NZ’s innovative energy policy hedges bets

Mar 22, 2016, 1:32 PM EDT
Ensco rig - Pohokura field, Taranaki, New Zealand.
(Source: rob tucker/flickr)

New Zealand is hoping to boost hydrocarbon production and royalties even as the country embraces renewable energy for its own domestic use. On Monday, Energy Minister Simon Bridges announced the annual Block Offer, with four "underexplored" offshore areas and one onshore area open to bids by oil and gas firms.

Meanwhile, utility company Genesis Energy announced last year it will shut down its last two coal-fired power plants by December 2018, marking the end of coal power in New Zealand. According to CEO Albert Brantley, the writing on the wall came from the development of lower cost renewable options, "principally wind and geothermal," coupled with low demand for coal-fired electricity.

By 2025 the government aims to get 90% of its electricity from renewables. That is feasible, and within reach. In fact, the share of electricity generated from renewable resources in New Zealand in 2014 was 79.9%, itself a 5% percent increase from the previous year. The government attributed the rise to the growth in geothermal power, which more than doubled in the last decade and now provides 13% of the country’s electricity. (Blouin News spotlighted New Zealand in a feature on geothermal power around the world.)

Still, Bridges cautioned “While the world must progressively transition towards a low carbon future, it can’t and won’t happen overnight.” He views a diversified energy mix (including oil and gas) as key for the country’s long-term prosperity. With most of domestic demand being satisfied by renewable sources, however, oil and gas will increasingly be exported.

Oil is already the country’s fourth-largest export, bringing in around $700 million annually in royalties and taxes. Bridges stated that the industry also “provides highly skilled and well paid jobs,” which the government (and those workers) will want to maintain. He also highlighted the major growth in demand for natural gas in Asian countries that are still heavily reliant on coal. “If there is a major gas find in New Zealand, we are in an excellent position to cater to that Asian market,” he said, adding that by “helping those nations replace coal with gas, we would be making a positive contribution to reducing global emissions.”

There’s no shortage of possible reserves either. According to the government, there are around 149 million barrels of oil reserves remaining in fields already in production. All of those are in one basin, Taranaki, “but we have 17 others that are also underexplored,” Bridges noted. He added that in the last few years New Zealand began regulating activities in the 200-mile Exclusive Economic Zone, and the government has also released guidance around fracking, decommissioning, and other aspects of the industry.

The real challenge, however, will be getting oil firms to invest when prices are so low.