Keith Newman predicts a seismic reaction ahead as environmentalists and pro-business lobbyists go head to head over whether oil and gas could become the next economic frontier for Hawke’s Bay.

An alignment of political will, high international oil prices, new technology and a greater awareness of what might lie beneath Hawke’s Bay’s shale rock formations has created a heady mix of excitement – and horror – at suggestions we might be on the verge of a black gold bonanza.

Those charged with lifting Hawke’s Bay from the economic mire imagine employment, investment and cash registers ringing across the region. They expect permits to be dished out by Prime Minister John Key, who lured by potential annual royalties of $13 billion NZ-wide, aims to increase oil and gas production by 50%.

Kevin Rolens, director of New Zealand Petroleum & Minerals (NZP&M), the government permitting agency, says central and local government must work together if the country is to capitalise on “our big opportunity”, suggesting the East Coast is one of the world’s most under-explored basins.

That’s provoked the green lobby into placard mode, invoking worst case scenarios of broken wells belching black ooze, seismic unrest triggered by ‘fracking’ and toxic waste contaminating our water supplies. It’s an emotional issue, full of assumptions and misunderstandings on both sides.

Groundswell of interest

Since the discovery of ‘unconventional’ shale formations; identical to those in North America where large commercial deposits of oil and gas were discovered, there’s been a rush on new onshore permits and to acquire existing rights along the East Coast and in Taranaki.

The target areas include millions of acres containing Waipawa black shale and Whangai source rock in the so-called East Coast Basin from Wairarapa to Gisborne, now tipped as a new frontier for oil and gas.

Advanced surface and ‘downhole’ technologies, 3D seismic scanning, horizontal drilling and hydraulic fracturing (‘fracking’), mean it’s easier than ever to detect and extract oil and gas previously considered difficult or uneconomic.

Scientists and geologists are in demand to help determine the exact nature of the resource and the investment needed, and formerly independent specialists are being snapped up by lobbyists and law firms.

If Taranaki can record the largest economic growth in the country, a burgeoning 47% between 2007 and 2010, then it might be assumed oil and gas could be a shot in the arm for Hawke’s Bay, which desperately needs sustainable growth.
The reality however is that any commercial exploration in the Hawke’s Bay Regional Council’s jurisdiction, if it’s proven viable, could be a decade or more away. As at mid-August no wells had been drilled, no consents applied for and no discussions were underway to suggest anything was imminent.

A second Taranaki

Oil is New Zealand’s fourth largest export commodity; oil and gas production contributes more than $2.5 billion to our gross domestic product (GDP), the bulk coming from Taranaki. The Ministry of Business Innovation and Employment (MOBIE) says about 42% of a petroleum company’s profit, including taxes and royalties, goes to the government.

Yule plans regional oil summit

MOBIE believes a ‘second Taranaki’ could grow GDP by at least $2.1 billion or 1.7% annually over a 30-year development period, creating around 5,500 jobs.

Regional benefits are expected to include job creation and training, the use of local drilling, construction, engineering and manufacturing for infrastructure build, plus flow on impacts for trucking and other contractors and businesses.

The contenders eagerly eyeing up untapped underground resources in the wider Hawke’s Bay region include American-owned Westech Energy New Zealand with permits in Wairoa, and Endeavour Energy, owned by Canadian firm Marauder Resources East Coast (NZ) currently investigating options at Rissington, Sherendon and Bay View, northwest of Napier.

Two Vancouver, Canada-owned companies, New Zealand Energy Corporation (NZEC, previously East Coast Energy Ventures) and Tag Oil are active east of Dannevirke in the Tararua District Council’s jurisdiction. All four are likely to have dibs on further permits in the current 2013 Block offering, to be announced before the end of the year.

The East Coast Oil and Gas Development Study released in March, suggests the overall national economic benefits (GDP) could increase from $360 million to $18 billion per year, increasing Crown revenue by $7.7 billion per year. Job gains in Hawke’s Bay (including Gisborne) could range from 200 to 2,300 depending upon scale of production, with a projected 39% increase in disposable incomes in the most optimistic scenario.

The report, jointly funded by MOBIE and Business Hawke’s Bay on behalf of eight East Coast councils, was essentially a discussion starter, talking up the job and revenue numbers and exploring basic environmental risks, without making specific recommendations.

The $130,000 report was described by green-leaning Gisborne and HBRC councillors as “a sloppy marketing campaign for the industry paid for by taxes and council rates”, containing “no worthwhile analysis of the economic …. social and cultural impacts”.

Job numbers ‘rubbish’

Retiring HBRC councillor and green champion, Liz Remmerswaal, says claims of enticing economics and job prospects are “rubbish and not based on truth”.

She insists the Government is in league with the oil and gas industry in pushing the spin around job creation, with former Tag Oil partner, Apache Corporation, admitting at an HBRC meeting last year that very few jobs would be created.

Most local jobs would be temporary and the exploration companies would likely bring in their own teams. “It’s emotional blackmail for the business lobby to say we have to accept oil and gas because it’s all about jobs and trillions of dollars.”

But what if there’s evidence of proven economic value to the region? “That’s lies. We don’t benefit, all the profit goes overseas and the Government gets a pathetically small 3-5% royalty. We take all the risk,” says Remmerswaal.

“If anything goes wrong, Marauder isn’t going to care. What’s the economic value of polluted water you can’t drink or farm with?”

Hastings mayor, Lawrence Yule, agrees the development study cobbled together previously known material and wasn’t helpful. “It was so high level and holistic about the number of jobs and so bland, I couldn’t get a handle on what should or shouldn’t be done or what should happen next.”

He’d like Business HB to commission a more detailed report on the regional impact for oil and gas, but not until the community is a lot better informed.

Yule is covering his bases; he wants the Government to contribute to any roading needed to support any industry that might come here and for HBRC, as consenting authority, to exclude the Heretaunga Plains aquifer from any drilling.

However, HBRC’s group manager of resource management, Iain Maxwell, says anyone can apply to have a bore in any permitted area although there would be “a high level of scrutiny and sensitivity applied to any of our most productive aquifer systems”.

Regional symposium

Yule is planning a regional symposium on 11 October, with a balanced mix of expert speakers, including Parliamentary Commissioner for the Environment Jan Wright, addressing environmental and economic concerns. “It’s a forum for the region, I’m just trying to lead it and organise it and I’m not too precious about who’s involved.”

He’s frustrated at the unsubstantiated stories doing the rounds. “A Mexican stand-off is no way to approach this. All we’re seeing at the moment is a Government and an oil and gas position on one side and on the other, people standing on the street with placards.”

Yule’s main concern is the “high level of objection”, even to exploratory drilling, which he insists is the only way to determine the nature and value of any oil or gas resources. “If we cut it off at the knees it will be a huge shame for Hawke’s Bay; we owe it to the region to do far more investigation before any decisions are made.”

He suspects that if fracking and environmental concerns were not an issue, people would support more jobs and better economic performance.

“The debate has become so factionalised …We’ve got to get to the guts of what the facts are.”

Remmerswaal applauds the plan for a public forum, “provided people listen to each other, the best people in the field are accessed and it’s not all spin and lies”.

Although environmental groups have held a series of public meetings, she says the Ministry (MOBIE), in trying to tick the boxes with stakeholders, has been very selective about who it talks to.

And she feels HBRC has rolled out the red carpet for the ministry and oil and gas industry, failed to engage with ratepayers, and left environmentalists feeling marginalised. “Well informed people with views contrary to the oil and gas and government agenda deserve the respect of being listened to.”

Plan changes ahead

HBRC’s Maxwell says the council’s not consciously keeping people in the dark, it’s just that there’s been nothing to talk about, as no-one’s even discussing consents.

He does agree though that complex, fragmented and unclear regulations haven’t helped dispel misunderstandings and it’s time for some strategic thinking around policy in Hawke’s Bay’s regional and district plans to consider how any oil and gas industry might be expected to operate.

Exploratory bores have been drilled around Hawke’s Bay for decades but the only current activity is at Wairoa and north of Weber in southern Hawke’s Bay. Most people would have remained unaware of these activities until “the ‘f’ word raised the spectre,” says Maxwell.

With increased awareness, it’s now time to have that conversation with the community. “We need to get that written down like we did with the land and water management strategy for Hawke’s Bay.”

However, Maxwell says it would be a rarity if a significant commercial oil field was discovered by simply drilling one or two bores. “It’s not like the Beverley Hillbillies where it just comes gushing out of the ground.”

Lawrence Yule, clearly excited about what oil and gas has done for Taranaki, is keen to take a couple of busloads of influential leaders and open-minded business people and environmentalists across country to see for themselves.

Stuart Trundle, chief executive of economic development agency Venture Taranaki, welcomes Yule’s proposed visit. He’d rather people have first-hand experience of an industry that has worked for the Taranaki economy for over 100 years, than web-based or anecdotal research.

Venture Taranaki’s December 2010 report, The Wealth Beneath Our Feet, claims the oil and gas industry directly and indirectly employs over 5,000 people, contributing around $2 billion in GDP to the Taranaki region and $2.5 billion to the New Zealand economy.

Jumping hoops

Trundle told BayBuzz, the economic impact from oil and gas has only just begun, with record levels of exploration in Taranaki planned this summer.

There’s a tendency for people to “jump several hoops in their mind” when NZ Petroleum and Minerals issues a licence to explore, assuming commercial activity is imminent. However many of the current opportunities were first discussed in the 80s and 90s.

He says Taranaki had to look at how to attract and retain talent which would ultimately drive economic growth; the 5,000 plus families now employed in oil and gas would never have found equivalent high paying jobs in the rural sector.

“There are always compromises in any decisions that change the status quo; we have to balance the environmental concerns … and maximise the economic benefits for the local community through supply chains, clustering and local content.”

Venture Taranaki’s role has been providing the strategic glue and thought leadership and the secretariat to facilitate the plans of those who create wealth, delivering hard science and academic research to ensure there’s informed debate.

“We bring a degree of academic rigour to all the reports we produce so leadership teams can then make decisions based on full information.”

Business Hawke’s Bay sees itself in a similar light, but given the criticism of the joint government report, much more will be expected of it in the future, if it’s to remain at the helm of regional economic development.

Business HB chairman Stuart McLaughlan, says the bottom line is whether oil and gas measures up and is sustainable. “We don’t want an industry that ruins other industries because it contaminates water.”

He agrees a public forum is needed to bring some balance. “There’s been a lot of biased comment and questionable information and we need to move on from that… challenge what both sides are saying and find out what is real and accurate.”

Given the strong push by central government and the lack of local expertise in oil and gas, he’s urging MOBIE to provide Hawke’s Bay with specialised resources so informed decisions can be made, particularly in assessing consent applications.

Confronting the ‘f’ word

Serious scientific testing will need to confirm oil company confidence that Hawke’s Bay is indeed an accessible source of ‘bubbling crude’, with bulletproof data to satisfy the concerns of regional regulators and environmental lobbyists.

Given the region’s propensity for seismic activity, who’s to say the now emotionally charged ‘fracking’ procedure won’t be the catalyst for a catastrophe. And what about contamination of ground water or aquifers? Where will the high pressure water required for fracking come from, if it’s permitted, and how will waste water and contaminants be disposed of?

A recent Todd Energy report insists fracking, “the standard treatment for maximising efficiency of deep gas wells in Taranaki”, has been safely and successfully used onshore 65 times over 20 years.

The report says groundwater contamination has been avoided because there’s typically a 2,500 metre seperation between impermeable rock and aquifers and our ‘robust regulatory framework’ ensures the highest safety and environmental standards are met.

However, Remmerswaal, says that’s just the standard oil company line and fracking remains problematic, particularly with “the toxic waste it drags up from underground which has to be dealt with.”

Genuine concerns remain. “You cannot say a well will never fail … ‘Trust me I’m an oilman’, just doesn’t cut it”, says Remmerswaal, who’s reluctant to allow direct comparisons with Taranaki. “They have a different climate and geology and are not on a fault line like we are here.”

HBRC officials who visited British Columbia and Alberta in February to assess the effects of fracking, concluded that opposition was based on inaccurate information and there was minimal risk if wells were built to best standards.

Parliamentary Commissioner for the Environment, Jan Wright, says despite a risk of water pollution and earthquakes, fracking can be done safely if well managed and properly regulated. While she rejected a call for a moratorium in her interim findings, she’s likely to demand stringent conditions in her final report later this year.

So how do you get the so-called green agenda on board when it is fundamentally opposed to oil and gas exploration, inexorably linking it to climate change, greenhouse gases, carbon footprints and feeding our addiction to fossil fuels?

HBRC’s Maxwell says the RMA only takes into account the effect of the extraction not what is being extracted or its subsequent use or impact on the environment, “that’s a completely different discussion”.

So what is the real business case? What new jobs will be created and for whom? What are the hard numbers for the regional economy or does most of it end up in central government or foreign purses?

To date there are more questions than answers about the actual benefits an oil and gas industry might bring to Hawke’s Bay, if indeed it can be convinced to invest here. Certainly a rousing discussion must occur.

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