The Government’s handling of the oil and gas exploration ban has undone much of the goodwill it earned with its business-friendly Budget, Jason Walls says

By Jason Walls

It is clear Prime Minister Jacinda Ardern is not happy that business is not happy.

Twice now, she has referred to the low business confidence figures as the “elephant in the room.” In fact, in her pre-election speech to BusinessNZ, this was a key part of her message.

To her credit, there would have been many chief executives, market watchers and small business owners breathing a sigh of relief after last month’s Budget.

There were no spending surprises, no cost blowouts and it was – as ANZ economists said – a “prudent Budget.”

But most importantly, it didn’t provide any uncertainty – a winning tactic if the Prime Minister was looking to win business over.

If I learned one thing during my four years in business school, then subsequent years as a business reporter, it’s that businesses want certainty.

But the goodwill the Government earned with its business-friendly Budget has already been undermined by its disastrous handling of the ban on oil and gas exploration.

On Tuesday, a tranche of information relating to the Government’s decision was made public.

Notably, what was not in the release was a Cabinet paper and Energy Minister Megan Woods admitted the decision did not come before Cabinet.

There was also minimal discussions with officials.

To make matters worse, BusinessDesk reports the exclusively circulated global oil industry newsletter, Upstream, quoting International Association of GeoChemistry President Nikki Martin saying the decision had undermined the sector's confidence in New Zealand as an investment destination. 

“An arbitrary end to exploration disrupts business certainty, as major investments in New Zealand have already been made by companies with a reasonable expectation of future activities.”

A bad look

The document dump and the wave of bad press that followed appropriately bookends this disastrous three-month process.

The policy was effectively launched when the Prime Minister told protesters on the steps of Parliament the Government was “actively considering” an exploration ban.

Hours later, she attempted to walk back the comments, saying “every Government, at around this time of year, actively considers how it will manage block offers.”

But a month later, the policy was officially launched.

The Petroleum Exploration and Production Association of New Zealand said the industry had not been consulted and the policy was not in Labour’s election manifesto. It wasn’t in the Coalition or Supply and Confidence Documents with NZ First and the Greens either.

The whole saga was the polar opposite of the Budget and was riddled with uncertainty for those involved.

Yes, oil and gas is just one sector of the economy and yes, Government policy is just one part of a bigger picture when it comes to business confidence.

But it’s not hard to envisage the events of this week putting even more of a dampener on confidence levels; things are already looking a bit bleaker.

The Auckland Chamber of Commerce revealed on Friday almost half of the businesses they surveyed believe the economy is going to deteriorate over the next six months – up from 8% this time last year.

At the end of the month, ANZ will release an updated Business Confidence figure which will incorporate both the prudent Budget and the effects of the bungled oil and gas announcement.

Will it show the elephant quietly back out of the room, or loudly trumpeting? Only 21 sleeps to find out.

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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53 Comments

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“ oil and gas is just one sector of the economy “ must be the understatement of the year. Oil and gas is the bedrock of our society as we know it. NZ should be pulling it’s own weight not bludging off other nations. We already do enough bludging on finance and defence. You can’t live on virtue signal.

We should just be part of Australia. Too much overhead and lack of purchasing power by being the country we are.

Once you get past the sporting rivalry, it makes a lot of sense.

I suspect it wouldn't be that great for Auckland. I oppose it.

Cannot imagine why Australia would even want us. For a start they have enough trouble, self inflicted to be sure, sorting out fairly their own indigenous people. Just on this commentary alone, this government is looking decidedly ambiguous and stumbling around far too much, and it is only yet, very early days. Actually the only government that I can recall being in a similarly uncertain position is that of Labour PM Nash.

Being part of Australia has done nothing for Tasmania. “asmanians are poorer, sicker, older, the least employed and risking falling further behind, an economist warns.

A report released on the state of the economy by Saul Eslake has found Tasmanian households earn 30 per cent less than the rest of Australia and the state risks falling further behind unless there is a massive jump in productivity.”

Won't work sammnz. Our banks are part of Australia and for the same thing gouge us more here than there. NZers need to buck the control of our supplies by corporates and insist they opetate to market forces - which they sure don't now.

Au contraire. Banking would be one of the first and most obvious industries to benefit from market forces if we were lucky enough to become part of Australia. Our banks are standalone businesses, owned by Australian banks, but operating in a completely separate market. They have significant costs relating to New Zealand regulations and laws, but the bigger factor is that banks in New Zealand do operate to market forces, but like most industries here, those market forces are small market forces.

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The ban on oil and gas exploration and Twyford's anti-NIMBYism were the final two nails in the coffin for me. We should be opening up more areas for mineral exploitation. P thing was good news though. Foreign buyers? Will have to see what happens but it seems a backward step if taken to extremes.

The thing I cannot tolerate is blindly championing equality when clearly so many are a drag on society letting themselves, their families and their society down. This is the main difference between National and Labour.

Final nails? There's going to be a few more no doubt. I'm sure the Prime Ministerial baby on the cover of Woman's Weekly will have you coming around.

A few more I agree.

Wait till they remove three strikes legislation and reduce bail terms. Only time then before we have yet another grizzly murder / assault / rape from someone who would have been locked up.

Facts are that three strikes and tougher bail is supported by ~ 68 % of the population.

As Sensible Sentencing who are back in action mailed recently - pass this and you'll be a one term government. Supported by NZF of course initially who have now done a 180º.

So I hope they do rescind it - a final nail.

The voters will also not take well to the looming CGT they will campaign on that Cullen will deliver. Another nail !

Petrol prices at the pump closer to $ 3 / l will be a constant reminder at every fill of their tax policies. Another nail !

Looming in the undergrowth is inflation, higher interest rates and slower growth - All toxic to voters.

Nov 2020's going to be a lot of fun and I suspect a very different macro environment from the goldilocks economy we have had now for some years.

Indeed, Jason. Mining of any ilk is a multi-decade investment. So arbitrarily switching off exploration, itself a high-risk activity, sends a shocking signal to all sectors. Add the frisson if IR 'reform' to yet-to-be- selcted sectors, and business will be wondering ' who's next, and for what treatment. NZ activity is a rounding error for most large investors and there are plenty of other destinations: e.g.WA. The fact that there was zero Ministries input, plus no Cabinet discussion, is We Know Best writ large. The consequences of the decision are also vague to non existent: The need for a gas substitute or import terminal. The fact that, faced with a forced exit, O&G will likely take the classic business exit strategy and raise prices to ensure profit until the last cubic metre of product. The fate of all those households on reticulated gas. The loss of the royalty revenue. Common taters may think up more downstream effects. But the summary is: Nothing is rosy in this garden.

I’d be selling that Invercargill rental - Tiwai will be next. Who needs aluminium when you can have an electric car.

The world market requires an ever increasing amount of Ally - a wonderful light weight material easily processed to final form.

Remember it takes a constant load 24 / 7 / 365 so naturally gets a good price.

Just re-opened the 4th pot line - they will know what they are doing far better than we do.

Read Transpower's report for the massive investment required to get that to the NI - new Cook Straight cable - Billions of dollars. Not on the foreseeable horizon currently.

Historians may well say, in Churchillian rhetoric, that for this government this period now, was the end of the beginning and the beginning of the end.

Muppets hope National campaign on overturning this short sighted decision........

you need a full stop after Muppets.

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I was pretty sure when Winston went with Labour that things would take a severe dive this year. But as it starts to unfold and threat of recession gets every more real I am feeling very depressed. I do not want Labour to fail in govt, because as they fail so the hopes of most NZer's (not on the govt tit) get snuffed out.

Oil and gas decision will cost us billions per year (NZ Gas is worth about $1billion a year, govt gets a good cut of that, importing it will more than double that cost, add another billion or two for the extra oil we will need to import plus a huge expenditure on LNG import infrastructure and shuttering of a whole lot of NZ industry and heavy engineering capability). And we still have the damage to come from the backwards industrial relations changes and sharply inflationary increases in taxes and minimum wages. Tourism is going to suffer, Agriculture is going to suffer, businesses will stop hiring, unemployment will go up and tax receipts will fall.

Since coming to power Labour have foolishly wasted billions a year on things like student bribes and NZF bribe fund and Oil and Gas industry destruction that will not help NZ economy or the global environment, and it is impossible to do anything but despair at that.

What’s your guess as to when the manure will really hit the ventilator? I would say last half of next year and by that I mean when the electorate starts to emphatically turn against the COL followed by the unraveling of the same.

This CoL will go the distance even if they are less popular than vomit. Too much self interest not to, they and their working group cronies would all lose their high paid jobs, and likely never see riches like it again for a decade. NZF and Greens are in danger of electoral oblivion at next election if NZ economy gets bad, they only just scraped in when times were good.

If no great shocks from offshore then 12-18 months for the economy to really tank would be my guess. But wouldn't take much to trigger it at this point.

I hope they go the distance. The pain inflicted on the electorate needs to be so deep that voters won’t forget it for at least two election cycles, otherwise we risk flip flopping in 2023 and more bribes being handed out.

Good thinking Rex Pat, give them just enough rope...
Thank goodness the electoral cycle is only three years.

Zachary, haven't you heard? Everyone's talking the Coalition term as six years not three. Hardly surprising given the oppositions theatrics! National should conduct a few hundred, independant donor funded reviews. Who knows, after regrouping they might emerge as a trustworthy force to be reckoned with.

Agree they will run out the three year term, but in some disarray for the last third. Lange’s & Bolger’s managed to complete final terms as such.I think the slippery slope for this government will really come into play when the true extent of the tax grab agenda, according to the book of Cullen, is revealed.

Since coming to power Labour have foolishly wasted billions a year on things like student bribes

It's truly a show of how warped thinking has become in NZ when we spend over 60% of our social welfare budget on handouts to old people regardless of need - many of whom have been significantly enriched by nothing of their own doing in recent years - while the concept of starting young people off in life with slightly less debt than we have recently is lambasted as a bribe.

Apparently a small tax cut for older, already enriched folk (who benefited in their turn from free education but would rather not provide it for others because "tax cut") is more important than giving other, following young Kiwis a slightly less burdened start in life.

Who were the me generation again..?

Rick, as I have posted recently, I believe that Land Tax is the fairest way to sort this out. Otherwise people like RP and me are able to retire early, and not contribute during likely the most tax payer funded portion of our lives. It's troughing of the most insidious form. As for the student bribe, it was ridiculous to offer it to all families, ours didn't need it.

Ex Expat, by voluntarily withdrawing from the workforce, I made way for another tax contributing employee. Can you say the same?

Have a read up on the lump of labour fallacy. "If early retirement really improves living standards, why stop at 60? Why not 55? If governments moved the retirement age down to 40 every young person would have a job and everyone would be living in the lap of luxury. Alas, the land of the lotus-eaters remains a myth. Get back to the office."
https://www.economist.com/node/21547263

You know I can't say the same, my position was made redundant so if anyone replaced me it would be time for a PG.

Ex Expat, while it's true I pay much less tax these days, I strongly feel that by donating one day per week to a local charitable organization, I offset a good chunk of contingent liabilities you speak off. As for the amount of tax I've already paid while working, not unlike you, it was a considerable sum.

As I understand it, you donate your time as a devoted National Party member to further a political cause in times when we already have the best Government we've had in years.

I hope this comment goes some way in clarifying the fundamental differences between you and I.

That's the point - simply not causing more young Kiwis to have to start life with large debt to even get an interview with most jobs is not a bribe. It just shows our strange values...when we offer an unneeded pension to old wealthy New Zealanders, yet lambast less costly education for the young as a bribe.

Who really represents the so-called ‘Business environment’ in NZ today anyway?
Is it really the small business owners, SMEs, and private small farmers etc?
Or is it the spokespeople for the large corporates who dont really want a fair, competitive consumer-responsive business environment - they really just want full unfettered access to the NZ ‘market’ (captive). If so, then their judgment on how good the business environment is (framework set by Govt) does not really benefit most NZers.

What hasn't been mentioned is the massive loss of technical skills this policy creates. Oil exploration is incredibly high tech, and the technical expertise at all levels is exceptional, not to mention the marine engineering skils in places like Nelson where the ships are mended.

Next the CoL will be sending everyone who wears glasses to the countryside.
We have to get together and start organizing their downfall now. Our country and our livelihoods depend on it!
NZ mustn't become the Venezuela of the South Pacific

Actually Nationals policies effectively sent a lot of Aucklanders to the countryside - in order to afford to live & house their family. Some without glasses.

Leaving Auckland to move to the countryside is the best thing I've ever done. If that was Nationals doing, I'd like to thank them from the bottom of my heart.

Yep I'm enjoying it too. I am starting to wonder if housing 'crisis' was overblown by media. I meet so many who have also fled Auckland and are happier for it, pricing signal (and realisation that Auckland infrastructure problems will not be fixed in my lifetime) obviously motivated a rational response such as in my case.

With National building consent rate of about 33000 houses in 2017 we were building enough to keep up with population increase, just not in Auckland, and it was increasing at about 3000/year for last 6 years. Will Labour be able to maintain that rate + increase?

Same here moved to Wellington 2 years ago now and love it. Return to Auckland every 2 months to see clients and watch the mortgaged to the hilt zombies idyling in their tractors thinkin they live in the best city in NZ.
Wellington..most liveable city in the world, overtaken Melbourne

Anyone who thinks it was Nationals policies alone, nothing to do with Labour or councils, that caused the housing price rises is either totally delusional or not paying attention.

Don't forget to stock up on those bake beans Zachary, central Auckland will drop in price anyway regardless of the foreign buyers ban.

My goodness. I didn't expect to see Zachary to decline to quite this level. What a hysterical and silly comment.

Low 'business confidence' in New Zealand's hollowed out FIRE economy - who would have thunk it .. !? lol

Not many people defending Labour on this thread. I sense a sea change. The honeymoon is over.

because what they did on oil and gas is indefensible

in your opinion, not so my opinion.

Or maybe because the 30 or so threads we've had on this non-issue don't constitute news anymore? More of an echo-chamber for people banging on about "Taxinda" "Pretty Communist" "CoL" "Socialists" with a level of hysteria I would expect on see on Fox or Breitbart.

That's right - some of you have become *those people*.

Meanwhile, the oil companies continue to act like a cartel and continue their exit from NZ that started *long before* the current government.

The voters will ultimately decide if it's a non issue. Right now we know who was responsible for it (Shaw, Taxinda and the man some call Political Pus), how much official advice was heeded (none) and you can have no doubt it will be brought up in campaigning and reversed.

Larry on what level do you see this decision by decree being good for New Zealanders?
It doesn't reduce CO2 emissions.
It doesn't reduce taxpayers fuel costs.
It costs costs high paying jobs and technical skills.
It worsens our terms of trade.
Expert advice was ignored.
Virtue signals to Jacinda's mates is the only upside I can see for anybody.

This is the choice that is made, only value short term economic impacts and discount the long term survival ones, or re-balance and move forward. Oil and gas in NZ is in decline anyway, the big players have all already left. What we have no is the small, bottom of the barrel scrapers.

Meanwhile some ppl are making a decent living from moving forward,

https://www.youtube.com/watch?time_continue=52&v=IdhDPxcizhk

and indeed communities are benefiting as well,

https://www.youtube.com/watch?v=MMlluuqMCdc

Steven, you keep commenting on this proposal as though it is something which will deliver long term benefits in terms of addressing climate change and reducing dependency on fossil fuels.

It has not been shown how it will do either.

ah and of course being an [far] right winger its something you have been praying for. Carry on dreaming............

Your political tribalism blinds you to pretty clear-cut insanity. Please tell us what the upside is for the destruction of NZ's oil and gas industry. And then tell us how it balances against the enormous cost to NZ.

The CoL decision to increase NZ's Co2 emissions, ensure we become more dependent on tyrannical overseas regimes for our future energy supplies and decimate Taranaki's economy, has now been revealed as pure self preserving political ideology. Tragically, our PM seems to believe NZ flapping its puny butterfly wings will in fairy tale style magically create a mighty wind that will sweep the world. She appears to have a limited grasp on the reality of just how tiny and irrelevant we are. Her naivety is emphasised when business people from across the ditch and lands further away smilingly enquire as to 'which planet she is on?'. It isn't just lack of certainty that is driving a slump in business confidence - we are also dealing with cringing embarrassment.