5 Jun 2018

Govt warned of 'chilling effect' over halting oil, gas permits

5:03 pm on 5 June 2018

The government was warned by officials that if not handled well, its plan for future oil and gas exploration could have a "chilling effect" on investment.

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Photo: RNZ / Youtube

The Energy and Resources Minister has released all of the Cabinet briefing papers and communications from officials, ministers and some industry players.

The papers said if the supply of natural gas was restricted, that could push up consumer prices, pose a "significant risk" to security of energy supply and have a detrimental impact on some regional economies.

Energy Minister Megan Woods said that was "free and frank advice" but she described it as "standing still" advice.

The government had since "accelerated" work towards the transition towards renewable energy, she said, and she did not expect the halt to most future exploration permits would have an "immediate impact".

But she acknowledged the change in policy would have a direct effect on the energy industry.

"We've got ourselves a window of time to put in place proper transition planning so we're not leaving individuals without a future and without hope."

The documents warned that if all future gas exploration was halted, consequences could include a possible increase in global greenhouse emissions.

Methanex is the largest global supplier of methanol, and has two processing facilities in New Zealand.

Officials said Methanex needed a consistent supply of affordable gas, and new discoveries would be needed to keep it operating past 2021. The amount of methanol produced in New Zealand was "significant" globally and currently supplies the Asia Pacific market.

If Methanex closed down, or cut back on production, China would pick up the slack, said the briefing papers.

The problem with that is, though, two thirds of China's methanol is produced from coal, producing three to four times more greenhouse gas emissions.

The official documents said according to permit holders' annual summary reports "it appears as if there will be a significant decline in gas reserves as of 1 January 2018".

The change in government would not make that immediate situation any worse, said Ms Woods, because existing mining and exploration permits were being honoured.

"So in terms of the short and medium term, nothing changes because what existed before we made that announcement still exists today and will be honoured."

The decision to hold a Block Offer restricted to onshore permits in Taranaki was "noted" by Cabinet as an oral item.

Ms Woods said that was an appropriate way to deal with a Block Offer, after taking advice.

She said the item also signalled there would be no future offshore permits, and that Cabinet would receive further papers on the implementation of that.

"This was policy that was discussed at Cabinet through the oral item, it's also a policy that was very well discussed between the three parties that make up government...I'm confident that a good process was followed."

The minister also ditched an initial plan to have the Interim Climate Committee investigate options for the future and then advise the Climate Commission in mid 2019, before any long terms decisions about exploration were made.

There were two reasons for not doing that, she said.

The first was the ability of the Committee to actually do the work, said Ms Woods, and the second was it was not "tenable" to announce the 2018 Block Offer without giving a "long term signal" about future plans.

National MP Jonathan Young chairs the Transport and Industrial Relations Committee.

National's energy and resources spokesperson, Jonathan Young. Photo: VNP / Phil Smith

But the National Party said the documents released showed the "horror show" of the lack of process.

Energy and resources spokesperson Jonathan Young said the way it had been handled was unacceptable.

"Taking an oral item to Cabinet on a decision that affects thousands of jobs not only in Taranaki but right across the country is scandalous, and legally perilous."

He said the law set out a clear process to minimise the risk for investors and for the New Zealand government.

"And those processes don't appear to have been followed...that is why there is potential legal action being prepared against the government," said Mr Young.

The government had made a decision without consultation with the sector it affected.

"Without a cost-benefit analysis from Treasury, without an understanding of whether domestic or global emissions will be reduced and without any appreciation of what a constrained gas market will do for prices."

The documents detail at least one meeting between the minister and industry representatives in February.

They also include emails from MBIE officials who did a ring around of industry players on the eve of Prime Minister Jacinda Ardern's oil and gas announcement on 12 April.

"All good, disappointed/resigned/philosophical" was how one described the reaction.

One of his colleagues said the response he had received was "mature/subdued...concern investment certainty, security of supply".

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