January 6, 2013 4:50 pm

New Zealand encouraged by oil potential

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An oil storage vessel off New Plymouth©Bloomberg

New Zealand is famous for its white liquid exports. Its dairy industry generated NZ$13.9bn in revenues in the year to March 2012. But now the government is pinning its hopes on the potential of a black liquid: oil.

Crude oil already brings in substantial revenues. It was the country’s fourth largest export earner in 2011 and the oil and gas sector supports more than 7,000 jobs directly and indirectly. New Zealand is also self-sufficient in gas, thanks to the 1969 discovery of the Maui field off Taranaki, a western province in the North Island. However, in terms of oil and gas exploration it is frontier country.

Early exploratory drilling off the South Island in the late 1970s and early 1980s found indications of hydrocarbons but little else. Companies have also been put off by the remoteness and harsh operating environment of its hostile seas.

All of that could be about to change. If the government is to meet ambitious growth targets – it wants to lift exports to 40 per cent of gross domestic product by 2025, requiring the value of its exports to double in real terms over the period – it will need to build a strong petroleum industry.

It is encouraging investment from abroad: Royal Dutch Shell, America’s Anadarko Petroleum and Austria’s OMV are already present. A new system to process exploration permits has been put in place and regulations are being overhauled to address potential health and safety and environmental impacts. A competitive fiscal regime is helping to attract interest.

This petrodollar drive has come under criticism. Environmental campaigners fear a disastrous oil spill in its remote seas, while others argue the move jars with New Zealand’s green credentials and unspoilt landscape.

Yet the potential is there. Today oil production comes from just a single basin – the Taranaki – and there are 17 others. Early exploratory drilling as well as onshore oil seeps in certain areas provide evidence of hydrocarbons, says Rosemary Quinn, head of the department for petroleum geoscience at GNS Science, a government-owned research institute.

In December, the government awarded 10 new five-year exploration permits, drawing interest from Shell and Anadarko as well as OMV and Canada-based East West Petroleum.

If New Zealand can duplicate what has happened in Taranaki – home of its three major gasfields – then total GDP could grow by an average of NZ$2.1bn (US$1.7bn) or 1.7 per cent for each year of a 30-year development of a second basin, with the creation of 5,500 jobs.

Shell, a pioneer of the country’s industry and operator of its major gasfields, is looking beyond its existing assets to offshore exploration. It has two permits in the Great South Basin, a frontier basin off the southeast coast of the South Island.

“It’s about how do we replenish our portfolio and maintain a material business in New Zealand,” says Rob Jager, country chair of Shell New Zealand.

The company is evaluating seismic surveys. Any drilling will take place in the summer of 2014-15 at the earliest. Based on previous drilling results the company says it expects to find gas and not oil.

Money is a serious challenge. It could cost Shell and its partners between NZ$150m and NZ$200m to drill in the Great South Basin. But having more activity in the country “would also be beneficial for the industry in general”, says Mr Jager, as it would allow companies to share logistics and reduce costs.

The petrodollar push has not all been smooth. In December last year, for example, Petrobras, the Brazilian company, relinquished exploration licences for prospects in the Raukumara Basin in very deep water off the east coast of the North Island. Petrobras had contracted a seismic survey ship to undertake initial surveys of parts of the basin early in 2011, where it met opposition from a protest flotilla organised by Greenpeace and a local Maori tribe.

Much attention is now on Anadarko, which secured two permits in the Pegasus Basin near the Wellington and Kaikoura coastlines in December. Having delayed drilling in another basin this summer due to the tight market for suitable rigs it now hopes to drill towards the end of this year.

Alan Seay, corporate affairs manager, says New Zealand “fits our strategy of prospecting for large frontier resources”.

Environmental campaigners remain unconvinced.

Rob Morrison, chief executive of Pure Advantage, a lobby group to promote green growth, says “there are other alternatives which have received less meaningful attention and are more consistent with our nation’s clean, green brand and existing comparative advantages”.

Simon Boxer, climate campaigner for Greenpeace in New Zealand, says: “The concern is that the government is holding up the industry as a way to help lift the country’s GDP performance. But it is doing this to the detriment of domestic manufacturing. Finding oil in deep water will not create many jobs.”

Kevin Rolens, director of petroleum at the Ministry of Business, Innovation and Employment (MBIE), counters that even if much of the drilling remains offshore there will be benefits for local industry. Aside from the tax and royalty income as well as export revenues there will be work for supporting industries and supply chains, he notes.

The government believes there is no inconsistency between promoting hydrocarbons and at the same time holding up green credentials.

Nick Hallet, chief adviser in the resources policy team at the MBIE, draws a comparison with Norway, which has promoted a successful domestic oil and gas industry while preserving a strong environmental and safety focus.

Adds Mr Rolens: “Norway would be a nice target to aspire to.”


Call for improvement in fracking practices

New Zealand is not nicknamed the Shaky Isles for nothing. In 2011 the country recorded more than 18,000 earthquakes – including the devastating one which hit Christchurch on the South Island in February, writes Sylvia Pfeifer.

Its propensity for earthquakes is one of the elements under discussion in relation to hydraulic fracturing or fracking – which involves pumping gallons of water, sand and chemicals deep underground in order to release trapped gas.

Elements of fracking have been taking place for 23 years – to improve the permeability of the rock and improve productivity rather than to release unconventional oil or gas – but it could increase as the government plans to expand oil and gas exploration.

An interim report by the country’s Parliamentary Commissioner for the Environment released in November found that while fracking should not be banned, oversight and regulation of the industry needed to be improved as the practice increases. The report concluded that the process could be done safely in New Zealand if well-managed.

The report said that if best practice was not followed fracking could trigger earthquakes or pollute aquifers. As New Zealand was a seismically active part of the world, companies were discouraged from drilling wells near active faultlines.

Energy companies have proposed oil and gas exploration on the North Island’s East Coast, where seismic activity is high. But a GNS Science report commissioned by the Taranaki Regional Council found that fracking activity in the region did not contribute to any of 3,000 monitored earthquakes. Of greater concern said the report was chemicals used in the fracking process leaking into groundwater.

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