Jones open to Govt signing decades-long gas deal

Resources Minister Shane Jones won’t rule out committing the Government to buying decades of gas from new offshore fields after officials suggested it won’t address fundamental issues with the gas market.
There is considerable uncertainty as to whether the repeal of the offshore oil and gas ban will lead to any new development, with the Opposition promising to reimpose the ban on the one hand, and future demand being forecast to decline on the other.
Jones has spent months looking for ways to entice new developers to come to New Zealand. First, he looked at a bond scheme which would compensate developers in the event of a new ban, but said in June this was no longer on the table. Then, he floated the Government directly promising to buy the gas, in a repeat of the Māui gas contract from the 1970s.
In a briefing from late June, obtained under the Official Information Act, officials pushed back on this idea as well.
“Unlike the 1970s, New Zealand’s current problem is a shortage of gas supply rather than a shortage of demand for gas,” they wrote. They did, however, caveat that, by saying this “does not mean that a long-term gas contract is not a viable option to consider in the current circumstances, but the context is important to inform the objectives for and scope of any such contract”.
The briefing came specifically after Jones asked for advice on the concept.
“You sought our advice on the use of long-term gas contracts (like the government’s 1970s contract with the operators of the Maui gas field) to attract investment into petroleum exploration and production in New Zealand,” officials wrote.
Even the oil and gas industry is doubtful that this is the best path forward.
“We agree with the official advice that, unlike the 1970s, New Zealand’s current problem is a shortage of gas supply rather than a shortage of gas demand,” Energy Resources Aotearoa chief executive John Carnegie said.
“While we wholeheartedly support the minister’s objective of providing investors with enduring certainty about the future of gas in New Zealand’s energy system, considering the circumstantial differences, it is unclear if a long-term contract is the right solution to encourage new natural gas exploration and appraisal.”
Nonetheless, a spokesperson for Jones told Newsroom that while the minister had not sought further advice on the issue, he “has indicated that he may do”. Much of the briefing obtained under the Official Information Act was redacted under a section used to withhold advice still under active consideration by the Government.
“We’re in the midst of a climate crisis and desperately need to be transitioning away from fossil fuels to clean energy – not putting our efforts into courting offshore oil developers,” WWF New Zealand CEO Kayla Kingdon-Bebb said.
“It’s ironic the Government is looking at ways to prop up a sunset industry when its whole ‘strategy’ for tackling climate change is to leave it up to the market and reduce emissions at ‘least cost’.”
Labour Party resources spokesperson Megan Woods said the opposition from both industry and environmentalists showed Jones needs “to stop looking backwards”.
“Shane Jones is hellbent on giving financial inducements to largely foreign-owned oil and gas companies to come to New Zealand to search for oil and gas. They’re looking for 1960s and ’70s solutions rather than looking out for our future.”
Woods added it was hypocritical because the Government discontinued Labour’s policies of decarbonisation grants to industry and support for green hydrogen and had ruled out offtake agreements for offshore wind amid concerns of “corporate welfare”.
“He’s quite prepared to do it for fuels of the past but not fuels of the future. He needs to start actually doing the work to put in place an energy strategy for New Zealand’s future. I still haven’t seen hide nor hair of that strategy emerging either from his desk or [Energy Minister] Simeon Brown’s desk. What does our future look like? This is just ridiculous nonsense.”
Carnegie said policy was needed to protect oil and gas investments, even if the contract wasn’t the right way to go.
“We need policy that ensures investors can confidently make multi-million dollar long-term fuel-related investments in New Zealand. This policy must also set us on a path to importing less coal and lowering emissions. It must address how investments will be protected from changes in government and policy or what the industry characterises as sovereign risk.”
In the briefing paper, officials noted the Māui gas contract had unexpected consequences. The deal was inked in 1973 and went into force under Sir Robert Muldoon’s government in 1979. It committed the government to purchase nearly all of the field’s gas for 30 years.
While the price of the gas obtained under the contract was relatively cheap, the government found it wasn’t needed for electricity generation and was on the hook for $200 million a year.
Just a couple of years after the gas started to flow, the government was forced to build a fertiliser plant in Kapuni, then a methanol plant in Waitara Valley and finally a gasoline plant in Motunui to find a use for the product.
The government spent the 1990s trying to rid itself of the burdensome obligations, officials wrote.