Bob Edlin: Govt rejects MBIE costings of oil decision

The Ardern government’s ban  on new oil and gas  exploration could cost the country  from $1.2bn  to $23.5bn  in foregone revenue, according to official advice from the Ministry of Business, Innovation and  Employment.  The MBIE  modelling, quality-checked  by Treasury,  points to lost oil company profits falling within a range of $199m and $7.3bn, with a calculated mid-point of $2.1bn.

Energy and Resources  Minister Megan  Woods says the government disputes  the figures— but doesn’t  offer  its own estimate. She  has introduced  to  Parliament the Crown Minerals Amendment Bill, which will legislate  officially  to stop new offshore oil and gas exploration permits.

The Green Party, welcoming the  bill, says  it is

“ … a special day for the planet, and proof that this government are now meaningfully acting to address climate change”.

National’s view is that the government’s action not only will cost  billions of  dollars  but will lead to an increase in  greenhouse gas emissions.  Its spokesman, Jonathan Young, says MBIE’s advice

“ … shows just how arrogant and reckless the decision was, and all so the Prime Minister could go offshore and brag about being a leader in the fight against climate change.  Instead the ban – implemented against official advice – will cost NZ tens of billions of dollars, and that’s before you take into account the loss of jobs and economic impact in Taranaki communities in particular”.

Independent  observers  may see a  bit of irony  in the statement of  Megan Woods…

“We can’t expect to rely on fossil fuels for our jobs and prosperity forever. The world is moving away from them and we have to be ready”. 

This coincides with the  announcement  of a  major  new  gas discovery  offshore  from the Shetland Islands in the United Kingdom.

The French  oil giant  Total estimates  its discovery contains 1tn cubic feet of recoverable resources. This is equivalent to almost 15% of the total proven gas reserves in the UK as measured at the end of 2016.

The prolific West of Shetland has been dubbed the final frontier for UK oil and gas growth. It could help offset the longer-term decline of the UK offshore oil and gas industry.

“Material discoveries like Glendronach will whet the appetites of those looking to invest,” said Kevin Swann, a North Sea specialist at WoodMackenzie, who said such developments would help to boost oil and gas production through to the mid-2020s.

Since 2010 Total has spent around £4bn on energy infrastructure — from pipelines to subsea wells — in the West of Shetland, which the company says will help develop Glendronach quicker and at a lower cost.

The discovery, which corresponds to more than 170m barrels of oil equivalent, is far greater than the 10m-20m boe of an average discovery in a major basin like the North Sea. Production is expected to start as early as 2019.

The Glendronach find is the biggest discovery since the Culzean field was discovered in 2008 by Maersk Oil, now owned by Total, according to energy consultancy WoodMackenzie.

Meanwhile, back in  Wellington, Woods is arguing the government has kept its commitment to protect existing permits.

“The Crown Minerals (Petroleum) Amendment Bill will mean that future Block Offers will exclude new offshore exploration permits, and that Block Offers will be limited to onshore Taranaki. All existing permits are protected and will be allowed to run their full course – meaning we have many years’ worth of gas supply remaining and exploration will continue.

“The long term picture is this: the world is changing. Climate change is happening and the world is racing to adapt and to stop its most damaging effects.It’s about lifting our sights beyond the three-year electoral cycle and planning for the next 30 years. This Government isn’t going to bury our head in the sand and leave tackling climate change to chance. We’re planning for the future now.

“We’ve established a Just Transitions Unit within MBIE to begin this work and we will be investing millions of dollars through the Provincial Growth Fund and the Green Investment Fund in new energy sources to create jobs in our regions.  This Bill is the first tranche of a review of the Crown Minerals Act and is only to give effect to the Government’s decision about oil and gas permits. Tranche two will be a much wider review of the Act that will enable stakeholders to take part in future proofing the Crown Minerals Act.”

 MBIE,  in the  regulatory impact statement. warns that security of natural gas and electricity supplies could be reduced by the decision and could raise the price of both for consumers, although future governments can use their discretion to “consider these factors”. Onshore exploration in Taranaki is allowed but that was to be reviewed after 2020.

MBIE says the decision could raise global greenhouse gas emissions if production of oil and gas goes to “countries that have higher emissions footprints” and investments that might have occurred in New Zealand may not proceed.

However, there had been insufficient time to consult either the oil and gas industry or the public before the April decision, so “it is not possible to be confident that all potential impacts have been identified,” the MBIE analysis says.

Woods contends it is practically impossible to make a credible estimate about oil and gas discoveries that have not been and can never be made.

She is also questioning MBIE’s decision to assume that there would either be no oil and gas finds or no commercial development of finds made in the 100,000 sq  km of offshore territory still covered by permits already granted, but still awaiting exploration efforts.

National slams the government for  making  a  decision  without consultation or investigation into the real impact it would have.

“The government’s own advisors say it’s going to cost NZ dearly and the government is going to try and ram the legislation through to avoid the necessary scrutiny.The government must own the mistake, admit to NZers it got it badly wrong and reverse its decision.”

Oil industry critics of the April 12 decision to end offshore oil and gas exploration have been predicting official advice would fail to back the government’s controversial decision, which was a major win for the Green Party and the clearest possible signal that the government wants the NZ economy to accelerate its transition to a low-carbon emissions economy.

The  difficulty  with that  goal  is that  NZ  only  contributes 0.2%   of the globe’s  total  greenhouse  gas emissions.

An  equally  vital  issue   is  why would  NZ, at a  point in  its history when it is  desperately seeking to  eradicate poverty  by raising incomes across the board,  forgo the potential  of tapping  into a  resource  which  could be worth as much as  $23bn?

Bob Edlin is a veteran journalist and editor for the Point of Order blog HERE.