The Government gets damning advice on the oil exploration ban
By Richard Harman (author)
Allowing future offshore oil exploration to be banned could cost the country billions and may increase greenhouse gas emissions.
It could also increase the price of gas and consequently the price of electricity.
Those are the surprising findings from a Ministry of Business, Employment and Innovation Regulatory Impact Statement on the decision to legislate to allow a ban on future offshore oil exploration which was released last night by Energy Minister, Megan Woods.
The statement was released in tandem with amendments to the Crown Minerals Act which allow the Government to not offer offshore exploration blocks up for bids by the petroleum industry.
Despite MBIE’s statement, both the Greens and Greenpeace were last night celebrating the decision to introduce legislation (possibly this week) to formalise the ban for the future.
And Woods herself said the Bill was s part of Labour’s plan for a 30-year transition away from a reliance on fossil fuels and towards an economy powered by homegrown clean energy.
“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,” she said.
“We’re planning for the future now.“
And she said there were more changes to come.
“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.”
The Greens energy spokesperson, Gareth Hughes suggested last night that one of those changes could be in the intention of the Act.
“We will push hard to change the purpose of the Act so that exploration is ‘regulated’, not ‘promoted’ by this Government,” he said.
"National changed the wording to ‘promoted' while in Government, and the impacts of a simple word change have been significant.
“It’s time to fix that”.
The MBIE report presents a range of potential losses to the New Zealand economy of ending offshore exploration.
For the period up to 2020, a best-case scenario would see a loss of $44 million and a worst case of $1.9 billion but MBIE says a midpoint in their analysis would put the potential loss at $1.2 billion.
If the offshore ban were continued from 2020 to 2050, then the midpoint of forecast losses would be $9.8 billion.
But MBIE doesn’t stop there.
It says all gas produced in New Zealand is consumed in New Zealand.
The proposed changes may result in a decrease in the security and affordability of supply of gas and electricity in New Zealand.
“As gas becomes increasingly scarce over time, it can be expected that gas prices will rise although the timing and scale of any price rises remain uncertain,” it says.
"In addition, it is possible that increased gas prices may flow through to an increase in electricity prices.
"The extent of this will depend on the continued role of gas in New Zealand's energy mix and the uptake of renewables."
“The underlying assumption is that a reduction in future gas supply from existing levels will be covered through curtailment of output by Methanex in the first instance,” the report says.
“Methanex consumed 41 per cent of New Zealand’s total gas demand in 2017.”
There is, however, a catch with Methanex closing up.
“In the case of methanol, the marginal source of global methanol supply is coal to methanol produced in China which has an emissions’ intensity at least double (but typically three to four times) that of gas to methanol,” the statement says.
“All other things being equal, a decline in methanol produced in New Zealand would result in increased methanol production from China (which accounts for approximately half of global methanol demand, and two-thirds of Chinese methanol production is derived from coal).”
Gas is also used to produce urea fertiliser. New Zealand produces about 250,000 tonnes a year and imports another 650,000 tonnes.
The statement says that when combined with shipping the imported urea has a higher emissions footprint than the urea produced in New Zealand.
MBIE says that the Government did not direct it to undertake any consultations with stakeholders when it produced the statement.
But Woods said last night that the Bill will go to a Select Committee though she is asking that those deliberations are completed within four weeks.
That is is an unusually tight schedule for a Select Committee.
Ironically the Committee it is likely to go to; Economic Development; is chaired by New Plymouth MP and National’s energy spokesperson Jonathan Young.
Last night his response to the MBIE statement was scathing.
“The advice released today 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,” he said.
“Instead of the (exploration) ban - implemented against official advice - will cost New Zealand 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.
"This is an appalling decision made with no consultation or investigation into the real impact it would have.
“Now we know even the Government's own advisors say it's going to cost New Zealand dearly and the Government is going to try and ram the legislation through to avoid the necessary scrutiny.”
That contrasted with Greenpeace whose Executive Director, Russel MNorman said the Regulatory Impact Statement that MBIE produced could have been written by the oil industry.
“MBIE hasn’t considered the economic and human consequences of climate catastrophe in their benefits and costs analysis - just like the oil industry they serve,” he said.
Norman’s comments suggest that the MBIE statement may become an issue itself as the deliberations over the Bill continue.