Energy exploration hoopla hides reality

PATTRICK SMELLIE

Last updated 05:00 13/12/2012

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OPINION: In the spirit of year-end prizegivings, the Government this week invited oil and gas producers to Wellington for the announcement of the winners of exploration licences from this year's second round of oil and gas block offers.

Not everyone came away happy but a clutch of the usual suspects - Shell, OMV, New Zealand Oil & Gas, TAG Oil, Anadarko, Mitsui, Todd Energy and Cue - gained new licences. There was also plenty of "deal talk".

Looking for oil is an expensive game and successful bidders will be looking for partners, possibly at the low-cost seismic survey level but more likely to help fund exploration drilling. That whole process could take five or more years.

Hence Energy Minister Phil Heatley nominated a wide value range for the new licences. The initial work programme was worth $82 million, he said, and subsequent exploration drilling could see spending of nearly $800m just to firm up a commercial find.

While the Government's Building Natural Resources document, also released this week, talked up the economic impact if a "second Taranaki" were found, the results of this block offer round won't get us there any time soon. Some 23 blocks were offered but the high risks and great distances involved in coming to New Zealand mean uptake is always likely to be slow, small and limited.

For evidence of that, look no further than Brazil's Petrobras.

It had a seismic poke around in the Raukumara Basin off East Cape last year but dropped its option last week under pressure to withdraw from low-probability international forays.

And for all the hoopla around the award of the latest blocks, only 13 attracted bids.

Of those, only 10 were accepted and all but three were in the tried-and-true Taranaki Basin.

The only new entrant was a Canadian tiddler called East-West.

It is partnering with fellow Canadian TAG Oil in three on-shore Taranaki licences where TAG did 3-D seismic testing years ago, close to areas where TAG has recently had small-scale finds.

This is not necessarily discouraging. It's a "good rather than a stellar" outcome, as petroleum analyst John Kidd put it.

Less charitable folk muttered it was really "rats and mice", while optimists think some investors are biding their time for later block offer rounds, when regulations governing offshore drilling and hydraulic fracturing, or fracking, are clearer.

Arguably the most interesting licence awarded was to deep-sea specialist Anadarko, which won two licences in the previously unexplored Pegasus Basin, off the south Wairarapa coast.

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The company is already planning deep-sea wells in Taranaki and the Canterbury Basin next year.

But this is predictably slow progress for a Government touting oil and gas receipts as key contributors to raising exports to 40 per cent of gross domestic product by 2025. This week's announcements show that effort has moved from an amble to a slow trot.

That's a pity, because even if the export target is economically spurious - the best growth is the most valuable and need not be exports - anything that increases self-sufficiency in transport fuels or creates new oil exports could be a vital contributor to reducing our intractably high current account deficit.

But there is a fly in the ointment. The argument in favour of a bigger oil and gas sector can be made honestly only if allied with a total commitment to putting a meaningful, global price on carbon emissions that will force energy efficiency and new non-fossil fuels technologies as a response to climate change.

Last week's failure in Doha to make meaningful progress on that front makes it harder to morally justify pursuing oil and gas as part of a journey to a low-carbon future. The howls of derision over the Government's decision to pull out of the second commitment period of the Kyoto Protocol are overdone.

The ground is shifting to a new deal in 2020 involving much more of the world's total emissions than the 15 per cent now covered by the remaining Kyoto adherents in Australia and Europe.

But if the 2020 deal fails to take shape by 2015, the lulling tale that says it's OK to keep using hydrocarbons while shifting to a post-carbon world will become what we should all fear most: a big, fat, greedy lie.

- BusinessDesk

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