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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Spain To Consider Fracking Following Canary Islands Failure

Spain To Consider Fracking Following Canary Islands Failure

A highly controversial oil project that Spain’s national government had pinned its hopes on was just cancelled. Spanish oil giant Repsol has decided to call off drilling near the Canary Islands, a small chain of Spanish-controlled islands off the coast of Morocco.

While oil companies across the globe are slashing capital expenditures and scrapping rigs because of low oil prices, Repsol’s divisive campaign to drill off the coast of Canary Islands suffered from a different problem. Despite what was being billed as potentially the largest oil discovery in Spanish history, Repsol reported highly disappointing results from its surveying.

Repsol spent more than a decade to get to this point. The plan to drill near the Canary Islands sparked angry protests from locals and environmentalists, bogging down drilling proposals for years. For example, in June 2014 150,000 to 200,000 people on the Canary Islands came out for a major protest against Repsol’s plans. The local government fiercely opposed any drilling over fears that it would spoil the islands’ tourism industry. Officials from the Canary Islands pushed for a referendum late last year, knowing that most islanders would vote down any effort to drill.

Related: By Buying Canada’s Talisman, Spain’s Repsol Nearly Doubles In Size

But the Spanish central government had different ideas. Mired in a multi-year economic depression, with an unemployment rate still north of 23 percent, Spanish Prime Minister Mariano Rajoy pushed hard for oil exploration near the Canary Islands. Rajoy’s government gave Repsol final approval in August 2014.

Repsol stated that if initial drilling tests were successful, it would pour in $10 billion to develop offshore fields and would eventually be able to get oil production up to about 110,000 barrels per day, which would account for about 10 percent of Spain’s oil consumption.

But the Canary Islands no longer have to worry about Repsol’s presence. On January 16 the company cancelled all future drilling plans near the islands, saying that the disappointing results don’t justify further investment. “The analysis of samples obtained showed the presence of gas…but without the necessary volume nor quality to consider future extraction,” the company said in a statement. “The exploratory survey confirmed that oil and gas have been generated in the basin, although the deposits found have been saturated with water and the hydrocarbons present are in very thin, non-exploitable layers.”

Repsol is closing up and will have to look elsewhere for growth. The company said that its drillship will depart from the Canary Islands and will head for Angola to search for oil.

What is interesting about the failed campaign in the Canary Islands is that it appears that low oil prices did not figure into the company’s decision. Rather than a temporary period in which Canary Island oil would be economically unviable due to low prices, the poor geological results mean that oil markets can essentially forget about the region becoming a viable source of production at any point in the foreseeable future. In other words, oil at $100 per barrel wouldn’t even allow Repsol to boost Spain’s oil output.

That comes as a huge blow to Rajoy, and dims Spain’s chances of reducing oil imports. Without any significant domestic oil and gas production to speak of – less than 50,000 barrels per day – Spain has to import about 80 percent of its energy.

Related: Unpopular European Fracking Could Provide Independence From Russia

Meanwhile, Repsol recently purchased Talisman Energy, a Canadian firm, for $8.3 billion. The move will make Repsol one of the 15 largest oil companies in the world based on production and was the largest corporate transaction by any Spanish company in the last five years. But it will also decidedly transform Repsol into a company based in the Americas with 50 percent of its capital deployed in North America and 22 percent in Latin America.

The Spanish government is still holding out hopes that shale basins could spark an unconventional oil and gas boom, most notably in the Basque region. Several Spanish provinces have resisted, with Cantabria and La Rioja having passed bans on hydraulic fracturing. However, the Spanish Constitutional Court has shot down those moves, calling them unconstitutional.

The central government has pushed forward and has accelerated its rate of permitting for new exploration. The Canary Islands proved to be a big disappointment – whether or not the shale push is a bust as well remains to be seen.

By Nick Cunningham of Oilprice.com

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