Guided in everything we do
Statement from the managing director on TCFD and sustainability.
New Zealand Oil & Gas is guided in everything we do by our values. We believe we can help to meet New Zealand's energy needs and run our business in a responsible, ethical way.
We are proud to set a standard for our industry among smaller cap companies, responding to climate challenges, and working on relationships in our community to develop our energy needs for the future. This report sets out our progress. In 2019 we completed a review of Taskforce on Climate related Financial Disclosures (TCFD) recommendations. As result, we have made changes to our governance approach to climate-related risks and opportunities. These changes have resulted in key climate risks and opportunities being considered in a structured way. We now provide for review at board-level through the board Operational Risk and Sustainability Committee (ORS).
Specific changes made as a result of this review
- Staff regularly consider climate issues in monthly HSSE meetings;
- Climate risk and opportunities are a standing item on the ORS Committee agenda;
- Executive management received TCFD specific training
- Changes were made to the corporate risk register to more clearly identify climate‑related risk.
- We made reporting more transparent by changing to follow the TCFD structure where applicable.
The changes are outlined in more detail below following the TCFD structure: Governance, Strategy, Risk Management and Metrics and Targets. The structure is set out in the accompanying table.
New Zealand Oil & Gas accepts the science of climate change, and the role we have in helping to reduce global emissions. The world needs us to reduce the emission of carbon dioxide and methane from human activity.
In our own operations, we are taking steps to reduce our environmental footprint, but there is limited difference we can make. Direct emissions are produced from our small head office in Wellington, where we have reduced our carbon footprint, and we paid for 3,564 trees to be planted - enough to remove about 811 tonnes of carbon.
The broader challenge is around emissions from production of oil and gas, and use of the products themselves. The division between our use, and use by others are known in climate policy as Scope 1, 2 and 3 emissions. We can affect our Scope 1 emissions; we have less influence over ultimate uses, and less visibility over whether emissions are offset by the consumer and which alternative fuels are displaced. For example, gas exported to Asia as methanol may substitute for coal in the manufacture of petrochemicals or electricity generation, or it might be purchased because it provides cheaper baseload than a renewable alternative. Some of our production is re-sold in international markets, which sets a boundary to emissions reporting in this document.
We are pleased to set out in this section of our annual report the targets we adopted this year for climate-related performance and our performance metrics.
Our review of climate risk indicated that relevant risks were already carefully considered as part of our previous risk management framework. For example, risks of increasingly severe and frequent weather events are routinely considered in asset management risk plans. Risks of long term changes in demand and prices, access to investment capital and risks of regulatory responses to climate, have long been a standard feature of sensitivity testing in our economic models. However, as a result of the TCFD process, we have explicitly identified these risks as climate-related.For example, risks of increasingly severe and frequent weather events are routinely considered in asset management risk plans. Risks of long term changes in demand and prices, access to investment capital and risks of regulatory responses to climate, have long been a standard feature of sensitivity testing in our economic models. However, as a result of the TCFD process, we have explicitly identified these risks as climate-related.
Caution is needed in giving undue weight to specific causes of risk. A couple of examples:
- A pandemic was a predictable and predicted) event,even if the particular covid-19 outbreak was not. The resulting general impact on demand is predictable as well. However, unlike climate-related risk, there is no clamour to highlight health-related risks within our risk reporting.
- As there is no feasible path to transition without gas substituting for coal in global energy systems, this strategy offsets financial risk, if any, from disinvestment in the sector.
We weigh risks methodically, and we caution readers that the introduction of a special section emphasising climate-related risk in this report reflects regulatory trends more than changes in the underlying weighting of particular categories of risk for our Company. We have responded to climate risk also by supporting our industry and business groups to promote economically efficient carbon trading because a trading scheme is the fairest, most effective and responsible policy for reducing carbon emissions.
In forecasting demand, we have been guided by International Energy Agency reports, which find the demand for natural gas is growing and will reach a market share of about a quarter of all global energy demand. Natural gas and LNG are crucial to reducing carbon emissions. Emerging economies are looking to substitute lower carbon alternatives like natural gas for higher emission coal. To illustrate: If we can locate more natural gas at Ironbark in Western Australia later this year, and develop a discovery, we may be able to export LNG into Asian markets. Experts believe Australian LNG exports could reduce global emissions of CO² by up to 300 million tonnes a year. That's three times as much as Australia’s annual emissions reduction target under the Paris Agreement. A big natural gas discovery could materially reduce global carbon emissions.
Natural gas is the best form of thermal back up for renewables - renewable energy systems literally cannot meet modern energy needs without them.
Just as importantly, plants such as Kupe in south Taranaki, New Zealand, produce natural gas as ethically as just about anywhere on Earth. Labour standards and environmental performance compare favourably to third world coal mines, or the world's lithium and cobalt sources (key ingredients in batteries). Unlike some of the oil that comes from the world's largest producing jurisdictions, revenues from Kupe do not fund terrorism, criminal enterprises or political corruption. We pay our taxes and we observe the rules and laws of the places we work. Our activities help to make the world a better place. We do our work by a set of values that make us proud, and which contribute to a healthier, wealthier, more sustainable world.I am pleased to commend our activities to you and set out our approach below.