The Herald on Saturday ran a big feature on the role of oil in the NZ economy:
Pain at pump offset by $2bn exports
The reason for this is the publication by Edison Investment Research of the first ever New Zealand Petroleum Sector Yearbook [Commissioned by whom? The government?]. The general tone of the article is reassuring or even exciting for anyone who might be concerned about the cost of filling their gas tank- with much of the emphasis going on the fact that NZ has been recently exporting around $2billion worth of oil products a year, certainly I got the impression from the report that things are booming in the NZ oil patch. So I thought I’d have a closer look at the numbers:
Helpfully the Ministry of Economic Development has quite a lot of data on their website. The volumes are Thousands of Tonnes and seem to include every form of petroleum product; all liquids and even LPG. [Note; It isn’t clear whether they are straight volumes or in ‘oil equivalent’ volumes, as different products have different densities and therefore value.]
Lots of interest here. Yes we have been exporting between 1-3mt per year since the mid 1980s, pretty much everything we can produce. And there has been local production since the mid 70s, around the time of the OPEC oil shock. So clearly a fair bit of work has been going on for quite a long time in the hunt for oil in NZ. And output has wobbled about a bit but this is not the most important issue visible in the chart above. The most important point is that these are not net exports; we import way more than either we used to or than we have ever produced. Its that pink line that really matters. We are a member of that most vulnerable of clubs: Net Oil Importing Nations.
The Herald article reports it thus:
The yearbook finds that in 2004 exports from petroleum sales totalled $502 million but by 2008 this had surged five-fold to $2.63 billion.
Good news! By selecting one of the weaker years, both in volume produced and oil price, and comparing it to the highest ever it can look like we’re on to an on going winner. Ok so the purpose of the report is to talk up the prospects of the industry and to persuade us that finding more oil is the best answer to our concerns about our dependence on this increasingly expensive substance. The article does go on to concede that even if much much more was produced here that wouldn’t lead to cheaper fuel -in contradiction of its own headline:
In the local market the upstream exploration and production sector has very little bearing on the downstream market for petrol, Edison analyst John Kidd says.
Actually the the real case is not ‘very little‘ but rather ‘none whatsoever‘; we’ll be paying the market price however much is produced here, especially as we won’t even own it. Regardless, the general tone here is all very bullish- don’t worry it’s all going to be great, that’s certainly the vibe for those only skimming the news. Yet it is clear that what has driven the fluctuations in the production numbers over the last almost 40 years is the geological reality in the field: the first production peak of 1997 reflects the highest ever flow rate of the Maui field which then immediately went into decline. The slightly higher 2008 peak is a result of the Pohokura and Tui fields at or near their highs. And since then these [and other minor sources] have been joined by Maari and Kupe fields. Already all of these fields are producing at a lower rate just a couple of years into their lives [the 2012 figures are lower still]. Saudia Arabia it is not.
Yes but any amount of oil is worth pumping out because the stuff is so valuable. You bet. Though of course those high prices also hold for those 7mt we are importing as well. Looking at that chart with the nation’s general wealth and balance of payments in mind we can all be grateful that the rate of growth in imports of the 1990s didn’t continue until now because then we’ed be importing- and trying to pay for- around 9mt per annum. And because we export everything we find [Marsden Pt refinery can’t use the local stuff- although IIRC that will change] the level of imports flattening off is not a result of finding more locally and pulling it out of the ground, but because we have not been burning it quite so wantonly since those price rises really started hurting around 2005.
It takes a huge amount of work, expertise, and investment to find this oil, and while the government does receive royalties and locals get good jobs along the way much of the value heads off overseas to the foreign investors in the local oil industry [hitting us in the ‘Invisibles’ account, not mentioned in the Herald article]. So while every barrel of local oil does help to offset the ones we import it is not a straight swap in value. We still have to use a huge amount of our precious export returns to pay for this stuff; and it ain’t getting cheaper. That’s a lot of milk.
So what do we do with all this black gold and where could we best put effort into trying to reduce our dependence on the stuff? Here’s where it goes:
Cherry Pie: Another interesting chart. International transport is basically 3/4 Aviation fuel and 1/4 Shipping Fuel Oil. Non-Energy Use is stuff like bitumen, lubricants, and solvents. Very surprised and encouraged that Ag, Forestry, and Fishing is only 6%. There are some other bits and pieces, but wonderfully we don’t burn much of this valuable commodity to heat our homes or make electricity any more [we largely got off that after the little warning provided by the OPEC squeeze of the 70s]. So clearly Domestic Transport is the area that you would target if looking for savings in the oil import bill, so what’s going on here?:
Ok so flying and shipping aren’t the issue here. I think it is pretty clear where this is heading: We’ve struck oil! 9/10 of 2/3 of all that oil we import is all used in cars trucks and trains to move us and our stuff around on land. Not down on the farm, not at sea or in the air, but on our roads and rails. Or 4.3 mt of the 7mt.
Effort and attention to lower this figure while still improving our connectivity is surely as important as looking for new supplies. Yet this idea seems to be considered impossible by the government, if they think of it at all. It’s just not as sexy as ‘Drill Baby, Drill’. And nor does it have a multi-billion dollar industry and well funded lobbyists fighting for it. Indeed it isn’t easy as the structures that we built up in the age of the steep increase in imports in the first chart above, when oil hit the low of 10 bucks a barrel, mean we have little choice or flexibility in how we move things and people.
Well here’s one thing we should do immediately, because we are no longer in the age of cheap oil and likely never will be again, and therefore need to change our ways to face this new reality:
When making decisions around investment in new transport projects the analyses should include calculations of whether or not they help us to significantly change our lives and businesses in ways that reduce our dependence on imported oil. So clearly this would privilege all forms of electric propulsion, but also the much more efficient rail and sea freight over truck freight. As well of course urban, provincial, and intercity public transport. But especially active and electric urban modes where there is growing demand and a high number of, frankly, low value car journeys that could easily be substituted if appealing alternatives were more available.
Individuals and individual businesses have been doing what they can to reduce their exposure to the increasing cost of road travel; we can see this not only in the flattening off of the import line above but also in the flat-lining of the kilometres travelled on our roads since around 2005. A date that precedes the global financial crash but not the start of the steep increase in oil price. But this isn’t enough, individuals and businesses cannot do much more by themselves. They need options to allow them to make the changes that they clearly want to be able to do.
It seems that there is an idea that has a hold in the minds of many who have mostly lived through the age of ever increasing vehicle growth and fuel use that it is in some way causally linked to economic success. But research shows here that is no longer true. In fact the reverse is almost certainly the case now, as we continue our dependence on this increasing expensive input we put our competitiveness further at risk.
The challenge is to grow the economy while reducing our exposure to this input. And if anywhere can New Zealand can; we have a fantastic renewable electricity resource, the sea freight we so rely on for export is a relatively modest user of hydrocarbons, as is the primary production sector, and we have already arrested the growth in waste so now it is time to really turn that pink line in the first chart around. The first step is to let go of the lazy and out of date assumption that nothing can be done, that hydrocarbon use is, as Mr Brownlee says; ‘inelastic’.
Well it will certainly remain fairly inelastic while there is no policy to address this in land transport. The charts above clearly show this where the opportunity lies. The national significance of spending $12 billion on new duplicate highways is increased dependence on oil imports, while at the same time letting a huge opportunity to invest in a better and freer future slip by. Tragic.
I am not calling for us to stop looking for oil, but I am calling for an active effort to reorient our infrastructure away from inefficient and inflexible oil dependence with just as much vigour; the results will almost certainly be quicker, more significant, and longer lasting. We just have to stop thinking like it is still last century on energy and land transport matters. Governments love to talk about innovation, but it is no good just wishing for miracle new technologies while investing in yesterday’s world; there are fresh things we could start doing today, like these Smart policies for example.
Because after all just how valuable that oil we do find is depends on how much we are using ourselves. It’s the net figure that really matters.
POST SCRIPT: Here is a link to the current government’s Petroleum Action Plan. Precisely one half of the problem, looking for more; not thinking anything about how to use less.
Here is a more sophisticated view of the world we are now in: http://gregor.us/policy/the-demise-of-the-car/
‘A paradigmatic shift in global energy usage is underway that has finally become more well-defined, and more visible.’