Questions for the minister

Energy NZ talks with the minister of energy and resources, Gerry Brownlee (pictured below) over energy matters.

Resource agency portfolio

John Dow, the chairman of Straterra (the recently established group representing the country’s natural resource industries) iterates that we have one of the most resource-rich countries in the OECD, yet relatively little has been done to exploit this advantage over the past 25 years. The group is hoping to see a senior

ministerial cabinet portfolio to counter the fragmentation of government resource agencies through restructuring over the past two decades.

Q. Could you comment?

The importance of New Zealand’s petroleum and minerals resources has been recognised by the new National-led government. This is reflected by the addition of “resources” to the ministerial title and the assignment of the energy and resources portfolio to me. I am also Minister for economic development and Leader of the House.

Crown Minerals review

You said National will review the existing Crown Minerals regime to examine the appropriate risk reward arrangements needed to fully develop New Zealand’s domestic oil and gas industry.

The Fraser Institute Global Petroleum survey 2008 ranked New Zealand seventh (barely in front of Iraq – third) in terms of worse markets for “regulatory uncertainty” in terms of being a “strong deterrent” to investment. It is said that Crown Minerals has the key to our oil and gas resources and substantial revenue in Crown coffers.

Q. What’s the time frame for this review and what changes can we expect?

The process for reviewing the Crown Minerals regime has already started and this will be carried out as a matter of priority. The government recognises that New Zealand’s mineral and petroleum resources have the potential to make a significant contribution to New Zealand’s overall wealth. The regime was put in place in the early 1990s and it is therefore timely to review it to ensure that the Crown is positioned to maximise the potential development of its natural resources.

The government recognises that in recent years this potential has been largely ignored and a review of the agency’s potential to generate more revenue reflects good stewardship of New Zealand’s economic future.

The recently released survey by the Fraser Institute shows New Zealand’s regime is very attractive overall, but there are some aspects where the ranking compared with other countries has slipped. This reflects policy decisions by the previous government such as the ban of thermal powered electricity generation which this government has repealed.

Solid Energy

In the 1990s the National Government had plans to privatise Solid Energy but decided against it.

Q. Can you promise this idea won’t be back on the agenda over the next three years?

Yes. National went into the 2008 election with a clear policy not to sell any state-owned enterprises during this term in government.

2025 renewable target

You said in your press release of December 16, 2008 concerning the repeal of the thermal ban that the Government’s target is still to have 90 percent of electricity generated by renewable plant by 2025, but not at the expense of security of supply.

Q. What makes you confident this target is achievable?

New Zealand is in the fortunate position of having significant renewable electricity generation potential available. Geothermal energy in particularly is a source of cheap, renewable, baseload power.

The government will be reducing regulatory barriers to generation investment through its reform of the Resource Management Act (RMA). Amendments to the RMA will result in decisions on projects of national significance being made by an Environmental Protection Authority within nine months, and the normal consenting process being streamlined.

Electricity Commission

Last year you blamed a big portion of security supply issues on the Electricity Commission. “The Electricity Commission, which was established by the Labour Govt in 2003, is substantially responsible for this disgraceful situation.” You accused the EC of costing power users some $230 million over the past four years and said the transmission infrastructure was a shambles

Q. Specifically what changes regarding the EC do you propose to improve the situation?

As expressed in National’s election policy, the Government intends to undertake a careful review of the roles that the Electricity Commission, the Commerce Commission and Transpower play in the electricity sector. The aim will be to remove any unnecessary duplication, reduce the costs of regulation and improve the investment environment for transmission and generation.

This review will not be rushed.

There are also issues (such as the operation of Whirinaki) arising from the Winter Review which the government is taking a close look at.

Gas exploration

The Ministry of Economic Development said in its briefing paper late last year that New Zealand could “emerge as a serious source of energy for the world” by making the most of the country’s petroleum resources.

Q. What are your immediate, medium and long-term priorities for the oil and gas sector?

There are a number of top priorities for the upstream petroleum sector. Our first priorities are to ensure the exploration regime is designed to maximise the potential of our offshore basins to contain petroleum resources and to obtain technical data across the areas of potential, recognising that our offshore basins including the Taranaki Basin are under-explored with little technical information available.

The previous government abolished a data acquisition programme run by Crown Minerals to acquire much-needed seismic data to attract the interest of exploration companies. This initiative successfully attracted some $1.4 billion from exploration companies through proposed exploration programmes in areas like the Great South Basin. The National-led government recognises the value of this work and is considering resurrecting the initiative, which was dropped by the previous government. To this end we have requested a proposal from Crown Minerals for continuation of the data acquisition programme to unlock our petroleum potential.

Oil and gas tax incentives

In 2004 the Labour government allocated $15 million for seismic exploration and tax incentives (a five year wavier of the 183-day rule) to encourage non-resident, offshore rigs to stay longer in our waters. Financial storms and plunging oil prices will make it even harder still to attract the necessary overseas investment in our exploration and production sector.

Q. Would you think of extending this tax waiver?

The initiatives introduced in 2004 by the previous government are all under review. Some of these initiatives conclude at the end of this year and therefore the industry will require certainty for planning purposes. The extension of the 183-day rule tax exemption and reduction in royalty rates to accelerate exploration is being considered and recommendations will be made to government to enable decisions to be made in a timely way. For example, it is recognised that some explorers are making decisions to commit substantial sums to embark on drilling programmes that may span the date when these initiatives expire, so it is important to provide clarity in a timely manner.

The government is also aware of the importance of making timely decisions in relation to any future data acquisition programme, but given the fiscal implications of any investment, decisions will be made in the context of the government’s overall budgetary constraints.

Related to this, National’s energy policy promises to invest $25 million in seismic exploration over the next three years.

Petroleum research funding

Pepanz has also put the case to you for improved funding for GNS Science (our main industry research body) to enhance petroleum related research and our understanding of petroleum systems. GNS attempted (in 2006) to generate interest in setting up a Petroleum Research Centre, but couldn’t muster enough funding – about $10 million annually. If we are to attract companies to explore for petroleum in New Zealand we need to have the right geological data to assist them.

Q. Would you agree to increased research funding?

Crown Minerals and GNS have a close working relationship. This relationship has resulted to Crown Minerals contracting GNS’s geotechnical services to produce reports and targeted research to help with the production of data packs to support the promotion and exploration of New Zealand’s petroleum basins. While most of GNS’s research funding for petroleum is bid for via the Foundation for Research, Science and Technology, the direct investment from Crown Minerals is aligned to their research.

Any changes to the funding of GNS outside the current processes (which the Petroleum Research Centre proposal falls into) is the responsibility of the Minister for Research Science and Technology, Hon Dr Wayne Mapp.

Climate change

National says it is focused on a climate change policy that will be in the best interests of New Zealand’s future. An increasing number of scientific evidence is now being recorded and published challenging not only the earlier IPCC models predicting global warming, but seriously questioning whether C02 is the pollutant is it supposed to be.

Q. Are you and your advisors as confident these days of the IPCC predictions as you were the last time we asked you a question on ‘climate change’?

Yes.