Drill baby drill

November 19th, 2009 at 7:00 am by David Farrar

Gerry Brownlee has announced an action plan for unlocking and maximising New Zealand’s petroleum potential, primarily offshore.

“New Zealand’s largely unexplored petroleum resource could be one of the country’s most significant economic opportunities. A successful and flourishing petroleum industry will be a significant and essential contributor to lifting New Zealand’s economic performance going forward and to improving the quality of life for all New Zealanders,” he said.

Currently the petroleum sector accounts for around $3 billion per annum of New Zealand’s export revenue. Should the estimated resources in our unexplored basins be developed, this could increase to $30 billion per annum in export revenue by 2025. Crown receipts alone could increase to more than $10 billion per annum over the next 40 years.

That would help take care of the deficit!

As I have said before, if we want to be able to fund the same level of healthcare, of universities, of schools as Australia, we need to be increasing our national wealth. All power to Gerry.

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47 Responses to “Drill baby drill”

  1. andrei (2,506 comments) says:

    I hope this is right and that this resource is not just wishful thinking on the other hand there are those sad individuals who might prefer that it doesn’t pan out

    But the Greens are worried a sudden expansion of exploration could see the sector develop without proper environmental safeguards. Co-leader Russel Norman said the move also flew in the face of Government rhetoric on climate change.

    “On the one hand they’re talking about reducing carbon emissions, and on the other releasing millions of tonnes of hydrocarbons into the atmosphere.”

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  2. Pete George (22,863 comments) says:

    That would be ironic, drill for oil to pay for our carbon commitment. Won’t take long to pay that $100b.

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  3. Captain Crab (351 comments) says:

    Perhaps we should be digging up all our Gold and using it to back our Currency?

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  4. Brian Smaller (3,998 comments) says:

    No No No. Wont somebody think of Gaia?

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  5. Pete George (22,863 comments) says:

    Digging up old politicians won’t fix our parliament. Please note, Winston.

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  6. the deity formerly known as nigel6888 (856 comments) says:

    How dare we continue to rape and pillage the environment! This is such a white, western 19th century paradigm, dont these politicians realise that real kiwis care about the planet!

    Of course the idea that NZ could generate wealth, and use that wealth to reduce debt, pay for roads, hospitals, electricity supply, education, etc etc is also a wrong-headed approach to sustainability…etc etc

    What will other countries think of us! Think of our reputation!

    Its not as if any of those countries have made the slightest move to abandon their economic development of course, but thats different, kiwis have to show LEADERSHIP! Then the world will follow US! … um… maybe

    Greenies, sabotaging the economy and bringing you subsistance living for over 60 years!

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  7. stephen (4,063 comments) says:

    As I have said before, if we want to be able to fund the same level of healthcare, of universities, of schools as Australia, we need to be increasing our national wealth.

    Norway chucks all their oil revenues into capital for their super fund – not a bad way to go (in the sense of building up capital, somewhere) as opposed to looking longingly at what is a non-renewable and thus temporary funding stream ‘for increasing funding of various sectors for a while until the oil runs out’

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  8. Murray (8,838 comments) says:

    Cue wailing and knashing of teeth from the watermellons.

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  9. MikeNZ (3,234 comments) says:

    I agree Stephen we should look long term with any oil revenues not just the current account.
    Our Govt needs to live within our means and we need to too.
    How about we (NZ) own the refinery that converts the oil to petroleum products too, that way we cut out the middleman or should I say 7 sisters!
    OH and the Dialama can open it for us :-)

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  10. starboard (2,475 comments) says:

    fuck up and fuck off green slime party…oohh yeah bring on the fossil fuel….

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  11. Short Shriveled and Slightly to the Left (762 comments) says:

    Start the drilling!

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  12. malcolm (2,000 comments) says:

    Good news.

    I’m a little puzzled and it’s not explained in that article as to what existing impediments are stopping oil/gas exploration companies. I thought a company could rock up to the Govt and apply for an exploration licence. When/how did this unfavourable situation come about?

    Lots of scaremongering from the Greens this morning about the risks of off-shore drilling etc. As usual few decent counter-arguments advanced on the CO2 front. Not sure why. There are plenty. E.g. Canadian tar-sands are being mined economically with an oil price of $60 and that’s a very dirty and energy-hungry process. Any conventional oil is going to have a lower carbon footprint than that stuff and as such should be considered a good thing.

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  13. dad4justice (7,791 comments) says:

    Oh great stuff Gerry as 2010 looks to be a record year for kiwi unemployment and just maybe the dole queue could join the oil rigger brigade. Just think of the great fishing spots under the rig, it’s a win win and while we’re at it we should haul out the huge reserves of gold just sitting in the ground on the West Coast. Jobs Gerry, remember the old school mate! Rock smashs watermelon.

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  14. malcolm (2,000 comments) says:

    Given NZ’s propensity for destructive welfare and deficits, could we become the first developed country to be ruined by oil and gas? A Venezuela of the South Seas?

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  15. big bruv (13,315 comments) says:

    OK, seeing as nobody has raised it yet I will do so.

    Seabed and foreshore + the discovery of $30 Billion in oil reserves = Another shit fight over who ‘owns’ the oil.

    Mowree will be all over this like a rash.

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  16. MikeNZ (3,234 comments) says:

    do i see a John Key deal here?
    Pay the Maori $30bn and it’s all over for any claims ever?

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  17. big bruv (13,315 comments) says:

    If this oil wealth does indeed exist it could well spell the end of the Greens.

    Can you imagine how the average Kiwi will react when they hear Comrade Norman tell them we should leave the oil in the ground and turn our backs on a far superior standard of living because it will be ‘good for the planet’.

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  18. dime (9,465 comments) says:

    bruv – article 3 of the treaty suggests that the maori own the oil. i believe the wording is “gimme gimme gimme”

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  19. dog_eat_dog (743 comments) says:

    Perhaps we should just keep the oil and insulate our economy when everyone else starts paying through the nose?

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  20. gazzmaniac (2,317 comments) says:

    If you want to get highly qualified New Zealanders back in to the country, this is the right way to do it. At the moment most of my university class is in Australia making the states of Queensland and Western Australia a lot of money.

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  21. malcolm (2,000 comments) says:

    Perhaps we should just keep the oil and insulate our economy when everyone else starts paying through the nose?

    That’s an interesting mental economics exercise. I’m pretty sure it’s a bad idea, but why?

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  22. gazzmaniac (2,317 comments) says:

    Because limiting trade limits the opportunities for people to generate their own wealth

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  23. Andrew W (1,629 comments) says:

    All good as long as the government leaves the risk with the oil companies as doesn’t start gambling with my money.

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  24. Clint Heine (1,563 comments) says:

    Damn you Farrar, that was the title of my blog post too!

    I don’t know if I trust the Nats, who spend like drunken sailors at the moment, to use this money for good not evil. :)

    Does anybody have a wish list of what we could do for NZ with this sort of money? My first wish would be to eliminate income tax! *That* would fuck off the Greens even more….they would never be able to try to get their hands on our own money again!

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  25. somewhatthoughtful (452 comments) says:

    so we’re going to tax the buggery out of this as well given how these are our scarce resources and can only be used once etc. etc. and if they’re that important then we should be able to charge for it, right? You guys would love it, fund a 30% top tax rate from a 50-60% oil tax rate. If it’s still feasible then, then we know we could probably get away with 70%

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  26. stephen (4,063 comments) says:

    .they would never be able to try to get their hands on our own money again!

    …until the oil ran out? Was the Norwegian idea (the principle, not the specific use) i posted at 8-12 a good idea or bad idea?

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  27. malcolm (2,000 comments) says:

    Because limiting trade limits the opportunities for people to generate their own wealth

    Yeah sure, but the extra wealth generated in NZ (say 30% of gross oil company revenue + related economic activity, jobs created etc) my be insufficient to cover the extra cost to the economy of not having the cheaper subsidised fuels.

    I agree with your conclusion but it’s interesting to think how it works. If NZ were a low-value economy and lots of production was based on oil, then it might be the case that cheap ring-fenced oil could be better than selling it on the open market. Particularly as govt only gets a slice of the profits – the majority go to the (mostly likely foreign) oil company.

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  28. stephen (4,063 comments) says:

    OTOH maybe paying off debt would be best?

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  29. Andrew W (1,629 comments) says:

    “Should the estimated resources in our unexplored basins be developed,..”

    In the oil industry “estimated resources” means “wild guess with absolutely no evidence to support it”, when they find a little evidence they use the term “possible reserves”.

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  30. Brian Smaller (3,998 comments) says:

    How about living within our means.

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  31. stephen (4,063 comments) says:

    In the oil industry “estimated resources” means wild guess with absolutely no evidence to support it, when they find a little evidence they use the term “possible reserves”.

    Haha yeah obviously a lot of people are spending this money already, must be a part of the oil companies’ PR strategy to get the public behind them :-)

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  32. malcolm (2,000 comments) says:

    How about living within our means.

    We don’t have the money for that. Anyway, why start now?

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  33. gazzmaniac (2,317 comments) says:

    Yeah sure, but the extra wealth generated in NZ (say 30% of gross oil company revenue + related economic activity, jobs created etc) my be insufficient to cover the extra cost to the economy of not having the cheaper subsidised fuels.

    Royalties on mineral wealth are generally in the order of 2-10%, not 30%.
    Also, we haven’t got subsidies on fuel right now, what makes you think that will happen in the future?
    The simple fact is that the price of oil is controlled so that alternative technologies are only just unattractive on an economic level. If we woke up one day and there were magic cars that ran on water, and cost 2c per 100km to run, you can be assured that the price of oil would drop substantially.

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  34. Clint Heine (1,563 comments) says:

    I’d ensure that when the oil ran out NZ would be prosperous enough without greedy politicians committing it to ridiculous “wealth creation” projects and selfish proposals to shore up votes. Low to no income taxes and a strong economy would make us much better off than those free spending Norweigans. Savings is another thing, bloody Kiwis aren’t exactly big savers…

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  35. GPT1 (2,090 comments) says:

    Clint – obvious spending priority would be Trident. That would sort the hippies out.

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  36. malcolm (2,000 comments) says:

    If National only get 2-10% they should be shot (other reasons for being shot notwithstanding). I’m pretty sure that Brownlee mentioned 30% this morning on the radio.

    Also, we haven’t got subsidies on fuel right now, what makes you think that will happen in the future?

    I was just responding to the idea from Dog_eat_dog. I don’t think we would do that, but it’s an interesting mental exercise to figure out why it’s a bad idea to ring-fence a resource and subsidise the economy with it.

    The price of oil was controlled in the past as you describe, but now even OPEC can’t really control it. Not for long anyway. The market is more in control than ever. Which is why we’ve seen prices range from $20 to more than $100 in the recent past.

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  37. Clint Heine (1,563 comments) says:

    I’d hope some of the money would be used to fire Sue Bradford into the sun.

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  38. gazzmaniac (2,317 comments) says:

    Malcolm – that 2-10% is on the value of the material pulled out of the ground, not the net profit of the companies in question. If royalties were as high as 30% then companies would look elsewhere – there was a big stink a last year when the cash strapped Queensland government raised royalties on coal from 9 to 10% for coal that fetched over $100/tonne. I don’t know what Brownlee was talking about as I am writing this from central Queensland, perhaps it was the tax on the profit of a locally registered company.

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  39. malcolm (2,000 comments) says:

    OK, yeah I took the 30% to be of nominal value of the oil when extracted. But for no concrete reason other than that is what it sounded like he meant. I didn’t mention tax revenue as multinationals are very good at transfer-pricing to minimise their off-shore profits and hence their tax.

    If NZ wants to maximise the return and if the reserves are considerable they could create an SOE. A bit like Norsk Hydro (state is a major shareholder I think).

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  40. senzafine (454 comments) says:

    Woo! Go Gerry!

    About bloody time. I’ve been banging on to anyone that would listen for years that we are sitting on billions of barrels of oil!

    And like Gerry, I am frankly amazed that previous governments havent done anything about this. (actually when i think about it, it was never really in the lefts agenda to make us wealthy, was it?)

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  41. Andrew W (1,629 comments) says:

    “I’ve been banging on to anyone that would listen for years that we are sitting on billions of barrels of oil!”

    Fantastic! how do you know?!

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  42. RRM (9,471 comments) says:

    This leftie is fascinated by all the predictions/assumptions above that he will be against this :-)

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  43. Jack5 (4,595 comments) says:

    Has Brownlee been puffing the same stuff as Invercargill’s mad mayor, Shadbolt?

    The Sheikh of the south has for years been babbling Southland is about to become the new Gulf state. All on the strength of unproven petroleum reserves (which will almost certainly be gas if there are any) in the Great South Basin, an extremely challenging structure to explore, let alone harvest.

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  44. John Ansell (861 comments) says:

    Curious that it’s taken so long to spot this potential. But great that we have a government that’s actively looking for ways to make us rich instead of just take from the rich.

    Let’s hope they have the same positive attitude to the recommendations of the 2025 Productivity Taskforce when it reports back next week :-)

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  45. Crusader (279 comments) says:

    big bruv (4887) 6 0 Says:
    November 19th, 2009 at 9:23 am

    If this oil wealth does indeed exist it could well spell the end of the Greens.

    Can you imagine how the average Kiwi will react when they hear Comrade Norman tell them we should leave the oil in the ground and turn our backs on a far superior standard of living because it will be ‘good for the planet’.

    >> You are absolutely right about the “average Kiwi” big bruv. But there will always be a constituency for the Greens, lurking in the student common rooms, and Nelson back block communes, people who have not yet had a proper job and still believe in tooth fairies, global warming and social credit economics.

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  46. DJP6-25 (1,272 comments) says:

    Rule #1. If it moves, drill it.

    Rule #2 If it doesn’t move, drill it till it does move.

    Rule #3 If in doubt, refer to Rule # 1.

    cheers

    David Prosser

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  47. campit (466 comments) says:

    Sounds exactly the same as this:

    Government incentives to generate increased exploration activity

    14 June 2004 – The Crown has announced a package of incentives to increase the level of petroleum (gas and oil) exploration. A higher level of exploration is considered necessary to increase the probability that sufficient reserves of new gas will be found and brought to market…

    The fact is that any oil exploration will be carried out by large multinational oil companies who will sell on the international market and keep most of the profit. Take Tui for example – only 12.5% owned by NZ Oil and Gas.

    “Self sufficiency” in oil is a myth, and we aren’t going to get wealthy by reducing oil royalties. The only way to generate some kind of collective national wealth from oil would be for a Government oil exploration company to be formed, which I can’t see happening – oil exploration is too expensive and risky.

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