3. Drilling ban likely to lift emissions

Energy Minister Megan Woods went against advice from MBIE to end the block offer for offshore oil and gas exploration. Photo: Lynn Grieveson

The decision to ban offshore oil and gas exploration will likely increase global emissions, officials say.

The Ministry for Business, Innovation and Employment (MBIE) advised the Government that stopping the issue of permits for offshore oil and gas exploration would have a “negligible” impact on domestic emissions and would likely increase global greenhouse gas emissions.

This would be a result of methanol produced from gas in New Zealand being displaced by methanol produced by coal in China. Coal has a worse emissions profile than gas.

The argument is just one of a series of rebukes directed at the policy in a briefing document released under the Official Information Act today, which show a growing rift between MBIE and the Beehive as the Government and Energy Minister Megan Woods pressed ahead with the ban. 

The documents have been released after concerns were raised that the Government did not consult widely with industry before announcing the ban. 

They show the Government did not consult with industry before announcing the decision and was deliberating right up to the end of March. 

Decision likely to increase emissions

MBIE officially advised Woods against the ban in briefings over February, March and April.

“MBIE considers a ban on all future offshore petroleum exploration to run counter to a number of important public policy objectives," it said on April 10.

The document said there would be ‘carbon leakage’ as companies that produced products from gas closed down, leading to competitors who used coal to ramp up production to meet demand. 

It used the example of Methanex, a New Zealand methanol producer, as an example, saying its gas-produced methanol would “almost certainly” be replaced by Chinese coal-produced product. 

It said that rising demand for coal power would see the equivalent of one coal-fired Huntly power station built every 12 weeks for the next 23 years somewhere around the world. Gas from New Zealand could help offset this rise by forcing some of that generation to switch from coal to gas, which has lower emissions. 

But Woods told Newsroom the economics of this didn’t stack up.

“Our ability to reduce emissions in other parts of the world is very limited,” she said. 

Part of this was economics. New Zealand’s natural gas is more than twice as expensive as gas produced in the United States. We also lack the infrastructure to export gas.

“We don’t at the moment have the capacity to export gas - LNG. The only way we can export gas as an energy source is as methanol,” Woods said.

“In terms of the investment - the capital investment that would be required - it’s massive, we’re talking billions of dollars worth of plant,” she said.

Gas to get more expensive — but you probably won’t notice

Briefings outlined several other risks, foremost to industries that rely on gas. New Zealand is disconnected from international trade in terms of gas, nor does it have the capacity to import Liquified Natural Gas (LNG), making it completely reliant on domestic production. 

The documents note there is a “direct correlation” between gas reserves and gas prices. As this decision effectively puts a cap on reserves (provided existing permits do not yield the discovery of a new field), consumers can expect to see higher prices as reserves deplete. 

But the briefing noted that “major users” accounted for 92.3 percent of gas used in New Zealand, with households and smaller consumers comprising the other 7.7 percent.

The major consumer is Methanex, which used 41 percent. The dairy sector uses just five percent.

This indicates that some industries, particularly the petrochemical industry, will be particularly hard hit, but most households will escape the pain. 

The papers also provide riposte to some of the ban’s critics, who argue it would jeopardise jobs. 

“The immediate effects on employment are likely to be relatively small, as there are relatively few employees involved in initial exploration efforts,” MBIE said in a briefing from March 8.

The paper goes on to note that effects on employment are likely to worsen with time. 

“The effects increase significantly over time as the potential number of jobs and economic impacts magnify as you move from seismic collection and interpretation through to drilling, field development and ongoing production operations.”

But National energy spokesperson Jonathan Young told Newsroom he believed if exploration discovered a “significant” field, gas could be exported to replace coal in coal-dependent countries.

Decision made on the hoof

Papers from February 27 showed MBIE endorsing option three of seven presented to the Minister, which would allow both onshore and offshore exploration, provided it was restricted to the Taranaki region. We know this advice was ignored. The Minister opted for option four, with modifications. 

On February 8 a timeframe was circulated which showed the procedure that would need to be followed were the Minister to announce her decision at a petroleum conference on February 27, as widely expected. 

Woods confirmed to Newsroom that the decision was made between party leaders “about a week” before the Cabinet meeting on April 9. They agreed to go ahead with a block offer for onshore exploration and to consider a complete ban on new offshore oil and gas exploration.

This opens up the possibility that even at the time of the conference, a final decision had yet to be reached, although Woods signalled strongly at the conference that the end was nigh for exploration. 

On March 13 an “urgent” aide memoire was requested from the Prime Minister’s office ahead of a meeting with Winston Peters, where it seems the effects of the ban on Taranaki were to be considered. 

To this day Cabinet has yet to formally make this decision, but on April 9 it agreed to Woods announcing the ban and noted she would introduce a future cabinet paper to set out the full details of the policy. 

Finally, late on the night before the decision was announced to the public, MBIE officials began calling stakeholders from the sector. They called late into the night, finishing at 10.29pm.

MBIE official David Darby noted stakeholders were “disappointed/resigned” about the news.