Following continued
declining natural gas production and a 2018 ban on offshore drilling, New
Zealand is moving back towards natural gas. Both new drilling and LNG imports
are expected to occur as the 2018 ban is lifted and LNG has been given consent
by the center-right government. Reuters reports that according to New Zealand’s
energy minister “natural gas production fell by 12.5% in 2023 and a further
27.8% in the first three months of 2024, triggering a nationwide energy
shortage as generators switched to more coal and diesel to power the grid.”
The Taranaki Basin: Main Source of New Zealand Natural
Gas and Oil
The Taranaki
Basin is a Cretaceous rift basin on the West Coast of New Zealand that extends
both onshore and offshore. Extensional stresses during the breakup of
Gondwanaland led to the rifting. Production from the basin makes up the
majority of New Zealand’s hydrocarbons. 70% of the production is natural gas. The total reserves discovered are about 1.8 billion barrels of oil equivalent (BOE). Around
400 wells have been drilled in about 20 fields. Due to the complex history of the basin, there are several different kinds of plays and traps, mostly
structural. Cretaceous marine shales and coals are the source rocks. The
multitude of play and trap types and the small number of wells drilled suggest
that there are more hydrocarbons to be found in the basin. Structural play types
include thrust fault traps, inversion structures, extensional structures,
half-graben fills, stratovolcano flank traps, submarine fans, and
diagenetically altered sandstones. The variability in play types, trap types,
and rock mechanics means that each field may be much different. As can be seen
on the maps the fields tend to be small and discontinuous.
A 1997 article by
Richard Cook and Roger Gregg in the Oil & Gas Journal describes the geologic
setting in terms of tectonics and stratigraphy for the Taranaki Basin:
1. Late Cretaceous to Paleocene intra-continental rift
transform, characterized by nonmarine sedimentation in restricted,
fault-controlled basins. These sediments include important coal measure source
rocks.
2. Eocene to Early Oligocene passive margin, associated
with post-rift thermal contraction and regional subsidence. Basinwide
sedimentation patterns were characterized by comparative tectonic quiescence,
peneplanation, and marine transgression. Coal measures and well developed
sandstones in the marginal marine setting contain proven source and reservoir
rocks.
3. Oligocene to Recent pericratonic basin, straddling the
outer limit of broad-scale deformation associated with the evolution of the
Australia-Pacific convergent plate boundary through New Zealand. Throughout the
Neogene, the basin has been part of the Australian Plate, and evolved with two
tectonic settings: active margin (Eastern mobile belt) and passive margin
(Western stable platform).
Maui Offshore Gas Field: Once the Biggest Field, It is
Now Depleted
The offshore Maui
gas field offshore of the North Island in the Taranaki Basin began full
production in 1979. Two platforms were operated. By 2005 it was considered over
90% depleted and production has dropped off considerably as seen below. However,
in 2014, reserves for the field were recalculated, suggesting there is more gas
to be produced. By a wide margin, the Maui field had the highest ultimately
recoverable reserves of both oil and gas. However, its remaining reserves are
now thought to be much smaller than most other fields. In an exploration sense,
finding another Maui field or two in the Taranaki Basin area would be a
solution to the dilemma.
Gas Production Decline
New Zealand’s natural
gas production is expected to drop below demand very soon. It is expected to be
about 10 petajoules (PJ) below the total demand of about 150 PJ for the next three years.
Usable gas reserves for the country are estimated at just 8.7 years. New
Zealand mainly relies on hydro (~60%), geothermal (~15%), and natural gas (~9%)
for electricity. Wind and solar are minor sources but are growing. Natural gas
is also used in industry, particularly the chemical industry. The gas shortage
is already affecting some industrial users. Most of the drop in estimated reserves
is due to use through time but over half is due to a recent re-evaluation by field
operators who adjusted reserves downward by about 185 PJ or about 1.25 of
usable reserves. In any case, this is quite concerning for anyone depending on
natural gas. It is an unsustainable situation. The Ministry of Business,
Innovation, and Employment reports:
“Of all the gas used in New Zealand in 2023, the majority
was used by the industrial sector, either being burned for heat (35% of all
use) or being used as a feedstock (26%) in factories. Around 29% of gas use was
for electricity generation, and the remaining 10% of use represented use by
households, schools, hospitals, and other businesses.”
New Zealand’s Primary Energy Use by Source and
Electricity Mix
Below are some graphs showing New Zealand’s primary energy use by source and its electricity mix by source. These are from the New Zealand government, Our World in Data, and Energy Institute's Statistical Review of World Energy.
The 2018 Offshore Ban and Its 2024 Lifting: Will Companies
Drill?
Jacinda Ahern’s
left-leaning government enacted a ban on offshore drilling in 2018. Companies have
been increasing spending and drilling development wells in New Zealand, but the
new wells have not performed well. It was originally hoped that the
weather-based renewables: solar, wind, and especially hydro, would make up any
shortfalls in the power sector, but that has not happened. Hydro has been impacted
by low water levels. Solar and wind have been underperforming as well. Electricity
prices have risen due to the gas shortage.
Now in 2024,
the cabinet of the government has agreed on some changes including lifting the
2018 ban and giving consent to build a new LNG import facility, which would be
the first in the country. Perhaps, if they had continued exploration and
drilling at pre-ban levels, they could have staved off the need to import LNG. Importing
LNG is significantly more carbon intensive than producing domestic gas and
pipelining it to where it is needed. It is yet another case in which environmentalism and climate change-influenced policies will likely lead to
more emissions than if the policy was never enacted. Fast-tracking permits are
also on the table, not only for natural gas development and the LNG terminals but also for renewables permitting and development.
Since most of New Zealand’s gas has come from offshore, the ban was immediately impactful. Not only was exploration banned by development drilling to extend fields was too. The ban did exclude a part of the area off of the west coast of the North Island in Taranaki. The ban reversal was strongly condemned by environmental groups and the country’s Green Party. In the past, climate activists and Greenpeace have targeted offshore drilling in New Zealand.
As noted, new exploration and spending on new wells failed to increase supply in recent years. Below is an analysis of cost and supply increases from 2016-2020 and 202-2024 showing the particularly poor results in the past four years. Significantly more gas was found at less than 30% of the cost in 2016-2020 compared to 2020-2024.
An Exploration Opportunity?
The previous
ban suggests that if a left-leaning government returns to power, the ban could
be re-enacted, leaving explorers stranded in monetizing the resources in which they
have invested. This creates regulatory uncertainty. However, with a clear gas
shortage that is affecting gas prices and electricity prices, there is a clear
need to increase natural gas supply.
These types
of structural plays require significant exploratory spending with extensive seismic
surveying and geologic modeling. Building new drilling and production platforms
is also time-intensive. Thus, exploring for, drilling, and producing new wells
is likely to take longer than building a new LNG import facility, which could
be built adjacent to an existing offshore platform.
It remains to
be seen if and when exploratory drilling will increase as a result of the ban
being lifted, but it is likely to happen.
References:
Govt
to automatically consent natural gas import facility. Marc Daalder. Newsroom.
August 26, 2024. Govt
to automatically consent natural gas import facility - Newsroom
NZ is
running out of gas – literally. That’s good for the climate, but it’s bad news
for the economy. David Dempsey, Jannik Haas, and Rebecca Peer. The
Conversation. August 12, 2024. NZ
is running out of gas – literally. That’s good for the climate, but it’s bad
news for the economy (theconversation.com)
Oil
and gas industry in New Zealand. Wikipedia. Oil
and gas industry in New Zealand - Wikipedia
Gas
Statistics. New Zealand Ministry of Business, Innovation, and Employment. Gas
statistics | Ministry of Business, Innovation & Employment (mbie.govt.nz)
Petroleum
in New Zealand. New Zealand Petroleum and Minerals. Petroleum in New
Zealand - New Zealand Petroleum and Minerals (nzpam.govt.nz)
New
Zealand to Reverse Oil and Gas Exploration Ban, Ease LNG Import Rules. Pipeline
& Gas Journal. August 26, 2024. New
Zealand to Reverse Oil and Gas Exploration Ban, Ease LNG Import Rules |
Pipeline and Gas Journal (pgjonline.com)
From
wellhead to burner - The New Zealand Gas Story, Gas Industry Company Limited. August
2014. https://www.gasindustry.co.nz/assets/DMSDocumentsOld/speeches/4488nz-gas-story-presentation-wellington-7-august-2014.pdf
Our
Energy Mix. Energy Resources.org. Our
Energy Mix | Energy Resources Aotearoa
The
Importance of Oil and Gas to New Zealand. Energy Resources.org. The
Importance of Oil & Gas to the New Zealand Economy (energyresources.org.nz)
New
Zealand: Energy Country Profile. Hannah Ritchie and Max Roser. Our World in
Data. New
Zealand: Energy Country Profile - Our World in Data
Overview
of New Zealand's petroleum systems, potential. Oil & Gas Journal. January
6, 1997. Overview
of New Zealand's petroleum systems, potential | Oil & Gas Journal (ogj.com)
Geology
of New Zealand. Wikipedia. Geology of New
Zealand - Wikipedia
Taranaki
Basin. Wikipedia. Taranaki
Basin - Wikipedia
Maui gas
field. Wikipedia. Maui
gas field - Wikipedia
Gas
production forecast to fall below demand. New Zealand Ministry of Business,
Innovation, and Employment. July 11, 2024. Gas
production forecast to fall below demand | Ministry of Business, Innovation
& Employment (mbie.govt.nz)
Electricity
sector in New Zealand. Wikipedia. Electricity
sector in New Zealand - Wikipedia
New
Zealand Petroleum Basins. New Zealand Petroleum and Minerals. Part 1. New
Zealand's Petroleum Basins - Part One (nzpam.govt.nz)
New
Zealand Petroleum Basins. New Zealand Petroleum and Minerals. Part 2. New
Zealand's Petroleum Basins - Part Two (nzpam.govt.nz)
Bill
to resume oil and gas exploration set for later this year. RNZ. June 9, 2024. Bill
to resume oil and gas exploration set for later this year | RNZ News
The
end of offshore oil and gas exploration in NZ was hard won – but it remains
politically fragile. The Conversation. May 8, 2023. The
end of offshore oil and gas exploration in NZ was hard won – but it remains
politically fragile (theconversation.com)
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