approaches of successful agencies such as the IDA and
SEAI, an E&P Development Agency would be fully occupied in turning the
vision of resource development into a reality.

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In the wake of earlier crises and oil shows in exploration there has been
significant administrative effort. The fact that subsequent drilling results
were disappointing reduced the pressure for reform.
In the light of such disappointments there is a risk of a measure of fatigue
and jadedness in the face of the calculated optimism of prospectors and
explorers. However, 2013 and 2014 are two very important years for the
future of an Irish oil and gas sector.
Barryroe represents Irelands first opportunity for a commercial oil field;
the international industry is watching both Barryroe forward plans and
Exxons drilling of the Dunquin exploration well.
The efforts of the active players would be greatly enhanced by a
supportive government and public policy. This enhancement extends
beyond their ability to attract capital to, with wider stakeholder support,
the likely development pattern in the event of an oil or gas find.
There are strong economic development and security of supply arguments
for the landing and processing of Irish hydrocarbon resources on Irish soil.
The creation of disincentives should be avoided.
The prolonged nature of Irish industrial disputes in the 1960s and early
1970s was addressed by the creation of new institutions and reforming
legislation to facilitate a better understanding of rights and interests on
both sides of a dispute. Conciliation was the aim and the prize was
industrial peace, service continuity and growing prosperity.
The Institute believes that a similar spirit of engagement and reform is
overdue for hydrocarbons prospecting, energy infrastructure provision and
their associated licencing and planning processes. This could be a
watershed year for hydrocarbon development prospects in Ireland. We
need to learn the lessons of the recent past and to embrace any success
in a spirit of enterprise and renewal.

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5. Recommendations
Against this background the Institute calls upon the Government in the
course of the current energy policy review to consider how it can:
1. Actively promote public discourse on how the development of our
natural resources, and not excluding refining, can help to contribute
to sustainable development in Ireland.
2. Recognise that the current dependence of Ireland and Europe on
fossil fuels cannot be ignored on the promise of early renewable
energy development. The truth is that Ireland needs both, and a
central purpose of current policy is to provide a no regrets bridge
to a sustainable future.
3. Improve the general understanding of the risks and rewards at play
in exploration and production and how they are best mitigated in
line with Irelands economic, social, and environmental goals.
4. Communicate to the international oil and gas community and the oil
industry majors the seriousness of its policy intent with actions to
make this the best small country in the world in which to do
business.
5. Show though its actions and the resulting outcomes that the
prospects for sustainable development of Irelands natural
resources are well founded, politically supported, and adequately
provided for in law.
6. Champion an institutional infrastructure that enables development
of Irelands natural resources and which fully respects the
legitimate interests, while addressing the concerns, of stakeholders
in harmony with Irelands international and EU obligations and the
rule of law.

7. In the face of enormous pressure to downsize the public sector,
devise means to front-load action and administrative effort towards
priority areas, such as natural resource development, that have the
potential to yield a strategically important and robust return.
8. Widen the scope of its energy discussions with HM Government and
the UK authorities to increase the capacity to meet the expectations
of the citizens of these islands for natural resource development.