The slow demise or temporary slump of New Zealand's oil and gas industry

Oil and gas are still the dominant player in the world's energy game but global warming is pushing fossil fuels into the ...
ANDY JACKSON/Fairfax NZ

Oil and gas are still the dominant player in the world's energy game but global warming is pushing fossil fuels into the socially and politically unacceptable zone.

Oil and gas was the place to be in 2014 and 2015 - profits had skyrocketed, production was up and the outlook was all sunshine.

"It was busy. There were projects after projects," says James Reo, who has been in the industry for 30 years.

During the golden years Reo was the country manager for an international drilling company based in Bell Block, New Plymouth.

James Reo, who worked in the petroleum sector for 30 years, says the industry has hit a new normal and the good days are ...
ANDY JACKSON/Fairfax NZ

James Reo, who worked in the petroleum sector for 30 years, says the industry has hit a new normal and the good days are long gone.

Things were very good. Even before that. In 2013, oil and gas operations pushed Taranaki's per capita gross domestic product through the roof, beating out thriving cities such as Wellington.

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At the industry's peak as many as 7000 jobs, or 11.5 per cent of the workforce in Taranaki, were associated with it in some way and salaries well north of $100,000 seemed to be everywhere. 

Cameron Madgwick, CEO of Petroleum Exploration & Production Association New Zealand (Pepanz), has no doubt about the ...

Cameron Madgwick, CEO of Petroleum Exploration & Production Association New Zealand (Pepanz), has no doubt about the longevity of oil and gas.

But in 2016, the price of oil fell sharply. What was once US$120 a barrel dropped to under US$50, and the golden years came to an end.

"It just felt like an interruption to the workflow, but then we took notice of all the projects getting postponed.

"Then the company withdrew from the country, and a few others," Reo says. 

And not quite slowly but certainly surely everything was different. Just two years ago utes featuring the names of large international companies such as Halliburton, Schlumberger, OMV and Shell seemed to be at every set of New Plymouth traffic lights.

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Now those sights are few and far between. Companies have pulled out while others have scaled back and the elephant in the room is Shell's review of services in New Zealand and the strong suspicion its time here is just about up. 

Reo believes the days of oil and gas grandeur are long gone.

The New Zealand Petroleum Conference 2017, held in New Plymouth, was full of optimistic delegates who spoke about the ...
ANDY JACKSON/Fairfax NZ

The New Zealand Petroleum Conference 2017, held in New Plymouth, was full of optimistic delegates who spoke about the future of oil and gas.

"We have an ocean available but the demand side is diminishing," he says.

"While it's great to be optimistic, the facts don't support it."

The promise for exploration is weak due to a world surplus of oil, Reo says, and changing "fundamentals on the demand side".

Emily Bailey, The People's Climate Rally coalition spokeswoman, says it's time to transition to clean energy.
GRANT MATTHEW/Fairfax NZ

Emily Bailey, The People's Climate Rally coalition spokeswoman, says it's time to transition to clean energy.

This only makes solving the equation to increase production in Taranaki more difficult than it already was.

When demand was good it was economically viable to drill when oil was US$50 a barrel, he says.

"Below that is viable in places like America, but not in New Zealand."

ANZ chief economist Cameron Bagrie says the change is the new normal and Taranaki should prepare itself.
LINDSAY KEATS supplied

ANZ chief economist Cameron Bagrie says the change is the new normal and Taranaki should prepare itself.

The price of oil currently sits about US$48 a barrel and there is no indication it will get back to the US$120 that made exploring Taranaki's deep sea basin tantalising enough to lure the massive multi-national oil and gas companies into New Zealand waters. 

"I seriously believe the industry is at a new plateau, a new normal," Reo says.

And while there will be what he calls pockets of activity, oil and gas workers, in his opinion, it would be better to retrain than wait for those pockets to arrive.

But industry leaders are largely unfazed, saying the sector has a natural ebb and flow.

Cameron Madgwick, chief executive of Petroleum Exploration & Production Association New Zealand (Pepanz), says it's only a matter of time before the petroleum sector is flooded with productivity.

"It goes through cycles and if you're entering the sector, you can be confident that cycles come and cycles go."

The longevity of the industry correlates with an expected global demand, he adds.

"We look at the world's population and that is continuing to increase and it will use more of everything. 

"We're pretty confident there are sufficient resources to continue to meet that need."

Madgwick admits a need for renewable energies and less consumption but points to technological advancements that will maintain a healthy life for the petroleum industry.

"While there will be lots of different sources of energy, ours will be one of those in that mix of sources."

But if the last two years are any indication of the what the industry faces, that confidence might be years away from being justified.

Port Taranaki's 2016 annual report revealed a 42.3 per cent nosedive in offshore business and 9.8 per cent drop in bulk liquid revenue.

And despite industry leaders hinting at a healthy return, Taranaki Regional Council's half year report for Port Taranaki, ending December 31, says otherwise.

The 4 per cent fall in profits are attributed to a 39 per cent decrease in offshore operations due to reduced exploration.

This trend is expected to continue into the next six months, but could well be longer than that "mainly due to lower levels of offshore activity and contracted bulk liquid pricing adjustments".

A desire to kill the industry has also become a frequent chant on streets throughout the country and most recently in a well organised protest around the New Zealand Petroleum Conference in New Plymouth this week. 

While not everyone agrees with the protester's calls for an end to oil and gas use, the political tide is slowly turning against using fossil fuels as they currently are. 

Emily Bailey, a protest spokeswoman for protest group The People's Climate Rally, says it is vital government and business leaders formulate a post-petroleum strategy as oil and gas are "physically running out".

"They may create new technologies like fracking (hydraulic fracturing), which might give them a chance to boost production again but then when that hits peak, they'll need to find new technology again," she says.

"At the end of the day, there's only so much resource left in the ground and it will come to an end; there's no question about that."

But it's not the disappearance of a finite source that is worrisome to the industry, rather a lack of investment interest.

The government is pushing to increase the value of petroleum exports from $3 billion to $30 billion by 2025, but their efforts are not making much headway right now. 

The recent addition of more than 3600 square kilometres of Southland land to the country's annual Block Offer - a tender for permits allowing oil and gas exploration - seems hopeful in boosting activity but, reflecting on 2016's results, this could be another flop.

Last year, the Block Offer placed 525,515 square kilometres up for tender - 62,040 square kilometres of which was in Taranaki - but only permits covering 219 square kilometres of onshore Taranaki were granted. As far as offshore goes, the suspected location of the majority of New Zealand petroleum resources, no permits were granted. 

And a recent review from the International Energy Agency (IEA) - an independent organisation that aims to ensure reliable, affordable and clean energy - points to a bleak fate attributable to a disinterest in exploration and the prediction of a "tight supply situation" with higher gas prices by 2027.

The review also forecasts the petroleum sector is unlikely to grow due to the increasing push for clean energy.

"In recent years the role of fossil fuels has changed and their contribution to the economy is on the decline, while the importance of renewable energy in power generation has increased," the review says. 

Union organiser Ross Henderson is another one who believes the industry's glory days are behind it.

"Yes it would be great to come back to what it used to be but I don't think oil and gas is the future," he says.

Henderson is calling for a just transition - a framework developed by the trade union movement to protect workers' jobs and livelihoods when economies are shifting to sustainable production - as he worries for Taranaki union members who might be left in the dust of the oil and gas industry decline.

"They need to be trained in new skills," he says.

"They're perfectly capable, they just need a little help along the way."

Though industry leaders remain confident of a thriving sector for decades to come, ANZ chief economist Cameron Bagrie who visited New Plymouth last week, says nothing good can last forever.

"Volatility is the name of the game," he says.

"Oil is coming back up but it's not great, it's mediocre. The market is a lot better but we still need to be cautious."

Bagrie says those in the industry should stop trying to predict the future and prepare themselves for a blunt impact with reality.

"The idea you're going to have one career for life is a joke. Things are moving at such an exponential pace," he says.

"What we're seeing is a massive structural change."

 - Stuff

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