Saturday, December 4

Energy chiefs say the bill poses a risk to electricity supply

Energy chiefs say the proposed legislation, designed to toughen rules on decommissioning oil and gas wells, risks creating a deficit in electricity generation.

Oil and gas drilling rig on land (stock photo)

File photo.
Photo: 123rf

They say the Crown Minerals amendment bill (decommissioning and other matters) is a knee-jerk reaction to the collapse of Tamarind Taranaki, the owner of the Tui oil field, and will drive away vital new investments in the sector.

Tamarind Taranaki collapsed in December 2019, leaving the Crown with a $ 300 million bill to safely dismantle Tui Field offshore.

The government says the bill will close loopholes that allowed Tamarind to abandon her responsibilities.

If enacted into law, it would hold companies liable for decommissioning costs in perpetuity, even if the permits or licenses had been sold, and would make company directors criminally liable for failing to comply with decommissioning obligations, even if they had left office since then.

It would also subject oil and gas companies to stricter financial scrutiny and require them to withhold funds to cover decommissioning costs.

The managing director of NZ Oil & Gas, which has a 4 percent stake in the Kupe gas field, Andrew Jefferies, said the new rules were required, but the bill went too far.

“If at some point you generate any activity, you immediately run a risk that can never go away, then it becomes very difficult to come and take the activity in the first place.

“And it is not something that happens in other jurisdictions that this reaches with the type of criminal responsibilities that is talked about here.”

Jefferies said the bill could also have unintended consequences for the security of electricity supply.

He said that when the water storage lakes were low, the sun was not shining and the wind was not blowing, something more was required.

“If we don’t want to burn coal then we will need gas otherwise you will have to over-build or build capacity in some other way that will be extremely costly for people and add a lot of money, a lot of cost to people, energy bills. So That’s really where the rubber from the electricity hits the road. “

Jefferies said the way the legislation was written would drive away the investment needed to get known gas resources out of the ground.

It would also discourage investors in renewable energy, such as offshore wind, because they too will be subject to these onerous decommissioning costs, he said.

OMV New Zealand is the largest gas producer in the country, owning a 74 percent stake in the Pohokura gas field and owning Maui.

In a statement, CEO Henrik Mosser said that no other comparable country has taken this kind of approach.

“Farm owners could be forced to lock money in securities for many years, and they will also face additional operating costs through new levies.

“All of these additional layers could jeopardize investments that would otherwise be made to extend the life of gas fields.

“This is a crucial point given that no new offshore permits have been issued since 2018, and the last onshore permits were issued this year.”

Mosser said the Climate Change Commission had recognized that gas would be vital to the transition to a low-carbon economy, while power generators Meridian and Genesis have said gas would be needed for electricity production well into the decade. 2030.

Todd Energy, New Zealand’s largest onshore gas player, declined an interview, but his legal adviser Stuart Barraclough made the company’s position clear during recent select committee hearings on the bill.

He also argued that the proposed legislation scares investors concerned about sovereign risk or national risk, terms that describe a government that unexpectedly changed the rules.

Barraclough said an investment was urgently needed.

“The current infrastructure is not sufficient to obtain known gas reserves. Permit holders are required to invest hundreds of millions, if not billions of dollars, over the next decade to access known gas reserves.”

Barraclough said it was widely supported that natural gas would support a transition to renewable energy, but that gas-fired electricity, including peak plants, would be needed for many years to support the power grid during seasonal periods when power sources renewable were inconsistent.

“Todd Energy believes that the lack of natural gas will affect the affordability and safety of electricity, leading to power outages and possibly increasing the cost of electricity for consumers.”

Taranaki Energy Watch spokeswoman Sarah Roberts supported the bill.

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Sarah Roberts, spokesperson for Taranaki Energy Watch.
Photo: RNZ / Robin Martin

“Given that the oil and gas industry is saying that they are good corporate citizens, I think it is a fairly reasonable expectation of the Crown to expect them to comply with the decommissioning obligation and I think it has always been implied that they do and it actually is. written in various documents, but it only makes that obligation explicit. “

She said the proposed legislation was fit for purpose and was selected from the best similar regulation around the world.

The Select Committee for Economic Development, Science and Innovation will report on the bill in November before its second reading in Parliament.

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