New Zealand’s decision to ban offshore drilling is tokenistic, given the country’s negligible oil production and continuing onshore extraction.
In April 2018 Jacinda Adern’s government withdrew any new licenses for offshore exploration, but the ban will not affect the existing offshore permits or any onshore exploration. Some of the current offshore permits have decades left on their exploration rights and cover an area of 100,000sq km.
Given the relatively minute stature of oil in the New Zealand economy, this is a gesture the government can afford to make. According to the Energy Information Agency (EIA), New Zealand pumped an average of just 31,000 barrels of crude oil a day in 2017. In contrast, the EIA expects US output to exceed 11 million barrels per day in 2018, which would make it the largest producer globally. The country’s annual oil production makes up just 1.4% of the country’s economy.
According to MarketLine, the New Zealand oil and gas market declined between 2013 and 2017 with a compound annual rate of change of 14.5%, falling to a value of $31.bn. A downturn in the global market from 2014 took a heavy toll on its earnings. Crude oil production declined in 2016 to the lowest level in a decade, and spending on production had fallen.
The industry players have also expressed dismay, as huge investments have been made by companies already anticipating offshore block offers. New Zealand Oil and Gas’ share price down was NZD0.72 on January 3 2018, and has fallen to NZD0.61 as of May 11 2018.
Adern was elected in 2017, and the Labour coalition had climate change as one of its biggest issues. The party’s manifesto committed to 100% of electricity generation from renewable sources by 2035 and making the economy carbon neutral by 2050. The ban on offshore drilling is a cautious start, as the government attempts to balance the $2.5bn industry and achieving lasting economic change.
The New Zealand National Party, Labour’s traditional rival and current opposition party, has raised valid points regarding the 8,000 highly skilled jobs at risk and potential higher prices for consumers.
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