Open Letter re Oil and Gas Exploration

A guest post from Mark Webster of New Endeavour Resources (N.Z) Ltd:

The recent decision by the New Zealand government to stop issuing Permits for offshore oil & gas exploration is misguided and counter-productive.  It is highly likely that New Zealand has sufficient natural gas to support an LNG industry.  Exporting gas to countries that currently utilise coal would have a real, material impact on global emissions, and be a game changer to the NZ economy, enabling NZ to fund the social, environmental, infrastructure, and regional development programmes that the government has prioritised.  The current strategy will have minimal, and probably negative, impact on emissions, while removing a valuable source of revenue, with no substitute identified.

I am a New Zealander and a petroleum geologist.  I started my career as a graduate in Petrocorp and left 13 years later as Chief Geologist. I have worked in the industry for 34 years, in New Zealand and overseas (in Australia, Canada, Thailand, Philippines, and Malaysia). I established a company (NER) with two experienced Australian colleagues, specifically to look for gas reserves in Taranaki.  We see huge potential here and have been working hard to develop opportunities, attract investors to NZ, and unlock this resource.  I don’t believe anyone would define us as Big Oil; I drive a 2004 Toyota Echo.

Like most people in the NZ oil & gas industry, I also care about clean air, clean water, and a fair society, and am grateful daily that I am lucky enough to live on these lightly populated and isolated islands. I voted Labour in the last election because, like many others, I was concerned at the growing inequity in NZ, the need for communities to have to provide food and clothing for school kids, the woeful salaries we pay teachers, nurses and basically anyone who isn’t in a position to yield financial clout. I don’t like seeing our youngest and brightest burdened by debt when they successfully complete training or education, knowing home ownership is moving out of their reach and they will be responsible for a rapidly increasing aged population requiring care. I liked Labour’s promises to boost the regions, so Auckland doesn’t become the hippo sitting at one end of the rowboat.

My argument is very simple. New Zealand’s hydrocarbon resource is predominantly gas (70% of reserves found to date). Natural gas emits approximately 50% less Greenhouse gas than coal, and 20% less than oil. We believe NZ is fortunate enough to have sufficient reserves (up to 30 Trillion cubic feet, or 6 more Maui-sized Fields) to develop an LNG (Liquified Natural Gas) export industry.  

If 9 Tcf (less than a third of the resource) was exported as LNG to Asia, and displaced coal powered generation (something the government can control), the result would be a reduction of CO2 emissions of 48 million tonnes per year over 30 years. This represents 60% of New Zealand’s total 1990 emissions. Our target under the Paris accord is 11%, so New Zealand could rightly claim to be making a tangible, rather than token, contribution to this global initiative.

The following scenario illustrates the potential impact of an LNG industry. Numbers are indicative and based on the Wheatstone LNG project operated in Australia by Chevron, but upscaled from gas reserves of 4.5 Tcf to 9 Tcf.

• An LNG development comprising 4 trains, producing approximately 18 million tonnes per annum (MTPA) combined over a 30 year lifetime;
• Increased activity and economic prosperity in Taranaki;
• An extension of the Maui pipeline from Huntly to Northland;
• An LNG export facility in Northland, generating
  • 7,000 jobs during construction, 30,000 jobs over the project lifetime
  • $100 Billion in Crown revenues over 30 years
  • Increase in GDP of $360 Billion over 30 years
  • $40 Billion added to the regional economies in local contracts, services etc
  • Reduction in global GHG emissions by 48 MTPA
• A sovereign wealth fund ensuring a good standard of living for those who follow;
• Investment in research into existing and new technologies to further reduce emissions from the resource, including carbon capture & storage, hydrogen fuel, LNG transport fuels etc;
• High value education and training opportunities for the young;
• Salaries for nurses, teachers etc that better reflect their value;
• Money to repair and maintain schools and hospitals;
• Money to fund DoC in both conservation programmes and to cope with the ever- increasing pressure imposed by tourism;
• A regulatory environment that enforces compliance with safety and environmental standards;
• An end to childhood poverty in NZ.

James Shaws’ argument in Parliament seemed to be that because renewables are attracting a lot (colossal I think was the word) of investment elsewhere in the world, we should also invest a lot of capital paying ourselves to build more renewable generation to sell electricity to ourselves. Seems to be an economic model similar to the Auckland property market, and that’s worked well for the next generation. It’s going to take a lot of electricity just to replace the energy currently provided by oil & gas, before we even think of how to power replacement (as yet unidentified) green industries and the fleet of electric vehicles.  Say goodbye to those Central Otago landscapes as windfarms are built under urgency.

James also spoke of the declining market for fossil fuels.  This is at odds with the forecast published by Shell last week which states the global demand for natural gas is expected to grow at an average of 2% per year (twice the rate of total energy demand) and LNG by 4% per year. An article in Oilprice.com on 31 March 2018  stated “China’s increased air pollution fight and its impact on the country’s gas demand will revolutionize LNG markets in the Asia-Pacific region, creating new opportunities for LNG producers from Australia, the U.S., Russia….In November the IEA predicted China’s natural gas demand would increase from 210 Bcm (billion cubic metres) in 2016 to 400 Bcm by 2040 as the country shifts its emphasis to cleaner and more efficient sources of energy”.  New Zealand could be a significant producer for this market.

New Zealand is well ahead in the renewables game (thanks in no small part to the efforts of engineers, builders, scientists, lawyers and administrators who, I am guessing given the demographics of the time, would largely be represented by the group now dismissed as old white men by the Green Party), so it seems the only actual benefit from the current strategy is that NZ gets to adopt a pious self-righteous smugness and considerable additional debt to pass on to future generations.

NZ will continue to need oil and gas for several more decades. We can use our own, and control the safety and environmental standards, or we can spend money importing energy, and have little or no control over standards. The decision is not as simple as the options provided by Greenpeace in their typically insightful analysis: should we ban all fossil fuels (good) or continue oil and gas exploration (bad).

The ultimate irony, however, is having a state-controlled renewables electricity generator using a comedian on tv ads to tell us we should emulate Norway, a country with an enviable standard of living, and a higher uptake on electric vehicles……all built on a strong oil and gas industry.  That’s what we want, wait, no we don’t, but yes, we do, can we just have the good bits?

To claim the existing offshore Permits will run their course and potentially be converted to Mining Permits is misleading; companies will need to apply for a Mining Permit in the event of a discovery, from a government that has broadcast their position on oil and gas production.  Mining Permits will either also no longer be awarded offshore, or each application will be declined. No company is going to invest in exploration in existing Permits with that uncertainty now hanging over them. There will be immediate cutbacks and job losses. I expect offshore Operators are already queuing outside MBIE to retract drilling (and financial) commitments that have been made. That will flow on to suppliers, contractors etc etc.

NZ is in the unique and fortunate position of already having a high proportion of renewables generation, and a gas resource which, if managed responsibly, can be of huge economic and social benefit without compromising the government’s Climate Change goals.

The question I have for the coalition leaders is “do you want to reduce global emissions, or do you want to stop oil and gas exploration?” because they are different objectives with different strategies and different outcomes.  The transition represents a huge opportunity for NZ to show some true leadership.

At the very least, have a moratorium on offshore blocks offers for 2018, work with industry to validate the resource potential, and review existing and emerging technologies for the use of the resource (and confirm the emissions associated with each scenario).

We can’t export sunshine and good intentions. 

I really regret wasting that vote now…