Energy bosses say proposed legislation, designed to tighten rules around the decommissioning of oil and gas wells, risks creating a shortfall in electricity generation.
File photo. Photo: 123rf
They say the Crown Minerals (Decommissioning and Other Matters) Amendment Bill is a knee-jerk reaction to the collapse of Tamarind Taranaki - the owner of the Tui Oil Field - and it will scare off vital new investment in the sector.
Tamarind Taranaki collapsed in December 2019 leaving the Crown with a bill of $300 million to safely decommission the offshore Tui Field.
The government says the Bill will close loopholes which allowed Tamarind to walkaway from its responsibilities.
If passed into law, it would hold companies liable for decommissioning costs in perpetuity, even if permits or licences have been on-sold and it would make company directors criminally liable for not fulfilling decommissioning obligations, even if they had since left the post.
It would also subject oil and gas companies to stricter financial scrutiny and require them hold funds to meet decommissioning costs.
Managing director of NZ Oil & Gas, which holds a 4 percent stake in the Kupe Gas Field, Andrew Jefferies said the new rules were required, but the Bill went too far.
"If any time you generate any activity at all you immediately have a risk that can never go away then it makes it very difficult to come and undertake the activity in the first place.
"And it's not something that occurs in other jurisdictions that this extent with the sort of criminal liabilities that are being talked about here."
Jefferies said the Bill could also have unintended consequences for the security of electricity supply.
He said when the hydro storage lakes were low, the sun did not shine and the wind didn't blow - something else was required.
"If we don't want to burn coal then we're going to need gas otherwise you have to overbuild or create capacity some other way that's going to be extremely expensive for people and add a lot of money, a lot of cost onto people's power bills. So, really that's where the electricity rubber hits the road."
Jefferies said, the way the legislation was written, it would scare off the investment required to get known gas resources out of the ground.
It would also put off investors in renewable energy, such as offshore wind, because they too will subject to these onerous decommissioning costs, he said.
OMV New Zealand is the country's largest gas producer and holds a 74 percent stake in the Pohokura Gas Field and owns Maui.
In a statement, general manager Henrik Mosser said no other comparable country had taken this type of approach.
"Field owners could be forced to tie money up in securities for many years, and they'll also face additional operating costs through new levies.
"All these extra layers could jeopardise investments that might otherwise be made to extend the life of gas fields.
"This is a crucial point given that no new offshore permits have been issued since 2018, and the last onshore permits were issued this year."
Mosser said the Climate Change Commission had acknowledged gas would be vital to the transition to a low carbon economy, while electricity generators Meridian and Genesis have said gas would be needed for electricity production well into the 2030s.
Todd Energy, New Zealand's biggest onshore gas player, declined an interview, but its legal counsel Stuart Barraclough made the company's position clear during recent select committee hearings on the Bill.
He also argued the proposed legislation frighten off investors worried about sovereign risk or national risk, terms which described a government that unexpectedly changed the rules.
Barraclough said that investment was sorely needed.
"The current infrastructure out there is not sufficient to get know gas reserves out of the ground. Hundreds of millions if not billions of dollars are required to be invested by permit holders over the next decade or so to access know gas reserves."
Barraclough said it was widely supported that natural gas would support a transition to renewable energy, but gas-powered electricity - including peaker plants - would be required for many years to support the power grid during seasonable periods where renewable energy sources were inconsistent.
"Todd Energy believes a lack of natural gas will affect the affordability and security of electricity resulting in power outages and possibly increase the cost of electricity to consumers."
Taranaki Energy Watch spokesperson Sarah Roberts supported the Bill.
Taranaki Energy Watch spokesperson Sarah Roberts. Photo: RNZ / Robin Martin
"Given that the oil and gas industry is saying that they are good corporate citizens, I think it is quite a reasonable expectation of the Crown to expect that they meet the obligation of decommissioning and I think it's always been implicit that they do and it's actually written into a number of documents, but it's just making that obligation explicit."
She said the proposed legislation was fit for purpose and cherry picked from the best of similar regulation around the world.
The Economic Development, Science and Innovation Select Committee will report back on the Bill in November ahead of its second reading in Parliament.
