by Cameron Madgwick, chief executive, PEPANZ
Cameron Madgwick reviews the vital role the oil and gas sector should
play in deciding our energy future.
THE FUTURE IS NOW. It sounds like a modern psychology term invented by Malcolm Gladwell, or a slogan from an advertising agency trying to sell you running shoes, or perhaps even the catchcry of a television evangelist to insomniacs at 5am on a Tuesday morning.
But in reality the phrase was coined by American television producer Burton Benjamin in September 1955. Benjamin’s 15-minute documentary The Future is Now, filmed inside a United States government research laboratory, showcased the latest in technical gadgets. The Future is Now predicted that solar-powered batteries, microwave ovens, video telephones and fully automated kitchens would soon be in every American home.
History of course tells us that Benjamin was wrong. The future for these mass consumer products wasn’t now (now being 1955), the future was … well … in the future. Or in the case of the fully automated kitchen the future probably doesn’t exist.
Our own energy future has been a hot topic in recent months. While there is general consensus that we are moving towards a “carbon neutral” renewable energy future in New Zealand, the pace and shape of this transition domestically and globally is far from clear.
On one hand governments around the world (including our own) are investing time and money in renewable energy solutions, educating their citizens on energy efficiency and setting emission targets for their businesses. Yet at the same time they are embracing global and regional free trade agreements which are only possible through the mass transportation of goods by sea and by air. Commercial transportation methods that rely almost exclusively on fossil fuel energy both now and in the foreseeable future.
The oil and gas industry acknowledges the global community has aspirations for a “carbon neutral” energy future. But it is clear that this future is not now.
The reality is that we have begun a ‘low carbon energy transition’ which will take place incrementally throughout the 21st century and in all likelihood into the 22nd. This transition will require governments, industry and individuals to balance environmental sustainability, energy security and energy equity.
How we navigate our way through this ‘energy trilemma’ is top of mind for governments and industries around the world including our own. For me there are two key questions:
1) At what pace will this transition occur?
2) What role will / and should the oil and gas industry play in maintaining energy security and energy equity during this transition?
Let’s tackle the pace of transition first. In October 2015 the Business New Zealand Energy Council released its BEC 2050 report which identified 19 ‘critical uncertainties’ which will affect New Zealand’s energy future. Variables such as population growth, global energy prices and the allocation of natural resources such as water. In this framework they created two energy scenarios or energy pathways, the kayak and the waka.
In the kayak scenario New Zealand adopts an autonomous, independent and flexible energy policy which goes with the flow and adapts efficiently to deal with domestic and global change. It is based on free trade, economic growth, high immigration and low carbon emission reduction targets.
On the other hand, under the waka scenario, New Zealand focuses on a custodial approach to natural resources. Economic growth, immigration and trade slow as we adopt strong emission reductions targets and collectively work towards a carbon neutral 100 percent renewable energy mix.
The BEC 2050 report acknowledged that in all likelihood our energy future will operate between these two paradigms. Regardless of whether the country chooses to paddle a waka or a kayak (or some form of ‘hybrid energy vessel’) our domestic oil and gas industry will be critical to maintaining economic and energy security throughout this transition process.
Renewable energy currently makes up about 40 percent of our total primary energy supply.1 Total energy supply is the amount of energy available for use in New Zealand. On a global scale we are ranked third in the OECD behind only Iceland and Norway. The key to this success is our established network of hydro, geothermal and wind generation facilities which produce 80 percent of our electricity needs.
Despite these abundant renewable energy resources oil and gas still account for 54 percent of our primary energy supply – (oil 31 percent and gas 23 percent)2. Our location and export led economy means we remain hugely dependent on oil and gas energy to export our primary produce, for personal, public and commercial transport, to create ‘value add’ manufacturing and to support our tourism sector.
Methanex, Ballance Agri-Nutrients, New Zealand Steel, Carter Holt Harvey, Fonterra and Tasman Pulp and Paper are just some of the companies operating in New Zealand that rely on natural gas to produce high value products. If we were simply to abandon our oil and gas production sector and rely on the importation of natural gas and natural gas products many of these companies would move offshore.
Our economy requires a constant, reliable flow of affordable energy to remain safe, stable and energetic. Natural gas, which produces far less carbon dioxide than other fossil fuels, is the ideal energy source to meet this need as we transition to a carbon neutral energy future.
During this transition we will also need to continue to export our primary produce by sea and by air and ‘import’ our tourists by plane and by cruise ship. While there have been significant developments in renewable electricity generation, urban energy efficiency and electric vehicle technology the global maritime and aviation industries remain almost entirely reliant on petroleum products. We need to continue to invest in petroleum exploration and production to ensure our export sector remains competitive and to insulate our economy from international energy volatility.
The third leg of the ‘energy trilemma’ is energy equity. The World Energy Council defines ‘energy equity’ as the accessibility and affordability of energy across the population.3 In 2013 fossil fuels accounted for 81.4 percent of the global primary energy supply.4 Even accounting for all global initiatives to improve the renewable mix, coal, oil and gas are still conservatively estimated to make up 75 percent of the global primary energy supply in 2040.
In the last half century hundreds of millions of people throughout the world have escaped poverty thanks in no small part to fossil fuel energy.
Energy equity must be maintained and enhanced to ensure the world’s fastest growing economies such as China, India and Indonesia remain politically stable and economically strong so that their citizens are willing and able to embrace low carbon renewable energy. New Zealand needs to play its part by continuing to export high quality oil, natural gas and their derivatives to ensure this economic transformation continues.
The future is now?
No the future remains, as it was in 1955 … in the future.
In the now we must continue to invest in petroleum exploration and production in New Zealand to ensure our waka and our kayak remain afloat in the uncertain energy waters that lie ahead.