A golden age beckons
Posted in: Perspectives: Monday, 11 January 2010
NZ Energy Perspectives 2010
A golden age beckons
By Richard Michael, Chief Executive, Straterra
What a difference a year makes. 2009 proved to be a period of really positive developments for the natural resources sector. So much so that I don’t think it would be overstating the case to say that a golden age beckons.
This Government has taken swift and decisive steps to address the relatively neglectful approach the previous administration had taken to our natural resources potential and made it clear that it recognises the vital role it can play in our economic future.
Other sectors such as primary production may currently be a more dominant feature in our economy but it is the natural resources sector that possesses the ability to significantly ramp up production from current levels.
Productivity is absolutely key to closing the income gap - and the natural resource industry is highly productive and well placed to help us achieve the aim of catching up with Australia.
One only has to look at the significant effect on our balance of payments that oil now plays. Last year the output from two relatively small wells, Tui and Maari, was the country’s third largest export earner - and so far we have only scratched the surface in terms of this country’s oil and gas potential.
It was extremely encouraging to hear Energy and Resources Minister Gerry Brownlee’s recent announcement of an action plan to progress further development of our oil and gas resources, including data suggesting over $60 billion worth of oil and 40 trillion feet of natural gas lies off our shores.
The Minister estimated that, by 2025, tax receipts from this could be sufficient to wipe out the current cash deficit.
According to Mr Brownlee’s 2009 budget speech, for the year up to 30 June 2008, the Tui JV paid the Crown $210 million in royalties, and at least a further $250 million more in related corporate tax.
It is also estimated that over the life of the field more than $1.5 billion in forward nominal royalties will flow to the Crown, plus corporate tax on any accounting profits. Royalties from Pohokura are likely to average $200 million per year. Kupe and Maari are expected to provide over $1.5 billion each over the life of the fields. Add to that the significant amount these add to our economy in terms of wages and community initiatives.
Also very welcome was the announcement that the Government is reconsidering the tax and regulatory framework of the petroleum sector to make investment more attractive for foreign oil explorers.
This is at an early stage, but the Government’s clear intent to take a really fundamental look at the oil and gas sector and willingness to seek the industry’s input, is real cause for optimism.
One of the issues that has severely limited our oil and gas potential for many years was the perception, internationally, that government did not encourage exploration.
Given the long lead times and huge expenditure required to drill deep-water wells in difficult conditions, it’s not surprising that many explorers preferred to look at more welcoming jurisdictions.
The Government’s action, coupled with other significant progressions such as changes to the Resource Management Act, which will have far-reaching effects and ease development of large-scale projects, will have sent a strong message to the international exploration community that New Zealand attitudes are changing.
This is already paying dividends - this summer will see the most oil exploration ever undertaken in our waters.
It is important to emphasise that this country can continue to enjoy its international image of spectacular landscapes and clean green ideals while enjoying the population-wide benefits of its natural resources.
Our industry practices world class environmental management. Not only is this vital to our tourism sector and to our population, giving us a social licence to operate, it is also fundamental to attracting investors and building relationships with communities.
However, while wooing international explorers is essential, the industry would also like to see the attitudes of domestic investors change.
To date there has been a poor record of raising money onshore. Currently most of the investment in natural resource development here still comes from Australia, where it is regarded as a mainstream investment area.
Another significant change this year has been a greater awareness by local authorities of the importance of the development of natural resources in their areas.
This is particularly important for the quarrying industry and has included identifying resources or deposits in their area as part of their planning processes to ensure these resources are not ‘sterilised’ becoming inaccessible through planning changes, urban development or other land use issues.
In an energy sense, one of the very exciting areas going forward is geothermal which is experiencing renewed interest after a long hiatus. This country was an early adopter of geothermal and had developed world class expertise and technology in this field.
Unfortunately, much of this capacity dissipated from the 1980’s following a government decision to withdraw from further development.
Now, however, generating companies are looking into this area more closely. It is certainly favourable economically and could be brought on stream in relatively small blocks making it flexible too.
Low temperature geothermal resources are spread widely throughout the country and carbon emissions are low.
GNS Science will now be well advanced into its three year $2.6 million Foundation for Research Science and Technology funded programmed aimed at increasing the use of low temperature geothermal energy in New Zealand.
The Geothermal Institute at The University of Auckland is also a world leader in research and training of geothermal technology - including training for overseas students.
Deep geothermal technology is still in its infancy and will require large scale investment to realise its potential but this could provide significant amounts of energy in the long term.