Up in smoke

Written By: Marty G - Date published: 6:01 am, October 6th, 2009 - 19 comments
Categories: climate change, economy - Tags: gas, oil

When the Tui oil-field was opened last year, the operators (AWE New Zealand, 87.5% foreign-owned, ironically) were given permission to burn off 10 billion cubic feet of natural gas retrieved incidentally to the oil over the life of the oil-field. That’s actually a hell of a lot of gas, about 6% of what New Zealand uses in a year and worth about $60 million, but, as it was meant to be coming out slowly over the course of the field’s life, it wasn’t going to be worth piping it onshore.

But AWE NZ stuffed up. It turns out there’s a lot of gas amongst the oil at Tui. They’ve known that from the start of operations but just kept flaring it. In just over a year of operations, they’ve so far wasted 7.5 billion cubic feet of the stuff. If that had been sold, it would have been worth $45 million. Because it has been burned it has cost the New Zealand government about $10 million in carbon credits that we will have to buy or have lost the opportunity to sell under Kyoto.

From the start, when they realised how much gas was there, the company should have started capturing it and selling it so that if it is going to be burned at least we can do something useful with it, like use it instead of coal at Huntly or help lower families’ heating bills. But they didn’t bother and so we, the taxpayer, pay the price for no gain.

Now, having literally sent $55 million up in smoke, New Zealand Oil and Gas is finally looking at laying a gas pipeline to connect to the pipes from Maui, only about 20km away, and then onshore. They’re not doing that because they’re worried about needlessly wasting such a huge amount of a non-renewable resource that is also damaging our climate. No, they’re doing it because they’ll soon hit the limit of what they’re allowed to flare.

This is why we shouldn’t put our country’s limited natural resources in the hands of short-term orientated and mostly foreign-owned private companies. These resources should be managed and exploited in New Zealand’s best interests. That doesn’t happen when it’s left to some company out to make a quick buck.

Frankly, with oil and all our limited mineral resources, I don’t know why we’re in such a hurry to dig them up. The prices are only going up but once they’re dug up and sold, they’re gone. In the ground they’re like money in the bank. Why not keep them there a while longer?

19 comments on “Up in smoke ”

Comments are now closed

lprent 1

6 October 2009 at 8:06 am

That is a hell of a waste. They are likely to get the biggest proportion of the natural gas at the fields startup. However it will keep coming out as they pump gas into the field to extract the oil. There is something pretty wrong with the estimates of the natural gas in the field. There are always going to be errors when you’re ‘looking’ into rock. But this one must be at least an order of magnitude off.

I agree about not exploiting our few mineral resources. Because of the geology of NZ there aren’t likely to be any major extractive resources apart from the ocean shelves. We don’t need or really want to exploit them because our economy is founded on our people’s skills, the use of the countryside, and tourism. Those are all or have the potential to be sustainable earners for NZ. Wasting time and effort on mining doesn’t.

The value of any resources we do have will continue to rise. But the cost to NZ is high especially if we start doing the required testing with drilling rigs and explosions in the park lands. So we need to stop this short-term government early before they do too much damage to the country.

Leave the resources in the ground. Don’t even bother looking for them. And if the short-term arse-holes in government want to do anything more than surface prospecting in the national parks, then lets get a few thousand people to bodily move their rigs outside the parks. If we have to do that then I’d suggest that we also do the same to Brownlee. I think he’d be happier in aussie.
Peter Johns 2

6 October 2009 at 8:25 am

[lprent: Still banned. Hey chemist, did you enjoy the your updated psuedonym? ]
Victor 3

6 October 2009 at 9:02 am

There is actually a view within resource economics that you are now better off leaving the stuff in the ground. Why exchange finite resources for paper money that depreciates in real terms? And that is before you consider the effects on non-resource sectors (through driving the NZ dollar even higher).

The difficulty for the government is that in opposition they have spent all their time focusing on the gap with Australia, and the only thought in their head is that to ‘catch up’ with Australia we have to ape them in every possible way, including climate change policy.
Clarke 4

6 October 2009 at 10:09 am

The Tui oilfield is a textbook example of how not to do foreign direct investment.

One of the reasons the gas has been flared is because the offshore production platform is a converted tanker, which can’t store the gas – in other words, the oil from Tui never comes onshore to New Zealand at all, as it’s simply trans-shipped from the production platform to the Singapore refinery. So given that there was no storage and no onshore pipeline, there was no alternative to flaring.

The worst part of the whole debacle, however, is that the royalty rates charged by the government are practically the lowest on the planet – I understand that they are NZ$10 per barrel. So during the oil spike in 2008 we were selling oil to Australian-owned AWE for NZ$10 per barrel and buying it back on the international market for US$147 per barrel.

I understand that the Minister that signed off this exceptional deal for New Zealanders was none other than Peter Dunne, Minister of Revenue. Of course it’s United Future policy that sometimes we should be able to give away our oil resources for free:

We believe that the general policy should be a zero royalty rate with the government reserving the right to apply a royalty, on a case-by-case basis specific to rate of any medium to large oil field discovered

I’d be interested in an explanation from any United Future supporters (either of them) as to why they think giving away our oil reserves is in New Zealand’s best interests.

And this is why I’m so opposed to the mining of the national parks. Leaving aside the immense and probably irreversible damage to the natural environment, the idealogical morons in the Beehive will simply give away the vast majority of the revenues to foreign multinationals for some blankets and a handful of beads.
Maynard J 5

6 October 2009 at 10:26 am

History never repeats.

Well actually it does not in this case, because the first one is a parody, a piss take, and the second one is a line Brownlee has in reserve – “National Govt to save Fiordland from build-up of toxic oil”.

Sad thing is Big Jer would believe it too.
Gosman 6

6 October 2009 at 11:50 am

I love how people on the left tend to argue that we can just rely on tourism instead of extractive industries like mining. The jobs involved with tourism tend to be far more lower paid than the ones they are replacing. Serving cups of Latte to tourists is a far less skilled job than operating heavy machinery. On top of that is the fact that the vast majority of overseas tourists come via that most carbon unfriendly of transport routes, long distance air travel.
- Clarke 6.1
  
  6 October 2009 at 12:40 pm
  
  The jobs involved with tourism tend to be far more lower paid than the ones they are replacing.
  
  But here’s the bit you missed in your simplistic analysis – there simply aren’t that many jobs in large-scale extractive mining. The heavy lifting (so to speak) is done by machinery, not people. As an example, the entire Victoria Park tunnel in Auckland will result in less than 200 jobs from an investment of $406 million, resulting in truly pathetic employment bang-for-the-buck.
  
  On top of that is the fact that the vast majority of overseas tourists come via that most carbon unfriendly of transport routes, long distance air travel.
  
  The difference is that the carbon emissions from tourists bring positive economic benefit to New Zealanders. In comparison, what economic benefit do we get from a bunch of Australians flaring gas into the atmosphere offshore from Taranaki? Do tell.
Gosman 7

6 October 2009 at 11:54 am

Will N.Z. take into account the output from the airlines that fly to and from here under any proposed carbon emissions reduction scheme or are these not included?
- snoozer 7.1
  
  6 October 2009 at 12:36 pm
  
  I think under Kyoto international air travel isn’t counted but it will be in the new treaty – probably wherever the fuel is taken on will be liable for the emissions.
  - Gosman 7.1.1
    
    6 October 2009 at 1:14 pm
    
    If the country where the fuel is taken on is liable for the emissions then it isn’t really fair though.
    
    A plane travelling long haul from UK to NZ will stop for a refuel approximately half way, say in Singapore. However the majority of the travellers in that plane will probably not be interested in visiting Singapore and will continue on after a short layover.
    
    Essentially in such a situation the lay over will be subsidising the final destination in terms of the Carbon output.
    
    N.Z. will benefit if this approach is taken but it is hardly the environmentally friendly way to go.
    
    It is something I think the people of a ‘green’ political hue have failed to deal with adequately when pushing the tourism as an economic panacea agenda over the last few decades.
    - Galeandra 7.1.1.1
      
      6 October 2009 at 2:13 pm
      
      Hello, Gosman? ” It is something I think the people of a â€˜green’ political hue have failed to deal with adequately when pushing the tourism as an economic panacea agenda over the last few decades.”
      
      ‘Tourism’ is usually pushed by restauranters, mayors,hoteliers, air lines, tax collectors and so on and so forth. A great number of average people find tourism a pain in the butt, to be honest, as it usually drives up prices (try a ‘cheap’ holiday at Queenstown, for example, or worse still , try living there on an average wage.)
      Certainly, green as I am, I’ve never advocated tourism as a ‘clean’ version of economic development for some of the resasons you suggest, and I can’t say that the stereotypes fits comfortably with most people I know.
      
      However, instead of labelling ‘lefties’, why not address the issue of the inexcusable waste of resource the Tui debacle represents? And its environmental costs,too?
      
      While employment issues are a serious concern at moment, I fail to see what is achieved by selling off precious resources to foreigners who, by definition, have no long term interest vested in the well-being of New Zealand’s people or environment .
      Perhaps you could enlighten us. I make no assumptions about your politics or environmental attitudes.
      - Gosman 7.1.1.1.1
        
        6 October 2009 at 5:39 pm
        
        You raise a pertinent point there Galeandra in terms of not all ‘Greens’ pushing for Tourism. It tends to be the more Red/Green people who try to marry up economic development with their supposed concern for the environment rather than those who want to have everyone grow their own lentils in their back gardens as an alternative to going out to earn a wage.
        
        As for my opinions on the matter, whether resources are precious or not is a value judgement. For example diamonds have little practical use outside of being used as part of incredibly strong cutting devices for industrial and scientific purposes. They are also found in quite abundant qunatities on the planet. However people have been convinced they are extremely valuable and therefore a huge amount of time and resources are spent recovering them.
        
        Should people waste time doing this? Rationally the answer is probably no but then again lots of things humans do have no rational reason – take Religion for example.
        
        What I do know is that it provides a lot of people in places like Botswana and Namibia with a good livelihood. Something those places would struggle to provide via alternative means.
        
        Saudi Arabia and oil is another example. That country doesn’t offer much in way of economic opportunity for the people who live there naturally outside what is in the ground. With oil it has obviously been able to provide the millions of people who live there something better than subsistence.
        
        Whether or not this wealth is worth the environmental impact of getting at it is another value judgement. Is the Saudi, Kalahari, or Namib deserts anymore or less environmentally important than NZ wildeness?
        
        I am also not terribly fussed with whether a foreign or NZ company extracts the stuff if a decision is taken to do so. As far as I am aware they still have to pay royalties, taxes and wages in NZ.
        
        Draco T Bastard 7.1.1.1.1.1
        
        6 October 2009 at 6:39 pm
        
        Rationally the answer is probably no but then again lots of things humans do have no rational reason take Religion for example.
        
        Personally, I think the economics we’re presently labouring under is a better example.
        
        Saudi Arabia and oil is another example. That country doesn’t offer much in way of economic opportunity for the people who live there naturally outside what is in the ground. With oil it has obviously been able to provide the millions of people who live there something better than subsistence.
        
        It just won’t be able to in a few years.
gomango 8

7 October 2009 at 7:53 am

At current extraction rates, Saudi has just over 60 years of production left, Canada 160, Kuwait, Iran, Iraq, UAE all between 60 and 120 years. Globally, based on current reserves and current consumption there are 44 years of production left. A decade ago, there was 40 years of proven reserves left. Oil reserves are finite, but for a quite a few more years yet, the size of the finite will grow with the oil price.
- Pascal's bookie 8.1
  
  7 October 2009 at 8:28 am
  
  “the size of the finite will grow with the oil price.”
  
  And therein lies the rub.
- lprent 8.2
  
  7 October 2009 at 8:58 am
  
  Yeah, but your statement is inherently stupid. Our economies are not based on oil – they are based on cheap oil.
  
  Cheap oil is a disappearing premise. All of the new sources up to the tar shales are considerably more expensive to extract and process to the light fractions required for petrol or diesel. Now if you could figure out how to run a car on bunker oil, then you wouldn’t have an issue over the next century. Oil will also get more expensive as the costs of the resulting greenhouse gases are added into the causal agents – ie to burning any fossilized carbon.
  
  BTW: Why bother to make such a moronic meaningless statement?
gomango 9

7 October 2009 at 9:38 am

No you assume I am trying to make a point I’m not. Don’t leap to conclusions. The point I am making is that there will always be oil available. We just may not like the unaffordable price it will cost. And yes you can crack bunker oil into lighter fractions, its just not economic to do so.

Dont worry, as an economist I fully understand our current oil based economy is unsustainable in the medium term. but I also believe that as the price of fossil fuels rise, it will stimulate investment and research into viable alternatives.
- lprent 9.1
  
  7 October 2009 at 4:37 pm
  
  …but I also believe that as the price of fossil fuels rise, it will stimulate investment and research into viable alternatives.
  
  So do I. However as someone who does a lot of research and development, I’m also completely aware of the lead times for the type of research required. You have to think in multi-year increments and decades. Unfortunately most economic theory usually seems to think it is instantaneous.
  
  For instance the lag between the oil shocks of 1973-4 and 1978 stimulated a *lot* of research, which resulted in the higher fuel efficiencies (ie not just small cars) that showed up by the late 80’s. Which in turn resulted in more cars on the road as it also made cars effectively cheaper in real terms.
  
  Gives some good reasons why the price should be raised on carbon fuels before it causes too much damage to the underlying base for most economics – the environment.