Prime Minister Jacinda Ardern shocked the world recently by announcing a ban on any new exploration licenses off the coast of New Zealand. The decision was made just a month after she personally accepted a Greenpeace petition signed by 50,000 people calling for the ban.
“Transitions have to start somewhere and unless we make decisions today that will essentially take effect in 30 or more years’ time, we run the risk of acting too late and causing abrupt shocks to communities and our country,” said Ms Ardern.
“We have been a world leader on critical issues to humanity by being nuclear free… and now we could be world leading in becoming carbon neutral.”
The ban is part of New Zealand’s goal of having net zero emissions by 2050, and the culmination of growing opposition to oil and gas in New Zealand.
“The movement against oil in New Zealand has been growing for almost a decade, spurred on by a campaign led by Greenpeace and indigenous communities back in 2010,” says Kate Simcock, climate campaigner for Greenpeace New Zealand. “Since then, hundreds of thousands of New Zealanders have been involved in the fight against Big Oil in New Zealand. Ardern’s announcement is a reflection of that sentiment – she has listened to the people.”
New Zealand has thus become the third country in the world to ban new exploration licenses, following Costa Rica (2011) and France (2017).
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below formBy GlobalData
A symbolic move from a minor producer
New Zealand is a minor producer of oil and gas, which accounts for just 1% of its economy so the move is mostly symbolical. “New Zealand produced a total of around 36,700 barrels per day of liquids and 460 million cubic feet per day of sales gas in 2017,” explains Globaldata upstream analyst Jonathan Markham. “Most of the current production is from four offshore shallow water fields, Kupe, Maari, Maui and Pohokura, which are producing approximately 70% of the oil and gas in New Zealand. These four fields are in the decline phase, Maui began producing in 1979 and the other three started in the mid to late 2000’s, and there no new developments planned for offshore New Zealand.”
There are currently 22 offshore permits covering 38,000 square miles that will not be affected by the ban, and will continue operation until 2030. Should exploration prove successful, companies could extract oil and gas from the areas for decades beyond that. Furthermore, the ban does not cover the Taranaki area onland, where exploration licenses will still be available for the next three years.
But while being mostly symbolic in terms of actual oil drilled, it could have wide ramifications.
“By ending new oil and gas exploration, the recently elected Coalition Government has put the fourth-largest exclusive economic zone (EEZ) on the planet off limits for any new fossil fuel exploitation,” says Simcock. “The announcement … has sent a clear signal to industry that the transition to clean energy has started.”
“This sends a powerful message: We are ending the age of oil,” said Greenpeace New Zealand Executive Director, Dr. Russel Norman. “This has shown bold global leadership on the greatest challenge of our time — putting people ahead of the interests of oil corporations and the hunt for fossil fuels that are driving dangerous climate change.”
A sudden change?
Many have lauded the announcement, as an important step towards reducing emissions and reliance on fossil fuels, but oil and gas companies and opposition politicians were quick to condemn it. The government has been accused of not consulting the oil and gas industry fully before the decision. “The announcement is a sudden change of policy, which has not been consulted on and appears to conflict with the government’s pre-election promises,” said a statement by New Zealand Oil & Gas.
This is a stance Greenpeace rejects: “There is no obligation on the Government to consult on this issue and it is wilful blindness by the industry not to see this decision coming,” says Simcock. “The writing has been on the wall for oil and gas for decades. This industry is well aware that two-thirds to 80 percent of existing fossil fuel reserves are unburnable if we are to avoid extremely dangerous climate change.”
Markham suggests the truth is something of a midpoint. “Reports are that there was no official consultation period with the industry, although Ardern stated during an interview in October 2017 that there would be a review of future block offers by the new government and it was heavily implied that the annual process would be cancelled,” he says.
The demise of an industry
One of the main arguments against the ban is the economic impact. The National Party, Ardern’s Labour Parties major opposition, claimed the ban would cause the demise of an industry which contributed $2.5bn for the economy.
Meanwhile, New Zealand Oil & Gas chief executive Andrew Jefferies suggested the move would simply leave the country dependant on expensive imports. “Two thirds of our national energy use is industrial and transport related, for which complete renewable alternatives are not currently economically viable. Therefore the choice for New Zealand is whether we use our own resources for our own benefit, or New Zealanders rely on overseas energy sources benefitting those economies.”
Similar stances have been taken by other groups in New Zealand. “The Government’s decision to end offshore exploration of oil and gas will cost New Zealand at least $6.2bn, according to documents released during election negotiations”, said ACT Leader David Seymour. “We now know at least some of the costs involved with this PR stunt. Each household will be at least $4000 worse off.
The true economic impact of the move will not be understood for decades, and can be greatly influenced and mitigated by energy policies. Greenpeace is confident that, far from being detrimental to New Zealand’s economy, the environmental benefits of the ban will be profitable.
“The economic effect will be positive in the longer term,” says Simcock. “One of New Zealand’s largest banks, Westpac, has just released new research saying that taking faster action on climate change could save us $30bn by 2050. There are also enormous opportunities in clean energy, which provides four times more jobs than the oil industry.”
Opposition to the ban also warns that more than 8000 jobs will be lost, although Ardern and her party have denied the claim and said that no current jobs will be affected as no current licenses will be affected.
How environmentally beneficial is it?
The final major criticism suggests the ban may ultimately be worse for the environment. If New Zealand were to phase out natural gas, the cleanest of the fossil fuels, simply to replace it with coal it would increase emissions. This could also affect countries that previously relied on imports from New Zealand.
“We have ten years of gas reserves which is plenty of time to wean ourselves off fossil fuels by investing in more clean energy so we don’t need either gas or coal in the future,” says Simcock.
“Smarter combinations of renewables, demand management, battery storage and electric transport are transforming the way we use energy. It means we don’t actually need outdated, dirty fuels like oil, gas, and coal. Over coming years we must grow solar, wind, geothermal and biomass generation to replace our current, relatively small, coal and gas dependency.”
As Ardern suggests, this is a long term policy with minimal immediate effect. “This announcement is unlikely to have an immediate impact on oil or gas usage in New Zealand,” says Markham. “Production from existing fields will continue and 90% of the produced liquids are exported, primarily to Australia. Oil for domestic use is imported, and current gas demand can be met by existing fields.
Production of both oil and gas in New Zealand has been consistently dropping in recent years and renewables increase, the ban may simply ensure this trajectory continues. “Since 2016, international oil companies, including Shell, Statoil, and Anadarko have exited the country and the move by the government is likely to further discourage companies from new investments in the area,” says Markham.
Will more follow in New Zealand’s footsteps?
The move is undoubtedly a blow to the oil and gas industry, but is it a sign of things to come? “[New Zealand] certainly won’t be the last,” says Simcock. “Globally, the writing is on the wall for the oil industry. Its assumption that the world will always want more and more oil, and that they will need to exploit ever more remote new frontiers to supply it, is fatally flawed. New Zealand’s ban should make any company looking to develop extreme projects like the Canadian tar sands, Arctic or Amazon Reef think twice about whether it’s a gamble worth taking.”
But given New Zealand’s relatively small role in the oil and gas market, it may not be a good marker for predictions worldwide. “This move has not been on the agenda of the major petroleum producing countries globally,” says Markham. “Most are aiming to grow or maintain production levels, which will require continued exploration and new developments. Despite countries slowly diversifying their energy sources away from fossil fuels, global demand for oil and particularly gas is expected to grow over the next couple of decades due to the overall growth of energy requirements.”