Will big energy explorers come back after ban?
Energy shortfall and rising power prices may tempt them to return
The ban on energy exploration looks set to lift later this year but will explorers return? John Carnegie, chief executive of Energy Resources Aotearoa, says that’s the $64 million question.
At the weekend, the Government said removing the ban on petroleum exploration was part of a suite of proposed amendments to the Crown Minerals Act to deal with energy security challenges posed by declining natural gas reserves.
Carnegie, whose organisation represents the wider energy resources sector, said explorers would require greater certainty after the 2018 ban.
Since then, the big guns in the exploration world such as Texas-based Anadarko, Norway’s Equinor, and California’s Chevron have gone.
“We are hopeful that the changes will be enough to encourage new investment, but it really does come down to the magnitude of the perception of ongoing sovereign risk,” Carnegie said.
“The counter to that is that clearly, we have an energy shortfall,” he said.
The ASX futures market points to power prices being firm over the next three years due to constrained gas supply.
“We have rising energy prices and they are likely to be ongoing, so all the market signals will be there,” Carnegie said.
“Explorers will review the policy landscape and make a riskadjusted decision.”
It takes five to 10 years after discovery to bring an oil and gas field into production. The last find to become commercial was in 2005.
Carnegie said much depends on the urgency of New Zealand’s energy situation.
He said New Zealand’s geology was known as being gas “prone” and that explorers had grounds for optimism.
In April 2020, just a few months into the Covid-19 pandemic, Austrian oil and gas company OMV discovered hydrocarbons at an exploration well 50km off the Taranaki coast. OMV postponed further drilling because of market conditions.
The Barque prospect off the Canterbury coast also had potential, as did offshore East Coast prospects, Carnegie said.
“The question is, how do we get people to re-engage to come and explore?”
Carnegie said OMV, Todd, Beach Petroleum, Matahio, Westside and Greymouth Petroleum were likely to act first when the ban lifts.
“Have the conditions changed significantly enough for them to warrant significant investment?”
Most of New Zealand’s electricity is supplied by hydro dams, wind farms, geothermal power stations, a few solar farms and thermal power stations — with some using gas as fuel.
The Government has committed to net zero emissions by 2050 and fossil fuels are being phased out.
The six largest natural gas fields are offshore fields Pohokura, Māui and Kupe, and onshore fields Mangahewa, Tūrangi and Kapuni. There are also 12 smaller onshore fields.
The largest user of natural gas in New Zealand is Methanex, which makes methanol. The electricity system is the second largest user of natural gas.
The Electricity Authority says 23 per cent of the country’s electricity generation can be powered by natural gas, and it plays an important part in ensuring security of supply. Several gas-fired units — peakers — can quickly address shortfalls.
Large industrial gas users typically have contracts with gas suppliers, which specify a quantity to be delivered at a certain price over a particular time.
“However, for some, the amount of contracted gas is declining, as companies begin transitioning away from fossil fuels,” the authority said in a report.
Contact Energy’s contracted gas volumes for the 12 months ahead have fallen since September 2021.
Several New Zealand gas fields are naturally declining as their fuel depletes, including Pohokura, Māui and Kapuni.
“Without new drilling, these fields may continue to produce less gas in the future,” the Electricity Authority says.
It is estimated that Pohokura’s production may fall to zero by 2032, Mā ui field produced 75 per cent less gas from 2000 to 2023 and Kapuni produced about 57 per cent less from 2000 to 2023.
“While not all gas fields are in such obvious decline, it is likely that natural gas production will fall over time without further drilling or investment,” the authority said.