“We are hopeful that the changes will be enough to encourage new investment, but it really does come down to the magnitude of the perception of ongoing sovereign risk,” Carnegie said.
“The counter to that is that clearly, we have an energy shortfall,” he said.
The ASX futures market points to power prices being firm over the next three years due to constrained gas supply.
“We have rising energy prices and they are likely to be ongoing, so all the market signals will be there,” Carnegie said.
“Explorers will review the policy landscape and make a risk-adjusted decision.”
It takes five to 10 years after discovery to bring an oil and gas field into production - the last find to become commercial was in 2005.
Carnegie, pointing to the speed with which liquefied natural gas installations in Europe gained consent when supply from Russia suddenly became constrained, said much depends on the urgency of New Zealand’s energy situation.
He said New Zealand’s geology was known in the industry as being gas “prone” and that explorers had grounds for optimism.
In April 2020 - just a few months into the Covid-19 pandemic - Austrian oil and gas company OMV discovered hydrocarbons at an exploration well 50km off the Taranaki coast. At the time OMV postponed further drilling because of market conditions.
The Barque prospect off the Canterbury coast also had potential, as did offshore East Coast prospects, Carnegie said.
“The geology is relatively well-known and the technology is improving,” he said.
“The question is, how do we get people to re-engage to come and explore?”
Carnegie said the incumbent players - OMV, Todd, Beach Petroleum, Matahio, Westside and Greymouth Petroleum - were likely to act first when the ban lifts.
“But that all comes back to the conditions - the nature and materiality of the changes.
“Have the conditions changed significantly enough for them to warrant significant investment?”
Most of New Zealand’s electricity comes from hydro dams, wind farms, geothermal power stations, a few solar farms and thermal power stations – with some using gas as fuel.
The Government has committed to net zero emissions by 2050 and fossil fuels are being phased out.
The six largest natural gas fields are the three offshore fields, Pohokura, Māui and Kupe, and three onshore fields, Mangahewa, Tūrangi and Kapuni.
There are also 12 smaller onshore fields.
The largest user of natural gas in New Zealand is Methanex, which makes methanol.
The electricity system is the second largest user of natural gas.
The Electricity Authority says 23 per cent of the country’s electricity generation can be powered by natural gas, and that it plays an important part in ensuring security of supply.
Several gas-fired units - peakers - can quickly turn on to address supply shortfalls.
Large industrial gas users typically have contracts with gas suppliers, which specify a quantity of gas to be delivered at a certain price over a particular time.
“However, for some, the amount of contracted gas is declining, as companies begin transitioning away from fossil fuels,” the authority said in a report.
Contact Energy’s contracted gas volumes for the 12 months ahead have fallen since September 2021.
Several New Zealand gas fields are naturally declining as their fuel depletes, including Pohokura, Māui and Kapuni.
“Without new drilling, these fields may continue to produce less gas in the future,” the Electricity Authority says.
It is estimated that Pohokura’s production may fall to zero by 2032.
The Māui field produced 75 per cent less gas from 2000 to 2023.
Similarly, Kapuni produced about 57 per cent less gas from 2000 to 2023, and may fall to less than 5 petajoules in the 2040s.
“While not all gas fields are in such obvious decline, it is likely that natural gas production will fall over time without further drilling or investment,” the authority said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
