Domestic petroleum industry boosts self-sufficiency

Petroleum production in New Zealand is transforming the country’s economy and energy self-sufficiency. And while the Government’s energy strategy is focused on renewable energy, Associate Minister of Energy Harry Duynhoven says fossil fuels, especially gas, will continue to play an important role in New Zealand’s energy mix in the foreseeable future. A report by UK-based Alpha Communications for Venture Taranaki Trust in June this year predicts New Zealand’s four major energy projects (‘The Big Four’) will see our energy self-sufficiency rise to 60 percent within a year. This is up from only 15 percent around two years ago and on a par with the situation about 15 years before. The Big Four are the offshore Tui and Maari crude oil and Pohokura and Kupe gas developments, all located in Taranaki. Pokohura came on line in 2006 and Tui in mid-2007. Maari will come on line in late 2008 and Kupe in mid-2009. The report also says New Zealand’s 2007 trade deficit was down from about $6 billion to about $4.8 billion due to five months of Tui oil production that boosted exports to more than 13 million barrels. Duynhoven believes New Zealand should aim to become an oil exporter. The global rise in energy demand and energy prices changed economies of scale. This, he says, makes right now “an opportune time for exploration and production activities. The opportunities provided by the exploration and development of our under-explored hydrocarbon prospects are especially interesting”. He is pleased with the petroleum sector’s robust buoyancy. “The Big Four, as well as smaller offshore and onshore projects, will materially assist with addressing New Zealand’s overall requirement for domestic security of oil supply, help with addressing the balance of payments issue created by our dependence on imported oil, and make a valuable contribution to the short to medium term gas supply situation. “Equally importantly, they will widen our economic diversity, give a positive message to the world that New Zealand has good prospectivity in both oil and gas, and show that there are good commercial gains to be made from both commodities. “The Government continues to support oil and gas exploration, recognising that these resources will be required as part of our immediate and longer-term energy requirements. And it’s important the world knows New Zealand is a country where accelerated exploration and development projects can be completed,” says Duynhoven. Currently 21 petroleum mining licences and permit fields, all in the Taranaki basin, produce domestic hydrocarbons. A multitude of onshore, offshore, and deepwater exploration projects are in progress. In 2007 New Zealanders used just more than 700PJ operational energy to maintain our carbon based lifestyles. Petroleum supplied around half of this. Annual domestic gas demand was at 162 PJ and oil demand at approximately 45.21 million barrels. Domestic gas production sat at 165 PJ and oil production at approximately 15 million barrels. More boom times for ‘the Naki’ Traditionally the Taranaki Basin has been the main focus for hydrocarbon exploration and production. The discovery of the Kapuni gas condensate field in 1959 and Maui gas condensate field a decade later started New Zealand off as a petroleum producer, and transformed Taranaki to a boom economy. Maui’s peak in 1997 resulted in a decline in national petroleum production. However, it is expected Maui will still perform, albeit with slowing gas flows, until around 2014. Kapuni is in its sunset phase. Looking at the Big Four – Pokohura, developed at a cost of $1 billion, is the country’s third-largest gas producing field. It produces around nine percent of our gas and has estimated recoverable reserves of about 700 billion cubic feet (bcf). Total production to date for the $350m Tui project, New Zealand’s first stand-alone offshore oil development, is 15 million barrels (mmbbls) oil, or a net revenue exceeding $1.67 billion. In the last five months of 2007 alone its 6.4 mmbls of oil almost equalled New Zealand’s total oil production for 2006. Flows are expected to drop fairly fast in the next year. Maari’s estimated recoverable oil and condensate reserves are 49 million barrels of oil. A yield of 12 mmbls oil during the first full year of production, netting revenues of over $1.28 billion is expected. However, its forecast decline will follow a longer curve that that of Tui. The $1 billion Kupe development holds approximately 254PJ of reserves. Over the next 20 years it will supply 15 percent of New Zealand’s current gas demand, produce LPG, and nearly 15 million barrels of light oil. The four as they stand now are set to re-establish medium term domestic operational energy security only, but have potential for expansion. The projects will reach peak production by about 2010 and bring 140 million barrels of new reserves into the market; a record level, in the words of Duynhoven, “not seen since the heady days of Maui.” Even so, the projects, together with Maui and Kapuni, drive a $2 billion per annum Taranaki economy. Work on the Big Four over the past decade, according to media reports, has stimulated not only the energy sector, but also related industries such as Port Taranaki and the services and accommodation sector and retail sector for the influx of additional workers. Where to from here? New Zealand’s estimated remaining producing field reserves in January 2008 were approximately 135 mmbbls oil and 615 PJ gas. Non-producing field reserves contain additional estimated reserves of 147 mmbbls oil and 1,144 bcf gas. But, Duynhoven says, indications are a gas shortage may kick in around 2025. As it is, gas is used to generate approximately 26.5 percent of New Zealand’s electricity generation. The big energy vendors plan to import liquefied natural gas, but the really good news is that with energy supply dynamics changing worldwide, interest in exploration in New Zealand is increasing. Explorers are hunting for a wider range of petroleum products onshore as well as offshore, and they also range further afield than Taranaki into the frontier regions. Coal deposits tests in the Waikato, Westland, Otago and Southland delivered positive results for coal seam gas, and in 2007 the Government awarded the first coal seam gas mining permit to McDonald Investments for its project near Greymouth. In addition, explorers are now targeting the potential of gas shales, gas hydrates, and fuel from petrochemical feedstock derived from coal. Current petroleum policy is five years old. “In this time there’s been significant change in oil prices and a number of shifts in industry issues and practices as a result. We now need to ensure the current petroleum programme maintains pace with the rapidly changing exploration environment in New Zealand,” says Duynhoven. He expects a new programme to be put in place in 2009. Duynhoven believes the current robust pace of exploration will continue well into the next decade. He is especially pleased with the unprecedented level of interest major international oil companies are showing in the half-a-million-square-kilometres Great South Basin. “To attract investment, the Government commissioned an extensive seismic survey of the northern section of the basin. This data was offered freely to explorers, with good results. The value of proposed work in the first five years of exploration in the Great South Basin totals approximately $1.2 billion, double the current total level of exploration expenditure all over the country – on and offshore. And of course a major find would provide a very significant boost for the economy,” he says. Southland Chamber of Commerce chief executive Richard Hays says businesspeople in the region are excited about the possibility of becoming an energy hub. The Great South Basin is one of three potential energy projects in the region. The other two are a coal seam gas prospect in Western Southland and lignite deposits in Centre Southland. “If all three energy finds come to fruition Southland will become a small oil state, the outlook for engineering companies here will be excellent. We will need around 17,000 extra workers by 2015. We are seeing investment for the work done in the area and are cautiously very optimistic,” says Hays. Another major development is the upcoming blocks offer on the Raukumara deep-water basin, near Gisborne. Duynhoven believes the basin holds very good potential for New Zealand. He emphasises the key to sustainability in the petroleum industry is technological advances. “Technology will help us improve the efficiency of our energy use, thus extending the useful life of our resources, while offering greater protection to the environment. “Ultimately, it will help provide us with a stable transition to an eventual non-hydocarbon-based economy, whenever that might occur. I encourage everybody in the sector to continue to embrace and implement new technologies wherever possible.” • Jenny Baker is an Auckland-based freelance writer.

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