Ireland facing arbitration over refusal to greenlight lease undertaking for oil & gas project due to ‘environmental dogma’

Oil and gas company Lansdowne has set the wheels into motion to move forward with its Energy Charter Treaty (ECT) claim against Ireland, in the wake of the country’s refusal to award a lease undertaking for an oil and gas field in the North Celtic Sea, which is operated by Barryroe Offshore Energy’s subsidiary, Exola DAC.

On June 19, 2023, Lansdowne’s legal advisors, Ashurst LLP, submitted a letter to Ireland, requiring the country to participate in discussions to settle the dispute related to its refusal to award a lease undertaking for the Barryroe oil and gas field. The receipt of the letter was acknowledged by the Irish government, however, no further communication was received.

As a result, a further letter was submitted by Ashurst LLP on behalf of Lansdowne on August 9, 2023, with a reminder that if Ireland persisted in its failure to engage in attempts to settle the dispute amicably, it would be in breach of its obligations under Article 26 (2) of the ECT. The receipt of the letter was acknowledged by a letter from the Irish State Solicitors Office on August 14, 2023.

Afterward, Ashurst LLP received a letter from the Irish State Solicitors office on September 18, denying Lansdowne’s claim that Ireland had breached the terms of the ECT but indicating that they would be willing to consider proposals for a meeting with a representative of the Department of the Environment, Climate, and Communications.

Steve Boldy, Chief Executive of Lansdowne, said at the time: “It has always been our hope that this matter could be settled amicably and we will continue to seek to achieve that, but with the three-month period elapsing today, the door is also open for us to move forward with formal arbitration proceedings.

“We continue to believe the Minister’s rejection of the Barryroe JV partners’ lease undertaking application, which prevented the development of the Barryroe oil and gas field, was not in the interest of Irish energy security or a prudent transition to a lower carbon economy.”

Come November 14, the Irish government published its strategy for Ireland’s energy security, identifying multiple actions to be taken and the setting up of additional committees, all to be overseen by a new Energy Security Group (ESG). Ireland relies heavily on imports to meet its oil requirements as it does not produce crude oil and is a net importer of refined products.

Some of the key findings in the report encompass concern about gas supply leading to the need for a Strategic Gas Emergency Reserve; concern regarding oil supply with the need to strengthen the National Oil Reserves Agency (NORA) while actions to be taken on both are expected to add further cost burden to consumers, based on Lansdowne’s interpretation.

The company believes that an alternative pathway, allowing the development of the Barryroe oil and gas field, would deliver greater energy security at lower cost and with lower associated emissions. The firm noted that the report highlighted certain key supply and demand risks.

As one of the most energy import-dependent countries in the EU with limited diversity of supply, Ireland is exposed to supply-side risks. In 2022, 82% of Ireland’s energy needs came from imports while 48% of the energy used was imported oil and nearly 31% natural gas.

Lansdowne underlined that 74% of Ireland’s natural gas came from imports through two interconnectors from the United Kingdom, thus, a disruption of gas supplies from the UK, for whatever reason, would have a significant impact on Ireland’s economic and social well-being.

Regarding the demand side risks, the dependence of the electricity system on natural gas is expected to increase in the short to medium term, particularly at times of very low wind. In addition, the peak day demand for natural gas is expected to be on the rise, thus, the electricity system will continue to rely on natural gas as a fuel source as it transitions to a majority-renewables system and phases out natural gas in the medium term.

When it comes to the introduction of a Strategic Gas Emergency Reserve, Lansdowne emphasized that a floating reserve (FSRU) was anticipated to best meet the criteria set by the government, but the costs of the state-owned enterprise would be paid for by an additional levy on the consumer, as applies for NORA.

Given these interpretations, the company finds it “extraordinary” that Eamon Ryan, Minister for Environment, Climate and Communications and Minister for Transport, decided to block the progress of the Barryroe oil and gas field, which contains supplies of oil and gas, especially as the application was perceived to be satisfactory from a technical standpoint.

While Lansdowne is adamant that the development of Barryroe would ensure secure indigenous supplies of both oil and gas, with lower emissions/carbon footprint, compared with imports, Minister Ryan appears to be placing all his faith in developing offshore wind at scale and pace.

The company uses the McCarthy Report on the security of electricity supply to hammer home its points, as the report outlined: “The ambition to decarbonise has not been matched by sufficient management of the project delivery risks, with evidence of an underestimation of risk in the sector.”

Moreover, Lansdowne also focuses on the headwinds facing the offshore wind industry. To illustrate this, the firm mentions that Siemens Energy recently encountered problems with the turbines it manufactures and was in rescue talks with the German government to secure €15 billion to shore up its balance sheet.

On the other hand, Vatenfall stopped work on a wind farm project off the coast of Norfolk as the 40% rise in costs meant it was no longer profitable while the Danish giant Ørsted announced a nearly £2 billion asset write-down due to delays in windfarm projects offshore the U.S.

Additionally, Equinor and BP announced the termination of the Offshore Wind Renewable Energy Certificate (OREC) agreement for the Empire 2 project offshore the U.S., recognizing “commercial conditions driven by inflation, interest rates and supply chain disruptions that prevented Empire Wind 2’s existing OREC agreement from being viable.”

Lansdowne underlined: “It is the company’s view that the long delayed report on Ireland’s energy security has taken a blinkered approach, driven entirely by environmental dogma, and will ensure that Ireland’s energy insecurity will persist to 2030 and beyond and that the Irish consumer, already paying some of the highest electricity prices in Europe, will face additional cost burden. Energy insecurity of this nature will be magnified many times over in the event that global disruptions occur thus also multiplying the costs to the Irish consumer. Domestic energy supply can help to alleviate this multiplier effect.

“There is an obvious alternative pathway, to allow the development of already discovered oil and gas resources in the Barryroe field, delivering greater security at lower cost and with lower associated emissions. There is no reliable forecast which shows an elimination of oil and gas imports to Ireland. Domestic oil and gas can provide energy security and be provided at a much lower emissions cost than imported oil and gas.”

Since its attempts to engage in conversations with the Irish government have been ignored, the firm believes that it has no alternative other than to pursue its arbitration efforts under the Energy Charter Treaty. Therefore, Lansdowne is focused on progressing its ECT claim against Ireland due to the government’s refusal to award a lease undertaking for the Barryroe oil and gas field.

To this end, the company has appointed Mantle Law, an international law firm with offices in London and the United Arab Emirates, whose global team consists of dispute and arbitration lawyers in the construction, infrastructure, and energy sectors. Currently, Lansdowne and Mantle Law are in the process of contacting litigation funders to provide third-party finance to fund its ECT claim and the resulting arbitration process.

“Given the lack of engagement or any ability to have a respectful and frank conversation with the Irish government, the company believes it now has no alternative other than to pursue vigorously its ECT claim,” concluded the firm.

Located some 50 kilometers off the south coast of Ireland, the Barryroe field lies in the shallow water of around 100 meters. Lansdowne holds a 20% interest through its subsidiary, Lansdowne Celtic Sea, while the remaining interest is held by Exola DAC.