Oil exploration grinds to a halt

Oil and gas exploration in New Zealand threatens to grind to a halt, as economists warn of a structural fall in prices.

No offshore exploration drilling rigs are due to enter New Zealand waters this summer, with Statistics New Zealand highlighting a drop in exploration already.

The oil industry claims the fall in drilling comes after a string of big projects came to an end, but acknowledges oil companies are cutting costs.

World oil prices have plunged in recent months, as the Chinese economy cools, reducing its demand for energy imports.

The drop in demand in one of the world’s fastest growing economies follows a massive increase in production in the United States. Now the world’s largest economy, once a major importer, is producing enough oil to satisfy its own domestic needs.

In June 2014 the price of crude oil was above US$100 a barrel, but has fallen to below US$50 a barrel. Analysts at US investment bank Goldman Sachs warned recently that the price could fall as low as US$20 a barrel.

Westpac economists said this week that low world prices may push some producers out of the market, limiting further sharp falls, but were unlikely to rise far above US$60 a barrel by 2017.

Unlike previous sharp movements in the price of oil which matched economic cycles, the current fall appeared to be structural, Westpac economist David Norman said.

‘‘We just have a new environment where oil and gas are just being produced in different ways and that’s meaning that longer term we just can’t see prices rocketing up to where they were before.’’

Already employment in the industry is in decline in New Zealand, with further cuts expected. Norman said the 6950 full time equivalents employed in the industry by March 2014 was up from just over 4000 in 2000, but between 2012 and 2014, employment fell 5.5 per cent.

Although no authoritative figures in 2015 have been made public, Statistics New Zealand has pointed to a fall in exploration. Between 2012 and 2014 there were around 30 exploration wells drilled, a number set to drop sharply when figures are published in early 2016.

The drop in exploration comes at a time of unusually high local oil production.

But Norman warned exploration had currently ‘‘dried up’’.

The oil industry maintains that the recent movement in price is cyclical, as was the recent drop off in exploration.