IRELAND'S OIL

The Irish Republic may be close to securing oil revenue that could run into billions of euros, something that could, if wisely spent or saved help to reduce the financial consequences of the recent banking crisis. An Irish and UK company, Providence Resources Plc, says its Barryroe site, some 30 miles off the Cork coast, should yield around 280 million barrels of oil. Any Oil revenues generated will be dependent on the price of oil when its extracted and on licensing arrangements between the Oil companies and the Irish Government.

Providence Resources Plc rig at Barryroe, Ireland (Finbarr O'Rourke/Providence Reso/PA)

When production comes on line this could mark the beginnings of the Irish oil industry. Oil companies have spent decades of exploring around the Irish coast and off-shore. Providence Resources Plc plans to use multi-national energy giants to work within its licence, which the company secured from the Irish government for a nominal fee. The company has already secured the expertise of the world's leading oil multi-national, Exxon Mobil, to explore its site at Drumquin.

In Ireland, campaigners have been calling for Ireland's relaxed laws with relation to its natural resources to be overhauled and upgraded. At the moment Ireland gets around 25% of all profits, rising to 40% depending on the volume of oil and gas extracted. This tax take is significantly lower than it is in Norway and the UK, both of whom have much larger oil and gas resources. At the moment a barrel of oil comes in at about $110, €85 or £69, even 25% of the revenue should prove a huge boon for a country that has never successfully extracted a drop of oil before.

The Irish Government argues that the low rate is attractive to foreign companies as Ireland does not have the expertise or revenue to exploit any oil and gas reserves itself. Critics in Ireland point out that all exploration costs can be off-set against any tax liable ones, and that claims can go back as far as 25 years.  Providence Resources Plc, who are believed to have spent around £0.5 billion pounds exploring Irish waters, has divested itself of any UK onshore assets (28th September 2012) so they can focus their resources on bringing on-stream its drilling programme off the Irish coast.

Some campaigners in Ireland have warned that the oil from Barryroe may never even be landed in Ireland, but taken to refined in Europe or elsewhere, something that will mean fewer jobs on Irish soil. The Irish Green Party has reservations about just exactly how much oil and gas is actually there, as the quoted oil resource figures have not yet been tested. The RSPB (in Northern Ireland) is also concerned about potential oil and gas extraction from around Rathlin Island, off the County Antrim coast, which is a Special Area of Conservation and a Special Protection Area (SPA).

Meanwhile Providence Resources Plc says its aims to bring any oil from Barryroe to Cork, but that any decision will be made on a commercial basis closer to the time of extraction. For Irish politicians (and the media) though the prospects of even some 25% of the revenue from what may potentially been billions of euros worth of oil will be a significant boost to the country in the aftermath of the banking crisis.

One significant advantage that Ireland by being independent has over Wales is the fact that a significant percentage any oil and revenues generated will flow into Irish coffers rather than into the bottomless pit that passes itself off as the UK Treasury.  Scotland by virtue of having a parliament (with significant influence over Scottish finances) will also (unlike Wales) get a significant portion of any oil and revenues generated rather than simply sit and watch it get siphoned off into the UK Treasury.

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Norway's sovereign oil fund currently stands at around or about £400 billion (around $640 billion); the UK has no sovereign oil fund. The UK, basically, rather than thinking in medium or long terms the UK, basically during the oil boom years, blew the North Sea cash on cutting national borrowing and keeping down taxes. Whatever revenue came in disappeared into the day-to-day budget.

In Norway for the last 16 years Norway, various governments saved the government's petroleum and gas revenue - arising from levies on oil and gas companies which operating in Norway and from its stake in national energy giant Statoil – into its national oil fund. The income from the fund cover 11% of Norway’s national spending. Even more ironically, the UK is buying large quantities of Norwegian gas, adding to Norway’s nest egg, which happens to be one of the biggest sovereign wealth funds in the world.

Norway’s global investment arm of the Government Pension Fund, as the oil fund is formally named, is one of the biggest investors in shares across Europe, even though its share holdings took a hammering during the financial crisis, the fund is now acquiring significant trophy properties across Europe. Some 4% of the fund (around £16 billion pounds) is diverted each year to subsidise Norwegian government spending.

In effect, this keeps Norwegian hospital beds open, helps pay for social benefits and has paid for significant infrastructure projects within Norway and the Faeroes. Norway’s fund continues to grow as levies on oil and gas production and on oil companies bring in around £30 billion annually. As the oil and gas continue to flow and oil and gas prices remain high, then Norway’s fund continues to grow.

The UK, under Labour’s James Callaghan in the mid to late 1970s considered setting up an oil fund, but as economic crisis worsened it simply grabbed the money. In Norway they followed the British, but, wisely had second thoughts after the oil price collapsed in the 1980s. So they decided to consciously bank the benefits from the oil bonanza for future generations of Norwegians.

The Brits chose not too and squandered a fortune on bailing out the economy and subsidised tax cuts. It did not have to be this way – in Shetland, the council set up an oil fund which contains around £185 million today, even after upgrading roads, ferry terminals and local swimming pools. In Scotland, the Scottish Government advocates setting up a special fund supported by North Sea oil revenues.

While the North Sea oil is well past its peak, continued high oil prices and future prospects of West Coast oil fields could deliver for Scotland. The prospect of future energy revenues being banked in Scotland rather than squandered south of the border may concentrate the mind of the Westminster elite.

This may go a long way to explain David Cameron and the Labour Party’s inherent nervousness about the prospects of Scottish independence. What Wales needs is a sovereign energy fund where the tax revenues from energy generation schemes should reside for future generations rather than vanishing into the Crown Estates and the UK Treasury.