Frank Duffield: Compelling reasons to search for untapped resources

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There is no practical substitute for oil and gas in the transport sector, and gas remains critical in the power generation sector.
There is no practical substitute for oil and gas in the transport sector, and gas remains critical in the power generation sector.

The Government's push to develop New Zealand's untapped oil and gas resources has been condemned as irresponsible by those who believe we should abandon the use of fossil fuels which are known sources of greenhouse gases rather than look for more.

However, the concern is unfounded. Hard-headed analysis demonstrates that developing New Zealand's hydrocarbon resources could actually help reduce the rate of climate change.

Let's start by recognising that climate policy over the past two decades has failed utterly. In May 2013, the Intergovernmental Panel on Climate Change announced that CO2 in the atmosphere had passed 400 parts per million.

Science indicates that the result will be a rise in global temperatures of 2C. The consensus is that the world could live with the consequences of this. The problem is that there is no sign yet that the increase in greenhouse gases will abate. And if global warming goes beyond 3C, the science, although less certain, suggests the consequences could be dramatic.

The failure of climate policy to date is due to a lack of realism. First, it is predicated on a global agreement on climate change. This is simply not going to happen because global discussions will not resolve who is to blame and who is to pay, especially when the science is disputed.

The last international climate jamboree, in Durban in 2011, could only agree to agree later about what to do after 2020.

Second, our continued dependence on fossil fuels has been underplayed. Fossil fuels are the most efficient energy source we have. There is no practical substitute for oil and gas in the transport sector, and gas remains critical in the power generation sector.

Third is the little-acknowledged fact that current renewable energy technologies cannot make a meaningful long-term contribution to emission reductions. The problem, essentially, is one of scale. If the windiest 10 per cent of Britain were to be covered with wind turbines, they would produce only the equivalent daily power per person that it takes to drive the average car 25km.

And renewable technologies are costly. Their introduction has been possible only with substantial subsidies. Germany's annual subsidy bill for renewables alone is now €20 billion ($33 billion).

The cost of subsidising renewables has now become a major issue in Germany's upcoming parliamentary elections. And energy bills there have yet to be hit by the cost of maintaining conventional backup generation for when the wind is not blowing or the sun is not shining. To cope, Germany is importing cheap coal, which is pushing emissions up again.

In Britain, too, headlines speak of potential brownouts and energy price rises as a consequence of the failure to invest in new conventional power generation.

President Barack Obama, in a recent speech on climate change, said the US should "strengthen natural gas", because "... it not only can provide safe, cheap power, but it can also help reduce our carbon emissions".

Here's why. Over the past decade, increased global power generation has been largely fuelled by coal. For example, from 2000 to 2010 China's annual coal imports increased from 2.1 million tonnes to 176.3 million tonnes. It is a trend that the International Energy Agency expects will continue throughout Asia.

Among fossil fuels, coal is the biggest contributor by far to CO2 emissions, producing 30 per cent more of the greenhouse gas per unit of energy than oil and 90 per cent more than natural gas. If natural gas replaced coal in power production the result would be a rapid and significant reduction in global emissions. This substitution is now possible.

Already gas is displacing coal in the US and, as a result, the US Energy Information Agency has reported an 8 per cent reduction in CO2 emissions in 2012 - a decline that is forecast to continue.

Herein lies the opportunity for New Zealand. Its resource base is largely underexplored, and world-scale natural gas discoveries are quite possible.

The recent announcement that the China National Offshore Oil Corporation is joining the New Zealand exploration effort confirms the market interest and potential.

Mighty River is already bringing geothermal expertise to the US. Our smart-grid technology is among the world's best and our small cities provide the opportunity to develop this.

Our forestry expertise creates biomass potential. And, yes, wind turbines can play a part - ours run twice as often as the global average, giving us internationally marketable operating and maintenance experience.

Far from ignoring our hydrocarbon resources, there is a compelling argument that we should make the most of them.

Frank Duffield is honorary fellow at the University of Auckland Business School's Energy Centre and has more than 30 years' international experience in the energy industry.

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