Public vs. private oil & gas exploration

FYI

IRLConor wrote: »

By that logic we should just sit on the field and do nothing until it's worth more than it is now.

Why does the company doing the extraction have to be state-owned or -run? If the field is valued at €200k (to re-use an earlier figure) simply sell the rights to that field for €200k and be done with it. The money goes into our coffers and we don't have to waste money making a state oil/gas company which would be crushed by the supermajors in short order once it moved beyond Ireland.

Well can you give a good reason why we shouldn't wait? Climate change, peak oil, etc etc. There is no problem with supply at the moment, or for the foreseeable future. Corporations are in it for the quick buck, they have no long term plan, they are required by law to make as much money as they can, as quickly as they can.

The gas field is currently valued at about 50 billion, conservatively. How much do you think Shell paid for it? and how much do you think we stand to gain?

Once you've answered those questions, then come back and explain how corporate exploitation is better for the Irish people than state run.

IRLConor

FYI wrote: »

Well can you give a good reason why we shouldn't wait? Climate change, peak oil, etc etc. There is no problem with supply at the moment, or for the foreseeable future.

I didn't say that we shouldn't. I don't get to make that choice though. Personally, if it was my gas field, I'd sit on it unless I needed the money now.

FYI wrote: »

The gas field is currently valued at about 50 billion, conservatively. How much do you think Shell paid for it? and how much do you think we stand to gain?

Once you've answered those questions, then come back and explain how corporate exploitation is better for the Irish people than state run.

Again, you're failing to separate the amount of money involved from the state-run vs private company issue. There are two issues involved.

1. The amount of money the state receives from exploitation of the field.
2. The method by which the gas is extracted.

We both agree that 1) should be an amount of money which represents good value to the state. We disagree about 2), but that has little to do with money.

If Shell paid less for the rights than the field is worth then yes, that's a bad thing and should not have happened (and the people responsible for underselling the field should be strung up for it) but it does not imply that a state-run company is the answer. 1) and 2) above are independent of each other.

BTW, where did you get €50 billion for the value of the field? At the gas prices I'm currently being charged by Bord Gais, the field (around 1 trillion cubic feet) is worth something like €14.5 billion (ex. VAT, retail price). I might have screwed up the figures somewhere though, I'm open to correction.

You Suck!

Not if you do it properly.

But it's not being done properly.

The existing model (if you are referring to Statoil) would be much harder to make work here as we have much less in the way of oil/gas resources.

None the less, it's just conjecture on both our parts, without a study or more importantly political momentum to look at alternatives, we will never know if the Norwegian model can be implemented, and more importantly if it can be profitable.

Having said that, Im almost inclined to think that our renewable capacity might be our chance at having a statoil setup.......but it's Ireland, and that will never happen. Lets just be happy for the things we do get right every once in a while

FYI

IRLConor wrote: »

If Shell paid less for the rights than the field is worth then yes, that's a bad thing and should not have happened (and the people responsible for underselling the field should be strung up for it) but it does not imply that a state-run company is the answer. 1) and 2) above are independent of each other.

BTW, where did you get €50 billion for the value of the field?

I'm afraid 1 and 2 are not mutually exclusive. Relinquishing control of natural resources, as we have seen, has a detrimental effect on the revenues accrued. How much could it have cost to set up a state oil company in the 70s, 80s or 90s? A fraction of the potential profits I would wager.

By putting the refinery in place Shell will ensure that not only the gas that they intend exploiting, but the potential from the entire field will come through their works.

"The Corrib and associated fields in the Slyne/Erris basin off the north west
coast of Ireland are estimated to be worth up to €50 billion."

http://www.publicinquiry.ie/pdf/Fiosru_2_LOW_RES_Final.pdf

Shell got the rights for pittance.

"In 1987, Mr Burke exempted the oil and gas industry from royalty
payments and abolished all State participation in the commercial
development of important natural resources. He introduced a 100% tax write
off against profits on capital expenditure for exploration, development and
production for up to 25 years."

and...

"In 1992, then Minister for Finance, Bertie Ahern, reduced Corporation
Tax on oil and gas companies from 50% to 25%."

Dick Spring commented - this deal is "an act of economic treason"

http://www.mediabite.org/article_Gas--Gaeilge-and-the-Media_84402980.html

And funnily enough, there were plans to set up a state run company:

"A proposal in the 1970s to establish an Irish State company to develop
the country’s oil and gas resources and offers by the Norwegian government
to assist in its creation were rejected by the Irish government at the time. When, in 1979, a state company, the Irish National Petroleum Corporation,was set up to guarantee oil supplies during an emergency it was explicitly prohibited from any involvement in exploration and drilling."

IRLConor

You Suck! wrote: »

But it's not being done properly.

Of course it's not. I was simply arguing about the correct approach, not the one being taken.

You Suck! wrote: »

None the less, it's just conjecture on both our parts, without a study or more importantly political momentum to look at alternatives, we will never know if the Norwegian model can be implemented, and more importantly if it can be profitable.

Indeed, it is very difficult for us to figure out whether or not an Irish Statoil would be possible.

I was assuming that it would be harder because:

• The Gullfaks field that the Norwegians had was bigger (somewhere between 2 and 13 times bigger depending on the calculations) which gave them a chance to grow domestically before branching out away from home. Here's the calculations I've done:
  • Corrib = $14.5 billion (my calculation, Bord Gais current retail rates), Gullfaks = $189 billion (at $90/barrel, today's rate). This make Gullfaks 13 times bigger.
  • Corrib = €50 billion (FYI's figure), Gullfaks = $189 billion. This makes Gullfaks 2.58 times bigger.
  • Corrib = $14.5 billion, Gullfaks = $157.5 billion ($25 in 1979 money, approx $75 in today's money). This makes Gullfaks 10.8 times bigger.
  • Corrib = €50 billion, Gullfaks = $157.5 billion. This makes Gullfaks 2.1 times bigger.
• The Norwegians had a complete free hand to have Statoil as a state-owned company. I don't think we have this. If we had a state-owned company already set up from years ago we might be able to keep it state-owned (at least partly), but I don't think doing it now would be OK with the EU. I've been trying to find out whether it would or not, but it's hard to find info.

You Suck! wrote: »

Having said that, Im almost inclined to think that our renewable capacity might be our chance at having a statoil setup.......but it's Ireland, and that will never happen.

That would be cool. An indigenous green energy company would be fantastic. (We can argue public vs private later. )

What renewable capacity do we have? Wind is all I know of, do we have more?

You Suck! wrote: »

Lets just be happy for the things we do get right every once in a while

I'm happy enough with the country. Plenty of stuff needs fixing, but the basics are not bad. Outside of Europe and North America I've seen India, Thailand, Malaysia and Singapore. I wouldn't trade Ireland for any of them. Compared to the European countries I've seen we have a long way to go, but all of it is fixable.

IRLConor

FYI wrote: »

I'm afraid 1 and 2 are not mutually exclusive. Relinquishing control of natural resources, as we have seen, has a detrimental effect on the revenues accrued.

Your assumption that they are not mutually exclusive is based on the fact that a corrupt/incompetent government will hand over natural resources for a pittance.

If you assume that the government is corrupt and/or incompetent then a state-run company is even worse of an idea!

FYI wrote: »

How much could it have cost to set up a state oil company in the 70s, 80s or 90s? A fraction of the potential profits I would wager.

Maybe, but we can't retroactively create a state oil company so it's impossible to find out.

FYI wrote: »

"The Corrib and associated fields in the Slyne/Erris basin off the north west coast of Ireland are estimated to be worth up to €50 billion."

http://www.publicinquiry.ie/pdf/Fiosru_2_LOW_RES_Final.pdf

OK, so Corrib plus associated fields = €50 billion. That makes more sense, I was hoping they weren't overvaluing gas by a factor of 3!

FYI wrote: »

Shell got the rights for pittance.

"In 1987, Mr Burke exempted the oil and gas industry from royalty
payments and abolished all State participation in the commercial
development of important natural resources. He introduced a 100% tax write
off against profits on capital expenditure for exploration, development and
production for up to 25 years."

Sounds like bad administration to me. If you abolish state participation in natural resource extraction you must regain the money through taxation.

The comment I would really like to make about the actions described above would probably get boards.ie in trouble!

FYI wrote: »

"In 1992, then Minister for Finance, Bertie Ahern, reduced Corporation
Tax on oil and gas companies from 50% to 25%."

Dick Spring commented - this deal is "an act of economic treason"

http://www.mediabite.org/article_Gas--Gaeilge-and-the-Media_84402980.html

Reducing Corporation Tax just for oil and gas companies like that sounds well dodgy to me.

That said, if Ireland's Corporation Tax was 50% there is absolutely no way my company would have been started up in Ireland. If any future government raised Corporation Tax to similar rates, we'd move in a flash.

FYI wrote: »

When, in 1979, a state company, the Irish National Petroleum Corporation,was set up to guarantee oil supplies during an emergency it was explicitly prohibited from any involvement in exploration and drilling."

That's utterly stupid and the worst of both worlds. Setting up a state company and then crippling it is the work of idiots. :rolleyes:

silverharp

FYI wrote: »

The gas field is currently valued at about 50 billion, conservatively. How much do you think Shell paid for it? and how much do you think we stand to gain?

Once you've answered those questions, then come back and explain how corporate exploitation is better for the Irish people than state run.

It doesn't matter who owns it, the easiest way is to let private companies find it develop and run it, and come up with a reasonable taxation policy that encourages exploration but shares profits with the state. In Alberta in Canada the gov changed the tax rules ie increased taxes and now exploration is winding down, you can't buck the market for long.

bonkey

You Suck! wrote: »

None the less, it's just conjecture on both our parts, without a study or more importantly political momentum to look at alternatives, we will never know if the Norwegian model can be implemented, and more importantly if it can be profitable.

In fairness, though, its up to those who would support such a model to show that it is viable. If we don't take such a position, then one can always challenge the current approach on the grounds that ApproachX wasn't properly looked at as an alternative.

If you believe the Statoil option is worth looking at, then it should be on more than just the basis that one of the largest oil-exporters in the world (Norway) managed to do it. Rather, you should look at the time and money invested to create Statoil, and then - if you still can - make the case that it would appear to be cost-effective based on our known reserves.

but it's Ireland, and that will never happen.

And the reason it will never happen is because there's enough Irish saying exactly this.

bonkey

silverharp wrote: »

It doesn't matter who owns it, the easiest way is to let private companies find it develop and run it, and come up with a reasonable taxation policy that encourages exploration but shares profits with the state.

Easiest, yes. Best?

Also, bear in mind that the oil companies aren't without bargaining power. If the government has determined/decided that its not going the national route, then it needs someone to agree to play ball.

There is always the option of leaving it in the ground, but lets be honest here...other than the people who believe that gas is an evil option in our new anti-AGW world, no-one is going to applaud a government who decide to not utilise a national resource when we're importing the exact same stuff anyway.

Note - I'm not saying that the government did the right thing, or made the right decisions. I'm just saying that a lot of people seem to make this all out to be a very simple thing to have done right...and I believe that this is far from reality. IF nothing else, that you guys all disagree so fundamentally on what the simple, right thing to have done was should illustrate that.

silverharp

bonkey wrote: »

Easiest

There is always the option of leaving it in the ground, but lets be honest here...other than the people who believe that gas is an evil option in our new anti-AGW world, no-one is going to applaud a government who decide to not utilise a national resource when we're importing the exact same stuff anyway.

An option would be to buy it off Shell and leave in the ground as a strategic reserve as insurance against Peak Oil, however given the short term thinking of the Gov. then the second best option is to encourage private exploration. the next consideration is if further reserves are found do they get pumped
as quickly as possible or is the extraction managed.
As a side bar watch out in the coming years where OPEC countries reduce exports either for internal demand or to stretch out their own reserves.

Kaiser_Sma

I don't think a strategic reserve option is that plausible. If every country had that idea there'd be serious price hikes and political melodrama. There just too much money in fossil fuels to just leave it sitting there. Also if it came to the rather pessimistic scenario of our gas becoming a true strategic resource as peak oil brings the world to fever pitch, theres nothing really we can do to stop more powerful political entities from taking it from us through some kind of preassures.

Wouldn't putting our gas on the market, at least to some degree help the EUs goal of weening eastern europe off of russian gas? Loosening russias grip and aiding the economies of our fellow member states would probably feed back positivily to us sooner or later.

silverharp

Kaiser_Sma wrote: »

I don't think a strategic reserve option is that plausible. If every country had that idea there'd be serious price hikes and political melodrama. There just too much money in fossil fuels to just leave it sitting there. Also if it came to the rather pessimistic scenario of our gas becoming a true strategic resource as peak oil brings the world to fever pitch, theres nothing really we can do to stop more powerful political entities from taking it from us through some kind of preassures.

Wouldn't putting our gas on the market, at least to some degree help the EUs goal of weening eastern europe off of russian gas? Loosening russias grip and aiding the economies of our fellow member states would probably feed back positivily to us sooner or later.

The advantage Ireland has is it is small, and under the radar, the corrib field will only last 10 years or so and will only supply 60% or so of Irelands demand, that makes it a good reserve but not big enough to get up anyones nose. You must remember we are at the end end of a very long pipeline so the gov. should be proactive.