Opinion: The incoming National-led government says opening up New Zealand to more oil and gas exploration is one of the first things it will do.
But National will fail to attract new investment for the simplest of economic reasons. Demand will be zero. The global fossil fuel industry has long had far easier and cheaper opportunities elsewhere. That’s why they’d given up on our deep offshore prospects long before the Labour-led government stopped issuing exploration and production licences in 2018, as I laid out in this column at the time.
Labour did allow continuing exploration, development, and production in Taranaki, onshore and offshore. But given the massive glut of new gas supplies that’s developing worldwide, our local gas will look very pricey in years to come.
Worse, though, Christopher Luxon’s attempt to support the fossil fuel sector will distract his government from the swift and deep transformations of energy and economies gathering rapid pace here and around the world.
As the out-going Labour government showed us, that agenda is very demanding, particularly for a tiny country with an over-stretched and under-resourced public service. Prime Ministers Jacinda Ardern and Chris Hipkins failed to deliver on some of their promises and gave up on others.
Prime Minister-to-be Luxon should take note of the hash the British Prime Minister, Rishi Sunak, is making of all this. A few weeks ago, he delayed the phase-out of fossil-fuelled cars, and the phase-in of heat pumps and insulation programmes, even though much of the UK housing stock is among the worst energy- and comfort-wise in Europe.
We’re starting to land overseas investment in solar and wind generation. One of the biggest commitments so far is from US-based BlackRock, the world’s largest manager of institutional investment funds.
The UK’s Office for Budget Responsibility reported in July that the costs of continued gas reliance were more than double those of decarbonising household energy. It also said two years ago that the cost of achieving net zero would be mostly offset by savings on fossil fuels, and would be “comparatively modest”, amounting to a few billion pounds a year over the period to 2050.
Yet, this coming week, Sunak is expected to announce his government will push for more fossil fuel development in the North Sea. But since the Conservatives came to power in 2010, six rounds of new licences have only added 16 days’ worth of new gas supplies so far, according to analysis by Uplift, an NGO.
After five decades of drilling, the North Sea’s reserves, which are 70 percent oil not gas, are dwindling fast. The prospects of new discoveries are slim. Both gas and oil production peaked in 2000 and is now back to daily levels last seen in the late 1970s in the first years of North Sea production.
In recent years, the UK has installed 45 offshore windfarms with 14 gigawatts of generation capacity. Plans are in place to achieve 50gW by 2030.
That’s also the future that Taranaki – local government, community and business – wants. And it’s got big backing from the NZ Superannuation Fund and Copenhagen Infrastructure Partners, which have formed Taranaki Offshore Partnership (TOP) to invest in offshore windfarms.
The jobs this new energy source will create will smooth the local economy’s transition from fossil fuels, according to a recent study by TOP, NZ Trade and Enterprise and Taranaki-based Ara Ake, which bills itself as “New Zealand’s future energy centre.”
Over the coming decades renewable electricity will become New Zealand’s dominant source of energy, as it will around the world. Here, for example, pioneering companies are starting to install electric boilers and heat pumps for their industrial processes with the help of EECA, the government’s energy efficiency agency.
The full electrification of our economy will require massive investment in renewable generation and distribution. That could cost $42 billion, according to analysis last year by Boston Consulting Group.
New Zealand is an attractive prospect, though. We’re starting to land overseas investment in solar and wind generation. One of the biggest commitments so far is from US-based BlackRock, the world’s largest manager of institutional investment funds. It’s setting up a local operation, New Zealand Net Zero Fund, which is aiming to make at least $2 billion of investments starting next year.
Given the rapidly declining cost of renewable electricity, the accelerating transition away from fossil fuels makes simple economic sense. But then, of course, there is also the paramount importance of quickly and drastically reducing fossil fuels’ greenhouse gases in the hope of preventing the worst impacts of climate change.
That clean energy transformation is well under way, the International Energy Agency said recently in its latest annual outlook. If all government pledges are met, it believes fossil fuels’ share of global energy supply in 2050 will amount to just 32 percent, compared with 80 percent in 2022. Renewables, biomass, nuclear, and coal and gas generation (where their carbon emissions are captured and stored) would make up 66 percent of global energy generation.
Oil, gas and coal demand will peak before 2030, the agency estimates; and the demand for oil will halve by 2050.
“Looking at the world today or tomorrow, no one can convince me that oil and gas represent safe or secure energy choices for countries,” Fatih Birol, the International Energy Agency’s executive director, said at the launch of its 2023 outlook report last week.
Of course, the global oil and gas sector will lobby ferociously against this transformation at COP28, the world’s annual climate negotiations which begin in the United Arab Emirates, a major oil and gas producing nation, on November 30.
Consider, though, the reputational damage New Zealand will suffer when Luxon’s new climate minister tries to justify why our government wants to attract new fossil-fuel investment.