Energy analyst John Kidd on the extent to which OMV's ambitious plans to drill in the Great South Basin will comfort NZ gas users in the face of rapidly depleting reserves

Energy analyst John Kidd on the extent to which OMV's ambitious plans to drill in the Great South Basin will comfort NZ gas users in the face of rapidly depleting reserves
COSL Prospector rig

The Austrian oil and gas giant that recently bought Shell’s New Zealand assets, OMV, is aiming to this year start drilling up to 10 wells in the Great South Basin.

While its ambitious plans represent a vote of confidence in the area’s prospects, the extent to which a commercial find would directly provide New Zealand with more security of gas supply is unclear.

New Zealand’s gas reserves have been depleting, as there hasn’t been a major discovery in about 15 years.

The country currently only has enough gas to meet demand for the next seven to 10 years; the Coalition Government’s decision a year ago to stop issuing new exploration permits calling into question the likelihood of these reserves being replenished.

LNG would likely go, but could stay

Woodward Partners’ energy analyst John Kidd believes a commercial find by OMV would provide more security of supply, but says there are a number of layers to unpick.

He maintains the default outcome from a successful find would be for LNG to be exported to Asia. This is because a commercially viable discovery would be of export scale.

However because LNG is gas that’s cooled down and condensed to a form that can be transported easily, it could remain in New Zealand.

Kidd says that with costs falling, it would be economic for LNG to be received in the North Island.

He can’t at this stage see investment being made to set the South Island up with its own gas infrastructure.

“The depth of the market in the South Island is certainly not at the scale that would immediately support the widespread application of gas through the South Island,” he says.

“It would very likely require the building of some very significant infrastructure. Not unlike what happened with Maui [in Taranaki] in the early days.”

‘Success breeds success’

Kidd says other companies will be looking to OMV’s lead as it plays a high risk, high reward game in the Great South Basin, where it has been exploring for 12 years but hasn't drilled a well before.

“Success breeds success,” he says, noting that OMV gaining traction would dramatically increase the marketability of the prospects in the area.

“It would certainly be a huge shot in the arm for those joint ventures who are very much looking for investors,” he says.

New Zealand Oil and Gas CEO, Andrew Jefferies, on Tuesday said he was “keeping a close eye” on other exploration acreage in the Canterbury-Great South Basin where wells may be drilled ahead of those New Zealand Oil and Gas and Beach Energy are considering drilling off the coast of Oamaru.

The Energy and Resources Minister on Wednesday extended the conditions of their permit by three years, so they now have until April 2022 to decide whether to drill an exploration well.

However Kidd says: “The complexity of course is the political environment.”

There are only four active permits in the Great South and Canterbury Basins and no more will be issued under this Government.

Kidd maintains the companies that have these permits will find it difficult to attract investment partners.

The level of risk OMV is taking on in the Great South Basin is such that it would ideally like a third joint venture partner. Its other partner, Mitsui, has a 17% stake in the permit.

LNG a viable solution to plugging a shortage

Kidd recognises the ideal scenario is for local gas production to keep meeting all New Zealand’s gas needs.

But in the event of a shortage, he says: “There are now clearly fit-for-purpose options to import gas [in the form of LNG] that would likely be less expensive and a better fit than has been the case in the past.

“The likelihood now would be of a FSRU [floating storage and regasification unit] rather than land-based concept…

“If people are serious about reducing global greenhouse gas emissions, OMV’s proposition is the type of project that would genuinely work towards achieving that…

“The best way that you can displace carbon emissions on a global basis (as has been seen in the US for the last decade) is to back out coal-fired generation and replace it with gas. That is precisely what every Asian nation is trying to position itself towards, as is Australia.”

Kidd maintains exporting LNG to Asia will have the largest and fastest impact on reducing emissions.

Greens want more action from their partners in government

However the Green Party is up in arms over news of OMV’s drilling plans, revealed in its application to the Environmental Protection Authority to get one of a number of consents it needs before it can drill.   

Its energy and resources spokesperson, Gareth Hughes, is calling for the Government to come down harder on the holders of the 28 active mining or prospecting permits in New Zealand, by preventing them from extending the conditions of their permits.

The Government granted OMV an extension on the conditions of its permit last year, similarly to the New Zealand Oil and Gas extension mentioned above.

Greenpeace campaigner, Amanda Larsson, agrees: "Any extension of an existing permit is essentially granting a new permit and is entirely inconsistent with climate leadership.

“As long as permit extensions like this continue, Ardern’s Government will start to lose its international credibility as a climate leader…

"OMV is flipping a big middle finger to Jacinda Ardern, to all the New Zealanders who fought so hard for so long to end oil exploration.”

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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20 Comments

What we're looking at here is a version of BAT, stuck with a dinosaur business model and down to vaping options. At this late stage in the FF game, it's a red herring. We haven't the lead-time left, even if we were keen for the extraction to take place.

Better we focus on renewable energy which - strangely enough - doesn't run out. Let's move on

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How do we pay for it? Don't we need to sell something in order to be able to buy renewable equipment from China? At the moment the money comes from housing sales and WMP. Don't we all just get a lot poorer on the way to the promised land? Isn't that exactly what has been happening in NZ for the last twenty years? A median house in 1999 equaled 11724 hours work, now it equals 21032. We seem to have rather lost the plot, hence the argueing amongst ourselves. We are blessed with abundant natural resources that can help reduce deaths by air pollution in Asia. Isn't that something we should be proud of doing?

Interesting line of thought that I have gone down before is that a three bedroom bungalow style home that used to be common would take about 1500 hours of work. That is total, including all the joinery and even including the fixings.

Where you get it wrong, RogerW, is in 'abundant resources' and in 'help reduce deaths by air pollution in Asia'.

The best way of keeping deaths to a minimum, is the one-child policy. In terms of helping them, it's a nonsense to say 'they are using coal, they'd be better with our gas'. Actually, they're better weaning cold-turkey. And globally, we're better leaving it in the ground. And what is money, anyway? The means to consume more? Why is that a bonus?

And we could buy all the renewables we want, for what we're continuing to spend on SUV's - which are all destined to be stranded assets near-term.

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Your solution to 'save the planet' involves collapsing the economy and destroying our living standards, good luck convincing the public to back you on that. Might as well suggest we exterminate 100 million people a year to get the population back in balance, another public relations winner. Or our world government could decree that no child is to be born in the developed world as each child will be responsible for further planetary destruction. After all didn't a study show the best way to reduce your carbon footprint is not to have kids? Government forced abortions all round and we can live in utopia everyone!

The economy collapsing is a foregone conclusion, the question is the manner in which it happens.

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This would be a great boost for the NZ economy and help the world reduce its carbon emissions in the short/medium term. If they had any sense the government would back this 100% and spend the royalties on reducing our carbon emissions short/medium and long term.
And for anyone claiming we don't need/want it, give up everything directly or indirectly produced by 'fossil fuels' which in today's world is basically everything you don't produce yourself in your back yard. We won't be seeing your comments here since the internet is powered by 'fossil' fuels on devices made from plastics produced in factories powered by coal and transported across the planet by oil powered shipping etc etc.
Consumers are the ones burning it and burying it in landfill or telling themselves its recycled, when the world stops wanting it the companies will stop drilling for it.
For the rest of us who enjoy our standard of living and live in the real world, lets find a way to move to sustainability without cutting off our nose to spite our face.

No it doesn't 'help the world reduce carbon emissions'.

It adds to them.

Period.

Lets get past that nonsense, eh? Your 'standard of living' was a temporary arrangement, based on exponentially-increasing draw-down (of resources and sink-capacity). Only a fool would expect that to last for long. The reality is that we will become sustainable, whether voluntarily or involuntarily - and it won't include your current 'standard of living'.

"The reality is that we will become sustainable, whether voluntarily or involuntarily - and it won't include your current 'standard of living'."

Yes, that is the crux of the matter. Standard of living must drop.The stats are showing the slide has begun. Some believe we can halt it, but eventually a global equilibrium will be reached which is likely to be significantly worse than what we currently have in NZ.

There's been talk of the riches of the great south basin since since well since as far back as I can remember. So far heaps spent for, nothing.

Ah, yes, but this time could be different. Honest. Science has moved on, and oil and gas exploration is one of the most advanced scientific technologies there is. These people would not be spending real money unless the odds were heavily stacked in their favour.

They aren't spend NZ$150,000,000 per well looking for unicorn farts. They are clearly looking at developing and producing from these potential fields which would be of great benefit to the people of NZ, but these things don't happen overnight which is why government stability is a huge factor in big investments like this.

It's not producing, it's extracting; a one-off event. Get it right please.

But the lead-times are beyond it, now. Global fiscal collapse (or war over 'what's left') is now a nearer-term likelihood.

It is there, it is just not easy to obtain. They have a sniff around every time they have developed a new and or better way to survey, as it may unveil a previously overlooked ability to extract.

It is the same situation of the Coast of Gisborne. Massive reserves, but technologically and economically it is not viable at this point in time (if ever).

Cherry picking which industries to clobber and which to ignore in the climate change debate is not the way forward. Expert advice to successive governments since 1992 has recommended that a meaningful carbon charge be introduced. Of course successive lilly-livered governments have failed to act on the recommendations - 27 long years of prevarication! Can we humans save ourselves from ourselves? Not if emotive, knee-jerk solutions involving pet hate industries are followed, rather than economy-wide transitions using economic instruments. Sadly, it appears that the loopy Greens are as likely to have bad ideas as the longer-established political parties.

This government is showing its really good at forcing through bans before the country can assess the consequences but show me the big investments to change our economy to something greener? The RGF is spending a 100mil in Taranaki promoting tourism to replace Oil and Gas. International tourism has a massive carbon footprint but flying people from the other side of the world so they can take a walk is green?

There I agree, They're totally oxymoronic. Tourism and dairying are goners, but they dare not tell the punters and it appears they cannot even tell themselves. Cognitive dissonance is the official description. Stupid is another.

Yes we are on the same page on that one. JA and Greens talked a big game on our 'nuclear free moment' but much like our nuclear protests there's a bit of feel good fluff and the world continues on. New Zealand's emissions are still increasing despite our largely renewable power generation...where's the leadership in that?

Gosh I hope they don't hit all that untapped oil on the way to the gas, we've succesfully kept it hidden for decades and imported oil just so we wouldn't become a plaything for the imperial countries...I'd hate to see that change.