The oil and gas lobby has asked the Government to underwrite the risk of fossil fuel exploration, with the taxpayer potentially taking “some or all” of the risk if new gas supplies fail to eventuate.
Resources Minister Shane Jones said he was considering options to support gas exploration, but “no decisions have been made either way”.
On July 8, the body representing oil and gas producers, Energy Resources Aotearoa, wrote to Energy Minister Simeon Brown, saying the industry was unlikely to invest in exploring for new gas without “government support to help manage risk”.
It said the Government should consider whether the taxpayer should take on “part (or all) of the risk if natural gas should not be produced” by exploration efforts.
The letter — which was released to RNZ under the Official Information Act — said any costs to the Government from underwriting, hedging or guaranteeing oil and gas exploration would “fairly and most efficiently” reflect the risk created by Labour’s now-reversed 2018 ban on issuing new permits for offshore oil and gas exploration.
The Government has also blamed Labour’s ban for declining gas supplies, saying it worsened the investment environment for companies that might have wanted to explore.
Subsidising exploration ‘deranged’ — Greens
However, Green Party co-leader Chlöe Swarbrick said gas production peaked in 2014 — four years before the ban — and the industry had spent millions on exploration without major new discoveries.
She said underwriting or subsiding oil and gas development was “deranged” and the best way to lower household energy bills was investing in renewable energy.
“It’s so deeply flawed and deeply ironic that the ERA [Energy Resources Aotearoa] is asking the Government to underwrite gas production,” she said.
“Why would our democracy be underwriting an industry that has no future… the Government could right now be investing in community-owned renewable electricity generation and that would have a massive benefit at driving down household bills.”
As an alternative to underwriting exploration, Energy Resources Aotearoa suggested the Government could step in and guarantee demand for gas from offshore fossil fuel fields.
In a statement, the group’s head John Carnegie said recent moves to change the Crown Minerals Act to un-ban offshore exploration and lower upfront financial security requirements for oil and gas wells “won’t meet the Government’s aspirations to reinvigorate the petroleum sector”.
He said the letter asked the Government to “consider options to tilt the risk equation in favour of new exploration and appraisal… by improving the risk profile for investors”.
Warning against ‘direct or indirect’ subsidies for fossil fuels
Brown has said, in reference to the electricity market, that the coalition Government was “fuel agnostic” and would not be subsidising any form of energy.
However, Shane Jones’ response to RNZ’s query about the industry’s request suggested the Government had not ruled out some form of intervention.
At November’s COP29 climate summit, New Zealand joined a coalition of countries committing to phase out fossil fuel “subsidies and incentives”.
Climate Change Minister Simon Watts issued a statement with the announcement, saying New Zealand was proud to join the group.
“This important initiative fits well with New Zealand’s leadership of the Friends of Fossil Fuel Subsidy Reform Group and our role as Chair of the recently signed Agreement on Climate Change Trade and Sustainability,” he said.
Weeks before COP29, the Parliamentary Commissioner for the Environment warned the Government not to implicitly or explicitly subsidise the cost of fossil fuel exploration.
The Commissioner commented on plans to lower financial security requirements on oil and gas companies, which required them to set aside money upfront for decommissioning costs and the potential costs of cleaning up oil spills.
The coalition says the current requirements — brought in after taxpayers paid to clean up after a failed oil field — were so onerous they were stopping companies wanting to explore for new oil and gas.
But the independent environment watchdog warned that overly relaxing requirements could leave taxpayers footing bills of billions of dollars to clean up environmental damage, which would be an implicit subsidy for the industry.
Speaking at a Parliamentary hearing on reversing the offshore exploration ban, the commission’s Geoff Simmons said his boss Simon Upton “wants to place on record that he doesn’t think it is appropriate for any government, present or future to offer any subsidies, implicit or explicit, to underwrite the cost of exploration”.
The watchdog said underwriting would tilt the playing field away from renewable energy in favour of fossil fuels and undermine the coalition’s policy of being “fuel agnostic”.
The 2004 ‘precedent’
But Energy Resources Aotearoa said underwriting exploration was “not without precedent” in New Zealand.
Its letter to Brown asked him to follow the 2004 example of the Helen Clark-led government.
Faced with its own energy crisis, that government agreed to compensate Genesis Energy if efforts to develop new offshore gas fields to feed a new unit at its Huntly power station failed to deliver the gas.
At the time, the head of the Electricity Commission attacked the decision to back the commercially risky exploration, saying the government was inappropriately interfering in the market and accusing it of favouring a state-owned power company.
National’s then-leader John Key also criticised the deal.
Swarbrick said it was not a good example to follow, given gas production peaked before the deal and New Zealand was still facing an energy shortage 20 years later.
She said the fact that previous governments had “kicked the can down the road” when it came to solving electricity affordability was not a reason to kick it further now by trying to resuscitate gas.
High praise for the government’s climate plans
The Government’s final emissions reduction plan for 2026-2030 was due to be revealed before Christmas.
Independent assessments of the draft plan by the Parliamentary commissioner and the Climate Change Commission, respectively, warned the Government’s approach was a “massive gamble” and ran a substantial risk of failing to meet climate targets.
However, in a different briefing to Brown by Energy Resources Aoteaora — also released to RNZ under the Official Information Act — the fossil fuel lobby praised the Government’s climate direction.
The oil and gas group congratulated the minister on “sensible” draft emissions reduction plan which was called “a great example of the Government’s no-nonsense approach to climate policy”.
“Your officials should be commended for the practical list of potential policies… (such as Carbon Capture and Storage) and the long list of discontinued policies… which were expensive and counterproductive,” it said.
It also called for a sustainable aviation group involving airports, airlines and the Ministry of Transport to be scrapped, saying it was “inappropriate” and the group was advocating “rent-seeking” policies.
The ministry confirmed to RNZ last week that the sustainable aviation group was still operating.
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