The coalition government recently announced a plan to transition to a carbon neutral future. One that will look 30 years ahead.
But what exactly are the implications for the NZ oil and gas sector and transformation of our industry?
Join us as we take a closer look – because it’s very clear that we certainly need to be prepared and brace ourselves for change.
This is not a ‘head in the sand’ scenario.
Climate change and the oil and gas industry
The upstream oil and gas sector contributes over $2.5 billion to New Zealand’s Gross Domestic Product (GDP), with oil exports worth approximately 1.5 billion per annum yielding approximately $500 million in royalties and income tax for the government annually.
This sectors workers earn twice the national average salary, create seven times the average value earned per annum and accounts for 30% of Taranaki’s GDP and 2% of regional employment. It’s also one of the key reasons Taranaki has the highest regional GDP per person in New Zealand.
As a fossil fuel, oil and gas poses a significant threat to the environment and creates a climate change issue. The New Zealand government has recognised this, recently committing to carbon reduction targets via the Paris Agreement in 2015. To meet these obligations, the Labour-led New Zealand government has now decided to end issuing new offshore oil permits as a first step.
They’re committed to becoming a net zero emissions economy by 2050 with the interim step of making electricity systems 100% renewable by 2035. Claiming they’ve looked at the needs of security of supply and ongoing regional employment to fulfill this goal with recent decisions made.
One of the pathways identified to achieve this objective is to encourage and incentivise innovation and investment in clean green carbon systems. However, the government maintains that all 57 existing exploration and mining permits will remain protected – many valid for decades from now.
The Taranaki transition
About 4,500 people are employed directly in the oil and gas exploration industry and with related industries it accounts to about 11,000. The bulk are based in Taranaki, as an established oil industry for over a century. Prime Minister Jacinda Ardern said none of the jobs in the industry would be immediately affected by the decision, but the landscape would change down the track.
On 6 April, Shane Jones announced almost $20 million in funding from the provincial growth fund, mostly to improve tracks on Egmont National Park and improve the Taranaki Cathedral as a tourism destination. A decision met with shock for the region’s bread and butter industry – not just across the Taranaki region but across New Zealand. Not surprisingly, questions around job security and regional stability have been raised.
HERA has long maintained the view that our industry needs to prepare for change. Whilst this announcement from our government sends disturbing ripples across industry and region – it’s not unexpected. Bracing for change and disruption and preparing ourselves to meet them head on (even if uncomfortable), is still within the realms of possibility.
We know, this inevitable disruption will affect our Taranaki members working in this sector. When talking to one of our members from the region Fitzroy Engineering Managing Director Richard Ellis, he said “The skill sets we have here are oil and gas ones. Unless there’s another type of industry which requires these types of guys – they’ll be gone from the industry and gone from New Zealand.”
Where to from here?
The government’s aware of the repercussions of their policy on the regional business community and maintains skilled expertise of this sector can be turned to more environmental and economically sustainable enterprises. Examples cited include transfer of mining skills from oil industry to mine silica for solar panels and expertise of oil and gas workers for infrastructure upgrade projects such as provision of water.
However, reducing future opportunities in striking oil may carry the parallel risk of striking workers off jobs too.
To strike the right balance, it’ll be imperative they provide a clear plan and pathway to support regional businesses in this mammoth transition. We support our members’ concerns that the path for transformation is not clear, nor their plans to assist industry transformation.
That’s why we maintain an advocacy position which promotes transferability of skills into sustainable energy sectors in consultation with our members – push to develop pathways for effective government investment and industry transitioning.
To make this work, businesses need to call on innovation initiatives internally and change mindset towards long term business development. During this time we’ll be pushing to work collectively with government and members in the region to drive innovation and incentivise investment into new technologies.
Last year, we undertook a research partnership approach that didn’t get industry commitment to support long term innovation. Prior to this, we also led a government co-funded clean energy initiative to drive innovation that didn’t take seed due to a lack of sustained funding. In hind sight these were missed opportunities to be well prepared for this very disruption.
The government needs to acknowledge this pulse of our industry and respond through dedicated systems and mechanisms that guarantee long term commitment for industry growth that reward innovation.
In the meantime, we’ve taken it on our shoulders to develop a bespoke innovation course that specifically addresses this challenge. We strongly encourage members to consider attending – particularly those in the oil and gas sector, or those who may face similar disruptions in their current industry sector focuses in the future.
Time to seek new business models?
The oil and gas sector is a significant contributor to the New Zealand economy and faces disruption due to the latest government policy announcements on carbon reduction targets. Our industry needs to be prepared for this through innovation approaches and investment into sustainable energy sectors.
We know this is easier said than done, given we attempted to lead such change in the past with no success. Industry transformation of such scale is often daunting and seems unachievable while balancing day to day operations and survival. But the alternative of ‘business as usual’ is bleak if disruptions of this magnitude continue.
HERA remains committed to achieving a sustainable future for our members in this industry and urge government to support industry transformation endeavours. We need more engagement on how they’ll transition the industry to new business models and apply their expertise and capability to new technology platforms. We hope they realise this requires significant, substantial and sustained support!