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'Right goal, wrong tool' says peak business lobby on oil

'Right goal, wrong tool' says peak business lobby on oil exploration policy

By Pattrick Smellie

April 12 (BusinessDesk) - Ending new exploration permits for offshore oil and gas deposits uses the wrong tool for the right target, says the BusinessNZ Energy Council, a sub-group of Business New Zealand, the country's peak business lobby group.

The policy was "crude and unnecessary" and "blights New Zealand’s entire energy sector," the council's executive director, John Carnegie said. "There will be no overall reduction in global emissions and potentially an increase in emissions as a result of this ban as global exploration from places with lower environmental standards fills the gap left by our reduced output.

"This is a strong signal to investors that they will respond to immediately, not some time in the future. All plans, current and future, will now be reconsidered in light of this decision, especially when combined with the prospect of a higher future carbon price."

Government ministers announced the decision as a starting point for a 30-year transition away from fossil fuels in pursuit of a net zero emissions economy by 2050, arguing the announcement would assist a "just transition" and reduce the impact on affected communities by giving a long timeframe to adapt. No existing exploration or production rights are affected by the decision, which will see no new offshore exploration permits issued, onshore exploration permits issued only in the Taranaki region, and a review of onshore exploration in three years' time.

The decision sparked a snap debate in Parliament in which Opposition MPs sought to portray the government's coalition partner, New Zealand First, as a reluctant participant in the decision, despite Regional Economic Development Minister Shane Jones stoutly defending the policy as necessary if the country was to make serious efforts to prepare for a low-carbon future.

However, Carnegie said the policy undermined the emissions trading scheme, and that the BEC believed "market mechanisms are better than bans".

"We also wonder why this decision was not given to the about-to-be-established Interim Climate Commission, especially in light of the work it will do on the 100 percent renewable electricity target. Its options have been foreclosed and this potentially puts the political long-term durability that has been signalled as so important - and which business seeks - at risk."

Meanwhile, the chief executive of BusinessNZ, Kirk Hope, said the new policy would raise questions in investors' minds about the viability of investing in New Zealand.

"If a multi-billion dollar energy industry can be banned, what other industries might face the same fate? Confidence among both overseas and domestic investors may be the longer-term casualty of today’s decision," said Hope.

With only around 10 years of known supplies of natural gas in domestic gas fields, major users could expect to face "higher gas prices because of the restriction in supply, raising costs for enterprises that use gas for their operations".

Companies such as Fonterra, NZ Steel, and Methanex "may find their products less competitive in world markets," he said.

Methanex, the Canadian-owned producer of methanol from natural gas at a Think Big-era plant and the country's largest gas user, has yet to comment. It began winding down production in New Zealand in the mid-2000s when it appeared that gas supplies were running low, but ramped up investment at its plants at Motonui and Waitara as gas supply improved.

Hope's statement made no mention of electricity companies, which use natural gas to fire fast-starting 'peaker' power stations to augment supply when hydro-electricity and wind resources are insufficient to meet demand.

The electricity industry has shifted away from investment in natural gas since the mid-2000s, investing heavily instead in geothermal and wind production, with numerous such projects unbuilt, awaiting increased electricity demand.

The National Party's energy and climate change spokespeople, Jonathan Young and Todd Muller, described the government's decision as "economic vandalism" that would "ensure the demise of an industry that provides over 8000 high paying jobs and $2.5 billion for the economy”.

“This decision is devoid of any rationale. It certainly has nothing to do with climate change. These changes will simply shift production elsewhere in the world, not reduce emissions.

“Gas is used throughout New Zealand to ensure security of electricity supply to every home in New Zealand. Our current reserves will last less than 10 years – when they run out we will simply have to burn coal instead, which means twice the emissions."

BusinessNZ's Hope said the government faced an important test in its commitment to nurturing new, high value businesses to replace the oil and gas sector.

The decision to allow existing permits to continue was important "as doing otherwise would have had a potentially devastating effect on investment into New Zealand".

Prime Minister Jacinda Ardern said the government has tasked the Ministry of Business, Innovation and Employment with coordinating plans to ensure new, high value, high wage industries emerge to replace oil and gas, saying that engineering firms currently working in the sector had transferrable skills into other areas of infrastructure.

(BusinessDesk)

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