PEANZ executive director Mike Patrick says significantly increased levels of government funding is needed to give New Zealand the best possible chance of finding more traditional energy resources, including more gas, to replace the faltering Maui field.
"This is far preferable to burning coal to cover the (predicted energy supply) shortfall as coal contains much more carbon than gas and, when burnt, raises the levels of greenhouse gases in the atmosphere."
Patrick says one of the most effective ways the Government can assist the exploration industry is to give priority to its own Foundation of Research, Science and Technology energy strategy, emphasising research programs aimed at increasing the discovery rate for oil and gas now that Maui (this country's largest energy resource) is nearing the end of its economic life.
The Government also needed to consider waiving petroleum royalties in certain circumstances, to enable marginally economic gas fields to be brought quickly into production. "While we're not suggesting the government waive this royalty completely, we are suggesting it look at each new find on a case-by-case basis so it is more attractive for companies to invest in this area."
Patrick said any waiver would only be for the short term to encourage the discovery of the fields needed to replace Maui, which is now expected to run out 2.3 years earlier than the contract 2009.
Another option would be for the government to adjust its royalty regime for already producing fields to extend their economic life.
Patrick told EnergyReview.Net that revisions to the existing royalty regime could be done by changing the Crown Minerals program, which would take 18-24 months.
He denied having any specific fields or prospects in mind when making this call, though obvious candidates are the undeveloped marginal Kupe gas-condensate field off south Taranaki (for bringing on new production) and the Maui mining licence (for extending the life of existing fields).
He also suggested changing the Maui gas sales contracts to allow a scaled increase in the real price of Maui gas for a few years, to hopefully encourage the exploitation of presently identified but undeveloped prospects and structures. This could effectively extend the life of Maui by perhaps several years.
"Fields are not closed because they literally run out of gas, but because of dwindling economically recoverable reserves," Patrick said from Wellington.
Increases in the wellhead/wholesale Maui gas price are presently limited to half the rate of inflation, which means Maui gas is becoming cheaper in real terms as the field runs down, the opposite of what usually happens.
Other commentators have also suggested the government forego its Maui energy resource levy (of 45c per Gigajoule of gas), which amounts to about $NZ35-40million a year, and use that money to spur additional exploration. Total government royalty and levy takes on petroleum production nets about $NZ130 million per year.
Associate energy minister Harry Duynhoven said from the Capital that he was encouraged by the increasing levels of international interest in New Zealand as an exploration destination, as evidenced by the recent onshore/near-shore Taranaki blocks program. There should also be continued investment, by such government organisations as Crown Minerals, in publicising opportunities like the deepwater Taranaki acreage offered recently.
There would be plenty of gas if Methanex - this country's largest single gas user - left New Zealand, though it was not inevitable Methanex would shut down despite there not being suitable significant amounts of gas on long-term contracts after Maui.
Duynhoven, whose home city is New Plymouth, knew how much the petrochemical producer contributed to the regional and national economies. Methanex New Zealand operations contribute about $NZ40 million a year to the Taranaki economy.
However, he conceded further alternatives or incentives might be needed if a gas shortage looked likely.
"As explorers go into deeper water and as technical complexities increase there will have to be price increases of some sort, though I am also hopeful of some good discoveries within the next few years."
