New Zealand Industry Leader’s Address

Posted on 30 September 2019

2019 New Zealand Petroleum Conference

Andrew Jefferies Chief Executive, New Zealand Oil and Gas
10:30am Monday, 30 September 2019


Greeting and Acknowledgements

After I talk, Chris Graham and I will discuss the biggest areas of change ahead for the oil and gas industry.

I want to introduce the topic by sharing some thoughts about the role of oil and gas in New Zealand
today, and where it is headed.

And I want to make the case for oil and gas from New Zealand.

For almost our entire modern history, our way of life has been powered by hydrocarbons.

In fact our modern economy only began to take shape in 1882.

Back then the export economy consisted mainly of wool.

A gold rush was powered by pick axes, saw blades, calloused hands, sinew and muscle.

There were no meat or butter exports because there was no technology to cool the produce all the way to London, where it could be sold.

Everything changed when a pioneer farmer called William Soltau Davidson fitted a coal-powered
Bell Coleman freezing plant to a sailing ship.

“The Dunedin” made the voyage to London with five thousand mutton and lamb carcasses in its

Harnessing energy to refrigerate agricultural exports transformed New Zealand.

Sailing ships like the Dunedin were replaced with oil-powered ships.

Fertiliser was imported to be spread on farms by shiny new diesel tractors.

The productivity of the land rocketed, and over the next fifty years created a society that may have been, for a while, the richest in the world per capita.

Statistics New Zealand created this graphic showing where our exports go today.

We send products all over the world. Products that are created using oil and gas, and shipped to market using oil and gas.

Our largest foreign exchange earner is tourism.

Tourists arrive by kerosene-powered plane, and drive around New Zealand in diesel-poweredcamper vans.

When they arrive in beautiful Queenstown, skiers and boarders get up to the slopes in gasoline cars or diesel busses.

Often it is diesel that drags skiers up the slope.

All this so they can slide down on their petroleum epoxy skis and snowboards in their brightly colored petrochemical jackets.

The ski-lifts themselves are built from steel, mined and smelted then manufactured using
petroleum products.

There have always been non-oil technologies to drive ships to markets, and to bring travellers to New Zealand.

Sailing ships existed long before there was an oil industry.

You could always walk up a ski slope.

Food was grown before fertiliser was made out of petrochemical products.

Oil and gas are ubiquitous because, for many applications, they are more efficient, more available,
and more cost-effective than the alternatives.

Therefore, the conversation about our industry’s future should begin with the questions:

What are qualities that make oil and gas such a big part of our economy?

and As we come to look at the future of the industry, how do we meet those needs in the waythat is best for humanity?

The world needs answers to these questions because global energy demand will increase by a quarter to a third over the next 20 years.

In 2017, for the first time, fewer than a billion people were without access to electricity.

The graphic shows the number of people without access to electricity or clean cooking.

Cooking indoors over open fires is a deadly health hazard.

Cooking with electricity or natural gas literally saves lives.

While demand for energy is going up, supplying the next unit of energy is getting tougher.

A 2013 study2 looked into the energy return on investment from different fuels - that is, the amount of energy we get out for each dollar put in to generating that energy.

Energy return on investment: “E-ROI".

The study found that the EROI of our most important fuels is declining.

That is, we are getting less energy out for each new dollar we put in.

“Most renewable and non-conventional energy alternatives have substantially lower EROI values than traditional conventional fossil fuels.

“Declining EROI means that an increasing proportion of energy output and economic activity must
be diverted to attaining the energy needed to run an economy.”

In other words, we will not just be spending more on energy - the world will spend a greater
proportion of its wealth and earnings to generate energy.

It is a zero sum game. More income used on energy means less is available for everything else — health systems, education, housing. Everything.

The study authors conclude:

“The declining EROI of traditional fossil fuel energy sources and the effect of that on the world economy are likely to result in a myriad of consequences, most of which will not be perceived as good.”

Our demand for energy is growing, and so is the cost of delivering it.

Simple economics of supply and demand tell us that shortages result in price rises.

Shortages combined with sharply-rising demand result in faster-rising prices.

If shortages are exacerbated by bans and other avoidable policies, then prices must rise even faster still.

The east coast of Australia has vast gas reserves.

Enormous plants have been built to transform gas into LNG for export.

Australia is the world’s second biggest LNG exporter, after Qatar.

Ten- or 20-billion dollar LNG construction projects helped to keep Australia’s economy bouyant after the global financial crisis.

Around the same time, state governments introduced fracking bans.

An onshore drilling ban was imposed in Victoria.

They had sharply rising demand for gas for LNG exports, and severely restricted new supply.

Guess what happened next.

The Sydney Morning Herald reported: in two years from 2015 to 2017, domestic gas prices in eastern Australia increased by up to 500%.

Industry energy bills rose from $3 to $4 a gigajoule to as high as $20 for some contracts.
In New Zealand, we need to pay attention.

The energy experience of the east coast of Australia is the energy future for New Zealand.
Shortages look like price rises.

We can already see a pattern emerging.