web analytics
The Standard
Advertising

What use is oil extraction here?

Written By: - Date published: 9:10 am, March 20th, 2014 - 26 comments
Categories: Economy, energy, national, same old national - Tags: , ,

One of the more irritating traits of National politicians is their bone-headed and short-term obsession about being rentiers selling raw and lightly processed raw materials offshore. Sure it is great in the short-term for the seller of the rights to those raw materials, but it does little to nothing for the other 4+ million people in this country. In the fullness of time, the resource that is being extracted will run out. The extracting companies will be folded up and somehow the bill for the inevitable cleanup winds up on everyone else.

Nowhere in the NZ economy is this more clearly expressed over time than in the oil extraction

Matthew Hooton was peddling some of his should be patented line of bullshit earlier in the week about oil and gas. I got irritated enough to divert from my work to dig out some basic charts to display what has been happening at the output stage. But I noticed something .

Oil is peanuts. All recent fields have been micro fields that get exhausted almost as soon as they are pumped.
http://www.med.govt.nz/sectors-industries/energy/energy-modelling/data/oil

There are a number of things that are interesting about this chart if you look closely at it.

You see that red line, that is the export of oil expressed in energy. Essentially we export virtually all of it. There is a reason for that. The type of oil that we get in NZ isn’t easy to use in our sole oil refinery in Whangarei. That is designed to operate on a different type of crude to that commonly found sloshing in the bottom of gas fields (which is where most of our oil comes from). Even the sole major oil only field – Tui, almost certainly started as a gas field that lost its gas.

But the spin you get from the energy industry (and eventually out through the mouth of Mr Hooton) is quite different. Here is a good example from the wikipedia page on oil and gas in NZ.

In 2008, New Zealand’s self-sufficiency in oil (production divided by consumption) was 47%, i.e. the country imports over half its petroleum product needs (though actual imports are higher, as some of the local product is also exported).[1] In the March 2010 quarter, 28.7 petajoules of crude were produced in New Zealand, 78 pj of petroleum products imported (most of it crude), and 61.6 pj consumed. The difference is exported or used for international travel (aviation fuel and similar).[2]

Sounds great eh? 47% self-sufficiency! We only import just over half of our petroleum product. Yeah right! This paragraph appears to be a bit of deliberate spin that you can see repeated amongst almost all of National’s talking heads whenever they start waffling about the benefits of the oil exploration for NZ.

The reality is that we export virtually all of our oil production. As far as I can tell all of it gets exported completely unprocessed.

We import virtually all of our oil needs and some of it gets processed it here. A quick summary from the Marsden Oil Refinery site (my bold).

We supply:

  • all of the country’s jet fuel
  • nearly 80% of diesel
  • around half of all petrol
  • between 75 and 85% of bitumen for roading
  • all fuel oil for ships
  • sulphur for farm fertiliser
  • and we even put the fizz in fizzy drinks!

Why is this interesting? Because NZ crude is mostly a gas condensate, it is very high in light fractions of hydrocarbons. The exact type that is required for making petrol. Which is why it commands a high premium offshore.

It can be used in the Marsden refinery, because that was adapted to be able to use it in the late 1970’s and early 80s.

But rather than adding value to it here using local workers and capital and actually using it here to provide the other half of our own petroleum needs, instead it gets exported. Sure the government gets a minor cut. But most of the value is simply drained from the country.

Quite simply an alternate policy of just leaving the oil in the ground carries better value for NZ. Who apart from a few nutters really expects the long term future prices of the increasingly scarce raw material to go down? The uses for complex hydrocarbons range from plastics to lubricants.  Simply exporting it to be burnt defies any kind of economic logic about how to use a natural resource effectively.

Classic rentiers logic exporting unprocessed raw materials rather than providing added value. It is also so characteristic of the National rentier party that this is what happens. Too lazy to put in the capital and work required to provide more value, they prefer to just dump it for cash.

You can see it in the way that our dairy products are increasingly being  processed ever lighter and exported by the the cronies of National in a essentially raw form of milk powder. Our wood increasingly exported as raw logs.

Which of course completely explains their reaction to Labour’s policy on increasing the value add on our forestry.

26 comments on “What use is oil extraction here?”

  1. Ad 1

    Your general point about unprocessed raw product being exported is well taken:
    Apples.
    Logs.
    Milk powder.
    Wool.
    Minced beef.
    Oil.
    Coal.
    Basic international student courses.
    Fish.
    Gold.
    Leather.
    Tallow.

    That’s most of our (bulky and low-value) export economy there.

    Is it correct that just a few years ago it was still the case that squash earned as much for the country as the entire clothing fashion industry?

    • Ad 1.1

      And from the great GDP and exporting surge we are going through now and into 14-15:

      “Manufacturing activity grew 2.1 per cent in the final quarter of 2013, driven by increases in food, beverage, and tobacco, and machinery and equipment manufacturing. Manufacturing activity is now at its highest level since March 2006.” – NZHerald

      Tobacco? Really? Does tax count as a value-add? Increase must come from the Lower Hutt plant expansion. (Sure ain’t from my annual cigar)

    • Kevin Welsh 1.2

      A few years ago I worked for an advertising agency in Hawkes Bay and one of the jobs I worked on was packaging for processed apples for commercial kitchens. The raw, pre-processed apples, were imported from China while apples from local orchards were rotting on the ground.

      Just an example of raw product being imported unnecessarily.

  2. Colonial Viper 2

    We also like exporting new grads.

    • RedBaronCV 2.1

      For lack of job opportunity here as we have exported their jobs.
      And since I need to vent – do our MP’s think they are in parliament on behalf of multi nationals and australians? Looked like it to me.

      • Draco T Bastard 2.1.1

        And since I need to vent – do our MP’s think they are in parliament on behalf of multi nationals and australians? Looked like it to me.

        QFT

        Our politicians and business leaders have been screwing over NZ for the last thirty years solely to benefit the foreign corporations and the 1%ers.

    • Draco T Bastard 2.2

      Which is a particularly raw product and has massive potential when utilised in a value add form.

  3. RedBaronCV 3

    And back to the main post – article in today’s Dom Post extolling China’s delight in our low value commodity exports wood – uurgh

    • Mike S 3.1

      Yep, we export raw logs to China, then Fletcher’s or Carter Holt’s Chinese subsidiary processes it cheaply into low quality panels which we have to import through Fletcher’s because we don’t make them here and which Fletchers then sells to us at massive profit; to a captive market base (They have Christchurch contract).

      We also export our scrap metal, mostly to China, who process it and sell it back to us as a lower quality steel or as consumer goods they’ve manufactured from it.

  4. Ad 4

    I forgot:
    aluminium, from two bulk commodities joined together.

    BTW There’s a post on TransportBlog about how NZ could go to 100% local renewable energy.

    Can anyone name a town in New Zealand other than Wellington or Auckland that is not dependent on bulk exports? Dunedin maybe? Whether it’s oil or apples, we have always had a bulk commodity economy (apart from two decades from 1945).

    Is this simply too hard a problem to solve if so much of New Zealand and so much of its momentum is geared this way?
    Consider: a post-bulk-exporting New Plymouth, or Invercargill, or Napier, or Tauranga, or Gisborne, or Whangarei etc etc. Husks.

    Lynn, I don’t think the political economy can stand another Structural Adjustment a la 1985. Do you?

    • Draco T Bastard 4.1

      We’re not surviving the structural readjustment of the 4th Labour government which pretty much means that we have to go through another such adjustment. An adjustment which will make our economy sustainable.

  5. Great post – thanks for all the info and analysis. I agree with your conclusions.

  6. Ennui 6

    LPrent, your column is a sad commentary upon the shallow thinking of successive (including Labour) administrations. Its classic neo lib territory here, the buyers are a cartel who don’t want us to receive anything but the lowest price, but wont actually free the market up to deliver a good result for us. And they want us to buy an equivalent amount of imported oil at a premium. The key phrase missing in your column is “economic sovereignty”.

    We as a nation have never had economic sovereignty, yet we have for long periods ascribed to the concept of collective security for our society. That was damned by Douglas and Lange as “Fortress NZ”, and our semi protectionist regime as a “Polish shipyard”.

    The saddest part of this whole fiasco is that the “Left” in general have failed to mount a consistent cogent criticism of “free markets” and ” Free Trade agreements” and “international finance”. In this our parliamentary “Left” obfuscate, they wont rock the boat because they think it unelectable to do so. Meanwhile the boat sails in a stormy sea, it is already rocking.

    • Draco T Bastard 6.1

      The saddest part of this whole fiasco is that the “Left” in general have failed to mount a consistent cogent criticism of “free markets” and ” Free Trade agreements” and “international finance”.

      And the reason for that failure is that most of the left still believe in the failed capitalist system.

      Meanwhile the boat sails in a stormy sea, it is already rocking.

      Rocking? It’s friggen sinking.

    • Mike S 6.2

      Is it because they “think it unelectable to do so” or is it because they’re attached to the same puppet strings as the national party is?

  7. geoff 7

    Nice analysis, Lynn.
    Another example of National’s moral bankruptcy.

  8. Tracey 8

    saw an interesting use of the word improving in a hwadline in the herald aboutwhy oil is over $100 ” demand for fuel improving “

    • Macro 8.1

      yeah! sick really. :(
      financial whizz kids terminology
      gezz those people have sh*t for brains.

      • Tracey 8.1.1

        I guess thats cos economists believe if something is increasing there must be improvement. Tight righty believes this about gdp. If it is increasing things must be better…

        • Macro 8.1.1.1

          yes. we had it today from the media – gdp growing at 2. something! wow!! it’s nonsense of course. but its all they seem to know.

          • Tracey 8.1.1.1.1

            Yup. Gdp grows and has grown over the last 40 years… so has the gap between rich and poor… rents… the number in poverty… yup its great news for sure.

            • Mike S 8.1.1.1.1.1

              And let’s not forget what a woefully inadequate measure of economic growth GDP is anyway. For example, profit generated here which goes to overseas shareholders is included in GDP even though the money goes offshore!

    • Mike S 8.2

      Looks like a typo to me. Surely they meant to use ‘increasing’ ?

  9. exitlane 9

    Latest NZ Energy Quarterly Report

    NZ oil production is down 18.3% in last year ! You can see in the chart how the steep decline began in 2007. The decline is accelerating and at this rate local production will be near zero by 2020.

    6 wasted years under National to lower our dependence on oil imports.

    "Policymakers are too focused on the supply side, on trying to change the mix of energy sources we rely on, and not doing enough to unlock the gains that can be made on the demand side through greater energy efficiency."
    Christoph Frei, secretary general of the World Energy Council

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11222757

Important links

Recent Comments

Recent Posts

  • English breaks his $6000 wages promise
    Just one month into the new year Bill English has already rowed back on his election promise of real wage rises for New Zealanders, says Labour’s Finance spokesperson Grant Robertson. “During the election campaign National promised Kiwis that the average… ...
    5 days ago
  • National fails to produce evidence justifying attack on RMA
    The National Government is misusing evidence provided in the Motu report on planning rules to justify gutting the environmental protections secured by the Resource Management Act (RMA), says the Green Party today. The Motu group's research into the impacts of… ...
    GreensBy Julie Anne Genter MP
    5 days ago
  • National fails to produce evidence justifying attack on RMA
    The National Government is misusing evidence provided in the Motu report on planning rules to justify gutting the environmental protections secured by the Resource Management Act (RMA), says the Green Party today. The Motu group's research into the impacts of… ...
    GreensBy Julie Anne Genter MP
    5 days ago
  • RMA changes won’t knock a dollar off the cost of a new home
    The Government’s proposed changes to the RMA won’t increase the number of affordable homes or knock a dollar off the cost of building a new house, Labour Leader Andrew Little says.  “Tinkering with the RMA will not solve National’s housing… ...
    6 days ago
  • What is the real ‘price of the club’?
    What price is too high to join a club?  According to the current the New Zealand Prime Minister, the lives of young Kiwi men and women are a part of the package. In his latest BBC interview, John Key fails… ...
    GreensBy Kennedy Graham MP
    6 days ago
  • Palestine – NZ talks loudly in New York, does little at home
    Even though New Zealand has been gently slumbering over the last few weeks, world affairs have been progressing at its usual break-neck speed. There have been a number of significant steps since we all disbanded from the last parliamentary year.… ...
    GreensBy Kennedy Graham MP
    7 days ago
  • DOC debacle means hundreds may have missed out on fishing licences
    Hundreds of families and recreational fishers may have had their holidays spoiled by missing out on their fishing licences, with Conservation Minister Maggie Barry preferring instead to focus on more high profile portfolio priorities over the summer break, Labour’s Conservation… ...
    7 days ago
  • Effective action needed against pirate fishing boats
    New Zealand’s failure to detain pirate shipping vessels poaching endangered species in our region is simply not good enough, Labour’s Defence spokesperson Phil Goff says. “We send New Zealand naval vessels to the Arabian Gulf to board pirate ships there… ...
    7 days ago
  • Housing affordability crisis gets worse under National
    News that Auckland’s housing is now among the 10 most unaffordable in the world confirms the Government’s housing policy has failed, Labour’s Housing spokesperson Phil Twyford says. “After six years in power, National’s housing policies have not fixed the housing… ...
    1 week ago
  • Rheumatic fever rates continue to soar despite millions spent on prevention...
    The Government’s $65 million spend on rheumatic fever prevention has made little impact on the alarmingly high rate of the disease among young New Zealanders, Labour’s Health spokesperson Annette King says. “Latest figures from ESR show there were 235 notified… ...
    2 weeks ago
  • Government wipes off $5 billion in tax debt
    Since coming to office, the National Government has written off $5 billion* in tax debt owed by more than a million, Labour MP Stuart Nash says. "There are two sides to the New Zealand economy under the National government: the… ...
    2 weeks ago
  • Labour adds its condemnation of Paris attack
    The Labour Party adds its voice to the international condemnation of today’s shocking attack on freedom of speech in Paris, Leader Andrew Little says. “The attack on the Charlie Hebdo newspaper is an assault on democracy and freedom of expression.… ...
    3 weeks ago
  • Petrol retailers and importers must pass on savings
    New Zealand’s petrol retailers and importers must start passing on savings to Kiwis motorists following the dramatic drop in the price of crude oil, Labour’s Energy Spokesman Stuart Nash says. “It is great news for Kiwi drivers that the price… ...
    3 weeks ago
  • Foreign investors must uphold their promises
    The Government must ensure foreign investors uphold their commitment to add value to sensitive New Zealand assets* they purchase, after new figures show National has declined just 1.5 per cent of all applications, Labour’s Land Information spokesperson Stuart Nash says. … ...
    3 weeks ago

Public service advertisements by The Standard

Current CO2 level in the atmosphere