economic benefits of the corrib gas...

Economic Benefits of the Corrib Gas Project

February 2012

BallsBridge Park, BallsBridge, duBlin 4 t: 353-1-6410482 f: 353-1-6682388 e: [email protected]

www.goodbody.ie/consultants

executive summary and Overview of the Corrib Project ......................4

1 economic effects of Building the Corrib Project....................................6

2 spending effects of Operating the Corrib Project .........................10

3 dynamic effects of the Corrib Project .......................................................12

Appendix 1 energy use Forecasts ..................................................................16

Table of Contents

Executive Summary

The Corrib gas project will contribute €6bn to ireland’s gdP over its lifespan. at peak production it will supply approximately 60% of our natural gas needs, so reducing our current dependence on imported energy.

Construction work on the project has been taking place since the end of 2004, with a stoppage of 14 months in 2005/2006. This work created the equivalent of 1,250 full-time jobs for the period up to the end of 2010. The equivalent of 653 full-time jobs were created in Counties Mayo and donegal during this period. The construction work that has taken place to date added €887m to ireland’s gross domestic Product.

Completion of the final phase of the Corrib project, which commenced in the middle of 2011, will require a further three years of construction work up to the end of 2014. during the period 2011-2014 the equivalent of 1,465 full-time jobs will be created overall as a result of the project. shell and its contractors will employ an average of 382 people in Counties Mayo and donegal for this period. Completion of the construction work will contribute €732m to ireland’s gdP.

The operation of the Corrib gas field will create the equivalent of 175 full-time jobs for the 15-20 years that the field will be active. during this time the extraction of gas will contribute €4,400m to ireland’s gross domestic Product.

natural gas is a key energy source for homes and businesses, now accounting for 61% of ireland’s electricity generation. This project will secure a large, domestic supply of irish gas and so will have significant positive effects on wider economic activity:

natural gas from the Corrib field will reduce our current dependence on imported energy. at peak production the field will meet approximately 60% of our natural gas needs;

successful development of the Corrib field may act as a catalyst for further offshore exploration activity;

Because of the Corrib project, natural gas is already an economical and reliable source of energy for industry and homes in Mayo and galway;

Valuable skills have been passed on to a range of local contractors and employees; and,

The Corrib gas Partners have made permanent improvements in local infrastructure, which support further economic development.

Executive Summary and Overview of the Corrib Project

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Overview of the Corrib project

The Corrib gas field was discovered off the coast of County Mayo in 1996 by enterprise Oil. it is a medium-sized gas field, expected to yield over 0.8 trillion cubic feet of gas.

The field is located 83km off the Mayo coast, approximately 3,000 metres under the seabed in waters that are 350 metres deep. The Corrib project is being developed as a subsea tie-back facility with onshore processing. There are essentially four parts to the Corrib project:

The wells and subsea facilities

The offshore section of the pipeline

The onshore section of the pipeline

The gas processing terminal at Bellanaboy Bridge, County Mayo

shell acquired enterprise Oil in 2002 and shell e&P ireland limited (sePil) has been the operator of the Corrib project since then. sePil owns a 45% stake, while partners statoil and Vermilion energy own 36.5% and 18.5% respectively.

Construction work on the project is currently at an advanced stage. From a subsea point of view, five wells have been drilled and are ready for production. some routine maintenance work is carried out on these wells at regular intervals, most recently during the summer of 2011.

The offshore pipeline was laid in 2009, from the wells to the area known as the landfall location, at glengad, in erris. The umbilical, which facilitates communication between the wells and the terminal, will be laid in 2013.

Construction of the terminal at Bellanaboy Bridge is now 95% complete and the facility is currently being maintained until the other elements are complete. at that point an extensive programme of testing will be carried out on all the systems on the site.

The onshore pipeline was the final section of the project to get under way and work on it commenced in July 2011, following receipt of all relevant permits and consents in the first quarter of the year. Completion of the onshore pipeline will involve the laying of a 4.9km tunnel under sruwaddacon Bay, in erris. This work is expected to take at least two years to complete.

When gas from the Corrib field is ready to flow, it will be distributed via the Bord gáis Éireann national grid. a link line from the grid to the Bellanaboy Bridge terminal is already in place, since august 2009.

A previous report by Goodbody Economic Consultants from November 2007, “Economic Assessment of the Corrib Gas Project”, sets out the methodology used by Goodbody Economic Consultants to arrive at the results set out in this document. This document updates the results of that report using the latest information available from the Corrib Gas Partners.

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in order to extract gas from the Corrib field a large amount of development work must take place. The Corrib gas Partners will complete a major piece of energy infrastructure. This will have significant beneficial effects on employment and output for the country as a whole and for the north-West specifically.

1.1 Effect of Construction Work to Date

Construction of the Bellananboy terminal and onshore pipeline started in december 2004 and is scheduled to continue until 2014. Between 2004 and 2010, sePil had the equivalent of 165 full-time employees working on the project. The bulk of the work up to the end of 2010 was carried out by contractors, and this created the equivalent of 795 full-time jobs in indirect employment. This includes employees of sePil’s contractors and employment in firms making supplies to sePil and its contractors. This is an average value for employment based on average spending over the period. The induced effect of the construction work up to end of 2010 was the equivalent of a further 290 full-time jobs. in total, the equivalent of 1,250 full-time jobs were created in the irish economy for the six years of construction work to the end of 2010. almost half of these jobs were generated in the counties of Mayo and donegal. The employment impact of the construction work to date is set out in Table 1.1 below:

Employment Type IrElAnD

(Full-time equivalent)

OF WhICh, MAyO AnD DOnEgAl


direct (sePil) 165 50

indirect (contractors) 795 438

induced 290 165

Total 1,250 653

source: goodbody economic Consultants

Table 1.1 Employment Effect of Construction 2004-2010

1 Economic Effects ofBuilding the Corrib Project

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Box 1 Some Definitions

The Corrib project has three types of effect on employment and gross Domestic Product: a direct effect, an indirect effect and an induced effect.

Direct Effects

sePil employ people during the construction and operation of the project. This creates a “direct” effect on employment. The wages and salaries paid to these people and profits earned by the partners are the “direct” effect of the project on ireland’s gross domestic Product.

Indirect Effects

sePil will buy goods and services from third party suppliers during the construction and operation of the project. This will create employment among these suppliers. These suppliers will, in turn, buy goods and services from other firms, and so on through the economy. For example, the vast majority of the construction work on the project is being carried out by specialist building and engineering contractors. To the extent that these suppliers are in ireland this will create indirect effects on irish employment and ireland’s gross domestic Product. sePil has provided estimates of the number of people that will be employed by its building and engineering contractors while the project is completed. Further jobs will be supported in suppliers to these contractors during construction. goodbody has estimated the number of these jobs. The indirect employment effect of the construction of the project is the sum of these two figures.

Induced Effects

Finally, the wages and salaries of the direct and indirect employees will be spent in the irish economy giving rise to a round of “induced” effects on employment and gross domestic Product.

Value Added Type IrElAnD

xm


xm

direct 190 114

indirect 534 296

induced 163 93

Total 887 503


Table 1.2 gDP Effect of Construction 2004-2010

all of this construction activity contributes to ireland’s gross domestic Product. as with the employment effect the direct, indirect and induced effect of this activity on regional and national output has been calculated. in all the construction work to date has added €887m to gross domestic Product. Over half of this effect has arisen in Counties Mayo and donegal. The effect of construction to date on economic output is set out in Table 1.2 below:

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1.2 Effect of Completing Construction

Completing the construction of the Corrib project will take approximately three more years of work. On average, over 705 people will be employed by SEPIl and its contractors for this period. 382 of these people will be employed in Mayo and donegal. The equivalent of a further 426 people will be employed providing goods and services to sePil and its contractors. all of these direct and indirect employees will spend money in the irish economy, “inducing” further economic activity. The equivalent of some 334 people will be employed carrying out this induced economic activity.

The direct, indirect and induced economic activity resulting from completing the construction of the Corrib project will all contribute €732m to national gross domestic Product.

The effects of completing construction of the Corrib project on employment and economic output are set out in Tables 1.3 and 1.4 below:

Employment Type IrElAnD




sePil employees 121 25

sePil Contractors 584 357

Other suppliers to sePil and its Contractors

426 261

indirect employment 1,010 618

induced employment 334 197

Total 1,465 840


Table 1.3 Employment Effect of Construction 2011 to Completion

Table 1.4 gDP Effect of Construction 2011 to Completion

Value Added Type IrElAnD

xm


xm

direct 70 42

indirect 536 316

induced 126 74

Total 732 432


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1.3 Community Investment Contribution to Date

in addition to the direct benefits that have been brought to the local area as a result of the Corrib project, one of the main indirect benefits has been the existence of community investment initiatives. Community investment is a voluntary contribution by the Corrib gas Partners to the local community, via a number of different structured initiatives, all of which are community-led. There are three such initiatives – the local grants programme, the third-level scholarships programme and the Corrib natural gas erris development Fund – all of which have brought benefits to community, voluntary, sporting and cultural organisations in the erris area.

since 2007 almost €6m in funding has been allocated under these three programmes.

The local grants programme is designed to give small-scale financial support to local voluntary and community sector organisations within erris. The programme allows organisations to apply for funding of up to €10,000 per annum. To date, over €1.3m has been allocated to 136 different organisations under this programme.

The third-level scholarships programme provides ten scholarships per year to leaving Certificate students in four local secondary schools who are going on to third level. The value of the scholarships is €4,000 per annum per year of their undergraduate course. To date €600,000 has been allocated under the programme, which is currently in the second year of a three-year cycle. This is the second such cycle.

The Corrib natural gas Erris Development Fund was launched in January 2009 with an initial fund of €5m. There are three categories of funding under which groups can apply: enterprise and knowledge (including education), marine and environment (including tourism) and sports and culture. Commitments of funding totalling €3.9m have been made to 26 different projects since the fund opened. This fund will be in place for the lifetime of the project.

in addition to these three sePil-run programmes, a Community gain investment Fund will also be in place from 2011 to 2015, funded by SEPIl and administered by Mayo County Council. The value of this fund is €8.5m and it will be used for the benefit of the local community. The establishment of this fund was one of the conditions associated with the onshore pipeline planning permission from an Bord Pleanála, which was granted in January 2011.

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Once the construction of the Corrib project is complete it will operate for a number of years, bringing natural gas ashore from the Corrib field, preparing it for use and transmitting it to the Bord gáis gas grid. sePil estimates that 840 billion cubic feet of gas will be extracted from the Corrib field over a period of 15-20 years.

2.1 Employment Effect

sePil estimates that some 73 people will be directly employed by the Corrib gas Partners during the life of the field. sePil has also provided details of its likely purchases of goods and services from irish suppliers over the life of the field. The indirect employment effect of this spending will be to create the equivalent of 63 full-time jobs for the operating life of the field. The spending by these direct and indirect employees will create induced employment equivalent to a further 39 full-time jobs for the operating life of the field.

These effects on employment are set out in Table 2.1 below:

Employment Type Full TIME JOb EquIVAlEnTS

direct 73

indirect 63

induced 39

Total 175

source: goodbody economic Consultants Calculation

Table 2.1 Employment Effect of the Operation of the Corrib Project

2 Spending Effects of Operating the Corrib Project

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2.2 Contribution to gross Domestic Product

Over the life of the field, the operation of the Corrib project will contribute to national and regional value added. The wages and salaries paid in ireland and the profit earned on the sale of natural gas will both form part of ireland’s gross domestic Product. goodbody has estimated the value of this contribution based on total production of 840 billion cubic feet of gas, current gas values1 and shell estimates of field operating costs.

as with construction, the direct, indirect and induced effects of operating the field were calculated. in total the operation of the Corrib project will contribute over €4bn to irish gdP over the life of the natural gas field. The composition of this figure is set out in Table 2.2 below.

Table 2.2 Effect of Operating the Corrib Field

Value Added Type IrElAnD xm

direct 4,220

indirect 93

induced 66

Total 4,379

source: goodbody economic Consultants Calculation

1 The gas value used was the price of iCe uk natural gas Futures for February ‘12

accessed 20 January 2012 of £0.5185 per Therm

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The effects described and quantified in sections 1 and 2 of this report are all “static” i.e. they are the effects that would arise assuming that no other firm changed its investment decisions in response to the Corrib project. in reality the Corrib project will change the environment in which other firms make investment decisions and will have an effect on these decisions. These dynamic effects are likely to be at least as significant as the static effects already identified. some of these dynamic effects are already being felt at this stage of the construction of the project. These effects are outlined below:

3.1 Contribution to national Energy Supply

ireland is extremely dependant on imported energy. The “energy Balance” published by sustainable energy ireland shows that only 13.3 per cent of ireland’s basic energy needs come from domestic sources. The bulk of our energy needs are met using imported oil, gas and coal. natural gas is playing an increasingly important role in our energy mix, now meeting 31.9% of our primary energy requirements. it plays a crucial role in electricity generation, energy for homes and energy for key process industries. in 2010, 61% of ireland’s electricity was generated by gas2.

Currently, over 90 per cent of this gas is imported. The remaining 10 per cent comes from the kinsale field, which is almost at the end of its life.

Table 3.1 Energy balance 2010 (‘000 Tons of Oil Equivalent)

Energy Source DOMESTIC PrODuCTIOn

nET IMPOrTS/STOCk ChAngES

TOTAl PrIMAry EnErgy uSE

Coal - 1,211 1,211

Peat 999 (193) 806

Oil - 7,050 7,050

gas 318 4,394 4,712

renewables 622 121 745

electricity - 40 40

Total 1,939 12,623 14,524

% 13.3 86.7 100

source: sustainable energy ireland

2 ”energy in ireland 1990-2010” seai 2011

3 Dynamic Effects of the Corrib Project

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This dependence on imported natural gas is set to increase over the long term. appendix i sets out long-term forecasts of energy use, including natural gas use, compiled from the work of sustainable energy ireland and the esri. These show continued long-term growth in energy use, and an increasing dependence on gas.

natural gas from the Corrib field will significantly reduce this dependence on imported natural gas. The Commission for energy regulation estimates that natural gas from Corrib could meet up to 72.9 per cent of ireland’s gas needs at peak production3. This figure from the Commission for energy regulation represents a peak use of Corrib gas. Corrib will make a sustained contribution to our energy needs over the 15- to 20-year lifetime of the gas field.

3 Cer and utility regulator “Joint gas Capacity statement 2010” available at www.cer.ie

3.2 Additional Exploration Activity

When the Corrib construction work is completed and the field is producing gas, the environment in which decisions are made to search for oil and gas around ireland should change for the better. already, a greater level of interest in offshore exploration is being seen. in the atlantic Margin licensing round, in May 2011, there were a record 15 applications for exploration options in the irish offshore. a total of 13 licensing options were awarded to 12 different companies in this round, the highest number ever awarded.

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3.3 natural gas for Existing Industry

natural gas is an extremely advantageous energy source for businesses, particularly process type industries that consume large amounts of heat. When used to fuel a combined heat and power system, natural gas provides an efficient source of heating and electrical power to medium to large energy users. The availability of kinsale gas was a major factor in the development of a cluster of pharmaceutical companies and other process industries in the south-east of ireland.

The Corrib project led to the gas grid being extended to the north-West. Consequently, existing large investors in the north-West such as baxter and Allergan are already benefitting from the availability of natural gas as a result of the Corrib project. The availability of natural gas increases the attractiveness of Mayo and surrounding counties as a site for future industrial investment, and sustains balanced regional development. This is very badly needed in view of the structural weaknesses in the regional economy and the changed economic prospects for the country as a whole. The availability of gas in the north-West will also allow the potential of wind energy to be realised in this area. small efficient gas-powered generating capacity can now be installed to balance the intermittent output from wind turbines.

3.4 natural gas for Domestic use

The gas pipeline from Mayo to galway has been constructed by Bord gáis to support the Corrib project. The tariffs that the Corrib gas Partners will pay for the use of the pipeline cover Bord gáis’s investment and maintenance costs. now that this pipeline is in place other investments in energy infrastructure, including the extension of natural gas supplies to the north-West, have become viable. Ten towns along the route of the pipeline already receive domestic natural gas4. a further four towns will be connected once a sufficient number of residents commit to buy natural gas5.

There is also potential for the grid to be further extended in a northerly direction up to County donegal. a recent report by the Western development Commission (september 2011), which examined the benefits of extending the gas grid to a further eleven towns in the north-West, estimated that €20.6m could be saved annually in fuel costs between commercial and domestic users if gas were available as an option in these towns6.

4 The towns in question are: Ballina, Ballinrobe, Castlebar, Claremorris, Crossmolina, and

Westport in Co. Mayo and gort, loughrea, Craughwell and Headford in Co. galway.5 The towns in questions are Ballyhaunis and knock in Co. Mayo and athenry and Tuam in

Co. galway.6 Western development Commission “WdC Policy report no. 5 ‘Why invest in gas? Benefits

of natural gas infrastructure for the north West’ (september 2011)

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3.5 Increased Skills of local Contractors

The analysis of spending effects in sections 1 and 2 has highlighted the use by sePil of local contractors in the construction and operation of the Corrib project. This involvement will have long lasting effects on the capabilities of some of these contractors. sePil have engaged with local contractors in ways that have developed their technical and business skills. This will improve the future prospects of these contractors. in addition, the availability of such skilled contractors will make the region more attractive to investors. This will lead to long-term significant dynamic benefits for the regional economy.

3.6 Additional broadband Infrastructure

The Mayo-galway gas pipeline, already developed by Bord gáis as a direct result of the Corrib project, contains ducts that could potentially allow fibre optic cables to be laid along the route of the pipe and decrease the cost of any future expansion of broadband services to the area. Once consent to lay this cable is in place, the roll-out of broadband could happen quickly, as a major cost element will have been removed.

3.7 Permanent Improvements in local Infrastructure

Construction of the Corrib project has led to permanent improvements in the road and water infrastructure of the erris region. The Corrib gas Partners have spent €16.8m on road infrastructure and €1.4m on water infrastructure to date. details of this spending are set out in Table 3.2 below. The benefits of this spending will be felt by the whole erris community.

Table 3.2 Spending on Public Infrastructure by Corrib gas Partners

source: Corrib gas Partners

Value Added Type x’000

road improvements required by planning conditions 6,184

road widening and repairs paid for by Corrib gas Partners 10,581

16,765

new water main 1,424

Total infrastructure spending 18,189

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Energy Source

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Coal 1,214 1,238 1,263 1,288 1,314 1,340 1,367 1,397 1,361 1,325 1,291

Oil 7745 7,776 7,807 7,838 7,870 7,901 7,933 7,984 8,048 8,112 8,177

gas 4,309 4,322 4,335 4,348 4,361 4,374 4,387 4,394 4,592 4,798 5,014

Peat 856 835 815 796 777 758 740 723 662 605 554

renewables 665 722 784 852 925 1,005 1,091 1,184 1,188 1,191 1,195

electricity imports

66 69 73 76 80 84 88 -98 -137 -192 -269

Total 14,855 14,963 15,077 15,199 15,327 15,462 15,606 15,584 15,712 15,840 15,962

2020 2021 2022 2023 2024 2025 2026 2027 2028 2009-2016

grOWTh PEr SEAI

2016-2020

grOWTh PEr

AnnuM PEr SEAI

2020-2028

grOWThPEr ESrI,MIDPOInT (actually only up to 2025)

1,256 1,240 1,225 1,209 1,194 1,179 1,165 1,150 1,136 2.0% -2.6% -1.3%

8,245 7,796 7,371 6,969 6,589 6,230 5,891 5,570 5,266 0.4% 0.8% -5.5%

5,243 5,256 5,269 5,282 5,296 5,309 5,322 5,335 5,349 0.3% 4.5% 0.3%

507 509 512 514 516 519 521 523 526 -2.4% -8.5% 0.5%

1,196 1,208 1,220 1,232 1,245 1,257 1,270 1,282 1,295 8.6% 0.3% 1.0%

-298 -298 -298 -298 -298 -298 -298 -298 -298 5.0% 40.0% 0.0%

16,149 15,711 15,298 14,909 14,542 14,196 13,870 13,563 13,273 40.0% 0.0%

Appendix 1 Energy use Forecasts

source: seai energy Forecasts for ireland to 2020, esri ”The energy and environment review 2010, for growth after 2020“

Primary Energy requirement (ktoe)

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economic benefits of the corrib gas...

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