Minister for Resources Shane Jones has asked for advice on whether the Government should offer oil and gas investors an insurance policy that would pay out using public money if new exploration was banned again.
The Labour-led Government, that was in coalition with Jones' NZ First and had a confidence and supply agreement with the Greens, banned all new oil and gas exploration permits in 2018. While existing rights were upheld, the policy shift undermined confidence in the sector’s future.
National and its coalition partners want to lift that ban and encourage oil and gas companies back into New Zealand as part of a transition to a low-emission economy.
However, the opposition still backs the ban and elections are never more than three years away. Investors may not be willing to take the risk if restrictions could come back at any time.
A blog written by lawyers at Russell McVeagh said oil and gas exploration requires significant financial investment over a long period of time.
“Investors have low appetite for any actual or perceived jurisdictional instability of law or policy that could impact the ability to continue planning, investing in, developing, and operating oil and gas assets and prospects”.
Oil and gas companies may prefer to set up shop in South East Asia, Australia, or Africa, where the policy settings are less likely to move against them.
“Therefore, while a repeal of the ban is important, to attract new investment, it is equally critical for the new Government to give assurance to the sector that the Government's support for the sector is an enduring one that can withstand change of political winds”.
Jones confirmed to the NZ Herald this week that he was looking for that assurance.
A briefing to the incoming resource and energy ministers warned “policy uncertainty” would deter investment given the long lifetime of petroleum investments, especially offshore.
The NZ First MP has reportedly asked officials to look at issuing some sort of bond that would provide compensation to the industry if a future government limited exploration again.
While there aren’t any details about how this bond would be structured, it would likely function much like an insurance policy and would be backed up by public money.
Oil and gas permits already require the company to have financial securities—such as a bond, a deposit, or insurance—that would cover clean up costs if the company collapsed.
The NZ taxpayer was landed with the near half billion dollar cost of decommissioning the Tui oil and gas field in Taranaki after its permit holder went bust in 2019.
Jones appears to be exploring a similar scheme but flowing in the other direction, with the Government providing financial securities to permit holders to offset regulation risks.
Sovereign risk
A growing policy gap between the left and right political blocs in New Zealand has been causing some concern for overseas investors.
S&P Global Credit Ratings warned it thought the “institutional framework” for local government was weakening, in part because of the “sudden reversal” of water reforms.
New Zealand has had a “historically stable policy environment” but the recent change in government had created uncertainty around a key policy.
While NZ still has the best possible credit rating in this area, the credit analysts said it had been weakened by sudden policy shifts.
The issue of sovereign risk raised its head again last week, after the Government announced it would grant its ministers the power to issue resource consents.
Green Party MP and former leader James Shaw said investors should be aware that resource consents granted through that process may not be honored by future Ministers.
“There is a possibility that the next time that there is a change of government, those projects will be subject to proper scrutiny and that could lead to the loss of the consent, including the possibility of loss without compensation,” he said.
Chris Bishop, the Minister responsible for Resource Management Act Reform, said in a Parliamentary debate that Shaw should be careful “throwing around language around cancellation of consents without compensation”.
“I think all members in Parliament have an obligation to bear in mind sovereign risk to New Zealand and the way in which projects happen,” he said.
Interest.co.nz asked Bishop’s office for a comment on whether the ministerial approval process could increase sovereign risk for investors but did not receive a response.
66 Comments
This is such an egregious policy, and more outrageous is that it is a direct response to a perception of sovereign risk.
The idea that a government of the today, should implement sovereign insurance for the actions of the next government of the day, undermines our democracy.
There is a reason it won't happen:
https://www.sciencedirect.com/science/article/pii/S2666049022000524?via…
On the flipside, the rather fluid nature of our laws and practices means any business wanting to establish or expand needs to take a serious look at whether it's even worth starting.
If you were an egg producer, or wanted to be an egg producer, why would you bother sinking another cent into it on the basis that history shows the powers that be can and will make changes that affect your viability, or existence.
Yeah imagine being a hemp farmer or involved in associated industries and being railroaded by the oil and chemical industries and their nefarious political lobbying and propaganda.
And we still haven't learned anything from history. Why is it that the powers that be will gladly affect the viability of healthier practices over the unhealthy ones, yet justify it as the consumer's responsibility and choice?
I do, and it's been used by humans for thousands of years. But much of the miracle properties of it got convoluted with the anti-criminalisation movement of the flower (don't have an issue saying it's criminalization was asinine). Many of the things it's promoted as being able to do, it can, but in the 21st century, it's often not the best option.
But that is the nature of regulatory risk, by reviewing the landscape, political, economic, social or otherwise that every business assesses as part of their direction.
to undermine policymakers of the future by enshrining compensation for a sole industry (like oil and gas) cannot and should not be encouraged.
I would prefer that we as a nation had our own oil and gas operations, instead of creating a pseudo crown entity.
But that is the nature of regulatory risk, by reviewing the landscape, political, economic, social or otherwise that every business assesses as part of their direction.
Business plans often have views that extend well past 3-6 year government cycles. Much longer, when you're talking capital investment in hundreds of millions, or billions of dollars.
And the frequency of change has increased over the past decades, and is trending towards ever more regulation, not less. What is deemed acceptable practice today, is demonised tomorrow - even today's most ardent progressives, will be tomorrow's villains.
That is not an environment conducive towards increased private investment in the sorts of things we expect to deliver us productivity and prosperity, or even security. We'll just pay someone else less to do it somewhere else, trading ever more in assets that already exist.
Well, you can't do either without undermining democracy. You either enshrine no more red tape (or less red tape) in law on general terms, or you offer some level of security on a targeted basis. It's doing the same thing.
And if you're talking about undermining democracy, how much of our expensive, counter-productive red tape did the public actually vote for?
The whole “ban” on oil and gas was the worst case of selective memory in recent times.
The government suspended issuing new permits AFTER Shell, OMV and Petrobras all explored, found nothing viable and walked away from NZ.
Somehow this was turned into “banning oil and gas”. But no doubt we will make it worthwhile for these companies to return by covering any future losses. Is that cost to the tax payer factored into new ute prices or road taxes?
Do you actually care for others, or just evangelize?
I don't really know you to say, but you sound like a Jehovah's Witness, spending more time telling people about the rapture and what Jesus did, instead of actually acting Christ like - take in the destitute, feed the needy, mow a disabled persons lawn, you know, actual good.
Well, it's nice you can fit that in between bouts of telling everyone billions of us are going to die and we're all screwed.
The only real 'homework' that I could do, would be to spend time with you, and observe your day to day interactions and behaviour. Reading about you in a local gazette or some blog, is more self advertisement than true reality.
There is no doubt merit to much of your approach. We are a species that finds a new goodie, gets some benefit from it, then assumes exponential consumption of said goodie, will bring exponential returns. Which of course is usually the opposite of the truth.
We all have our pet causes, but to me the real root cause of much of our issues is the slow disconnection of the individual, from others and the world around them. The distinct benefits of being human come from shared experienced, and we have replaced that with an extremely decompartmentalised approach to life. Locked into screens, relying on the state to shape and care for society, competing with one another. A recipe for misery.
"I care and you dont because you don't attend the same church", not a great way to share a message.
We all have our pet causes, but to me the real root cause of much of our issues is the slow disconnection of the individual, from others and the world around them. The distinct benefits of being human come from shared experienced, and we have replaced that with an extremely decompartmentalised approach to life. Locked into screens, relying on the state to shape and care for society, competing with one another. A recipe for misery.
This is true. Our entire existence is literally relationship (with all around us including Nature) and sharing space.
How did we become so disconnected? Obviously false teachings and false narratives for thousands of years - a ruling economic system/beliefs that are so far removed from anything natural. It's become so embedded how do we remove ourselves from it? As much as it's the responsibility of the individual, how many actually have that ability? It also requires a supportive environment/community which is practically non existent. Therein lies the requirement of an effective leadership (not rulers with personal agendas), which is the state (us) but this terminology has been convoluted and distorted by the economic ideology.
Maslow highlighted it very well in his Hierarchy of Needs, which was refined by indigenous wisdom, but the psychology industry ignored it all instead choosing to follow a model of conformity and uniformity. Our health industry, our education system are all ambulances at the bottom of the cliff, and we wonder why we have the dysfunctional issues we face today.
Good posts. Many online complain about the same thing and point to the role of how we've changed our economic systems to something that has created more desperation, less security of housing, and thus more time in work (and extra gig work) to try to stay afloat while lacking space and time to engage in the social mechanisms of older times - sports leagues, social clubs, unions, churches, etc.
What's really interesting if you think about it is the historical marketplace. It was originally one of the social mechanisms of the time, many times a family/tribal outing of fun and entertainment. It wouldn't appear that way now.
There are many ancient but simple wisdoms that have been lost. Communal gatherings to eat and play, the fireplace being a time of storytelling, celebration and dance - and all relatively free. Singing while you work to maintain ones inner joy, expression and connection. Adequate breaks for physical nourishment and rest rather than our current efficiency model. Sports were more about personal development - mind, body, emotions, soul - and not the hyper competitive model we have now.
It's easy to see how distorted and imbalanced everything has become in the name of progress.
Not that I need to speak up for PDK as I'm sure he is totally capable, but, did Jesus not lead by example and preach?
Living lighter on the Earth is doing actual good and people can learn from that example if they so choose.
For someone who appears to have wider spiritual knowledge than most here, your comments towards PDK's actions seem a little at odds.
It's possibly just made up, but the story of Jesus is someone who spent 1 year preaching, and much of the rest of the time performing miracles and good deeds.
I just notice a trend between preachers of fire and brimstone, and actual tendency to live ones life in a warm hearted, caring way.
Those who warn of the Limits to Growth, are not fire and brimstone - just physics-minded folk who have the capacity to think.
That thinking spins off other things; one can become an 'early adopter; of what seems like future-appropriate technology. I did.
Then one researches on - as astrphysicist/UCAL professor Tom Murphy (dothemath) did - wrote his textbook from the Limits perspective, had done the PV-and-battery thing (like me) then realised that the whole shebang was in gross overshoot (via drawdown) and asked what level of consumption was sustainable? And for how many?
That's not fire and brimstone, that's science. If you come out of oncology with a 3-month prognosis, do you rubbish the oncologist for not being optimistic enough? We have to learn to fit within the limits our biosphere sets - and we're a long way overshot of that. Don't blame the messenger.
Anyone checked the international price of natural gas lately? There is a reason existing consents have not been used , and its not for the fear of a future ban.
The same about all the wooha over consents o for wind farms . Yet several companies already have consents , and have not built them .
This is just paying back donors.
try saying that with a straight face... and then these classics:
'relaxing smoking laws wont have much effect on smoking rates'
'reintroducing tax deductability for landlords will reduce rent for the poor' (whilst then trying not to crack up when asked if you will reduce the rent on your 7 properties)
The transition phase needed to be well underway before Key stood up in parliment and proclaimed global heating "a hoax". We have closed the window on the transition phase and have now entered the consequence/triage phase.
These fundimentalist ideological crazies still refuse to accept reality and true to "back on track" form, the road to the cliff is being four laned with my taxes.
They need to be praying harder for our future down at the Upper Room, because this government is trashing it.
It is called the Norwegian model.
Export oil and gas for consumption elsewhere. Have everyone drive electric cars (manufactured elsewhere).
Create a low-emission economy.
https://sustainabilitymag.com/net-zero/is-norways-status-as-a-green-cou…
So when the human race finally destroys the planet for our kids... we can all tell them at the end that we didn't couldnt stop polluting things... because the others wouldn't.
Kinda like at skool when one kid justify doing something bad coz another kid was doing it.
Great that we grew up
Wingman you're sounding like a fool.
Oil is finite. We're half-way through it.
Then what?
Oh, you don't care, That's right. Folk aren't ADVOCATING going back to the horse and cart, folk are pointing out that your silly approach guarantees it. Not only that, it guarantees going there with a country full of fossil-dependent infrastructure - absolutely useless beyond FF.
Madness, is putting it politely.
We're "running out of oil"? I've heard that phrase just about all my life, but they just keep finding more. It's nonsense.
I remember in the 1970's people rioted over oil, some were shot and fights broke out at gas stations because the end was near. If a substitute can be found, fine, but Comrade Ardern's approach was to ban oil and gas exploration in NZ and import the stuff....genius.
How do aircraft, and machinery operate without oil? Little ol' NZ, a country most people on Earth have never heard of is going to save the planet...God spare me.
Comrade Arden....former socialist, determined to destroy the NZ economy with her Marxist theories, now a multi-millionaire hobnobbing with the world's biggest capitalist.....Blackrock.
It's a finite resource, which makes your diatribe look remarkably like stupidity.
We have burned half the oil that was ever burned, in the last 30 years. And it was the best half. Doubling-times are funny, like that. And we're down to fracking, tar-sands, deep-water - all sub-optimal choices. Ask yourself why?
And stop twistihg science into inter-grouping belittling. That is spin - dumb spin at that.
Your 'NZ economy', is based on extraction/depletion. It is therefore temporary. Some of us have asked: How temporary? You seem to need to belittle, rather than scientifically rebut. Tells us a lot...
No one knows how much oil is down there, the 'experts' have been telling us we've been running out ever since Drake's Folly in Pennsylvania.
Kiwis are going to save the planet.....NZ... a country full of nuclear-free dreamers.....what former MP Austin Mitchell described as "the half-gallon, quarter acre, pavlova, paradise".
I'd love to know how this country was going to pay its way under Comrade Ardern with farming and tourism being demonised as polluters, and farmland being turned into trees.
I tell ya, there's more than one born every minute. No wonder kiwis are departing these fair shores in record numbers for a better future in Aussie.
What's NZ's future, building houses for immigrants? Oh that's right, former PM Helen Clark had the brilliant idea decades ago that NZ was going to be a huge computer centre for the rest of the World......OMG....dreams are always free in little ol' NZ.
You are cranially-curtailed.
Try learning about exponential growth; about doubling-times. Then apply it to any finite resource.
Your 'nobody knows' statement is proven to be irrelevant.
https://www.youtube.com/watch?v=kZA9Hnp3aV4
See if that starts - and I chose the word carefully - you thinking. Good luck...
Something I never do is listen to 'experts', because they're often wrong.
Remember running out of oil, running out of water, impossible to go faster than the speed of sound - one of the world' s most celebrated scientists stated "heavier than air flight is impossible".
We all start out ignorant. Some of us hunger for knowledge, and acquire it BEFORE we make moves.
Others make their moves first, then spend more and more of their time justifying - because il/uninformed folk are less likely to get it right.
I call them the CHOSEN IGNORANT.
And feel sorry for them.
No, Wingman, it doesn't.
Extraction is a one-off event, and your 'millions' are just proxy- mere computer-held digits. When the extraction ceases, those digits are worthless. Before that state of affairs, extraction peaks - beyond which those digits are worth less.
If you think (?) that is a clever approach, I guess you don't have offspring?
In most cases, those millions are assigned to "assets", backed by the promise of tax free computer held digits tomorrow. So the millions of dollars don't even exist yet.
How many "asset rich", computer held digit poor NZers are there? Existing solely as a proxy to the balance sheet itself. How much food can you access by leveraging the weatherboards peeled off the old rental?
Curious how this is corporate welfare?
Corporate welfare implies they get something for nothing. An insurance policy is not something for nothing. An insurance policy is a transfer of risk in exchange for monetary compensation.
In this case, the oil and gas entities would be paying the crown insurance premiums to insure against the risk that the next government changes the rules against them again. There's only 'welfare' in the broadest possible sense of the word, if the next government comes in and changes the rules. In which case it would be Labour/Greens providing the corporate welfare.
As a property investor, I would certainly be interested in purchasing such a policy, given the other lot have demonstrated a willingness to throw generally accepted accounting principles out the window on an industry by industry basis if the polling results are bad enough.
Please for the love of god Dan, I come to interest.co.nz for honest headlines and evidence presented neutrally. If I wanted partisan spin I'd get financial news from stuff.co.nz
Not my headline, but you will notice no other sector is offered guaranteed compensation against future regulation change.
It would not be structured like a commercial insurance policy, where premiums more than cover claims.
Rather, taxpayers would be out of pocket if triggered — effectively subsidising the risk.
Or more likely, making it politically unpalatable for a future government to restrict the sector.
National, ACT, NZF think they can come in an cancel everything labour greens did under urgency and with no public consiltation.
But if Labour Greens do something, they think they can bind them.
You can’t have it both ways.
I don’t see how oil and gas exploration is in our interests. It’s a subset industry with dirt cheap prices at the moment. As people above have pointed out, at current prices, nobody wants to explore difficult offshore drilling sites.
Subset industry
I love it
Sometimes the best slips....
But the point here is that EROEI will prevail. Even subsidised, no international energy company will come here. By the time those options are on the table, the global energy input is so low, that the 'global economy' as we've recently known it (only from WW2 until about 1980, from then on it's been in increasing trouble, hence the Nats trying a doomed-to-fail Productivity Commission) will have ceased to exist. Likely, there will be blocs/factions fighting over 'what's left' of the planet. If edifices as big as nations are still viable...
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