How many jobs will oil and gas bring NZ?

On Tuesday the Government released the final version of its backwards-looking energy strategy.

Of passing note is the removal of any overt reference to lignite coal.  Of course bioenergy could be code for it, or ‘alternative transport fuels’ (the Energy Outlook 2010 specifically cites lignite diesel as an alternative transport fuel with potential.)

But basically the strategy is clearly bent on increasing the exploitation of oil and gas.

There are so many aspects of this strategy that are plain wrong.  First off, there is the obvious impossibility of simultaneously increasing fossil fuel production and responding effectively to the unprecedented threat of climate change.

But equally, there are the hollow claims of various immediate economic benefits the fossil strategy might bestow.  So let’s examine these:

1. We need oil and gas exploration and drilling because it will create jobs.

Two reports (commissioned by Venture Taranaki over the past 5 years) seek to quantify the economic benefits (including job creation) of the oil and gas industry in that region.

The first (PDF) is a sober, cut-and-dried analysis by BERL (Sept. ’07).  It states that there were 817 FTE employed by the entire sector in Taranaki in 2006. There are some multipliers that flow on from the industry but, overall, it was less than 2% of the workforce in the region. By comparison, over 2,000 were employed in manufacturing and well over 6,000 in dairy. There were fewer than 1,000 FTE employed in the industry throughout New Zealand that year.

Of those employed, many weren’t local. The report states:

A large portion of the oil and gas workforce are overseas experts, often with international experience.

The second report, The Wealth beneath Our Feet (2010), comes across as a PR piece extolling the virtues of the industry. It’s not clear who the authors are, or what their assumptions were, but they claim the oil and gas industry directly employed 3,730 FTEs in 2009. That’s a 400% increase in the number of people employed in the industry over just 3 years. This number keeps getting cited, and multiplied out further to be responsible for as many as 7,100 jobs in Taranaki.

However, according to Statistics NZ, the numbers haven’t changed all that muchsince 2006 (see table below).

So there are grounds to question the optimism of the second report. More importantly, we need to keep in mind the point made in the first report – many of the jobs associated with oil and gas go to overseas experts. There’s not sustainable job creation in it for New Zealanders, because once the resource is gone (or we have a catastrophic accident), there are no more jobs.

Investment in public transport, clean tech and renewable energy will also create jobs, and we have every reason to believe they will create more jobs than oil and gas.

2. We need to develop our resources so we have secure, affordable energy

Running through the Energy Strategy is the insinuation that Kiwis will benefit from affordable energy if we increase our domestic production of fossil fuels. We use a lot of oil, so we’ll be better off if we drill our own.

This is perplexing, because we don’t use any of the oil that is drilled here – we ship it offshore and import heavier crude from overseas. Even if we could refine and use the oil produced here, we would still pay the international market price for it.

There is the claim that the amount of oil we export offsets the oil we import. But New Zealand households and businesses are importing well over $6b of oil annually. Even though we’re exporting around $2b worth of oil, the Government only gets about $300-500m in royalties and taxes. So it’s not like consumers are going to get a huge reduction in their tax bill which will offset the extra they are paying to fill up their tank.

Source:  The Treasury, Budget 2011. Revenue data.

The only way to future proof our economy against rising volatile oil prices and an increasing carbon price is to reduce our dependence on fossil fuels. That requires a serious plan of action, such as Denmark has developed. We need policy, regulatory and funding changes.

This Government clearly has no interest in setting ambitious targets, or even outlining how we might get to the unambitious targets they have set. For example, the EECS strategy has the target

By 2016: The efficiency of light vehicles entering the fleet has further improved from 2010 levels.

Doesn’t say how much better… just better. How’s that for a measurable and ambitious target? That way we don’t need to explain which Government policies will facilitate the outcome.

The Green Party knows we need a plan, and we are working on the outline of what we would do if we were in Government to create thousands of clean, green jobs, and transition our economy away from fossil fuels.

That’s the kind of energy strategy New Zealand needs.

24 thoughts on “How many jobs will oil and gas bring NZ?

  1. BUT. Given that supplies of easily reached fossil fuels are diminishing and demand is bound to increase as other countries try to get to Western standards of living.

    Not to mention the need to address AGW.

    We need to start reducing our demand while we can still afford to.

    While fossil fuels are still available for manufacturing trains, electric vehicles, and windmills!

  2. You can’t really argue that the oil industry in Taranaki is not a source of jobs.
    The export of our oil helps to offset, to some extent the costs of oil imports.

    There is no way of really knowing (without extensive modelling), however, what proportion of those earnings remain in New Zealand and what are financing costs and profit going offshore. It is very hard to determine if an offshore company is overstating supply costs and understating product costs, or vice-versa.

    Also, having worked in the Taranaki oil industry, I think anyone who claims more than a few hundred jobs is fudging the numbers a bit.

    Probably counting flow on jobs from industry spending. Federated Farmers estimates their economic impact the same way. If every industry did the same, it would show our economy as being twice as big as it is in reality.

  3. Kennedy said:
    “Even if we could refine and use the oil produced here…”

    Actually we can. The reason we ship our oil overseas and import heavier crude is because our refinery can handle the heavier crude, while a lot of refineries can’t. Therefore we get a premium price for selling our lighter oil and pay a lower price for the heavier imported oil.

    This doesn’t affect the argument though.

    Trevor.

  4. Yet there is no mention of converting much of our light vehicle fleet from petrol to CNG to save importing oil. Nor is there mention of shifting stationary applications such as home heating or water heating from CNG to electricity or biomass (such as wood pellets) to save the CNG for vehicle use.

    The talk is about improving the efficiency of moving people and goods, but there is no mention of steps to avoid having to make such movements. “Telecommuting” and “broadband” do not appear.

    Further down, there is a reference to New Zealand’s strong, competitive electricity market conditions. This fails to recognise that the electricity market is inherently non-competitive. (The reason is that gaining more market share increases rather than decreases production costs for any one player.)

    They still don’t get it.

    Trevor.

  5. In 2008. The last year I had comprehensive figures for, the net import cost of hydrocarbons was just under a billion. Not allowing for profits from oil companies earned in New Zealand, but allowing for oil and gas exports. As demand in China, India and Asia rises and easily worked wells become rare the price is bound to rise steeply, unless we find substitutes.

    It would be stupid to be paying, almost all, the money earned for our commodity exports, just to import oil.

  6. “The price of oil will rise and become more volative”
    (third bullet point, left column of page 2 of http://www.med.govt.nz/upload/77402/NZ%20Energy%20Strategy%20LR.pdf)

    Is this the first official government document which states that they expect the price of oil to rise, after years of predictions of a decline?

    http://blog.greens.org.nz/2007/11/13/what-have-treasury-and-the-reserve-bank-been-up-to/

    Of course they return to the business as usual thinking by predicting an increase in New Zealand’s oil and gas demands of around 1% per year despite these increased prices (graph on page 3).

    Trevor.

  7. Wholesale electricity prices are set by the cost of marginal generation, i.e. the cost of generating the last MegaWatt, which is the most expensive MegaWatt, generated by peak plants if necessary or inefficient thermal plants. Moves to conserve electricity through better insulation, more efficient light bulbs and equipment, conversion of resistance heating to heat pumps, etc will reduce the peak electricity demand and therefore reduce the need to run the most expensive generation. This leads to lower peak electricity prices and therefore help to keep electricity affordable.

    However there can be unintended consequences. For example, if heat pumps put out more heat per kiloWatt-hour of electricity than resistance heating, they may put out more heat per dollar that a gas fire, prompting users to switch from gas to heat pumps and increase electricity demand. This is not necessarily a bad thing, as it reduces gas consumption, but it does put an additional strain on our electricity system.

    Trevor.

  8. @Spam. “Noble Discoverer”.

    Don’t know the nationality. Indonesian, Russian or Filipino most likely.

    After saying that the New Zealanders offering to work on her had insufficient qualifications, they bought in a less qualified officers from overseas.

    Skilled New Zealanders are working overseas because New Zealand companies are too cheap to offer decent wages and/or training.

    SOP for most New Zealand employers is to refuse to pay for training and apprenticeships, expect to pay way below international rates, treat skilled people like shit and then bleat to immigration for more cheap immigrants when the inevitable shortage of staff occurs.
    The reason why most younger, skilled, people are in Oz.

    Immigrants will put up with the low wages and the treatment for just long enough to get residency and NZ qualifications. Which they can then gain jobs to other countries which pay more.

    The chickens are all going to come home to roost with NZ companies soon. When immigrants find out we pay less than China and India for skills, relative to living costs, and the social wage in NZ, one of the things those who do stay like about NZ, is being taken away.

  9. Julie said:
    “What’s ironic about the Energy Strategy is how it has the mutually exclusive goals of improving energy efficiency and conservation, and keeping energy and electricity “affordable”.”

    The goals aren’t actually mutually exclusive. While increasing the taxes and removing subsidies on fossil fuels will increase electricity and energy prices and thus promote increased efficiency and conservation, energy and electricity can be kept “affordable” by subsidising means to improve efficiency, such as insulation improvements and providing information about efficiency measures. Energy can also be made more affordable by improved public transport, which cuts private transport costs. Taxes on fossil fuel usage can be returned to those struggling to afford the higher energy and electricity prices in various forms, including increased benefits and reduced income tax rates.

    Trevor.

  10. I agree to the fact that most skilled new zealanders work overseas. That’s probably why immigrants are brought in to do skilled jobs

  11. True but I was really talking about the kinds of highly-qualified engineering and geology and geophysics grads who shift to Australia to work in things like surveying teams rather than doing the work in the mines. I guess my intended point was that there are a lot of specific roles in New Zealand where there are only a handful of highly skilled and trained people, if even that. We train people towards these roles in some of the universities, but there’s often not much for them straight away in New Zealand when they graduate, unless someone’s recently retired or died (and scientists don’t often retire).

    About ten years ago I knew one of the only people at Agriquality in NZ, now AsureQuality, able to sign off various aspects of food quality. A couple of his colleagues had left, he was under some high stress with the amount of work coming across his desk, and he was also considering getting out. For these kinds of roles, mining certainly has some, there’s simply not enough money in New Zealand to support an industry that fosters people from the bottom rungs to the top, even if they start out holding a certificate with the specific qualification needed. When a job’s occasionally up for grabs, there often aren’t any New Zealanders who can seriously compete against overseas applicants unless they’ve worked overseas with others already doing the same thing, and built up the experience.

    Anyway, I think I’m off on a tangent from the original discussion.

  12. @Mike – the lure of the australian mining sector is pretty strong. Pay rates are much higher.

    @Kerry – which drillship? Is this not a case of the owners of the ship wanting to bring their own crew with them as well? And where are the drilling crew from?

  13. Spam.
    The company owning A drill ship working on the New Zealand coast, right now, is trying to avoid employing New Zealanders. They are using all sorts of bullshit excuses, to immigration, to keep an underpaid third world crew.

    There are plenty of New Zealanders with oil industry skills. Including me!

  14. @Spam, I kind of agree, but it’s also noteworthy that for whatever reason many of our Geophysics grads, for instance, end up working in the australian or other mining sectors instead of New Zealand, if our friends are anything to go by.

    Besides the skills issue, there’s simply the fact that it’s so highly paid and specialised to be a global market. My wife spent a year looking for a decent job related to her geophysics and meteorology phd only to be perpetually strung along by companies and government entities who were really mostly interested in hiring someone who had already worked overseas, or had studied overseas, no matter what the qualifications. We eventually and regrettably gave up and shifted to Australia where she was offered one of the first jobs she applied for, complete with moving expenses paid for.

  15. Immigrants are bought in to do many skilled jobs is because the New Zealanders that are skilled in them expect to actually be paid for their skills.
    Immigrants allow the wages for skilled jobs in NZ to be kept low.

    Kerry – the oil and gas sector pays some of the highest salaries in New Zealand. These ‘immigrants’ brought in to work in this sector are extremely well-paid. It is a skills shortage, not a people shortage, and most certainly not a case of bringing in cheap labour because New Zealanders won’t work for the wages on offer.

  16. Immigrants are bought in to do many skilled jobs is because the New Zealanders that are skilled in them expect to actually be paid for their skills.
    Immigrants allow the wages for skilled jobs in NZ to be kept low.

    Mean while, most skilled New Zealanders are working overseas.
    Unfortunately for NZ employers the social wage, which is now the only extra benefit NZ can now offer to skilled third world immigrants, is being removed by National.
    Shortly, Russian, Indian and even English immigrants may as well stay where they are.

  17. The reason that many of the jobs go to overseas experts is simply because New Zealand does not have tertiary level qualifications in some specialist oil & gas fields (reservior engineering for example). Besides, are the greens officially against skilled migrants? These people live in New Zealand, bring their families to New Zealand, and pay tax in New Zealand. So what’s the problem?

  18. Photonz is dead right. The oil industry in Taranaki is a huge plus for our economy and has a flow on for the whole country.

    Bio fuel can only be the greens worst enemy, I personally have looked at the costs and the technology to attempt this so called green alternative. It works but the land used must be sacrificed for fuel production instead of food production. Of course you will know this, my point is, that what lies under our soil is cheaper to harvest then not producing the food on the same amount of land need to produce fuel, it’s a no argument. I can milk my cows with Hydro electricity but I can not send it to the market without a fuel eating vehicle. The Greens must grow up and realize that nothing is as simple as proclaiming the World must run on renewable energy. Personally I don’t mind if it does but then I won’t be the first to starve.

  19. Kennedy – I note you have ommited significant figures from the Berl report on the oil and gas indsutry in Taranaki, like the industry

    – adds $750 million annually to the Taranaki economy
    – 20% of non-buidling construction work in Taranaki is for the oil and gas industry
    – 30% of Taranaki computer work is for the industry
    – 19% of other Taranaki business services is to serve the industry
    – it’s a cornerstone of the Taranki economy
    – it has increased skills in many areas of engineering an building which has led to spin off industrys like boat building
    -it supplies gas for much of the North island

  20. We could do worse in terms of a country to aspire to follow…they’ve got a very high standard of living in Denmark.

    What’s ironic about the Energy Strategy is how it has the mutually exclusive goals of improving energy efficiency and conservation, and keeping energy and electricity “affordable”.

    If you keep energy cheap, and you have only voluntary efficiency standards, why on earth would you expect people to innovate and become more efficient in their use of electricity?

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