New Zealand’s government is proposing the lifting of a 2018 oil and gas exploration ban as it seeks to halt a decline in domestic natural gas supply, boost energy security, and signal to international investors that it is open for business.
This week, the coalition government said it would introduce a bill in Parliament in the second half of 2024 to remove the ban on petroleum exploration beyond onshore Taranaki as part of a series of proposed amendments to the Crown Minerals Act.
Industry welcomed the government’s announcement as a step in the right direction to ensuring reliable, home-grown energy for all New Zealanders but noted that the return of exploration firms to the country would depend on the nature and extent of legislative changes and the perceived risk.
The removal of the ban is aimed at dealing with the energy security challenges posed by rapidly declining natural gas reserves, Resources Minister Shane Jones said.
“Our job as the Government is to provide the right policy settings to enable the sector to get to work, and that’s exactly what we are aiming to achieve through these amendments,” Jones added.
“Some of our current settings are a barrier to attracting investment in exploration and production because they are overly costly and onerous on industry. Some obligations lack necessary flexibility, and compliance obligations are uncertain and unclear.”
The petroleum and minerals sectors contributed US$1.17 billion (NZ$1.9 billion) to GDP in 2020-2021 and US$145 million (NZ$236 million) in Crown revenue in 2022-2023. In 2023, these industries employed around 6,000 people, the majority based in regional communities.
The legislative amendments, which will include changes to how exploration permits are allocated and to the decommissioning requirements, could help restore investor confidence in New Zealand’s petroleum sector, said Energy Resources Aotearoa, which represents energy-intensive businesses, including explorers and producers, distributors, sellers, and users.
“New Zealand faces an energy shortage which threatens our electricity system and the competitiveness of our exporters. We now urgently need to attract further investment in exploration and production to keep the lights on, our houses warm and business humming,” said John Carnegie, Chief Executive of Energy Resources Aotearoa.
“Gas is critical for a diverse fuels energy system that enables us to have consistency of supply when we are increasingly reliant on weather-dependent energy,” Carnegie added.
The removal of the ban and the other legislative changes in the petroleum sector will help restore investor confidence, which is also set to incentivize investment in low-carbon technologies like carbon capture and green gases, the executive noted.
Companies already operational in the country, such as OMV, Beach Petroleum, Matahio, Todd, Westside, and Greymouth Petroleum are likely to act first when the ban is lifted, Carnegie told the New Zealand Herald.
“But that all comes back to the conditions – the nature and materiality of the changes,” he said, adding, “Have the conditions changed significantly enough for them to warrant significant investment?”
What has changed in recent years is the steady decline in New Zealand’s domestic natural gas production, which is raising concerns about energy security.
Currently, New Zealand has six large natural gas fields: three offshore fields, Pohokura, M?ui, and Kupe, and three onshore fields, Mangahewa, T?rangi, and Kapuni. There are also 12 smaller onshore fields.
Output at Pohokura could drop to zero by 2032, while the M?ui field produced 75% less gas from 2000 to 2023, and Kapuni produced about 57% less gas during the same period, New Zealand’s Electricity Authority said earlier this month.
“While not all gas fields are in such obvious decline, it is likely that natural gas production will fall over time without further drilling or investment,” the Electricity Authority said.
Currently, natural gas supports New Zealand’s electricity system during periods of high demand, such as evening peaks and when hydro storage is low, and gas will continue to play an important role in security of supply as New Zealand transitions to net zero, the authority notes.
“The New Zealand electricity system may face challenges as it transitions to more renewables and away from thermal fuels like gas,” it adds.
By Tsvetana Paraskova for Oilprice.com