State must stand up to oil moguls

Last week, as anyone who drives a car already knows, the price of a barrel of Brent North Sea crude oil rose to an all-time high of $66.77 in London. Some of this price rise may be temporary, contingent on factors like refinery breakdowns and a change of ruler in Saudi Arabia.

But most of it is long-term. Demand is rising sharply as China and India develop their economies. Supply is almost certainly in decline. Since 1993, the oil industry has extracted 16 billion barrels of oil a year more than it has found.

OPEC reckons, conservatively, that global oil demand will rise by 28 million barrels a day by 2025. Oil and gas are going to be a scarce and therefore extremely valuable resource for the foreseeable future. And we're still giving ours away for virtually nothing.

Around the world, pretty well everyone has noticed an important shift in the balance of power between international energy companies, on the one hand, and governments on the other. The big transnational corporations - the Shells and BPs and ExxonMobils - are losing out to state-controlled energy companies.

Last week, for example, the Washington Post summarised the situation like this: "Several years ago, when oil prices and demand were lower, international oil companies had the upper hand when negotiating with governments controlling access to reserves, analysts said.

"But with global oil demand now soaring and prices surpassing $60 a barrel, countries holding vast reserves have gained a stronger negotiating position with international oil companies that want to operate in their territory. 'The international companies don't run the business anymore,' said Robinson West, chairman of PFC Energy. The rule-makers are now the national oil companies. They drive the business."

In the 1980s and 1990s, when oil and gas were selling very cheaply in world markets, countries who wanted the transnational corporations to locate and develop their oil and gas reserves had to seduce the big boys with sweet deals.

There was plenty of oil around, the price was low, and the corporations could argue that it wasn't worth their while exploring and tapping new fields unless suppliant governments made them an offer they couldn't refuse.

This was the logic of Fianna Fáil's decisions in 1988 and 1992 to entice the transnational corporations back into Irish waters by offering them arguably the most generous terms in the world. Under the previous regime, put in place by Justin Keating in 1975 and modelled on the strategies adopted by countries like Norway, the State would get a 50 per cent share of any discovery and royalties of between six and seven per cent.

First Ray Burke in 1988 and then Bertie Ahern in 1992 replaced this system with the present arrangement in which the State gets almost nothing at all: no share, no royalties and huge tax write-offs that mean companies only begin to pay tax (at very low rates) when they have recovered the exploration and development costs. Even by the standards of the time, this was an astonishingly generous regime, but it did at least reflect a global situation in which governments were the beggars and the corporations were the choosers. Now, that global situation has been reversed. While stocks decline and prices rise, about 77 per cent of the world's proven oil reserves is controlled by governments that significantly restrict access to the transnational corporations. These corporations are scrapping for the rest of the world's energy resources. They need to do deals with governments and with State-owned oil companies. The conditions that Keating envisaged in the mid-1970s, in the wake of the first oil crisis, have returned, and the regime he put in place then makes complete sense now.

We don't know how much oil and gas there may be off our shores, but we do know two things. One is that those fields have been there a long time and are not about to disappear, so there is no pressure of time on the State.

The other is that a better deal for the taxpayer is easily achievable, not least because a worse deal would be impossible. Bizarrely, though, the State is currently in the process of giving away more of our potential resources on the old Burke-Ahern terms.

Even as oil prices go through the roof, the Department of Communications, Marine and Natural Resources is offering new exploration licences on those terms for two areas that are thought likely to have significant oil or gas reserves. In the Rockall Basin, where "a significant column of hydrocarbons" has already been found, Noel Dempsey is granting new 16-year licences. In the Slyne, Erris and Donegal basins, whose "hydrocarbon potential" has, as the department puts it, "been illustrated by the Corrib gas field" the department has invited applications for licences which will be awarded next year.

This is the broader context in which five Mayo men who are opposing Shell's plans for the on-shore processing of the Corrib gas are being allowed to languish in jail. In a self-respecting State, the cause of the Rossport Five would be the Government's cause too. But you have to drill very deep to find whatever reserves of self-respect our State still has.