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Is Oil Development in Hawke’s Bay Out of Gas?

Tom Belford24 November 2017

Public concern over potential oil and gas development in Hawke’s Bay has simmered over the last five years, triggered initially by the Government’s awarding of both onshore and offshore exploration permits in our region. 

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Initial feasibility studies projected that as much as $100 million might be spent by oil companies on exploration across the East Coast Basin, and significant production could inject up to $255 billion into the region’s economy over 50 years.

Early exploration wells in both Wairoa and Dannevirke fuelled speculation that commercial quantities of natural gas might indeed be available.

Political response was initially positive, if not drooling, but nevertheless bets were hedged.

Hedged partly because in 2012 the Parliamentary Commissioner issued a cautionary report on the risks of oil and gas development in New Zealand, in which the Hawke’s Bay region was singled out as particularly risky because of its geologic instability.

The report posed these questions:
• Given that the area is particularly seismically active, what are the implications for well integrity and the injection of wastewater?
• Has the folding and faulting of the rock layers meant that contamination of groundwater is more likely?
• Will the drilling be vertical or horizontal, as a horizontal well has a much greater likelihood of intercepting vertical faults?
• What does the depth of the shale layers mean for proximity to groundwater and aquifers?
• Given that the East Coast is much drier (and frequently suffers from summer drought), where will the water required for fracking be taken from?
• How well would the main waste disposal methods used in Taranaki (land farming and wastewater injection) translate to the East Coast?

In addition, the Commissioner’s report generally criticised the lack of sufficiently protective consenting practices and precautionary environmental regulations, which regional councils were empowered to adopt.

At the time, the HB Regional Council indicated it would review the Commissioner’s recommendations against its existing regulatory provisions, but was obliged to consider any applications filed.

Sensing concerns, then-mayor Lawrence Yule hosted a day-long ‘oil and gas symposium’ featuring speakers from all perspectives in October 2013. The mainstream ‘politically correct’ view has been to voice approval, based on expected regional economic benefit – a la Taranaki – but only on the condition that any drilling activities do not occur where they might endanger regional water supplies … specifically, our aquifers.

For its part, the Government has excluded from permits in this region any exploration on lands directly over aquifers; however, concerns continue that exploration could still occur on land in catchments that supply freshwater which ultimately makes its way into the aquifers.

From street protests in 2013 until recently, that has left the most vociferous opposition in the hands of local environmentalists, like Don’t Frack the Bay and Guardians of the Aquifer, and to national voices like the Green Party and Greenpeace.

While there are numerous environmental risks associated with oil and gas development, in the Bay environmental opposition has been especially focused on fracking, a practice increasingly frowned upon worldwide, and which would present special risks if carried out in the vicinity of our crucial groundwater resources. Hence the hedging by most local politicians.

So where does the issue sit today?

Global context

Not inconsequential is the question of whether oil companies formerly interested in oil and gas development on the small scale Hawke’s Bay represents will remain interested. Given one’s perspective, how real is the threat – or opportunity – of development in Hawke’s Bay? Global trends might help provide that answer.

The International Energy Agency recently reported that growth in world oil supply will next year exceed demand (estimated at 100 million barrels per day) for the first time. Imagine: excess supply. OPEC is collaborating with its major rival exporters including Russia to drive inventories down (and support prices).

McKinsey Energy Insights expects oil demand growth to slow down, noting “decreasing oil intensity driven by energy efficiency and EV (electric vehicle) substitution”. OPEC’s own projections (World Oil Outlook) have oil demand growing to only 109 mb/d by 2040, citing the same two factors.

So IEA projects that global oil demand will peak in 2040. McKinsey says 2030 (with light vehicle demand peaking in 2023). These are not ‘greenie’ predictions. Is this the speeding train Hawke’s Bay and New Zealand really wants to hop on?

Many energy commentators note the disruptive adoption of electric vehicles. Says McKinsey: “The total demand for liquid hydrocarbons will play out as a tug of war between growth in the petrochemical sector and declining demand from passenger cars. Petrochemical feedstock will drive 70% of the growth in demand for liquid hydrocarbons through 2035. Demand for liquids, excluding chemicals, will peak and flatten by 2025 because of a decline in demand from light vehicles.”

Consider these recent announcements:
• General Motors, America’s largest automaker, plans to release 20 all- electric vehicles by 2023;
• Ford Motor plans to release 13 EVs by 2020 and to electrify 40% of its cars worldwide by the end of the decade;
• Volkswagen pledges to spend $1.7 billion by 2022 to electrify heavy- duty vehicles like trucks and buses;
• France and the UK will ban fossil- fuelled vehicles by 2040;
• Sweden and Scotland will ban them by 2032, Norway by 2025 (and all new cars launched by Volvo from 2019 onwards will be partially or completely battery-powered);
• India will go gas-free by 2030;
• China, the world’s largest auto market, aims to produce 1 million EVs by 2020.

With these EV trends, oil’s future is as a feedstock for the chemical industry. And if mandatory plastic recycling and substitution really take off , watch out!

Considering all uses of all forms of energy, ExxonMobil projects that oil will constitute 32% of the global energy mix in 2040, but assumes only 10% penetration of EVs globally. However, a more ‘independent’ McKinsey puts penetration as high as 30% globally by 2030, reaching 50% in China, the European Union and the US.

Are these global trends relevant to us in Hawke’s Bay?

First, if you’re under age 70, I’ll wager there’s an electric car in your future.

Second, in April 2016, TAG Oil, the company most committed to development in Hawke’s Bay, announced it was abandoning its East Coast acreage, and later in the year relinquished its permit.

There will not be an ‘oil rush’ in Hawke’s Bay anytime soon.

Still, apprehensions persist, as reflected by Pauline Doyle, Guardians of the Aquifer: “[We] believe that oil and gas development poses a real threat to Hawke’s Bay. It is naive to think it’s all over. They’ve started deep-sea drilling again in the Gulf of Mexico. And Statoil has been carrying out seismic tests for months all the way down the coastline from Mahia Peninsula to Canterbury.”

Such concerns have spurred precautionary action.

Greenpeace activists protest covered in oil

Regional Council acts
Historically the Regional Council took a passive or reactive stance toward oil and gas development. The Government decided where exploration could occur and issued the permits (after public consultation). Therefore, it was not deemed to be the role of the Regional Council to have a view for or against oil exploration in Hawke’s Bay. Rather, it was the Council’s role to make an informed decision on any resource consent application it might receive, applying the conditions it saw fit to mitigate the associated environmental risks.

However, the ground shifted in 2016 with the election of a majority of regional councillors more concerned about oil and gas development than their predecessors. Some councillors are simply opposed to any development that would threaten our water sources or cause other localised environmental damage (with fracking being the dreaded ‘f’ word).

For instance, HBRC chairman Rex Graham says: “My primary concern is the threat to our aquifers and water bodies and I simply don’t want any drilling or fracking for oil or gas anywhere near them. Why would we take this risk? We also have a responsibility to the people who will be living in Hawke’s Bay in 200 years and it’s bad enough the mess that we are already leaving them without creating any more.”

Other councillors, including Councillor Bailey and myself are opposed to all oil and gas development in Hawke’s Bay for both local and global reasons, citing our responsibility to address the impact of carbon fuels on global warming.

But whether on regional risk management or global environmental and moral grounds, a majority of the Council is determined to take a formal precautionary approach.

Consequently in November 2016 the Regional Council, with the support of its Regional Planning Committee (RPC, which includes representation from the region’s nine Maori treaty settlement groups) initiated a project to prepare a plan change that would preclude oil and gas development that might endanger our aquifers or freshwater bodies. In addition, to the extent development might be permitted in acceptable areas, the plan would incorporate pertinent consenting and regulatory strengthening as recommended by the Parliamentary Commissioner.

This action puts the Regional Council on a likely collision course with Government … as well as the oil and gas industry.

In May 2017 the Government’s then-Energy Minister Judith Collins wrote to the Regional Council asserting her jurisdiction over the oil and gas turf. “My general concern is that a prohibited classification is not an appropriate or justifiable way to manage petroleum … Oil and gas exploration is a well-understood activity that I consider can be managed through the consent process.”

But even the consenting process could raise turf issues – what if a precaution-minded Council insisted on consent conditions that an oil company considered too onerous? It could appeal those under the RMA to the Environment Court … or would they simply seek political intervention from a sympathetic Minister?

Minister Collins noted that, “I would expect to engage in submissions and appeals on policies that prohibit petroleum activities,” adding that, “I am happy to send officials to work through the above with you in more detail…” In other words, ‘don’t go there or you’ll get a spanking’.

The Regional Council, however, is proceeding to develop a plan change “intending to prohibit oil and gas exploration activities within productive aquifers, aquifer recharge areas, surface water bodies and potentially parts of the coastal marine area in the Hawke’s Bay region.” The goal is to bring a recommended plan change to the RPC by year’s end.

The most contentious aspect of the plan will likely be the extent to which it seeks to limit development across the broader catchments feeding our aquifers, as opposed to activities on or immediately adjacent to our aquifers and waterways.

Guardians of the Aquifer recommends: “We understand that there is no “safe distance” for oil and gas drilling. The best way is to prohibit drilling in the water catchments and to stipulate that any consents for drilling for oil and gas will contain a condition requiring a comprehensive report on seismic faults and groundwater sources in the proposed drilling zone – basically the applicant should have to prove it is safe to drill.”

Adding to the RPC’s concern is that its recent submission seeking to limit the extent of off shore permits for oil exploration – based on possible risks to the region’s coastal environment and concerns about harmful effects of seismic testing on marine species – was essentially ignored by Government when it opened 5,569 sq km of HB’s off shore marine area for bids.

Greenpeace has protested oil exploration off the East Coast, challenging the Amazon Warrior at sea earlier this year, leading to prosecution against Greenpeace leader Russel Norman and others, with a trial date set in Napier for next April.

The plan change initiative has been questioned by Councillors Dick, Wilson and Hewitt. They pick this as a losing battle with potentially high costs.

As Chairman Graham sees it, “The fight is about whether we want to take the risk of drilling for oil and gas… in our aquifer and in the water bodies feeding our aquifer.” Adding, “We need to show the Government and the oil industry that we intend to control our own destiny on this issue and we are prepared to fight for that right.”

Asked if he’s worried about the costs of battling the oil companies, Graham replies, “The pro oil lobby has very deep pockets and we are going to need a hand if they come after us. I have already spoken to people who have experience in ‘crowd funding’ at an international level and they are very keen to help if we need them. We are ordinary people standing up for our community and our values and there are lots of people, including outside Hawke’s Bay, who agree with this and will help us fight this battle if it ever comes to that.”

But perhaps the oil companies will bow to the larger trends and conclude that Hawke’s Bay is so insignificant an oil and gas resource that they won’t bother to dispute a restrictive plan change.

What do BayBuzz readers think … Is the Regional Council right to be taking a precautionary approach, even if that means doing battle with oil interests and the Government?

Tom Belford24 November 2017

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