Hon Paul Swain - NZ Petroleum Conference
Associate Minister of Energy
Hon Paul
Swain
Embargoed to 7pm, 21 March 2000
Keynote speech
– from Associate Minister of Energy Hon. Paul Swain
to
the 2000 New Zealand Petroleum Conference – Convened by
Crown Minerals.
Welcome to the 2000 New Zealand
Petroleum Conference convened by Crown Minerals.
I'm
pleased to see here today the large attendance of local and
overseas representatives - this reflects the increasing
tempo of exploration activity in New Zealand and the
international nature of the petroleum industry.
First of
all I would like to take this opportunity to congratulate
you on your recent successes. I was thrilled to hear about
the new findings by Swift Energy and Fletcher Energy from
this conference yesterday. That is extremely good news for
this country and should not only see New Zealanders benefit
directly through the taxes and royalties collected by the
government but also through a revitalised international
interest in New Zealand as an oil and gas exploration
destination.
We at central government realise and
appreciate the importance of the petroleum industry in New
Zealand and the valuable contribution it makes to our
economy.
Given the recent higher prices for oil, and
the strong ongoing gas use in New Zealand, the annual value
of local petroleum production is well in the vicinity of two
billion dollars – a significant addition to our
economy.
It is important to consider the impact the
petroleum industry makes on the economic and social
wellbeing of the communities in which it operates.
In
Taranaki more than a third of the private sector workforce
of 34,000 people benefit from the energy sector. It's
estimated that for each person working in the region's
petroleum industry another 14 people are employed
indirectly. Jobs range from workers in the petrochemical or
engineering industries to shopkeepers in the corner dairy.
One of the most real examples of the practical benefits I
have heard of is the fact that one of the companies in
Taranaki spends $4,000 a week in the local pie shop!
In
light of this Government's emphasis on regional growth and
employment the sort of regional growth experienced in the
Taranaki is welcome.
It has been said that:
“The
contractual relationship between host government and
explorer requires cooperation if it is to work. The host
Government brings its resources; the explorer the
technology, financial resources, management and technical
skills – all designed to release the value of the resources
for the benefit of both parties.”
The importance of this
statement is that it highlights the type of symbiotic
relationship that must exist between the owner of the
petroleum resource (the New Zealand Government in this
instance) and the oil explorer, if oil exploration is to
flourish. The New Zealand Government, on behalf of the
people of New Zealand, must offer an exploration environment
that is wanted by explorers.
At the last New Zealand
Petroleum Conference in 1998 the then president of the
Independent Petroleum Association of America George Yates,
defined what an explorer looked for in choosing an
exploration destination. The factors are:
prospective petroleum geology;
low country
or sovereign risk;
favourable country or fiscal
terms;
favourable taxation
regime;
markets for oil and gas;
and
an industry infrastructure.
Very simply,
New Zealand satisfies all these counts.
In a survey of 99
countries Petroconsultants Inc (now IHS) ranked countries in
order of their political and business risk in the petroleum
industry. New Zealand came in 7th, meaning essentially no
country risk. To put this ranking in perspective, by
comparison the USA ranked 31st.
While the government is
keen to see New Zealand continue as a good place for
petroleum exploration, we also want to ensure there is
maximum benefit for all New Zealanders. As my colleague the
Deputy Prime Minister and Minister of Economic Development
Jim Anderton has indicated we want to take a more strategic
approach to industry growth and job creation.
Details
of this will emerge over the next few months - however one
of the concerns I have is the over-dependence of the New
Zealand economy on commodity exports. There is a real
desire from this government to promote the growth of value
added knowledge-based goods and services. One of the real
benefits that your industry offers over and above the
extraction of oil and gas is the development of science and
technology which is the cornerstone of the new economy.
There are many other advantages to New Zealand from the
petroleum industry in addition to the obvious export
earnings. The Government collects its own revenues through
the usual corporate tax, and either 5% of the net revenues
attained from the sale of petroleum or a 20% share of
accounting profits from a petroleum development - whichever
is the greater in any given year.
There are two special
features of this hybrid royalty scheme. The first is that
it ensures that there is always some minimal return to the
Crown. The second is that it is designed to effectively
mirror the economic profile of a development.
New
Zealand's geology is a big drawcard – our country is best
classified as being under-explored for hydrocarbons. This
may seem a contradiction for a country currently producing
some 15 million barrels of liquids and 200 billion cubic
feet of gas per year, but New Zealand's most explored and
only producing area, the Taranaki Basin, is still
under-explored by international comparison.
The Basin
has only had some 250 wells drilled; a well density of only
about 1 well per 10,000 acres onshore and 1 well per 100,000
acres offshore. By comparison the similarly sized San
Joaquin Basin in California has some 67,000 wells
drilled.
Despite this comparative lack of exploration,
drilling success figures are encouraging. The figures for
the Taranaki Basin very favourably with the world average
commercial discovery rate.
Last year 10 wildcat or
exploration wells and two development wells were drilled in
New Zealand. Nine of these were onshore and three offshore.
On a regional basis, five wells were drilled in the Taranaki
Basin, six in the East Coast Basin and one offshore
Northland Basin.
Currently there are 52 exploration
permits over six of the country’s petroleum provinces. Of
these, 13 are located in the East Coast region of the North
Island, three in the Canterbury Basin, three in the onshore
Westland region, two in West Southland, one in Northland and
30 in the Taranaki Basin. There are currently two
exploration permit applications under consideration.
In
terms of markets and infrastructure New Zealand has a
modest, thriving oil and gas industry with a growing local
market for gas. There is a gas pipeline system covering the
North Island, while an oil pipeline transfers production
from New Zealand’s sole refinery in Northland to its largest
city, Auckland. There is increasing generation of
electricity from gas, while New Zealand exports over $500M
per year of methanol, produced from natural gas.
The
local petroleum infrastructure includes seismic logging and
drilling companies, as well as a range of offshore and
onshore service providers.
The other side of the
symbiosis equation, what the explorer offers, can be very
simply answered:
financial resources, to
actively explore; and
technical expertise, to
carry out their exploration programmes.
I might add here
that the government’s attitude is to let explorers actively
pursue their agreed work programme, and in so doing operate
responsibly within New Zealand’s ‘clean green’ environment.
The exploration and extractive petroleum industry in New
Zealand has an enviable record of operating in an
environmentally responsible manner.
That brings me to the
government's views on energy efficiency. It's a matter at
the heart of the government's energy policy. Some examples
of actions we will be investigating or taking to secure
improved energy efficiency are:
enhancing the
activities of The Energy Efficiency and Conservation
Authority (EECA);
funding energy efficiency
programmes for state houses, schools, rest homes,
etc
raising energy efficiency standards in the
New Zealand Building Code;
public education on
the value of energy efficiency;
giving priority
to efficient, wide use of public transport, giving subsidies
where pertinent; and
encouraging the transition
to fuel efficient transport and the increased use of CNG and
LPG dedicated vehicles.
In concluding can I once again
congratulate Swift Energy and Fletcher Energy on their
finds. I'd also like to reiterate that the new government
values the contributions of the petroleum industry to the
New Zealand economy and I encourage you in your efforts to
explore New Zealand; to discover and to develop New
Zealand’s petroleum resources.
I wish you an enjoyable
and profitable
Conference.
ENDS