What if New Zealand threw a fossil fuel party, and nobody came? On the weekend, Resources Minister Shane Jones sent out the invitations and strung up the balloons, but will anyone really want to invest big time in resuming oil and gas exploration in our corner of the planet? Yes, our ageing natural gas fields are in decline. But betting on foreign oil companies to come to the rescue is a forlorn hope.
It is not just Greenpeace saying so, even though spokesperson Niamh O’Flynn was dead right on this point:
…..The vast majority of New Zealanders do not want nature destroyed for profit, they do not want oil, gas and mining companies given secretive shortcuts around environmental protection, and access to conservation land, and they will not sit by and watch Christopher Luxon wage a war on nature.
Right. But while the local oil and gas industry may indeed be “thrilled” by being serenaded by Jones, cold economics is working against any major new exploration gambles offshore from here. There are fewer players, and the costs of exploration in New Zealand waters outweigh the likely gains. By some estimates (see below) the cost of drilling has risen six-fold over the past five years.
The days when oil and gas companies might have based their exploration decisions on short-term price movements are long gone. A lot will depend on how robust the global recovery from recession proves to be. This will dictate the immediate (a) energy demands (b) production decisions and (c)oil prices. Yet in the medium to long term, multiple Brent oil price forecasts for the 2026-2030 period are currently congregating between $60-80 a barrel. That’s not enough to bankroll speculative exploration in our neighbourhood.
Only a few days ago, a major report into the industry’s prospects found that high-impact exploration drilling declined by over 20% last year, despite good prices for oil in the preceding year:
The latest analysis from Westwood Global Energy Group reveals that despite favourable oil prices in 2022, high impact exploration drilling in 2023 declined by 21%, due to energy transition strategies, industry consolidation, rising well costs and reduced activity in former hotspots.
Moreover, the hit rate from that exploration is in decline, while offshore drilling costs are going through the roof :
Further 2023 analysis reveals that the commercial success rate is down seven percentage points on the previous year – the lowest since 2018. Fewer giant discoveries….have resulted in a year on year decline in the average discovery size, down from nearly 500 millions of barrels of oil equivalent [MMboe] in 2019 to ~220 millions of barrels equivalent per day in 2023, the smallest since 2014. At the same time overall drilling finding costs have increased by a factor of six since 2019 to $1.2 boe .
The outlook globally then is: fewer lucrative big discoveries, drilling costs that have risen by a multiple of six since serious exploration was last carried out here, and a declining number of active players:
….In addition, the findings also highlight a decrease in the number of companies participating in high impact drilling, down from 99 in 2019 to 68 in 2023….
Obviously, it isn’t all doom and gloom for Big Oil. They’re still raking in profits, and making the most of big finds in say, Namibia. But to blame the exit of multiple players from the New Zealand oil and gas exploration scene on the 2018 ban on exploration by the last Labour government is plainly absurd. This is an industry heading for global decline. Any rational planning by the coalition government should be envisioning a significant expansion in our investments in renewables, and not in efforts to milk the last of the short-term gains from fossil fuel solutions to our energy needs.
Bridging the Methane
Supposedly, there is not necessarily an either/or competition between planetary protection vs oil and gas exploration and extraction. Allegedly, we can still take steps to reduce the emissions that cause climate change, while treating natural gas exploration and extraction as a relatively benign “bridge” to renewables, and away from the oil and coal known to produce those deeply problematic carbon dioxide emissions.
Unfortunately, it isn’t quite that simple. Here’s the basic problem:
Recent scientific measurement campaigns, some of them supported by UNEP, have shown that methane emissions from oil and gas operations are much higher than was estimated earlier. Methane is a powerful greenhouse gas, about 84 times more potent than carbon dioxide measured over a 20-year period, so any emissions undermine its credentials as a better fossil fuel. So, “cleaner” is probably not the best word to describe natural gas. But provided that methane emissions are well managed, it’s not as problematic in terms of planetary warming as coal or oil.
That “well-managed” bit being the key element in the picture. Methane generated by human activity is roughly estimated to cause about one-third of currently observed global warming. Reducing methane emissions is also essential to meeting the goals set out in the Paris Agreement. Late last year, the US Environmental Protection Agency unveiled new, stricter rules on methane management. Unfortunately, these new rules are something of a damp squib :
Oil and gas producers…..will be required to regularly monitor their sites for leaks. They will also need to use zero-emitting technologies and may be required to make capital expenditures to retrofit existing sources with pollution control technologies.
However, the EPA has bent over backwards to accommodate the fossil fuel industry:
EPA thoroughly considered costs to the oil and gas industry when designing these rules, and purposely aligned the implementation schedule to ease the transition…… Because only newly drilled sources are subject to these rules in the first few years, there are minimal compliance costs projected until later this decade. In 2025, costs are projected to be a mere 0.02% of industry revenue, with related capital expenditures accounting for just 0.2% of total industry capital expenditures. This indicates that new sources, directly impacted by the regulations from the start, will face minimal financial hurdles, which are readily absorbed by the high production and significant revenue generated from new wells.
Our ageing natural gas wells will not have “zero-emitting new technologies” in place to limit their methane emissions.And, in future, it will be up to Shane Jones to require any new entrants to go to the trouble and initially at least, the minimal cost of installing them. Let’s not hold our breath.
Crossing The Bridge
Ultimately, the efficacy of using natural gas as a “bridge” to renewables depends on how quickly Jones and his colleagues intend to cross over that bridge. Right now, the government appears intent on dragging its feet. As the UNEP pointed out here:
It all depends on the speed of the transition, which science tells us must be rapid to avoid the worst consequences of climate change. A long or slow transition away from other fossil fuels and which requires lots of investment in gas infrastructure would make for a bad bridge.
Yet a long, slow transition with lots of investment in gas infrastructure seems to be exactly what the coalition government has in mind. So far, Jomes has been hostile to any suggestion that climate change should be a factor in the decisions he makes in any of his portfolio areas. It needn’t be that way:
The rapid decrease in the cost of solar, wind and other renewable energy technologies makes these an even better alternative than gas in more and more locations. Where gas has a special role in the energy transition is as a back up to a renewable-based power system because gas boilers can be turned on almost instantly while starting up a coal-fired power plant takes much longer. There’s a lot of research and deployment of energy storage technologies so this role for gas will diminish.
In other words, natural gas is another fossil fuel option whose days are numbered. By the time the lights go out, Shane Jones will have explored and extracted every last political benefit from being the cheerleader for the fossil fuel industry and moved on. The country will be left to face the consequences of his bovine complacency.
Footnote One: Australia is dealing with some of the same transitional challenges, just as poorly. It seems to be (a) going all in on natural gas to 2050 while also (b) touting the mythical “science” benefits of carbon capture. As the Crikey website pointed out recently:
Carbon capture, which is now central to Labor’s energy policy, is also extremely expensive — and has no track record of working anywhere in the world. Labor is embracing the one technology that’s even less plausible than nuclear power.
Footnote Two: It is useful to compare some of the taxpayer-funded incentives that the Albanese and Luxon governments are dangling in front of the oil companies to try and lure them down here. Reportedly, the Aussies are putting an extra half million dollars into the mapping of likely deposits before handing over this valuable information free of charge to the multinational oil companies, thereby lowering their financial risk, and some of the burden of their exploration efforts:
The mapping will be both onshore and offshore,[Australia’s Resources Minister]Madeleine King said recently “to deliver data, maps and other tools for use by the resources industry that will point the way to new discoveries.”
Footnote Three: New Zealand is doing its bit to make this country user-friendly to the oil company giants. The legislation that repeals the ban on exploration also plans on expanding access to some Taranaki conservation land; changing the current competitive tendering process to enable other ways of allocating exploration permits; lessening the obligations on companies to either post an environmental security bond beforehand; and also lessening the government’s ability to hold the companies liable for ameliorating their exploration footprint.
That latter change includes a reduction in the ability of the Crown “to go back to previous permit-holders and make them de-commission or recover the money for decommissioning. All those enticements… yet almost certainly, they will still not be enough.
Quiet, Loud, Tension, Release
Over the past five years, Nilufer Yanya has carved out a unique and inventive series of jazz-influenced but guitar-heavy albums and singles. Here are the two most recent tracks from the young British/Turkish/Barbadian guitarist and singer. From this week, this is “Method Actor…”
From only six weeks ago, “ Like I Say” is even better: