Emissions reduction project first victim

September 26, 2018

The government’s misguided ban on off-shore oil and gas exploration has claimed its first victim:

The government’s proposed ban on new offshore exploration looks likely to halt plans by Methanex for a $100 million-plus emissions reduction project at its Motunui plant.

The company uses natural gas to make methanol and had been considering a project to recover and re-use CO2 from its production processes in order to reduce emissions per tonne of product.

But that project is now unlikely to proceed due to uncertainty about the longevity of affordable gas supplies in New Zealand, says John Kidd, director of sector research at Woodward Partners.

“This is a project that should have been an absolute slam-dunk,” he said. “It’s good for emissions, it’s good for the economy and it’s good for gas continuity.”

Unlike the ban which is bad for emissions, bad for the economy and bad for gas continuity.

Vancouver-based Methanex is the world’s biggest methanol maker and the biggest gas user in New Zealand.

Methanex New Zealand declined to comment on the emissions reduction project. In July it said it had secured sufficient gas to meet half its New Zealand requirements through to 2029, but noted its disappointment with the exploration ban which it said would impact it long-term.

Kidd said carbon dioxide recovery would be a good project, but it required a long pay-back period. Methanex refurbishes its production trains every five years and the uncertainty the government policy change has created means it would struggle to justify investments needing more than five to 10 years to pay off.

Kidd says it is an example of the environmental costs of the proposed ban, which he believes is more likely to increase emissions than reduce them.

The potential for carbon leakage as New Zealand-made products are replaced with products made overseas is “absolutely real”, he said. The fact the coalition is proceeding with the ban shows the government is more focused on shutting down the country’s oil and gas sector earlier than would have been the case, rather than reducing emissions.

“All of the scenarios are negative – some of them dramatically so,” Kidd told BusinessDesk.

“And the policy objective of reducing emissions is actually worse.” . .

If the policy was going to have a positive environmental impact it might, just might, be justified but it will make emissions worse.

Oil and gas account for just over half the country’s primary energy supplies. Kidd noted that gas – produced as methanol – brings in more than $1 billion in exports. When converted to urea it displaces about $200 million of imported product, while locally produced LPG displaces about $200 million of imported fuel.

The ban loses billions in foregone income, will lead to job losses, will increase emissions and reduce fuel security.

It combines rank stupidity with political posturing at a high environmental, financial and social cost.


What are the benefits?

June 6, 2018

The decision to ban future offshore petroleum exploration was a political one that didn’t go before Cabinet:

The Cabinet has made no decision on ending oil exploration, documents being released today will show, with April’s announcement made on the basis of a political agreement between the coalition parties.

On April 12, Prime Minister Jacinda Ardern led a group of ministerial colleagues into the Beehive theatrette to confirm news that the Government had decided it would offer no new offshore permits for oil and gas exploration, with onshore permits offered in Taranaki for as little as three years.

Although the news was delivered by ministers affected by the decision and in a forum usually used to discuss decisions made by the Cabinet, politicians made the decision in their roles as party leaders.

Today the Government will release a series of documents generated in the making of the oil and gas exploration decision, but it has already confirmed to Stuff that no Cabinet paper was created and that the Cabinet has not voted on the matter. . . 

We already knew this major decision with large and detrimental economic, environmental and social impacts was made without consultation with affected parties.

Now we know it was a political decision made without even consulting with Cabinet.

That is no way to run a government or a country.

But wait, there’s more and it’s worse – MBIE produced a paper that warned of the detrimental impacts of the ban  which include but aren’t limited to:

* Increased risk to security of future gas supply to major gas users, most notably Methanex at a time when New Zealand has its lowest reserve to production ratio since the Maui reserve re-determination of 2003. The lead time from exploration success to commercial production takes years, so it is not possible to simply turn on gas supplies once they become tight.

* Increased gas prices to consumers following an tightness in future gas supply.

* Increased uncertainty for major gas users in the industrial sector that rely on gas as an input to their processes.

* A negligible impact in reducing domestic greenhouse gas emissions but a likely increase in global gas emissions (from methanol produced from gas in New Zealand being displaced by methanol produced from coal in China). It also removes the opportunity, both domestically and internationally, of any future gas discovery being used to displace coal.

A negligible impact in reducing domestic greenhouse gases and a likely increase in global gas emissions?

This isn’t thinking globally, actIng locally. This isn’t thinking at all.

* Increase perceptions of sovereign risk as this would mark a Marjory policy shift.

* Potentially accelerating decommissioning timeframes, alongside the associated Crown liabilities (measured in the hundreds of millions of dollars) for a portion of these decommissioning costs that represent the amount of taxes and royalties that have effectively been overpaid over the life cycle of the field’s production. . . 

* A detrimental economic impact on the Taranaki region. Methane alone contributed 8 percent of the regional economy of Taranaki in 2017. Methane will be the first company affected by future tightness in gas supply. . . 

To sum up, the ban increases risk around security of supply, costs to consumers and global gas emissions and reduces Crown revenue from future royalties and decreases economic activity in Taranaki.

Added to the detrimental impacts MBIE lists, are decreasing trust in the government and increasing jitters over the Labour, NZ First, Green coalition which now looks more like an Ardern-Peters-Shaw dictatorship.

If it can do this to the energy business and Taranaki without warning or consultation what might it drop on other businesses and other areas?

And the benefits?

I can’t think of any that justify the economic, environmental and social sabotage of the ban and the way it was delivered by decree.


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