Oil ban watered down – just in case we get lucky

After all the hype, the Government’s troubled path to ending new oil exploration has a bizarre sting in the tail: a bit of a backdown. In the hours before she announced a law change to give effect to decisions announced in April, which mean no new offshore permits, Energy Minister Megan Woods met with the industry to deliver a piece of good news. Oil explorers facing deadlines on their permits to either commit to exploration wells or relinquish the permits are likely to be given more breathing space.

It seems the deadline to drill could be pushed back for years, although Woods has not given details other than that she will consider giving more time on a case-by-case basis.

In terms of concessions, it looks like no big deal, given the Government is changing the legislation that frames the sector. No-one in the industry will celebrate this as a victory.

But it seems like Woods is trying to head off a potentially major ‘‘what if?’’ headache. As it stands, the Barque prospect off the coast of Oamaru will be lost forever if New Zealand Oil and Gas (NZOG) does not find partners willing to commit to the major cost of drilling, by early 2019.

Although the odds of success are put at only one in five, NZOG has claimed that, if successful, Barque could transform New Zealand’s energy outlook, with thousands of jobs and tens of billions of revenue. Seen this way, Woods’ gesture to the industry looks like a major contradiction of the Government’s plan, to set New Zealand on a renewable future.

It now seems the Government wants to set New Zealand on a future without fossil fuels, but just in case we really should give the industry one last chance to see whether we can transform ourselves into the Saudi Arabia of the south. Both Greenpeace and the Green Party are furious, with the Government’s partners warning it waters down the moves made so far.

Given where we have come from, the latest move should be no surprise. On a sunny day in March, Prime Minister Jacinda Ardern walked down the steps of Parliament to greet Greenpeace activists, delivering a major shock that the Government was ‘‘actively considering’’ their call to end oil exploration. Although her speech was more symbol than substance, it was clear major plans were afoot.

As it turned out, the Government was not really considering anything, and it certainly did not want much in the way of advice. Less than a month later, Ardern led a group of ministers into the Beehive theatrette to announce the decision, giving the impression ministers had considered the matter.

In fact, all that had happened was that the leaders of Labour, NZ First and the Greens had reached a deal. Cabinet had no input in the decision. Officials were so furious at being sidelined from the decision that it was leaked, spoiling Ardern’s plan for a dramatic announcement at Victoria University.

Those officials have now given their verdict on the decision: it is equivalent to an $8 billion hit to the Government’s finances.

It should be remembered that this advice comes from bureaucrats who have not only been ignored in the actual decision-making, they are giving advice on a decision that could kill the sector they work in. But that is hardly an excuse for the way the Government has responded.

Seizing on the fact that – as in all long-term forecasting – the report on the oil exploration decision outlines a vast range of possibilities of the cost (from a few hundred million to more than $50 billion), Acting Prime Minister Winston Peters dismissed it as a ‘‘very, very bad piece of analytical work’’.

Greenpeace and the Green Party are furious, with the Government’s partners warning it waters down the moves made so far.

It is fair to say the official advice offers no accurate guide as to what the fiscal cost would be. Given that we do not know the future for carbon prices, oil prices or interest rates, there is no way we could possibly know what that cost would be, a fact that seems lost on Peters.

What we do know is that there will be a cost, and it will likely be significant. We also know that the way it was handled has had a significant impact on investor confidence in New Zealand, which seems to have dawned on the Government only months later.

It is also likely to have an impact on energy prices, both from the cost of gas to households and its impact on future electricity prices.

Woods said on Monday that, even with the benefit of hindsight and advice, she would still push for exactly the same decision.

Of course, she would say that. But it seems the Government has decided to breathe a little more life into oil exploration, just in case.