Tuesday, June 05, 2018

The offshore exploration ban advice

The documents on the government's supposed ban on new offshore oil exploration have been released. A few thoughts:

  • The issue of the decision bypassing Cabinet (which prompted this from me this morning) may have been oversold a little. The initial briefing on the issue notes that "officials have previously recommended that prior to any decision, an oral item is tabled with Cabinet". The Minister followed this procedure (Minute). The problem of course is that deciding not to offer any offshore space is a major policy change, which you'd think would trigger the Cabinet Manual's consultation requirements. But even when that change becomes apparent, officials do not recommend a full Cabinet process. So, the Minister was in that respect doing exactly what she was advised to by the people who ought to know.
  • Officials warned that the ban could have a chilling effect on the sector. Good. That's the point: to make it clear to the fossil fuel industry that their days are numbered and that they had better start planning to be much smaller in twenty years time.
  • One of the main effects of the ban is to screw the seismic survey firms, by massively devaluing their data. What's the value of information that will never lead to a drilling permit? Nothing. So the large and controversial surveys National promoted over the last five years are basicly wasted. This should have its own chilling effect on future exploration activity.
  • MBIE tries to claim that ending exploration will have a negligible effect on domestic carbon emissions. At the same time, they raise the threat of Methanex shutting down its production due to "uncertainty" - something that appears to be in train anyway given the current state of gas reserves. Methanex produces ~2.4 million tons of methanol - a bulk commodity which MBIE calls a "high technology, high value export" along with milk powder - and that in turn produces approximately 1.6 million tons of carbon dioxide, or about 2% of our total national emissions. So, its shutdown would result in significant and immediate emissions reductions. Incidentally, thanks to a sweetheart deal from National, we pay for those emissions, so ending it is a double benefit: we end pollution, and we stop paying for it. I'd call that a win.
  • MBIE also worries a lot about "carbon leakage" as a result of the above. This of course is predicated on China doing nothing to limit its emissions, a proposition which is looking increasingly ludicrous.
  • MBIE's initial paper bears a strange resemblance to talking points sent to them by New Zealand Oil & Gas, a polluter company. Funny that. I guess MPI isn't the only regulatory agency captured by those it is supposed to regulate.
  • But in addition to capture, there's another issue: if the government's program to gradually down-size and strangle the oil industry is successful, then the government bodies which regulate it, including MBIE and NZPAM, will face a similar downsizing. After all, you don't need a regulator when there's nothing to regulate. So those MBIE officials arguing against decarbonisation are effectively arguing to keep their own jobs, and their advice should be viewed accordingly.