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NZ should follow Norway’s example on oil

Written By: - Date published: 2:00 pm, November 19th, 2009 - 23 comments
Categories: economy, national/act government - Tags:

National has released its petroleum strategy. It appears they plan to further lower our already low royalties to encourage foreign oil companies to come here, dig up our finite our reserves as fast as they can and make off with huge profits. Just about the dumbest attitude you can have to irreplaceable natural resources like oil, gas, coal, and minerals is ‘drill, baby, drill‘. We get these resources once and once only. That means two things:

1) rather than digging up and selling it as soon as possible, we have to get the maximum value for the resource that we can over time. That may mean its wiser to leave the stuff in the ground when prices are low. We should take the approach of countries like Saudi Arabia. When the price is too low, they just reduce how much they sell. They ramp up production when the price is higher. Over time, they maximise their income. We don’t want to follow the US route of a free-for-all with private comapnies digging it up as fast as possible, then having peaking production when prices are low and not being able to sell more when prices are high.

2) This wealth belongs not just to Kiwis living now but to generations to come. If we dig stuff up now we are taking away our children’s chance to dig it up. So, we mustn’t spend the revenue on immediate consumption but rather to build New Zealand’s wealth over the long-term. The UK, for example, has used its North Sea oil and gas revenues for immediate spending. When the resource runs out they’ll be left with nothing but a hole in their budget. Scotland will be in big trouble. Norway, by contrast, has put the bulk of its oil and gas revenues in a national wealth fund (now worth $127,000 per Norwegian) that will keep funding Norway’s standard of living long after the oil and gas are gone (being a responsible country, Norway is also investing a lot of its oil wealth into offsetting carbon emissions and post-oil technology).

The Norwegian model insulates the government finances and the economy from spikes and crashes in resource prices, and prevents a resource rich country becoming a rentier state. In times of international economic crisis the national wealth fund can help protect the national economy. Norway took $2 billion from its $600 billion fund to help push the country through the recession. That money, plus the fact that one in three Norwegians are state employees, protected people from the recession – the unemployment rate is just 3%.

We should adopt the Norwegian model for all our mineral and fossil fuel wealth.

We should set up a publicly-owned company like Statoil to do the drilling, refining, and selling of the product. We don’t need our irreplaceable natural resources to be a profit stream for some foreign owned company. We should give that company a mandate to maximise returns over time, not to exploit the resource as fast as possible.

Like Norway, we need to charge high royalties on extraction of our resources by private companies. It is completely insane that National is cutting royalties to encourage foreign companies to come here and take away our limited natural resources faster. Ideally we should dig up and sell our natural resources ourselves. If we’re going to let private foreign companies do it, we should keep as much of the revenue as we can. It’s our oil, let’s not get ripped off.

The profits and royalties on all mineral and fossil fuel exploitation should go into a national wealth fund to guarantee our economic sovereignty and ensure that the wealth of these one-off resources is not spent and lost forever but continues to enrich New Zealand for generations to come.

23 comments on “NZ should follow Norway’s example on oil”

  1. Sounds like SOCIALISM to me.

    We canna do it, we canna do it.

    Better to give the wealth to overseas corporations rather than retain the wealth for the good of ordinary kiwis.

    [Said with tongue firmly in cheek]

  2. stevo 2

    I have “heard” that Oil has already been found in the southern basin in the 70s, capped off and left until………when ..prices on the rise, the world running out, oh and lets make it even cheaper to dig it up…that would be now.

    Is it true that reserves are already known about? Any exploration workers from those days care to speak up?

    In any case, we should all benefit from any oil found, as there are bound to be downsides. If we become an oil currency, we can forget about exporting anything else, other than milk powder perhaps.

    Will it make petrol cheaper in NZ? Well if we look at how dairy product prices go up when demand is high, then unless Oil production is state controlled, the answer will be NO.

    • gitmo 2.1

      If you take away the govt tax take on oil it is remarkably cheap in NZ – far cheaper than milk.

      If we’ve got oil the likes of the North Sea fields off NZ it would be a very large boon for NZ, perhaps we should go the way of the NPD and work with the major oil companies to exploit the resource.

      Re 1 in 3 a state employee … what’s the ration in NZ ?

      • Bright Red 2.1.1

        about 1 in 10 – 40,000 in the core public service, but add in the teachers, doctors, nurses, SOE employees and it comes to about 250,000.

  3. JD 3

    “This wealth belongs not just to Kiwis living now but to generations to come. If we dig stuff up now we are taking away our children’s chance to dig it up”

    Why not take take the same attitude to the increased debt that would accrue from ramping up govnt spending instead of calling for fiscal restraint. After all its going to be our childrens’s debt to pay back.

    • snoozer 3.1

      eh?

      That was the left’s attitude. That’s why Labour paid down debt and built up assets like the Cullen Fund, rather than cave to the short-sighted calls for deep tax cuts which would have seen us deeper in debt with mammoth deficits.

      You’re not seriously suggesting cutting spending in a recession are you JD? It was only government spending packages that saved the world economy from totally crashing over the last year.

      The world’s government learnt the lessons of the Great Depression – you don’t reduce government demand at the same time at private demand is falling, you increase it to jumpstart the economy.

  4. BLiP 4

    Browncoalie and the rest of the National Ltd® crew are going to need careful monitoring on this latest announcement. Given their predilection for digging up our national parks, I wouldn’t put it past them to use the legislative “tweaks” they are planning for petroleum as a vector for slipping in various and insidious permissions to facilitate further mineral exploitation.

  5. JD 5

    “The world’s government learnt the lessons of the Great Depression you don’t reduce government demand at the same time at private demand is falling, you increase it to jumpstart the economy.”

    They also ramped up govnt spending during an economic boom hence the 44% rise in the numbers of public service.

    Are you totally unaware of the treasary prediction for our debt to ballon in the next 30 years. to 223% of GDP given our current fiscal spending and productivity levels. This doesn’t strike you as worrying?

    “Given their predilection for digging up our national parks”

    So how many national parks have been dug up so far?

    • snoozer 5.1

      jd. if you’re worried about government the only money you’re going to save on a scale that matters without slashing health and education is by raising the superannuation entitlement rate.

      The core public service is too small and too cheap (only $3.6 billon or 5% of govt spending a year) to save significant money while still having the administrative capability that is needed.

      Move the reitrement age to 70, however, and you’re cutting out 32% of current pensioners and you’ll save $2.4 billion a year.

    • I reckon JD may be onto something. If we cut the public service in half we will save a couple of billion. Getting rid of all teachers and nurses ought to just about do it …

      This is the trouble with arguments with the right. You can never get them past the slogan to actually confront the reality.

      Snoozer’s suggested increase in the retirement age is a consideration BUT John Key has ruled out it happening during the time of his government. THis is really typical. They create a problem that will happen but then refuse to implement what may be the only rational response on the grounds of political expediency.

  6. JD 6

    It’s interesting how you describe our bureaucracy as ‘too cheap’. Living in Wellington I am well aware of the numbers of new office grade A blocks which have gone up in Thorndon in the past 4 years. In the end the left may have no choice if it wants to be elected again to limit its cherished public sector. Those thousands of pensioners would rather cut public service numbers than work another 5 years. Really who wouldn’t.

    • JD

      How about answering Snoozer’s response and actually analyse the figures. You could take a machine gun and shoot every public servant on Thorndon Street and you would do bugger all for the Government’s books.

      So what would you do about super?

      Increase contributions to the Cullen fund?
      Put up the age of retirement?

      • Marty G 6.1.1

        The irony, of course, is that if you shot every public servant on The Terrace the price of delivering public services would go up and the service delivery would be worse. It would be left to doctors and teachers etc to try to do their own jobs plus specialist policy development, planning etc etc etc

    • RedLogix 6.2

      mickey,

      I strongly suspect that most righties like JD are functionally innumerate. You give them the numbers but are simply incapable of grasping the elementary consequences of them.

      That’s why they get stuck on ‘sack all the public servants and the books will balance themselves’ magical thinking.

      • Draco T Bastard 6.2.1

        I think it’s more that they’re incapable of accepting reality.

      • fraser 6.2.2

        and at the same time forgetting that the national appointed hatchet men (im sorry “purchase advisors”) could barely find anything that could/should be cut in the first place

    • Marty G 6.3

      If it came to it, I would rather work until 70 (like most people I’m likely to still be healthy and active at that age) than slash healthcare or education.

      So, no, JD, I won’t rather cut public service numbers than work an extra five years.

      As snoozer explained to you, you can’t cut government spending by a meaningful amount by cutting the number of core public service employees. If you cut them by even 10% you’re only talking $340 million, which in the scale of a country of 4 million people is the kind of chump change (0.5% of govt spending) that Treasury finds behind the couch.

      And do you really think that any govt, Labour or National is employing these people for the hell of it? No. They are the ones who organise and plan the actual delivery of public services like health, education, roading. Who do you think decides where and when schools need to be opened or closed? Who do you think monitors and forecasts traffic flows, plans new motorways, gets the consents, hires the contractors?

      You can’t deliver public services without public servants.

      • RedLogix 6.3.1

        If it came to it, I would rather work until 70

        Which of course is not the case for everyone. There are plenty of jobs (drainlaying, shearing, orderlies, truckies and the like) whose jobs is physically demanding. Lots of these men, and it would be mostly men, are plain worn out by the time they are 55, just getting to 60 or so is a struggle for some them. By contrast us shiny arse’s will still be making a doddery nuisance of ourselves at 75 or more. The idea of a universal retirement age may not work anymore.

        There are real policy implications around this.

    • lprent 6.4

      I think you have the same problem with numerical literacy that Nick Smith has. Have you ever read the budgets?

      You’re talking about two completely different orders of magnitude of cost…

      Please start talking after you’ve gained some ability to read a budget…

  7. JD 7

    Interesting range of responses here none of which are either honest (yes of course you want to work until you’re 70) or doesn’t really address the issue of how is NZ going to pay for a gold plated public sector and social service payments when our liabilities may amount to 223% of GDP in the future. Maybe you should examine the consequences of those numbers which posters here have expediently ignored.

    Given that 10% of our population is already in Australia then I’d be worried what will happen then a lot more of us get sick of increasing tax levels. So good luck in ignoring that reality.

  8. Martha 8

    I aggree with the author that NZ should follow Norway’s example on oil as it is beneficial to it.

  9. JD 9

    “I aggree with the author that NZ should follow Norway’s example on oil as it is beneficial to it.”

    The weak link in your plan is that self-restraint is an unknown quality with socialist politicians especially when it concerns other peoples money.

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