Jones' drafting blunder pushes new gas supply back to February 2041
The government rushed reversing the offshore drilling ban to take advantage of the 2024 electricity price crisis, bungling decommissioning rules in the process.
The third reading of the Crown Minerals Amendment Bill will be delayed until next year, following industry criticism of provisions that had aimed to reduce decommissioning liabilities, according to this Patrick Smellie scoop:
The amendments to the Crown Minerals Bill were intended to reduce decommissioning risk but instead had increased liabilities, particularly if a gas field was sold.
Gas producers saw the provisions as making it highly unlikely that the Austrian-owned producer OMV would be able to find a buyer for its Maui and Pohokura gas interests, which have already been proving difficult to quit.
Likewise, any disposals or acquisitions between other existing players in the NZ gas sector could be stymied.
One senior energy sector executive, who declined to be named, said: “If the Government wants to solve [gas supplies for the winters of] 2025 and 2026, they have to quickly unleash smart, intelligent drilling in existing fields.” The bill, if passed in its current form, would almost certainly prevent that.
Smellie notes that the Bill is expected to return to Parliament in February 2025.
This will no doubt be immensely frustrating to the Bill’s champion Shane Jones, who introduced the legislation on 24 September, just weeks after wholesale electricity prices had quadrupled to $800MWh. Written submissions on the law had closed by 1 October, and orals were heard just days later. Victoria University Law Professor Dean Knight told newsroom.co.nz the entire process was “bad lawmaking and they know it”.
Energy security was the key justification given for the legislation, with politicians pointing to manufacturing job losses and the risk of a dry winter in 2025 to justify such haste. In my view, moving this legislation as quickly as possible was more about taking advantage of that particular political moment than it was increasing about energy security in the short- or medium-term.
As MBIE advice noted in the days before the written submission period closed, the discover and development of new gas field supply “is unlikely to happen before 2035”. Submitters in Select Committee noted that this period was likely closer to 16 years. Adding in this latest delay, we’re now looking at February 2041 before new supply hits the market.
All in all, Jones is starting to look like a pretty unreliable partner to the oil and gas industry. A month ago he described the offshore ban as “the most dismal destructive decision visited upon the energy landscape of New Zealand”. He’s even reportedly considering underwriting the risk of offshore exploration if new gas supplies fail to eventuate.
But in 2018 Jones voted in support of the offshore ban. He made no speeches, either for or against, the legislation. Much had been made of NZ First’s effective veto over Labour’s proposed policy agenda, however here Jones and the party seemed uninterested.
Today, Jones describes how that decision - “his decision”, some might say - “destroy[ed] the appetite of the investment community to back our country and use indigenous resources”.
Not everyone agrees. University of Canterbury Associate Professor David Dempsey, for example, recounts:
Although the ban was introduced in 2018, companies had already halted most offshore exploration two years prior. And even if a new discovery had been made around 2018, it would probably have taken too long to develop to be ready for 2024.
Why New Zealand ran low on gas
When the 2018 ban was announced, only one offshore permit had been granted during each of the previous two years. As MBIE statistics show, this was quite a drop compared to the period between 2012 and 2016, with an average of six permits per year.
Exploration drilling was down, too. During 2013 and 2014, 40 wells were drilled, but only five between 2015 and 2018. Had any major gas fields turned up, those companies would have been entitled to develop them regardless of the ban – but that didn’t happen.
Reversing the offshore ban was the central plank of the Government’s energy security agenda. Only changes in energy demand can avert disaster come a dry winter in 2025.
And, while this delay won’t meaningfully change the energy security equation, it also won’t help convince investors that the investment environment would be stable enough to cough up the large sums of capital - financial and political - required to support future offshore drilling.