PM’s comments nothing the oil industry doesn’t know
OPINION: Prime Minister Jacinda Ardern engaged in some high-stakes politics this week when she appeared to tell Greenpeace supporters outside Parliament that the Government was ‘‘actively considering’’ ending oil and gas exploration – and then carefully walked that comment back with media later.
While music to the ears of Greenpeace, which was presenting a petition seeking an end to oil searches, her initial comments sent shockwaves through the small but economically significant number of companies that have oil and gas exploration and production rights in New Zealand.
Her subsequent comments sought to redraw the nature of ‘‘active consideration’’ to make it clear that governments consider what acreage to offer for oil and gas exploration at about this time every year.
Nothing new in that, albeit the symbolism of delaying her attendance at the state luncheon for Indonesian President Joko Widodo underlined how serious her active consideration must be.
Importantly, she made it clear there was no intention to cancel or confiscate existing exploration licences. Doing that would be a red flag to international investors across a far broader range of sectors than oil and gas.
Nor is there any suggestion that any existing oil and gas fields face early closure or restriction on their ability to extract every last drop of production in future.
This is what OMV, the Austrian owner-to-be of Shell’s interest in the Maui, Pohokura and other gas fields, intends to do after announcing a $578 million purchase of those assets last week.
Based on current reserves, Maui is expected to be exhausted by 2020 and Pohokura by 2036, but OMV has expertise in getting extra life out of mature fields.
It’s a measure of how skittish the local oil industry is to the Government’s attitude to its existence that fears of a wider expropriation were seriously held, however briefly.
In the past two years, there has been almost no serious interest in exploring for oil and gas in New Zealand.
Instead, it appears the Government is, so far, only deciding whether or not to hold what would be the seventh annual block offer round of tenders for exploration acreage, both onshore and offshore.
And here it gets interesting. The reality is that in the past two years, there has been almost no serious interest in exploring for oil and gas in New Zealand. In both the 2016 and 2017 block offers, just one permit a year was issued.
That’s a far cry from the hoop-la that surround the first block offer round in 2012, where then Energy Minister Hekia Parata unveiled 10 new permits at a special ceremony in the Grand Hall at Parliament.
The then government was bullish on the potential for oil and gas to be an economic gamechanger. The block offer process was a creature of its desire to market New Zealand petrochemicals more actively.
Ending that process would be consistent with a new government taking a different view.
In 2013, another 10 permits were issued, followed by a high point in 2014, with 15 permits issued.
The greatest achievement of the process, however, was to attract several major new international players to New Zealand, including Norwegian Statol, US-based Chevron and Anadarko, and Australian heavyweight Woodside Petroleum.
However, after 2014, the music stopped. The global oil price tanked as the rise of onshore shale oil extraction by fracking, mainly in North America, obliterated the economics of deep-sea oil drilling.
Today, Statol is the only largescale new entrant with exploration interests in New Zealand.
It’s not even clear whether community consultations, which should have happened late last year and are required before a 2018 block offer can be announced, have even occurred.
It’s tempting to think that underpinning the Prime Minister’s tactics is a mundane reality: That if there were no block offer held in 2018, there would be almost no practical impact on the local oil and gas industry.
Yes, it would send a strong political signal that oil is on the way out, but the oil companies already know that. Their only argument is how quickly. –BusinessDesk