Unlocking New Zealand’s Frontier Resources

Introduction

Thank you for the invitation to be here today.

Can I say at the outset that I’ve long admired the work undertaken by the Centre for Advanced Engineering, particularly in relation to energy and resources.

I think you play a valuable role in increasing our overall knowledge base in relation to new technologies, and explaining how they might contribute to future economic growth and social progress.

The CAE is a key linkage between universities, research institutes and the private and public sectors.

So I’m delighted to be here today to address you on the topic of unlocking New Zealand’s frontier resources.

I’d first like to talk our resources potential, about the Government’s attitude to our natural resources, what we’ve done already since coming to office, and the work streams that have commenced within Crown Minerals.

I’ll then turn to frontier resources and talk about methane hydrates and lignite in particular.

I think the most valuable part of today will be the conversation I hope we’ll have after my short address about what the future looks like for New Zealand’s frontier resources.

I’m particularly keen to hear your views about what the role of government should be in this area, and how we might best assist the development of those resources.

Our resources potential

So let me start by talking about our resources potential and how this government views that potential.

I think it’s well understood that New Zealand has excellent renewable resources.

Almost all New Zealanders would know for example that much of New Zealand’s electricity supply comes from hydro generation.

And thanks to the vagaries of the weather in the last few years, we are intimately acquainted with what happens when we run out of water each winter!

Geothermal energy is also well known, and there is an increasing knowledge that we have potential for quite a lot of energy to be generated from wind – although that’s not popular with everyone.

On the other hand, very few New Zealanders I suspect are aware of the vast endowment of fossil fuel resources that New Zealand possesses, and the potential they have to contribute to our economic growth and prosperity.

I suspect if you told most people that more than 1.2 million square kilometres of our exclusive economic zone are likely to be underlain by sedimentary basins thick enough to generate petroleum, they would think you were nuts.

Likewise if you told them that New Zealand’s offshore petroleum basins, even with conservative assumptions, could be worth in the order of $4 trillion New Zealand dollars.

But both those statements about our resources potential are accurate.

I think most reasonable people when hearing those numbers would regard the government as having a duty to investigate how this potential could be translated into higher standards of living for New Zealanders.

The previous government used to talk a lot about “economic transformation”, as if saying it often enough would somehow make it happen.

There is no doubt in my mind that New Zealand’s natural resources have the potential to deliver a transformation of our economy.

As a government, we want to explore how that can occur, and what role we need to play.

Australia is often called the “lucky country” because of its natural resources endowment and rode an economic boom for the first part of this century on the back of it.

New Zealanders need to know that this country is similarly endowed.

I see it as part of my job as Minister of Energy and Resources to increase public awareness of our resources potential.

This Government is excited by the quantum gains in economic development, growth and prosperity that our natural resources offer us.

For too long now we have not made the most of the wealth hidden in our hills, under the ground, and in our oceans.

As a government we are determined to unlock our natural resources potential.

The resources sector’s contribution

Let me talk briefly about the contribution that natural resources already make to our economy.

Most New Zealanders would know that we are an agricultural nation; that a considerable amount of our prosperity is built on overseas consumers buying our dairy products and our lamb.

New Zealanders would also know that tourism is a major contributor to economic growth as well.

What most people wouldn’t know is that the minerals, oil, gas and coal being produced in New Zealand have a value of about $4.5 billion per year, and contribute more than $2 billion to exports.

The oil & gas sector by itself contributes $1.6 billion to the NZ economy annually, more than 8600 jobs, and has paid $1 billion in royalties to the Crown over the past 8 years.

Those are great figures already, but they have the potential to be so much larger.

Our natural resources endowment presents New Zealand with the potential to spread our economic reliance beyond the agricultural sector. 

World demand and the role of India and China

It’s been widely acknowledged that New Zealand, as an agricultural exporting nation, is in a prime position for the coming years as the growth rates of China and India mean their citizens will increasingly demand our farm based products.

It’s also true that those economies are extremely hungry not just for food, but also resources.

They want coal for power stations, silica for microchips, iron sands for steel, hydrocarbons for automotive fuels and feedstock for petrochemicals.

Demand for these resources will only increase, and prices will only increase.

Between 2000 and 2006, world demand for coal grew at nearly 5% per year. Coal consumption is expected to grow by 61% between 2006 and 2030.

Global demand for natural gas is expected to increase by 52% between 2006 and 2030.

New Zealand is in the fortunate position of being able to meet some of this demand.

Ten years ago with mineral prices at record lows, the prevailing wisdom was that the “old economy” of natural resources was on the way out, with the “new economy” of technology and services on the way in.

That has all changed. In 2000 the market value of Cisco Systems, the world’s leading internet company, was greater than that of the world’s 12 largest mining companies combined.

In 2008 Cisco is still a large and successful company but its value is significantly less than that of BHP Billiton, the largest mining company.

What we’ve done already

We’ve done a number of things already to indicate the government’s changed attitude and to start the process of developing our natural resources.

First, we repealed the ban on new base load thermal electricity generation, which was a massive disincentive to oil and gas explorers.

Second, we’re spending $20 million over the next three years on seismic data acquisition, on top of the $3.75 million spent over the last summer.

A blocks offer based on the data already collected is scheduled for opening in late 2009

Third, we opened bidding for new petroleum exploration permits across two large offshore areas in the Raukumara and Northland basins, with a combined total area of over 66,000 square kilometres.

These blocks offers have already attracted considerable interest from a large number of international and local exploration companies.

Fourth, we’ve ensured the Hawkdun lignite deposits in Southland have stayed outside the boundary of the Oteake Conservation Park.

The lignite deposits are a significant resource of recoverable energy which could yield liquid fuels equivalent to New Zealand's transport requirements for 15 to 20 years. I’ll talk more about lignite in a moment.

And fifth, we have announced that we will revise the New Zealand Energy Strategy, so that it better recognises our goals for economic growth and prosperity, balanced by environmental responsibility. Natural resources will be an important part of the new strategy.

More work to be done

It’s clear that there is much more to do. Let me mention some of what is underway already.

I’ve asked Crown Minerals to review existing domestic and international petroleum policy, licensing and fiscal regimes to ensure they are fit for purpose.

The work will include identification of petroleum, industrial, environmental and economic policies that work well in other jurisdictions and the reasons for their success.

The aim of the review will be to recommend measures that ensure NZ continues to have a petroleum regime that is attractive to explorers and extractors, but also sensitive to environmental best practice.

Crown Minerals also has a “big oil” project, looking at how New Zealand might manage a large oil and gas find in the future to ensure we maximise value from the development of our resources.

Access to the Crown conservation estate for the exploration and mining of minerals is also a critical area of work because of the amount and prospectivity of that land.

Crown Minerals is working with the Department of Conservation with an aim to improve the access provisions through a review of the land currently held under Schedule 4 of the Crown Minerals Act, and the implementation of DOC standard operating procedures to provide transparency and clear information requirements for access applicants.

We are also considering a number of amendments to the Crown Minerals Act and the Continental Shelf Act 1964 to enhance the regulatory environment and reduce costs.

Frontier Resources

Now that I’ve mapped out the potential of our “conventional” natural resources, let me turn to what are often called “frontier resources.”

In this area I’m advised that New Zealand has considerable potential.

The recent extension of the country’s continental margins makes New Zealand the fourth largest maritime nation in the world.

Interest in seafloor minerals occurrences such as phosphates, iron sands and zones of metallic mineralisation associated with the Kermadec arc have increased significantly in recent years

But there’s a huge amount we don’t know. For example, very little is known about the extent and value of our maritime mineral resources.

However, technology is now enabling areas of deeper water to be targeted for exploration and commercialisation of oil and gas, so that knowledge gap should begin to close.

Methane hydrates

One very interesting resource is methane hydrates.

We know that there are methane hydrate deposits off the East Coast of the North Island from Gisborne to Marlborough, and also offshore from Fiordland.

We also know that they could provide up to six times the volume of gas produced from the Maui Field.

The resource located offshore on the East Coast of the North Island is characterised by a number of “sweet spots”.

These form one of the largest known offshore deposits in the world and are unique in that they are closer to shore - within 20 km - and in more accessible water depths than others. 

These features make our “sweet spots” comparatively attractive to research and development options.

Estimates of the energy potential of gas hydrates from around the world have prompted major economies to advance the development of discovered methane hydrate resources.

The US Geological Survey has conservatively estimated that the worldwide amount of carbon held in methane hydrates is twice the amount found in all known fossil fuels on earth.

I understand that MED recently commissioned from the Centre an “Options analysis for the commercial and economic development of offshore methane hydrates as a future energy option for New Zealand”.

I’m yet to read the report but I understand the report confirms methane hydrates are a resource of strategic economic advantage to New Zealand.

I’m advised that the key findings are that:

• Methane hydrates offer a real opportunity to make a significant contribution to New Zealand’s economic requirements.

• Accelerating their development offers the potential for significant increased economic benefit.

• Contingent on the development of commercial production technology, methane hydrates could underpin New Zealand’s future energy supply system and also form the basis for new export industries.

• There are some immediate and practicable steps that could be taken that could significantly enhance our chances to successfully develop and maximise economic benefits from methane hydrates.

Advances in technology suggest commercial production of methane hydrates could be around 2020 and some international groups are planning for as early as 2016.

This timeframe probably means immediate consideration is required to determine an appropriate allocation regime and overall structure to manage the procurement and development of this resource.

I’d be very interested in your thoughts in this area.

Lignite

I’d also like to make some comments about our lignite resource.

South Island lignite is a strategic energy resource that has enormous national and regional economic implications.

Development of the lignite resource could not only give New Zealand assured supply of transport fuels, but have other economic benefits including improved balance of payments and tremendous economic boost to the southern South Island.

In contrast to other potential hydrocarbon resources, New Zealand’s lignite resources are well understood.

At least 6.3 billion tonnes of lignite is technically and economically recoverable. Their energy content is about 75,000 petajoules, equivalent to about 20 Maui gas fields.

Development based on a world scale facility could transform New Zealand from a net consumer to a net supplier of energy commodities and give New Zealand a significant economic advantage.

The key to unlocking this opportunity will be the application of environmentally-focused gasification technology.

In 2005 an independent study was carried out on behalf of MED to determine the contemporary economics of a development scenario for the Hawkdun and Home Hills lignite deposits. This study highlighted the following:

• New Zealand’s lignite is amongst the most competitively priced energy resources in the world.

• The resource is suitable for extraction and conversion to high value energy products.

• The total energy content of recoverable lignite is about 75,000 Petajoules, which would provide 71 million tonnes of transport fuel, enough to supply New Zealand’s total transport fuel requirements for 15-20 years or,

• Provide all of New Zealand’s nitrogenous fertiliser requirements for 127 years together with additional exports of 1.9 million tonnes per year, providing an annual income of $540 million or,

• Supply New Zealand’s domestic requirements for methanol and provide an annual income of $1 billion or,

• Supply all of the South Island’s electricity demand for about 60 years.

The development option that appears to have the most going for it is conversion to automotive diesel fuel.

My own view at the moment is that use of the lignite resource is probably not feasible without greater advances in carbon capture and storage technology, so that carbon emissions are kept to a minimum.

I’d be interested in your thoughts about the future of our lignite resource.

Conclusion

The only thing I want to say in closing is that we have a very bright energy future.
We have world class renewable energy sources and we have superb natural resources.
We just need to get the policy settings right so New Zealand’s energy sector can really fly, and contribute to the economy in the way we all know it can.
I look forward to working with you to make that happen and would welcome any comments that you have.