Greymouth Petroleum, the second-largest New Zealand-based oil and gas producer, has started court action challenging the government’s plan to ban the offering of new offshore exploration permits.

The company, whose assets include the onshore Turangi, Onaero, Kowhai, Radnor and Ngatoro gas fields, said the government’s April 12 announcement halting further offshore block offers was unlawful.

Chairman Mark Dunphy said the Crown Minerals Act requires the government to consult on any planned changes which it had not done. And the recent proposal by Energy and Resources Minister Megan Woods to sustain activity by extending drill or drop deadlines for existing permit holders risked adding to the “clouded muddle” of process explorers and producers now face.

He said reduced production from the Pohokura field earlier this year, and again currently, showed how little redundancy there is in the country’s gas supply.

“I think people are coming to terms with the real problem, which is that New Zealand is short of gas,” he told BusinessDesk.

The fact Greymouth had a High Court claim against the Crown was disclosed in the Crown Minerals (Petroleum) Amendment Bill the government is rushing through parliament to effect its exploration ban. The public have only until Oct. 11 to submit on the bill which will also prevent any onshore acreage being offered outside Taranaki and could also end those onshore Taranaki exploration offers after 2020.

The government has said the ban is necessary as part of its climate change strategy and will ensure a long-term transition away from the use of fossil fuels. Woods believes the existing 100,000 square-kilometres of exploration acreage is sufficient to ensure long-term gas supplies for industry and generation.

But critics say she doesn’t understand the low probabilities involved in offshore exploration, that the ban has already slowed investment, and that much of that offshore acreage is likely to be surrendered as permits reach their drill-or-drop deadlines in coming years.

Government officials also advised against the ban saying that long-term it was likely to result in an increase in emissions as locally produced methanol, urea and steel is replaced with overseas product, often from countries and industries using coal rather than gas. They also estimated the potential loss in Crown revenue out to 2050 at between $1.2 billion to $23.5 billion.

Dunphy said the government appeared determined not to consider what the “top end of that curve” really meant. And the public, who struggle to visualise a million dollars let alone a billion, would find it hard to believe that any government would take a decision to forego $23.5 billion in revenue, he said.

But if the cost to the Crown was really only $1 billion, Dunphy said that would be just as disastrous for the country as it would imply that New Zealand is perilously short of gas.

Greymouth, formed in 2000, specialises in supplying low-cost gas to industrial and commercial consumers. Its clients include producers of fertiliser, petrochemicals, wood products, meat products, health foods, beer, sugar and glass.

Dunphy said those clients rely on gas and their processes don’t lend themselves to electrification or use of other renewables. Without local gas supplies they would have to look at imported LPG, which would be “out of the question” or the country would need to start importing liquefied natural gas, which would be just as expensive.

In that scenario most of his clients would likely shut down.

“This is really, really backwards thinking,” he said of the exploration ban.

“What you will find is that imports will end up replacing our manufactured goods sector.”

Greymouth filed its claims with the High Court in April. The company would like the case heard as soon as possible, but that is unlikely to be this year, Dunphy said.

The company is also disputing its unsuccessful bid for acreage in the 2017 block offer. Dunphy said the company had bid for an offshore coastal permit, but he declined to say where.

He said the application had been declared compliant and appeared to be proceeding normally. After the change of government that appeared to change.

The only acreage awarded on Dec. 20 was a 547 square-kilometre permit granted to Westside New Zealand. The near shore permit abuts the onshore Kauri and Rimu fields the company operates on the South Taranaki Coast near Hawera. Westside, which also operates the Meridian gas field in Queensland, is owned by China-based Landbridge Group.

Dunphy said he is not concerned whether bidders are Chinese or Russian, so long as they are judged on the quality of their work programmes and New Zealand operators aren’t given the “raw prawn.”

He said Greymouth’s work programme was better than that proposed by Westside, and the acreage involved was also far less “complicated.”

Dunphy said the company is “not ‘big oil’.” It had not wanted to have to go to court but had not been able to resolve the issues with the minister or officials.

“We are extremely hardworking New Zealanders who are proud of what we do. New Zealand petroleum companies rely on the block offer process to ensure transparency, contestability, maintain competitiveness and grow their businesses.”

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