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2014-07-16 18:50:00

MADRID APPROVES CANARIES

MADRID APPROVES CANARIES

Madrid is poised to grant final approval to a controversial €7.5bn oil exploration project off the Canary Islands, ending a decade-long political battle that has pitted Spain's desire for greater energy independence against local campaigners and the country's powerful tourism industry.

Repsol , the Spanish energy group that leads the drilling consortium, believes the offshore fields could contain as many as 2.2bn barrels of oil equivalent. It will now receive permission to sink two exploratory wells into an area some 60km to the East of Fuerteventura. If the group's estimates are confirmed, the fields could ultimately allow the production of 110,000 barrels a day – enough to cover 10 per cent of the country's total annual consumption.

The decision to greenlight the Canaries project is part of a broader policy shift in Spain, which has slashed subsidies for renewable energy and is now betting on a revival of domestic hydrocarbon production. Madrid's new stance is partly the result of the recent economic downturn but it also reflects a broader trend across Europe, as governments struggle to reduce their dependency on foreign oil and lower the cost of energy for their recession-hit industries.

"For many years, under the previous Socialist government, Spain was pushing alternative energies very strongly, especially solar and wind. But now the music has stopped," says Mike Rosenberg, a professor at Spain's Iese business school. "Now, it is all about reducing the country's tremendous dependence on foreign fuel, by allowing oil drilling and hydraulic fracturing [fracking]."

Spain currently imports more than 99 per cent of its oil from abroad, a serious drag on the country's trade and current account balances. Madrid hopes that opening up its offshore fields in the Atlantic will unlock a new source of revenue and investment, and ultimately help lower its foreign energy bill, which currently runs to about €40bn a year.

But the shift has also sparked an angry backlash, with many locals warning that the creation of an offshore oil industry will turn away foreign tourists – one of the biggest revenue generators not just for the Canaries but for Spain as a whole. Their case has been bolstered by a string of celebrity endorsements, including one from Penélope Cruz, the Spanish actress.

Pedro Hernández, a member of Ecologistas en Acción, the environmental campaign group, says: "The regional parliament, the regional government, the municipalities and the people in the street – they have all said that they don't want this project to go ahead. This is anti-democratic."

Invoking the spectre of BP 's Deepwater Horizon oil spill in the Gulf of Mexico, he argues that a tourist destination like the Canaries simply cannot run the risk of a similar accident. "It would be an environmental and economic catastrophe," adds Mr Hernández.

Such concerns are mirrored in other parts of Spain at the forefront of the policy shift. Local activists in Ibiza, for example, are up in arms over a plan to drill for oil in the waters near the Balearic holiday island. Protest movements have also formed in northern Spanish regions such as Asturias, Cantabria and the Basque Country, prime targets for the country's nascent fracking industry.

José Manuel Soria, the industry minister, removed any lingering doubts hanging over the Canaries projects last Friday, when he declared that the authorisation process would be finalised in a "matter of days". The ministry's backing is the last remaining regulatory hurdle for Repsol and its two partners, Woodside from Australia and Germany's RWE . In May, the drilling plan had won the backing of Spain's environment ministry, and last month the country's Supreme Court dismissed a legal challenge against Repsol's plans.

The Spanish energy group was awarded the original exploration licence back in 2001, but progress had been stalled repeatedly as a result of legal challenges and regulatory delays.

Backers of the project argue that accidents such as the one that hit the Gulf of Mexico are exceedingly rare, and that crisis-scarred Spain can ill-afford to leave its potential riches untapped. Speaking earlier this month, Mr Soria said it was crucial for Spain to at least examine how much oil and gas it has at its disposal. "No other country would refuse to even find out [about its resources]," he told Spanish radio.

Advocates of the exploration programme also point out that the fields straddle the maritime border between Spain and Morocco, and are therefore likely to be exploited one way or the other.

A spokesman for Repsol said: "We think it is worth exploring the potential of this region. We have offered every guarantee that this work will be carried out safely and to the most exacting standards."

ft.com

 

Tags: REPSOL, OIL, DRILLING, SPAIN, CANARY, ISLAND, OFFSHORE, FIELD,

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