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.
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