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Risks from exploration ban coming to pass

Wednesday 19th June 2019

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The departure of Chevron and Equinor from New Zealand’s exploration scene is a huge lost opportunity and shows how quickly the risks from the government’s exploration ban are coming to pass, energy analyst John Kidd says.

Chevron is a global-scale player. It was exploring for resources to supply low-emission gas to meet rising energy demand in Asia – much of it currently met by coal – as it does from its LNG facilities in Australia, he said.

“A company the scale of Chevron wasn’t here to make a small discovery. They were here looking for something to supply the export market,” Kidd told BusinessDesk.

Development of such an export LNG play in New Zealand “would have made a meaningful contribution to regional emission reductions and air quality,” he said. “But that’s a logical trail that this government is just not interested in.”

The Labour-led government last year shocked the industry when it banned new offshore exploration citing the need to signal a long-term transition from fossil fuels. It claimed the 100,000 square-kilometres of exploration acreage already issued – a quarter of which was held by Chevron and Equinor – would be sufficient to ensure security of energy supplies.

But the decision, taken against officials’ advice, was challenged by many, given the International Energy Agency is forecasting a 20-45 percent increase in demand for gas by 2040, in-part to replace higher-emitting coal and oil from global electricity and petrochemical production.

The New Zealand Institute of Economic Research estimated the ban would reduce the country’s GDP by $15-$38 billion during the next 30 years, raise prices and reduce investment.

Chevron and Equinor, the former Statoil business, yesterday said they would not be proceeding with the next five-year stage of work in the three permits they jointly hold off the North Island’s east coast. They emphasised their decision was based solely on the outcome of work to date, relative to other opportunities they have elsewhere, and was not a response to the change in government policy.

Chevron said it believed resources in the Pegasus-East Coast basin could be safely developed in future – something that can’t happen under the permitting ban.

“That’s now never going to be seen,” said Kidd, director of independent energy research house Enerlytica. “This is a sector that is really hollowing out.”

Greenpeace today tried to claim credit for the departure of Chevron and Equinor and pledged to keep up the pressure on OMV, which operates the offshore Maui and Pohokura gas fields. The Vienna-based company is planning a further round of exploration off Taranaki this summer and may also drill its first well in the Great South Basin.

"The exit of Chevron and Equinor is a case of two down, one to go,” Greenpeace senior campaigner Steve Abel said in a statement. “OMV, can expect resistance. There is no place for oil and gas exploration in a climate emergency."

Gas meets about 21 percent of the country's energy needs and has about half the emissions of coal. It produced about 12 percent of the country’s electricity last year and is a critical back-up fuel for the country’s renewable power supplies during dry years.

Overall, oil and gas contributes about $2.5 billion to annual GDP, according to the Petroleum Exploration and Production Association.

Kidd said the sector - and the broader extractives industry - is operating under an “umbrella of uncertainty” and the wider community should be more concerned.

OMV earlier this year said its exploration here would likely cease if it makes no meaningful discoveries during its upcoming programme.

Should that be the case, Kidd said that would probably spell the end of frontier exploration in New Zealand. Beach Energy and New Zealand Oil & Gas would probably also be unable to advance their permits off the lower South Island.

Kidd said last year’s exploration ban was made without any evidence. The quality of debate around energy and climate policy in New Zealand is “very poor” and appears to be becoming more polarised, he said.

“The binary-type thinking behind some of these decisions is extremely short-sighted and naïve in the international context.”


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