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Swain Address To The NZ Petroleum Conference

Monday, 25 February 2002

Hon Paul Swain Address To The New Zealand Petroleum Conference – Presented At 6pm.

Good evening and welcome to the 2002 New Zealand Petroleum Conference organised by the Ministry of Economic Development’s Crown Minerals group.

In particular I would like to extend a warm welcome to the Secretary General of OPEC His Excellency Dr Ali Rodriguez-Araque The New Zealand Government is honoured to have you here in New Zealand on what I understand is your first visit to our country. I trust that you are having an enjoyable stay.

OPEC has had such a huge influence on the world economy and we’re very much looking forward to your observations on world oil production and related matters over the next few days.

For our part your Excellency we have a positive story to tell in New Zealand.

It seems like it was only yesterday that I was addressing the previous Petroleum Conference in Christchurch two years ago. I commented at the time how the New Zealand petroleum industry was in good shape but when I look at all the exciting new developments today, there is simply no comparison.

Right now your industry is enjoying remarkable success. The upturn in drilling activity over the last few years has given way to a number of commercial discoveries. When brought into production these latest discoveries will double New Zealand’s remaining reserves of oil and condensate to over 200 million barrels and boost gas reserves by 40 to 50 percent to about 3 trillion standard cubic feet of natural gas.

If that is not proof enough of your success then you need look no further than the latest IHS Energy Group’s country survey. For the first time New Zealand ranks in the top 20 most attractive countries in the world for petroleum exploration. In fact since 1999 New Zealand has jumped 20 places to now be ranked 17th out of 103 countries surveyed.

Recent exploration activity and results have propelled New Zealand up these investment rankings. To a large extent this is testimony to the level of know-how and technological innovation deployed by your industry.

Let me quickly dwell on three success stories. At the 2000 conference I congratulated Swift Energy, Marabella Enterprises and Antrim Oil and Gas on the potential of the Rimu discovery. Now just two years later, I have granted a mining permit over Rimu and this discovery is about to come on stream. Swift, via a recent asset purchase, has gone from being a new entrant in New Zealand to a company with significant producing assets.

Turning to the Pohokura discovery. In 2000 I talked about watching this discovery with interest. Today I am hearing about development options costing up to $900 million with the first gas expected ashore in January 2005.

Last, but by no means least, is Indo-Pacific Energy’s Goldie discovery. This oil development is particularly pleasing to see given the company’s long standing position in New Zealand exploration and its contribution to the acquisition of new data and willingness to explore new basins with new concepts.

This is exciting stuff but the momentum must be maintained.

You may have seen weekend reports in the media about early depletion forecasts for the Maui field. We have always known that Maui was due to run down this decade and in answer to this we have been creating an environment which facilitates and encourages oil and gas exploration.

Ministry of Economic forecasts indicate there is likely to be sufficient gas available in New Zealand for industry and domestic use and for electricity generation for many years to come. Less clear is whether there will be enough to sustain our petrochemical industries – but as you know that is not new news.

What New Zealand does need is new discoveries. Oil and gas production boosts the economy and improves our foreign exchange earnings. This year will see a significant amount of exploration acreage put up for bidding. Many explorers among you will no doubt already be working on bids for the Taranaki onshore and nearshore bidding round. Let me remind you that it is just over two months until the bids close on 30 April.

Also likely in 2002 are bidding rounds in the Deepwater Taranaki Basin and the offshore Canterbury Basin. The Deepwater Taranaki bidding round follows the collection of seismic survey data on a speculative basis by TGS-Nopec — in itself an expression of confidence in the exploration potential here. This initiative didn’t happen spontaneously. Rather it is the result of work by my officials in Crown Minerals, geologists from Geological and Nuclear Sciences and TGS/Nopec in seeing a commercial opportunity in New Zealand. I thank TGS/Nopec for their efforts to advance the technical understanding of the country’s deepwater basins and I hope we can find similar opportunities to continue our relationship.

This Government knows only too well the significance of the oil and gas industry to the New Zealand economy and is also ever mindful of the fact that there are large number of countries competing for the petroleum investment dollar. To this end we have worked hard to make the exploration environment very attractive for petroleum investment in New Zealand. Our permitting regime is both transparent and flexible and we are getting serious about tackling business compliance costs.

Underpinning all this good work is a strong economy and one that is well placed to weather the global slowdown. The latest Reserve Bank forecast for economic growth in 2002 has the New Zealand economy growing at rate faster than the world economy.

The New Zealand economy will not be immune to weaker economic activity among our key trading partners. Record earnings from the export sector are now being complemented by a strong domestic economy and this is flowing through to all regions of New Zealand. In fact today it is rural New Zealand that is really powering the economy and nowhere is this more evident than in Taranaki, the oil and gas centre of New Zealand.

Not only does New Zealand have a reputation for stable economic management and a fabulous lifestyle, but it is also making a name for itself internationally in finding hi-tech solutions and developing technological know-how across a wide range of industries.

I now want to touch briefly on two topics listed on the conference programme. Today you had a session on climate change and on Wednesday you will hear about Oceans Policy. Both are key policy initiatives of the Government and topics obviously of interest to your industry.

The choices New Zealand makes about the management of the oceans and the impacts of climate change are both about finding balance – maintaining commercial opportunities for a wide range of industries, while at the same time safeguarding the quality of the environment. Much of the policy process is revolving around what we know and what we only partially understand. In the policy development context for both these initiatives, collectively, we are attempting to determine what the “precautionary approach” means in practice and to assess the risk of “doing and not doing” something. A somewhat complex process!

Lets start with climate change. There is credible scientific evidence that the accumulated green house gases from human activities are contributing to global warming and increasing sea levels, storms, droughts and floods.

This Government has decided in principle to ratify the Kyoto Protocol by the time of the Rio + 10 Summit in Johannesburg in August this year in order to play our part in reducing green house gas emissions over time.

The government has released the National Interest Analysis and our preferred policy outline will be released in April. That will be open to further public comment and final cabinet decisions will be made in late July early August. It is imperative that we receive a robust submission from your industry in that time.

Unlike most developed nations, New Zealand is in the fortunate position of being a net seller of emissions rather than a net buyer.

Contrary to popular believe ratification does not mean that New Zealand must immediately implement policies to reduce greenhouse gases ahead of our trading partners. New Zealand is not leading the pack. The treaty will not come into force until 55% of the developed nations ratify it. In practice that means both Russia and Japan must join those countries that have already made it clear they intend to ratify. It is likely, but not yet certain, that both will.

There are already a range of Government initiatives underway that will help us reach our Kyoto target including work on the Energy Efficiency Strategy, Transport Strategy, Waste Strategy, education and research.

Climate change policy development will be guided by the key principles set out in the National Interest Analysis.

The first principle is that policies need to be consistent with a growing and sustainable economy.

Policies must recognise the importance of maintaining the competitiveness of all our industries, including the competitiveness of new entrants. Achieving this means moving carefully and progressively to a full cost on emissions, reaching that point only when competitiveness issues have been addressed by the evolution of the Protocol towards a fully global agreement.

It also means adopting policies that will avoid inappropriate distortionary effects on investment, including inward investment. And it means promoting the economic opportunities that come with climate change and the Protocol.

A second principle says policies must be responsive to the changing international context for action on climate change.

One implication of this is that our policies must recognise uncertainties about the future, including changes in our emissions profile, in technology, and the international environment. Policies must be adaptable and flexible, recognising the need for business and others to be able to accept them and respond to the policy changes that will inevitably be necessary in years and decades to come.

A third principle says that policies must result in permanent reductions in emissions over the long term.

A consequence of this is that policies must avoid what is known as “carbon leakage”, the relocation of high-emitting industries to countries that do not have emissions reduction targets. Clearly it is not in New Zealand’s economic interests to drive such industries offshore — and nor would it be consistent with the fundamental purpose of the Protocol, which is to reduce global greenhouse gas emissions.

As with the need to maintain the competitiveness of New Zealand business, this principle argues for a phased approach to greenhouse policy as the Protocol moves toward a truly global emissions regime.

Moving to Oceans Policy. The decisions to develop an Oceans Policy is about recognising the value of our oceans, recognising the growing pressures on the marine environment and determining a means of addressing problems before they become a crisis.

Our oceans are big, but not big enough to survive anything we throw at them or pull out of them. There are constant supply and demand tensions like the impact of seismic shoots on recreational fishing, locating offshore drilling platforms in areas of commercial fishing interests or proposals for marine reserves in areas of petroleum interest.

What we need is an integrated policy to guide us when different activities and interests in the oceans come into conflict – enter the Oceans Policy.

The Oceans Policy deals with how we integrate our management of fishing, aquaculture, mining, tourism, energy production, science, communication, defence, transport and so on. And of course sustainability lies at its core.

Last year a core team of eight carefully selected New Zealanders presented to the government a report on what our values and principles might be for the future management of our oceans.

Ministers are currently considering that report and are expected to report on the on-going work programme shortly. Keep an eye out for more detail.

Once again I’d like to welcome Dr Ali Rodriguez-Araque to New Zealand – may you enjoy the rest of your visit.

For everyone else thank you for the opportunity to speak to you tonight. I want to wish you all the very best in your endeavours. These are exciting times for the oil and gas industry in New Zealand.

I look forward to hearing and seeing your successes, working with you to release the value of New Zealand’s petroleum estate.

Happy and successful hunting.


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