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Govt minerals strategy poses 'significant' risk to security of supply - Enerlytica

Tuesday 17th September 2019

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The government’s proposed minerals and petroleum strategy poses a “significant” risk to security of energy and resource supply at a time of physical shortages in the country’s gas market, independent research house Enerlytica says.

The narrative of the draft 10-year strategy – intended to guide a review of the Crown Minerals Act - is less a tilting of the legislation’s emphasis away from economic development and more a “jettisoning of it,” the firm says.

“The strategy document lacks balance by ignoring almost entirely two of the three fundamental dimensions that the sector typically looks to in framing its planning,” Enerlytica says in its 14-page analysis.

“The focus on sustainability is absolute, while consideration of security and affordability is almost entirely absent.”

The draft strategy, published last month, noted the importance of natural gas for energy security and as a transition fuel to a lower-carbon economy. It also recorded the country’s reliance on minerals and hydrocarbons for everything from coal for steel making, to the 7.6 million tonnes of rock and sand used in construction, and the gas used to make fertiliser and methanol.

It also highlighted the higher incomes the sector provides and the potential to develop clean-tech minerals - like lithium in the Taupo volcanic zone and nickel-cobalt in Nelson-Marlborough – which are increasingly being used in new renewable technologies.

But the paper also declared there would be no revisiting of the 2018 ban on gas exploration – other than in onshore Taranaki – and that the ban proposed in 2017 on new mines on conservation land will also go ahead. The conservation estate comprises about 8.9 million hectares – roughly a third of the country’s land area – including many minerals-rich parts of Northland, the Bay of Plenty and the West Coast.

Enerlytica says the narrative of the strategy document and an accompanying cabinet paper represents a “fundamental and far-reaching change” which will be a surprise to firms that had hoped the exploration ban was a "one-off, ad hoc intervention.”

It says activities by the mining and petroleum sectors are already subject to specific law setting environmental and sustainability standards. Removing economic development as the central pillar of the Crown Minerals Act sends a “clear and unambiguous” signal to investors in the extractives sector, particularly if the purpose and principles of the new legislation prove to be vague or poorly defined.

Enerlytica says the government would have been better to have framed its strategy in a similar way to the energy trilemma developed by the World Energy Council. That model attempts to balance the need for security of energy supply with both the sustainability of those supplies and concerns for equity – ensuring people have access to energy and that it’s affordable.

Modelling by the Intergovernmental Panel on Climate Change and the International Energy Agency shows that increased use of gas, nuclear energy and carbon capture and storage will be needed – alongside massive take-up of renewables – if the world is to meet its Paris climate commitments and meet rising energy demand.

Enerlytica says the government’s targeting of the extractives sector in the pursuit of emissions reduction is a “flawed” concept, given both the small contribution production emissions make – equivalent to 1/18th of road transport emissions – and the fact that reduced domestic supply will simply be replaced with imports.

“The action being taken to address the supply-side is more likely than not to increase global emissions, while at the same time progress towards addressing the demand side where the overwhelming majority of emissions are produced remains extremely slow.”

Enerlytica pointed to constrained local gas supplies during the past year to provide an example of the types of economic and emissions effects that can result from reduced domestic supply.

Maintenance work at the Pohokura field saw gas deliveries rationed to several large users, including Genesis Energy, NZ Steel, Fonterra and Refining NZ.

Enerlytica noted that, faced with insufficient domestic coal supplies and declining hydro storage late last year, Genesis imported more than 600,000 tonnes of coal in 19 shipments over six months.

Those cargoes are equivalent to more than 1.1 million tonnes of CO2, roughly equivalent to the emissions of 250,000 cars for a year, it said. They would have been avoided had there been sufficient renewable generation available, or roughly halved if gas had been available.

Enerlytica says power and gas prices remain elevated. It is clear the gas market is short yet the direction of travel signalled in the Crown Minerals Act review will only deter the investment needed to stabilise the market.

“The read-through for NZ Inc is of reduced self-sufficiency in domestic energy and a much greater risk of ongoing energy shortages.

“In tandem with this is high energy prices and an increased risk of major industrial users exiting the NZ market ahead of when they otherwise would.”


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