The best way to oil independence is to provide alternatives and use less

The Ministry of Economic Development’s Briefing to the incoming Energy Minister predicts New Zealand could become a net exporter of petroleum by 2030 if new oil fields are developed.

It’s a laudable goal to reduce our expensive dependence on foreign oil but it would be a lot smarter to invest in alternatives like better public transport, renewable electricity and sustainable alternative fuels.

Even if New Zealand is the ‘Texas of the South’, it is unlikely to benefit New Zealand. New Zealand sells itself cheaply with the forth lowest royalty rates in the world and gives subsidies and tax breaks to foreign oil companies. So there will be hardly any royalties, hardly any taxes and hardly any jobs for Kiwis, and the profits will flow offshore. We won’t pay any less for petrol at the pump if we produced more than we consumed because we are still unlikely to process it here or pay less than the international market price.

We know Kiwis face 100% of the environmental risks for only 5% of the value of the oil. The only way to massively ramp up oil production is to drill in hostile, risky environments in deep-water like the Great South Basin or the Raukumara Basin, more than 1000m down. This brings its own risks as we saw only too graphically in the Gulf of Mexico. Our clean, green brand is too valuable to put at risk from a catastrophic oil spill.

The Rena demonstrated we do not have the capacity to adequately deal with even a moderate spill let alone a deep-sea well blow-out. The tax-payer has already forked-out $25 million in costs associated with the Rena and our oil drilling insurance rules don’t even demand oil drilling companies have insurance to cover the full costs of a spill.

At a time when globally, renewable energy is surpassing fossil fuels and other governments, businesses and militaries are planning to reduce their dependence on oil, our Government isn’t even planning to start planning. But they are planning to increase it by borrowing billions to pour on uneconomic motorways.

If oil is the problem, more of the same isn’t the answer. As the International Energy Agency’s Chief Economist Fatih Birol says, ‘we should leave oil before oil leaves us’.




31 Comments Posted

  1. Unfortunately we are going to have to find some more oil because we don’t have enough alternatives ready to go. Converting a significant number of our vehicle fleet to renewables will take time, and until this happens, we either go without them altogether or find some oil to put into them. Growing ethanol crops to fuel our vehicles at the expense of growing food to feed the starving isn’t a palatable alternative.

    Of course the NACTs only want to find the oil without investing in the development of the alternatives so their policies will only make the crunch worse.

    Economically if the price of oil is expected to rise faster than inflation and current interest rates, we are better to delay extracting the oil, so their policies are not even sensible from an economic viewpoint.


  2. The era of cheap fossil fuels is nearing its end. It’s time to pivot into new, alternative energy — or get left behind. It’s impetuous and myopic to continue putting money and time into tapping new fields. It’s just prolonging the inevitable.

  3. What is the tide difference from East to West across the Auckland Isthmus?

    (I can look it up later, but asking here is good)


  4. dbuckley quotes stuff
    “The world economy may be creaking, but one sector – cleantech – is booming.’

    If it is really booming, then why are the worlds leading greentech companies worth half what they were five years ago?

    And why are so many of our own leading greentech companies also struggling or actually going bust?

    One of the reasons is probably that greentech is moving forward so fast that it’s difficult for any company to get back all its significant research and development costs in the short time it has before it’s technology becomes outdated.

    And even more difficult for companies trying to sell to the world from the most iolated country from world markets – NZ.

  5. Currently we have about 1GW of coal-fired generation, 1.5GW of gas-fired generation, another 0.5GW of co-generation (I believe this is a mix of gas and bio-mass-fired generation) and 0.5GW of oil-fired/diesel generation. That is about 3.0-3.5GW of fossil-fuelled generation.

    We still have a lot of work to do to make our electricity supply independent of fossil fuels – and cope with increasing electricity demand.


  6. In regions which are summer peaking, solar PV has the advantage that it is generating when there is peak demand. If the clouds come over, the demand on air conditioning drops. Therefore the inherent disadvantage of solar – its intermittent nature – is less of a disadvantage.

    Rather than grid scale PV systems, I suspect that it would be more cost-effective to have larger buildings fitted with solar PV panels.


  7. But the bottom line is that solar PV is still too expensive a technology to be a large scale contender, though a solar station based on mirrors and boiling tubes may be possible, but I’ve not even thought about doing the math. And solar needs sunlight which isn’t available reliably or around the clock.

    So theres lots of other grid scale technologies one would choose before solar PV.

  8. And I accept that that is the case. However what counts is the total consumption of each island, and at present the winter peak is higher than the summer peak.

    I see one issue with solar in New Zealand – increased solar power generation will help meet the summer peak but not the winter peak, driving down electricity prices in summer. This will impact negatively on other renewables such as wind, wave, tidal and geothermal, making them less economic, but these alternatives would help meet the winter peak. The result is that summer consumption of fossil fuels may be lower but winter consumption will be higher, making it harder to phase out our dependency on fossil fuels.

    If we started getting summer peaks matching winter peaks, then I would say that it would be time to make a big investment in solar.


  9. Again, without arguing with almost anything of which you say, there are parts of New Zealand that are now summer peaking.

  10. Solar PV is much more effective in countries whose peak electricity demand is in summer rather than winter, as the output of the solar PV matches the demand on air conditioning – with a phase shift. The peak output of PV is around midday but the peak air conditioning is later, with high demand into the evenings. The solution to this mismatch is to run the air conditioning pumps to freeze water into ice during the morning, and to use the ice for cooling rather than running the air conditioning pumps in the late afternoon and evening.

    Another approach (which doesn’t really suit New Zealand) is to supplement the solar PV with solar thermal generation, storing the heat for a few hours before using it to generate electricity. This allows the solar energy to generate electricity at night more cost-effectively than batteries.

    New Zealand is better off developing renewable generation with a high winter output, such as wind and wave, or renewables which are not affected by season, such as geothermal and tidal.


  11. I largely agree that PV is a waste of time (make that – isn’t cost effective) in New Zealand, byt solar hot water assist definitely is.

    On the EnaSolar website you can see a number of solar installations output in both real time and historical. Many of these stations are CHristchurch way, so about the same light level as me. I was surprised at just how much power was being produced in dull conditions.

    Solar electricity generation keeps getting better by the year.

  12. While inovation in solar voltaic systems is useful, it doesn’t actually help New Zealand become less reliant on fossil fuels for electricity generation to any great extent. That is because the fossil fuels are required to meet the winter electricity demands, while the solar panels have little output during winter and no output during the winter peak demand periods in the morning and evening, particulalry in the South Island when the days are even shorter than in the North Island.

    The most useful places to install solar voltaic in New Zealand are the places that are off the grid and reliant on generator sets such as the Chatham Islands or Steward Island, but they tend to be affected even more by the weather. After all New Zealand is the land of the long white cloud.

    This doesn’t mean we shouldn’t export the technology.


  13. A clean bill of wealth

    The world economy may be creaking, but one sector – cleantech – is booming.

    Should New Zealand somehow claim even a trifling 0.9 per cent of this green gold rush, we could see our average income climb by 82 per cent over the next decade or so – not only bridging the salary gap to Australia, but leaping beyond our West Island cousins.

    In fact, only the pharmaceutical industry is bigger now than cleantech, worth $800b of new-spend in Europe this year alone. Whether you believe the earth is getting warmer matters not – cleantech (any product or service that’s more efficient and reduces the environmental impact, but often referring to energy and fuels) is big business.

    And cleantech advocates say New Zealand has the natural advantages to become a world leader: we already do renewable energy (79 per cent of electricity), meaning we are less tied to increasingly scarce fossil fuels, we export, we have free trade with China, no lack of water, lots of wind, an innovative mindset. And they argue that if we don’t move quickly to exploit those advantages, the damage particularly to our lucrative clean, green brand will be ruinous

    Read more at Stuff

    We have 1% of the global film production sector, why should 0.9% of the global clean energy technology sector be beyond us…?

    Another innovative Kiwi company doing it right: EnaSolar

    Also in the Christchurch news: Biggest solar-energy community planned

  14. photonz,

    Beyond the scenarios, does the company assess the 20% profit figure based on local extraction cost alone? And how is a (fair) value of the extracted oil determined in determining profit for our local purpose?

  15. photonz

    Scenario 3 – the costs of extraction are 10% of the oil revenue profit over the lifetime of the field.

    Of the 90% profits, there is the (5% royalty or 20% of profits) 18% royalty + company tax (of 25/28/30% of the 72%) of around 18% (on anticipated National tax regime for companies). Thus 54% of the oil revenue is retained by the company as tax paid profit.

    And from our share, the 36%, we have to cover the insurance/environment risk.

  16. nzmr2guy

    1. The rate of use of (stored) finite energy resources by those who do so is more important than the growth of the number of people who do not have a car etc.

    The total number of people is related more to capacity to supply enough food each year.

    2. Most of the finite energy is used by those whose population is not growing and our/their use alone is continuing to deplete world reserves (note the production transferred to China is still to supply us).

    3. The most successful methods to slowing population growth are – improving health, education and wealth and allowing peeople who are starving to die (the natural method across time for life on the planet). The former requires transfer of wealth and or investment to other areas of the world.

    You do not even support transferring wealth/income to poor people in your own country.

  17. and a reality-check for photonz..

    ..that rate of 87% in ecuador we should be nearer.. on gross income..

    ..(not after the books have been cooked..)


  18. and let’s not forget the equation from 2010..

    value of oil extracted:..just under three billion..

    royalties paid by oil companies to nz govt/nz taxpayers:..$140 million..

    subsidies given to oil companies by key/nact-govt/nz taxpayers:..$140 million..

    ..why aren’t more people really angry about this..?

    ..and where the fuck are the mainstream-media/acceptable-gatekeepers on this..?


  19. Photonz

    Thereby flipantly suggesting the current 5000 high paying jobs and $2 BILLION to the Taranaki economy is worthless.

    The jobs and economy built around extracting the oil are not unique to oil. Any renewable project spending comparable amounts of money to gather/extract renewable energy would provide comparable jobs and benefits. They aren’t “worthless”, merely mostly irrelevant to any analysis.

    The “extra” here is the profit of on-selling the resource… by your example between 15% and 50% of the value of the oil. However, since we take account of an actual carbon cost, which we estimate (whether or not it is paid), we reckon that “profit” in negative numbers for any oil that isn’t dead easy to get at.

    Deep water drilling for oil isn’t about any oil that is “dead easy to get at”. Given the risk born by all New Zealanders (the oil company is NOT being forced to front up for that risk), I have to regard this flogging off of undersea drilling rights as being just one more example of the Key government’s extreme disregard for the welfare of ordinary New Zealanders, in the service of “the 1%”.

    Which is who they have always served.

  20. Various companies are looking at running locomotives and ships off CNG (methane, also known as natural gas) rather than oil. If we added more renewable electricity generation and solar water heating, we could cut down on our CNG and LPG usage at fixed sites and use them instead of oil and petrol for transport fuels.

    See: for locomotives for ships for ships (using LNG rather than CNG, i.e. cooling the methane to a liquid rather than compressing it and storing it as a gas)


  21. @photonz1

    To take responsibility we could look at reducing oil consumption, rather than increasing supply.

    Increased Supply > Lower Price > Higher Consumption, right?

    Lets face it, the price of oil isn’t going down significantly any time soon, so why not let the nest egg appreciate whilst the technology to extract deep water reserves is matured and made safe at the expense of countries with bigger budgets?

  22. Gareth says “So there will be hardly any royalties, hardly any taxes and hardly any jobs for Kiwis, and the profits will flow offshore. ”

    Thereby flipantly suggesting the current 5000 high paying jobs and $2 BILLION to the Taranaki economy is worthless.

    If there are big profits, then
    a/ NZ will get tax from them, and
    b/ the royalty is not a flat 5%, but goes up to 20% of profits (whichever is larger).

    Scenario 1. $100 of oil extrracted, $80 is spent in NZ getting the oil out, $5 is royalty, $15 is profit, of which $5 is taxed. That means around 90% stays in NZ.

    Scenario 2. It is very easy and cheap to get the oil out. $100 of oil is extracted. But only $50 is spent in NZ getting the oil out, $50 is profit, so the royalty of 20% of profit is $10, leaving $40 profit to be taxed ($12 tax). In this case nearly three quarters or 72% of the oil revenue still stays in NZ.

    The idea of stopping using oil any time soon is lala land. It will take years – more liklely decades.

    So the question is, does NZ take environmental responsibility for our own use of oil, or do we shirk our environmental responsibility and pass it onto some other country like Gareth wants to do.

  23. I stand by my population control statement, less people means we can extend the amount of time we have using oil, whilst other technology catches up.

    Will also lower our greenhouse gases and other human impacts on the environment.

    More food and water to go around would also be a spin off.

    Do we really need 7 billion people ? can we sustain this and even more increases projected in the next 50 years

Comments are closed.