Jenée Tibshraeny uses data to illustrate what the oil and gas industry looks like, to inform the discussion around where NZ might be left if it was phased out

By Jenée Tibshraeny 

The Government is considering whether to stop issuing new permits for oil and gas exploration.

Breaking away from the previous National-led Government’s tradition of releasing its Block Offer at the Petroleum Exploration and Production Association of New Zealand’s (PEPANZ) annual conference, the Labour-led Government has told the industry it will have to wait a few more weeks for an announcement. 

In the meantime, Energy and Resources Minister Megan Woods has loosely outlined the Government’s plans to work towards to a carbon neutral economy by 2050.

Using the word “transition” 24 times in her speech to the conference, she said this would be done over “10 and 20 and 30-year timelines”.

She said existing permits wouldn’t be affected.

“We know we have 10 years or so of natural gas consented for drilling, and potentially many more years that could be discovered under existing exploration permits. Some of these permits run as late as 2046.”

Woods also talked up the prospect of the Government using its Provincial Growth and Green Investment funds to invest “billions of dollars in local infrastructure and clean energy projects” in areas that rely on the fuels being phased out.

Clearly the Government has a tough task on its hands - politically.

It has to live up to the slogan Prime Minister Jacinda Ardern campaigned on around climate change being her generation’s “nuclear free moment,” while staying true to both Labour and New Zealand First’s commitments to regional development.

It needs to put politics aside and consider what a ban of new oil and gas exploration would actually mean for New Zealand.

It can only start phasing out oil and gas if it is confident there are alternatives that can be phased in at that same rate, without too much expense.

What’s more, the Government needs to be sure these alternatives achieve what it’s setting out to do - reduce greenhouse gas emissions.

While these are questions too large for a journalist to tackle in 1,500 words, what I can do is provide some context around the issue to help inform your view.

Oil - a major force albeit shrinking 

In the 2016 calendar year, oil accounted for 46% of the country’s energy needs, with 82% of this for transport.

New Zealand exported 73 of the 82 petajolues (PJ) of oil we produced, and imported 354 PJ. We export most of our oil because its good quality means it’s worth more on the international market.

Local oil production has been falling since it peaked at 132 PJ in 2008. Consumption has increased a little. 

So any oil production cut backs we made in the future wouldn’t mean too much if we kept increasing our consumption - largely by adding more trucks and cars to the road - and importing more oil.

Electric cars, trucks and trains are on the horizon. The question is whether a phase out of oil can be matched by a phase in of electric vehicles.

AUT electric engineering Professor Reinhard Klette expects electric vehicles to “dominate” the market in five years’ time. 

This is how the International Energy Agency (IEA) sees the uptake of electric vehicles progressing:

The IEA makes the point that a move to electric vehicles would require strong policy action, otherwise in a lower oil price world, consumers would have few incentives to make the switch.

This gets us to the next point, even if we moved to electric vehicles and cut a solid portion of our oil imports, how much global demand would there be for our exports?

The IEA projects demand growth to remain “robust” until the mid-2020s, after which time a move to electrical vehicles would see this demand “slow markedly”.

Albeit slower, there will still be growth; the IEA expects most of this demand to come from petrochemical producers.

So would we need to seek new reserves if we decided we wanted to capitalise on this demand - even if it was less profitable than it’s been in the past?

Yes.

The Ministry of Business, Innovation and Employment (MBIE) expects our reserves to drop sharply in coming years:

The unknowns around what happens when NZ’s gas reserves run out

Turning to gas, it’s a similar story. New Zealand’s reserves have nearly been exhausted.

While oil made up 46% of the country’s energy needs in 2016, gas comprised only 14%.

29% of New Zealand’s net gas production was used for energy generation - 20% for electricity. Around 45% was used for petrochemicals, methanol and fertiliser.

New Zealand doesn’t import gas, however we convert a lot of the gas we produce to methanol and export this.

Local gas production peaked in the late 90s, early 2000s. It dropped off fairly sharply, before regaining some ground in recent years.

It is impossible for New Zealand to import natural gas, unless the right infrastructure is put in place.

And without a major find that could be monetised, different forms of energy would have to be identified and made accessible at large.

The IEA recognises the largest form of energy growth in the world will come from renewables.

New Zealand’s generation of renewable energy (including hydro, geothermal, solar, wind, biogas, woody biomass and liquid biofuels) has been on the up. Production increased by 51% between 2006 and 2016.

The key thing to be explored is the extent to which production of renewables could continue to be ramped up, as currently they only meet 11% of New Zealand’s energy demands.

Nonetheless, the IEA also sees demand for gas growing at a similar rate over the next 25 years, as it has over the past 25 years. A total of 80% of the projected growth is expected to come from developing economies, led by China, India and other countries in Asia.

So once again, the demand is expected to be there for New Zealand’s gas exports.  

Yet the IEA cautions, “The competitive landscape is formidable, not just due to coal but also to renewables, which in some countries become a cheaper form of new power generation than gas by the mid-2020s, pushing gas-fired plants towards a balancing rather than a baseload role.

“Efficiency policies also play a part in constraining gas use: while the electricity generated from gas grows by more than half to 2040, related gas use rises by only one-third, due to more reliance on highly efficient plants.”

A new Maui a possible game changer 

While the Government is considering new oil and gas exploration, the reality is that if any of the current sites being explored move to the production phase, the mix of our energy supply could change completely.

Between 2006 and 2016, 142 permits (prospecting, exploration and production) were issued.

While a number of these have been surrendered in recent years, it is possible some companies make great finds they see scope to commercialise.

In fact, the Barque prospect in the Canterbury Basin off Oamaru, is believed to potentially contain a similar amount of gas and light oil to Maui - Taranaki’s largest oil and gas field.

New Zealand Oil and Gas and Beach Energy jointly own a permit in this area.

A MartinJenkins report they commissioned into the economic impact of pursuing different options in this field found development of it had the potential to more than double New Zealand’s current oil and gas production.

Under one scenario, gas would be extracted and piped onshore. Oil would be produced and exported. A port would be developed to service the offshore platform and provide facilities for the storage and shipping of methanol.

Production would begin in 2025 and have a 46-year life. Hundreds of millions of dollars of GDP would be created, and the South Canterbury/Otago economy would be transformed as Taranaki’s has been.

The pinch is, getting all the infrastructure in place is expected to cost $6.3 billion dollars. This is more than the cost of the Auckland City rail link.

Put in context, $15 billion was spent on all live permits between 2006 and 2016.

The Government earned an average of $301 million a year over this time from royalties paid by oil producers and an average of $28 million a year from levies paid by gas producers.

The environment can’t be ignored 

While the money is good, Ministry for the Environment data shows the oil and gas industry has left a decent-sized footprint on the environment.

Around 41% of New Zealand’s gross greenhouse gas emissions came from the energy sector more broadly in 2015. In comparison 48% came from agriculture.

Of this 41%:

- Almost half came from domestic transport (mostly road transportation, but also a bit from domestic aviation).

- 21% came from manufacturing industries and construction, with methanol production being a significant contributor.

- 16% came from energy industries, with the bulk of this attributable to public electricity and heat production.

A move to electric vehicles and greater reliance on renewable energy for electricity and heat generation would therefore have a significant impact on our greenhouse gas emissions.

But once again, given we export our oil, stopping oil production wouldn't affect our emissions, even though in theory it might play a part in reducing global emissions. 

While oil is the real offender here, the reality is oil and gas go hand-in-hand. Successful exploration of hydrocarbons often provides access to both oil and gas. Furthermore, gas condensate - a light oil - is produced with much of the natural gas produced in New Zealand. So divorcing oil from gas could be problematic.

Oil and gas make significant contributions to New Zealand's energy supply. Doing away with them is all fair and well, provided we have viable alternatives.

Given they currently make up the deficit that renewables (which meet 11% of our demand) cannot match, we have much progress to make. The question is how quickly we can move to this point. 

If we realistically can't get there, we need to send a clear signal to the oil and gas industry that we continue to be open for business, as attracting the necessary $6.3 billion of investment to get the project in the Canterbury Basin off the ground is a huge task.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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25 Comments

"Banning" Exploration is really nothing more than the official "Time to call stumps". The industry has been winding up for a while.

- While aware of some substantial deposits. None are viable to extract (economically and technologically). Best estimates are 40 years for the technology (based on when the price was around $120).

- There has been virtually no Exploration here for a while. Nothing last season at all, and not much forecast this season, or next. The few seismic projects in the works, seem to be more maintaining a presence/employment or fulfilling permit requirements, rather than bona fide exploration.

- There is some work to potentially extend the life of some of the existing fields, but realistically the major fields/players have another 12-15 years of full production, before they are handed over to smaller parties to drain the last dregs

Another agricultural emissions mantra nonsense.

"Agricultural emissions make up roughly half our emissions "

That is only because we measure them on a gross basis and ignore the massive absorption of CO2 by our grasslands and crops except when used in fuel production.

Now we are planning to borrow offshore with an open ended liability as to volume and price to purchase credits to offset emissions that simply do not exist.

Crazy that we plan to accept offshore credits but ignore our own domestic credits of a far lager scale !

It won't happen - just more green nonsense !

Think I saw a report/article saying US food is exempt from CC. So we are more efficient, more green, emit less CO2 but will cost more than the USA, that is plain daft.

Your assumption on low oil price misses peak oil which is about now and that by 2050 its all gone. Of course that ignores the downward trend in production from about now to 2040~2050 that will make oil either expensive or not available (not affordable)

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Good article. Thank you.

The PM's position on this is extremely unclear (perhaps deliberately so). She has talked only in terms of oil and gas for fuel, but she confused matters by suggesting that gas fro electricity generation is better than coal and oil.

Her comments also appear to completely overlook the fact that oil is used for many, many purposes beyond fuel.

I laughed when I saw the banners the Greenpeace people were holding when the PM received a petition from them last week. The banners appeared to be plastic and were no doubt printed with petrochemical-derived inks.

And a good few of the Greenies were obviously clad or shod in artificial fibres and synthetics-based footwear.

"Greenies"??? Really. This word is a relic of the past and now says more about the people using the word than then ones trying to be described by it.

Correct, when talking about the members of the Green party the correct term is watermelons..

I like watermelons. What on earth have they done to deserve that!

Nothing wrong with a good watermelon.. appropriately sliced :)

And de-pipped.

Er, but exploration worldwide has been cut right back since the price of oil fell. So give it a few years and we will be back to the 1970s when oil glut turned to oil crisis and the price tripled overnight. She''ll be right.

What I predict we will start to see in the next 10 years is the rise of the right wing ( as well as left wing ) environmentalists. These will be mostly young capitalists, that simply acknowledge the environmental plight we are in. This new bread will be capable of seeing a much wider scope than only short term economic gains and will insist on much longer term government planning and accountability.
Idea's such as ending future oil exploration will be viewed sensibly along side current global warming science and the acknowledgment that we can't have our cake and eat it too when it comes to economic growth and the long term health of our planet.

The real question is not whether this change in thinking will happen, but a matter of how bad to things really need to get before this change in mindset eventuates?

There will always be a need for oil , just as there is still a need for Iron or Stone

The IRON AGE and the STONE AGE did not end when the world ran out of iron or stone .

We should continue to explore for oil .............. even if we don't extract it

The science is crystal clear. We cannot burn all the oil we currently know about, let alone look for new oil if we are to avoid the worst effects of climate change. At some point we have to draw the line and say, no new oil exploration!
The world has a choice: Oil or our climate. We can't have both!

We support your choice not to drive a car or have goods and services delivered by car or truck. Enjoy the fresh air as you ride your bicycle to and from the supermarket with your burlap sacks tied to the luggage rack.
We also support your choice not to produce self propelled carbon releasing entities known as children.

Thank you for your consideration.

The science is certainly not clear amongst those who's jobs don't depend upon so called global warming scenarios.

Just remember over 4000 very competent scientists with no job or axe to grind put their name to a public letter years ago stating the fallacies in the current thinking.

Like so called " back radiation " from the colder atmosphere can heat the warmer ground in direct conflict with the laws of thermodynamics - yet that is what every diagram illustrating heat flows shows. Laughable !!

Many so called climate scientist are operating well outside their areas of competence as few have a background in quantum mechanics and thermal physics - both standard components of a degree in physics and very necessary to understand the relationships between radiation and gases.

One well known local commentator with a PhD simply plotted temperatures over time in NZ and correctly showed the climate was warming them burst into print proving global warming.

This nonsense will eventually be shown to be monumental scientific fraud.

JB,

I have seen a good few articles from GW deniers,but few as meaningless as yours.

Some basic physics;most of the sun's energy reaches earth in the visible part of the electromagnetic spectrum and is reradiated in the infrared(longer) end of the spectrum. It then interacts(I am putting this simply for you) with the trace(greenhouse) gases in the atmosphere. The higher the level of these GHGs,the warmer the earth becomes. I would refer you to the Stefan Boltzman and Wein radiation laws. you may also wish to look at the work of Arhennius. i could go on,but I don't think you would understand.

Stefan and Boltzmann - two n's were two individuals so correctly written as Stefan-Boltzmann.

We all know that IR heats the GHG's - but the issue then is how that heat is distributed, primarily by convection to the upper colder atmosphere where it can finally radiate to outer space at near 0º K.

Take a few minutes to study the following:

http://ilovemycarbondioxide.com/pdf/Understanding_the_Atmosphere_Effect.pdf

For those with an open mind it is difficult to read articles such as this and be 100% confident of the warming effect theory of greenhouse gasses.

Too bad you never studied spectroscopy or atmospheric chemistry. It would give you a far more realistic view of reality.

What I find more interesting than scientific opinions is all the politicians that believe they are experts on global warming. I remember the idiotic gibberish that the ACT party were stating years ago. I am unaware of any scientific papers published by ACT to date. In fact I'm unsure if they are even literate.

No matter the anti-global warming religious beliefs oil will become more uneconomic to extract and demand will reduce over time. What we should be planning for is how we provide for our energy needs for transportation.

Where are New Zealand's biofuel test plants for making fuel from atmospheric CO2? Why are we moaning about the oil industry when fuel consumption is entirely the consumers fault?

Oil and gas thank you. I need oil for my car and gas for my heating, cooking and water.

Agreed Boatie and if only for the fact that it is too valuable to burn. Now if the boffins can succeed in their cryogenic labs & double phase hydrogen, or whatever process it takes, so it becomes a propellant as safe as say LPG, , the world suddenly becomes clean??..not in our life time though.

Gas production is increasing throughout the world, via new technologies for extraction. "Peak Oil" is still just a slogan.
But all this ignores other energy research, such as fusion: http://www.rationaloptimist.com/blog/nuclear-fusion/

Er, what about Self Sufficiency, or is that out of fashion? New Zealand, self sufficient in, er, er, cold damp shacks?

A lot of hype from Greater Auckland.

Auckland is also increasingly different from the rest of New Zealand. We are younger, more diverse, more educated and more productive. We are also growing much faster and will continue to do so. There is no going back to the Auckland of old.

Auckland is undoubtedly a far more vibrant, exciting and better city than it was 30 years ago. We need to make sure that this progress continues and accelerates.

https://www.greaterauckland.org.nz/our-vision/

What is everyone going to do when/if the building stopped and overseas income stopped arriving?
They quote Mercer yet mercer is about high income people not a courier driver who lives in South Auckland

to stop oil and gas exploration would be a a gross mistake,we need more revenue than ever,when you consider
the cost of the Waitangi tribunal payouts,a further $370 million,to Tainui and Ngatahu,which was covered
up for some time from the public,as it was thought,the initial payment was full and final.
The South basin,as we are told .could hold,could hold big gas and oil reserves.