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L&M Petroleum managing director John Bay reviews the potential for future oil and gas discovery to our social and economic prosperity, both large and small.
New Zealand, which can be summarised like this: How many cows would be needed to produce enough milk to generate revenue equal to that which the government takes in royalties from the Tui oilfield? The answer: Enough that you would need land equivalent to about half the size of the North Island to hold the requisite number of cows – which, in addition to milk, would also be generating millions of litres of effluent and tonnes of CO2. With the Maari field now in production and the start of full production from the Kupe field imminent, it’s easy to appreciate the impact that oil and gas will have on the nation’s coffers over the next decade and the impact that finding more oil can have on the country’s future wealth. This is not to say that bringing more oil and gas into production in this country is straight forward, as the industry certainly has its share of challenges. For example, despite millions of dollars having been spent on exploring other basins, to date the Taranaki Basin is still the only commercially producing basin in New Zealand. Even within Taranaki, commercialising an oil or gas discovery can be difficult. It is interesting to note that the Tui field (or rather complex of fields) was actually first identified a number of decades ago. However, as the market was swamped by gas from Maui, and at that time Tui was thought likely to be only gas, it was left alone. It was only after NZOG attracted US-based company Transworld and Australian-based AWE, on the belief that Tui could possibly contain oil, that the first Tui well was drilled. The Kupe field has taken 23 years to deliver its first gas to market from when the field was first discovered in 1986. And it is not offshore gas developments that struggle. In trying to develop the onshore Cheal oil field Austral Pacific found that it had bit off more than it could chew and paid the ultimate price. On the positive side, there was a major sea change last year when the newly elected National Government embraced the fact that the country’s endowment of natural resources could transform the country – economically and socially. The previous government was set on becoming largely dependent upon renewable energy, a worthy target, but failed to recognise the substantial positive contribution to be derived from a healthy petroleum exploration industry. It’s generally accepted that New Zealand is facing a supply/demand shortfall. While some industry participants are more bullish about the ability of the local talent to find and produce sufficient gas for the foreseeable future, power companies are staring down the barrel of being short on cheap fuel for their stations, with a local gas supply that is becoming increasingly expensive (something that impacts consumers directly) and an even bigger risk that in the not too distant future New Zealand will have to import fuel it needs in the form of LNG purchased at international commodity prices. New Zealand is bigger than most of us realise. Our continental shelf is over 5.7 square kilometres, almost the size of Australia, the difference being that most of this land mass is underwater. Recent GNS Science reports indicate that up to 20 billion barrels of oil could be out there beneath the waves, but most of the oil in these frontier basins will require new technologies and high costs to explore and develop. I think the secret for New Zealand’s future exploration success is in recognising that as a small, independently-minded nation on the bottom of the world, we need to pool our talents, skills and welcoming manner to incentivise, encourage and attract exploration activity in frontier areas. It is encouraging that government agencies have been supporting exploration in these frontier areas. Bidding rounds for the offshore East Coast, Great South, Raukumara and Reinga basins have seen Crown Minerals funding offshore seismic companies to acquire data, GNS to interpret it, and then providing the data for free. The question is – has it worked? And the answer is a cautious yes for the GSB, but still to be answered for the other frontier areas. More recently the Government has announced that it will seek to make petroleum exploration more attractive by undertaking a long overdue review of the current petroleum legislation and regulations. The industry strongly supports this Government initiative. Over the past year L&M Energy has been promoting its frontier basin exploration opportunities to fellow travellers in the oil and gas industry and there are a number of things that we have learnt from this experience. Chief amongst them is that although New Zealanders think of themselves as being on the outskirts of Australia – more effectively, Australasia is on the outskirts of Asia and that is a really big brother to have next door. You only have to look at where the majority of the planned LNG from Queensland coal seam gas and the future gas from Gorgon off the west coast of Australia is heading to understand that Asia, and in particular China, has a massive appetite for energy; something that is going to increase as the bourgeoning middle classes start to buy their (second) cars and their large flat screen TVs. They are followed closely by India in terms of increasing appetite for energy. Of course Korea, Japan and others have a well-established LNG import industry, but the prices that China may be willing to pay for LNG could swing imports their way, creating a very competitive market. That being said, the GFC and the inter-relationships between LNG imports/European pricing swings and the lag in construction/new gasification has complicated the pricing market for international gas and made predicting the future pricing of gas more of a crystal ball deal. However, whichever way you look at it, most commentators believe that gas, given its more environmentally friendly position than coal and oil, has an increasing role to play in both domestic and international markets. If this is the case, and LNG pricing does continue on an upward trend, then the ability of NZ Inc. to compete with other countries, and pay the price required, to land LNG here to help our demand/supply shortfall, will be substantially impacted. As such, it is not only ‘big oil and gas’ that can help change the social and economic prosperity of this country. Lots of ‘wee oil and gas’, including some coming from frontier basins and unconventional sources such as gas from coal seams and oil and gas from fractured shales could be just enough to keep the lights on in years to come. Here’s hoping.
Energy NZ Vol.4 No.2 March-April 2010 |
It’s simple fact – oil can make a country rich. Nothing highlights this better than the impact the ‘Tui effect’ has had on