NZ's Ban Of Offshore Exploration & The Case For Consultation

NZ's Ban Of Offshore Exploration & The Case For Consultation

Introduction

The Government’s announcement to ban future offshore oil and gas exploration permits was allegedly made without a plan, without any cost-benefit analysis and consequently without any certainty for the industry, investors and the thousands of people directly employed by the industry. 
Intro
The Government’s announcement to ban future offshore oil and gas exploration permits was allegedly made without a plan, without any cost-benefit analysis and consequently without any certainty for the industry, investors and the thousands of people directly employed by the industry. 

The ban signals a transition away from fossil fuels in what Minister of Climate Change James Shaw deems “the greatest economic opportunity in a generation.” 

So why did a decision intended to be both beneficial to the environment and economy also constitute a matter of national significance triggering urgent Parliamentary debate? And, did the Government breach the law in arriving at its decision?

The Controversy 
National’s Deputy Leader Paula Bennet was quick to point out the Government’s lack of effective consultation and evidence supporting its policy decision. This sentiment has been echoed throughout the industry with the Petroleum Exploration and Production Association of New Zealand reiterating both its disappointment with the lack of direct consultation with the industry and its surprise at the decision given that the Labour Party’s 2017 Energy Manifesto talked of continuing offshore exploration. 

New Plymouth’s Mayor Neil Holdom called the move a “kick in the guts for the future of the Taranaki economy” and noted that whilst “we all want a sustainable future for New Zealand we had expected to be having a comprehensive conversation about a planned and staged transition to a low carbon economy over the next 20 to 30 years with central government, local government, Iwi, the industry and other stakeholders actively contributing.” 

This sentiment was also shared by Act party Leader David Seymour who said the Government’s decision would put 11,000 jobs at risk, and was made without first determining whether the decision would achieve its intentions or lower global greenhouse gas emissions. 

In contrast, Minister for Energy and Resources, Dr Megan Woods remains steadfast in her belief that the announcement will not affect jobs or existing permits and their potential finds. This belief is likely based on the understanding that there is 10 years' worth of gas to be explored and/or mined under already consented reserves, and also additional supplies from gas discovered in existing permits. As an example, Dr Megan Woods noted the Barque field off the east coast of the South Island was estimated to contain 11 trillion cubic feet of gas.

Whilst it is true that the announcement itself neither diminishes the extent of New Zealand’s oil and gas reserves nor necessitates an overnight reduction to jobs, it is also a signal to overseas and domestic investors that investment in New Zealand’s energy sector, and beyond, is uncertain and potentially unviable. After all, if a multi-billion energy industry can be banned, what other industries might face the same fate? This uncertainty will have an immediate effect, and that effect is significant. 

Take the Barque field for example, a joint permit between New Zealand Oil and Gas (NZOG) and Beach Energy, reported to have huge economic potential. According to NZOG, this field is in deep water (approximately 800 meters), 60 km off the coast of Canterbury/North Otago. The cost of drilling an exploration well at Barque is around $50-60 million. Achieving this level of commitment would likely necessitate presenting a farm-in opportunity to multinational oil and gas investors. 

NZOG indicated that the most likely models for processing a fully developed field would be a gas-to-shore pipeline and Liquefied Natural Gas (LNG) project. The cost of which would exceed six billion dollars and support the establishment of an LNG industry in New Zealand. 

LNG exports to countries that currently utilise coal would have a real and material impact on global emissions. According to statistics published on Energy News’ website, it is estimated that approximately 70% of New Zealand’s hydrocarbon reserves are gas. Gas emits approximately 50% less greenhouse gas than coal. If New Zealand exported roughly one third of its estimated 30 trillion cubic feet of natural gas, and displaced the equivalent energy otherwise obtained via coal-fired generation, the result would be a reduction of CO2 emission of nearly 50 million tonnes per year over 30 years. Or, 60% of New Zealand’s total emissions in 1990. A significant contribution considering New Zealand’s long-term target of reducing emissions to 50% below 1990 levels. 

Likewise, the economic benefits to the regional and national economy would be nothing short of game-changing and would enable the Government to fund the regional development, infrastructure, and social and environment programmes which it has prioritised.  

By contrast the recent adverse weather experienced in Taranaki saw two gas production stations temporarily closed. As a consequence, electricity providers were required to resort to their coal fired generators to meet energy demands. 

Without investment in infrastructure to support the development of New Zealand’s existing or future gas reserves, reliance on alternative fuel sources such as coal to generate electricity or supply the industrial sector may become increasingly common. 

In addition, declining Maui reserves coupled with higher-priced gas from fields like Pohokura and Kupe means restricted gas supplies will likely lead to increased costs for enterprises that use gas for their operations, including exporters such as Fonterra, NZ Steel, Methanex and Refining NZ.

Rather concerningly, and as Mr Seymour pointed out, the Government doesn’t “know how much substitution of coal should occur, and if the net result is people moving to coal, net emissions will be even worse than they are now."

Dr Megan Woods conceded that she has not received any estimate that a ban will achieve a net reduction in greenhouses gases, and has “been advised by officials that the effect on global emissions depends on the response of New Zealand's large gas users."

There are clear economic advantages in having a continuing and cost-effective supply of gas available for reticulation to industrial, commercial and domestic consumers and for electricity generation.

If the decision to ban offshore exploration permits means a worse outcome for the environment and economy, then the ban is not worth doing just for symbolism, a sentiment expressed by Arun Chaudhari, CEO of Taranaki’s Chamber of Commerce. 

Considering the energy sector’s Taranaki based operations alone have contributed billions in GDP and crown mineral royalties, Mayor Holdom’s expectations of effective consultation are not unreasonable, and may even be supported by law.  

The question of constitutionality
Any case against the Crown will likely attempt to establish that the Minister failed to comply with the principles of administrative justice when deciding to ban future offshore exploration permits. These principles require authorities to act in accordance with law, reasonably, and fairly.

Decisions not made in accordance with these requirements may be challenged on procedural grounds.

Was the decision made in accordance with the law?
A decision not made in accordance with any procedural requirements may be construed as unlawful. It is questionable whether the Minister failed to comply with the provisions of the Minerals Programme for Petroleum (MPP) or give effect to the purpose of the Crown Minerals Act 1991 (CMA) when banning future offshore exploration permits, by:
  • Failing to have regard to the principles of the Treaty of Waitangi; and/or
  • Failing to give effect to the purpose of the CMA. 
Principles of the Treaty of Waitangi
As a partner to the Treaty of Waitangi (Treaty), the Crown must have regard to the principles of the Treaty when exercising functions and powers under the CMA.

The obligation to have regard to the principles of the Treaty are codified in both the CMA and the MPP. The principles themselves are well known, and the obligation of partnership includes the duty to consult Maori.
The duty of the Crown to act in good faith and reasonably towards its Treaty partner is not simply passive, but extends to active protection of Māori in the use of their land and water to the fullest extent practicable. The duty of good faith consultation extends to “truly major issues.”

Prime Minister Ardern has called the decision her generation’s “nuclear free moment,” a statement which arguably indicates a truly major issue. 

Additionally, “consultation” in order to be meaningful requires that there must be made available to the other party sufficient information to enable it to be adequately informed so as to be able to make intelligent and useful responses. The Crown’s obligation to make informed decisions necessitates a requirement to take into consideration Maori perspective, including tikanga Maori, which are identified or raised during the course of consultation. Such an obligation is arguably also not geographically limited to the iwi and hapū of Taranaki. 
 
It is questionable whether the Government’s decision to ban future offshore exploration permits can be properly described as having been made after consultation, and therefore in accordance with the principles of the Treaty. 

Purpose of CMA
The purpose of the CMA is to promote prospecting for, exploration for, and mining of Crown owned minerals for the benefit of New Zealand.
 
Not surprisingly, the Minister’s functions in exercising duties under the CMA include attracting permit applications, granting permits, and preparing MPP. Upon preparation of a MPP, the Minister then has a statutory obligation to act in accordance with it.
 
The MPP sets out the Minister’s interpretation of the CMA and describes as an underlying premise of the CMA, the government's desire for other parties, such as public and private corporations, to undertake prospecting for, exploring for and mining of Crown owned minerals, including petroleum.
 
The Minister interprets the words “promote prospecting for, exploration for, and mining of Crown owned minerals” as requiring the Minister to, among other matters:
  • publicise and encourage interest and investment in prospecting for, exploring for, and mining New Zealand’s petroleum resources; and
  • minimising sovereign risk for investors by providing for a stable and coherent regulatory regime for petroleum.
Additionally, the Minister considers that, within the context and mandate of the CMA, “the benefit of New Zealand” is best achieved by increasing New Zealand’s economic wealth through maximising the economic recovery of New Zealand’s petroleum resources.
 
The previous MPP which came into effect during the fifth Labour Government of New Zealand noted among its principles reasons for promoting responsible discovery and development of petroleum resources as:
  • petroleum remaining in the ground is not considered in the interests of the economy;
  • contributing to national wealth, enabling the government to meet its other social, economic and environmental objectives;
  • having clear economic advantages in having a continuing and cost-effective supply of gas available for reticulation to industrial, commercial and domestic consumers and for electricity generation;
  • being impossible for New Zealand to meet its near-term future energy demands without using hydrocarbons even with significant new investment in renewables; and 
  • providing a valuable option to assist New Zealand as it advances towards a sustainable energy future.
It is not yet known whether the Government can now evidence it is giving effect to the purpose of the CMA. 

Was the decision fair ?
The requirement that decision makers act fairly necessitates parties be given adequate notice, an opportunity to be heard and the decision be made free from bias and predetermination. 

Prime Minister Jacinda Ardern has stated the move away from fossil fuels has been “well signalled”. “We have flagged our interest as a party and as a Government towards moving away from fossil fuels,” Ardern said “We have always talked about a transition and a lead time.” 

Dr Megan Woods has also indicated that she has met with many energy sector participants and conveyed the Government’s views on the matter. 

Did these conversations convey a promise of consultation sufficient to establish a reliance upon them and a legitimate expectation on the part of the public, or industry stakeholders that consultation would occur? That’s a question only the parties’ privy to those conversations can answer. 

This requirement does not prevent democratically elected members from having particular views on matters of policy or politics, but as decision makers they are expected to maintain open minds, genuinely consider matters and remain amenable to argument. 

As noted by Mr Seymour, Minister Woods did not perform any cost benefit analysis, nor consult with iwi and hapū, nor industry stakeholders, nor undertake any assessment to determine the decision will actually contribute to lowering greenhouse gas emissions.  

It is therefore questionable whether the decision to ban off shore exploration permits was made with consideration of all relevant information, and therefore in compliance with the principles of procedural fairness.  

Conclusion
Whether or not the Government’s decision to ban future offshore oil and gas exploration permits constitutes a breach of law, it is understandable why industry stakeholders feel somewhat aggrieved.  

New Plymouth’s Mayor Neil Holdom has rightly pointed out that Taranaki’s offshore oil and gas fields have historically yielded the highest amounts, and were currently delivering more than $300 million a year to the government in royalties. Further, Mayor Holdom stated “Taranaki’s councils, its people and its businesses have been setting national benchmarks for environmental initiatives, innovations and performance for years because we have the people, the expertise and the culture to do amazing things so now it’s time for us to sit down with Government, for them to draw us a picture of how they will support the people of Taranaki as we transition to a low carbon economy and we expect there will need to be significant investments from Government in energy innovation, in education, reskilling of our people and in economic development.” 

Labour Minister for Regional Economic Developments, Shane Jones, recently visited Taranaki and committed $20 million in regional development.

The transition from oil and gas “will take a hell of a lot more” than the initial $20 million recently committed by the Government in regional Development, less than $250,000 of which was allocated to energy investment, said Holdom. “We're going to need to see significant investment from Wellington to help transition our economy”, “not hundreds of thousands, hundreds of billions”, “and we haven't seen any major signal of heavy investments in economy.”

However, Prime Minister Ardern has indicated a strong willingness to “[work] with the Taranaki community and businesses in particular on this as a long-term project” and the “Government's commitment to ensuring there is a just transition to a clean energy future.”

“Transition’s have to start somewhere - unless we make decisions today that will eventually take effect in 30 or more years’ time, we run the risk of acting too late and causing abrupt shocks to communities in our country” said Ardern. 

If you wish to discuss any aspect of this article, please contact the writer, Will Downey.

GQ_staff_Will.jpgWritten by:
Will Downey
Associate

DDI: (06) 768-3727
Email: Will.Downey@gqlaw.nz


Disclaimer
This publication is necessarily brief and general in its nature. It does not address possible defences to the above claims. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

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