Sunday, April 29, 2012

Peak Cycling?: Modern Bicycles Are Oil Hungry Beasts

I am a keen cyclist. When I lived in Vancouver last year I would cycle the seven kilometres to and from work six days a week during the warmer months. Unfortunately my job here back in New Zealand doesn't allow for cycling (I spend weeks out at sea on fishing boats) but I still try to get out on my bike as much as possible. Cycling has many advantages over other forms of tranpsort: it's free exercise, it's fun, in many cases it's faster (I could easily beat the bus over my seven kilometre ride to work) and it's environmentally friendly.

But hang on. Just how environmentally friendly is cycling and just how feasible is it in a post-peak world? It is true that once you buy a bicycle the day to day maintenance is negligible aside from a few subtle tweaks here and there. Fuel costs depend on how and what you decide to eat. But in terms of construction bicycles aren't quite as green as they first look and it's certain that at some point in the future modern bicycle production will cease to exist. Steel-alloy frames and rims, rubber tires and tubes, steel wires for brake and gear cables and all the other components are mass produced in factories that consume a huge amount of energy. 

Another environmental concern is where do good bikes go to die? Rubber tires eventually wear out and are impossible to recycle without huge energy inputs. More than likely they end up in landfills where there is risk of slowly leaching heavy metals and other pollutants into the groundwater. There are no natural organisms that can decompose vulcanized rubber and so it takes centuries for tires to break down due to physical processes. Steel components break down much faster with oxidation but can also leach toxins into the environment. 

Environmental concerns aside, where did the modern bicycle come from and where is it heading?

A stand of safety bicycles at an 1890s tradeshow in  Nelson, New Zealand. Photo courtesy of: http://www.teara.govt.nz/en/bicycles/1/3

The so-called 'safety bicycle' was invented in the late 1880s and led to the first of many popular booms in cycling. It was the first bicycle that resembled the modern day bicycle, employing rubber tires, a chain connecting the back wheel to a crank shaft and equal sized wheels combined with a lower frame that made it easy for people to learn how to ride. By the 1890s domestically produced bicycles had overtaken imports and by 1900 New Zealand had 71 bicycle factories.

By the late 1930s New Zealand had one bicycle for every six people with over 800,000 bicycles imported and many more made locally between 1900 and the 1950s. As car ownership increased in the 1950s the popularity of cycling declined. 

Another important step in bicycle evolution came in the 1970s when the ten speed was introduced. As oil prices crept up around the world cycling again became an attractive alternative with ten gears making it much easier to climb hills and cycle into the wind. During this period 90 percent of all bikes sold in New Zealand were domestically made but after the lifting of import restrictions in the late 1980s cheap Asian imports priced local manufacturers out of the market. 

Today almost all of our bicycles are imported from overseas. They are made in highly automated factories that consume huge amounts of energy such as this Cannondale factory in the United States. It is obvious that in the coming years as high fuel prices begin to bite more and more people will turn again to bicycles as their main form of transport much like the days before individual car use became affordable in the 1950s. In fact we are already seeing that as cities put in place cycling infrastructure such as a 70 percent increase in cycling in London in 2010

But what is also obvious as high oil prices push up the price of other commodities is that modern mass-produced bicycle manufacturing can't and won't exist in the future. It is likely we see a resurgence in local bicycle manufacturing, the same as what will happen in many other sectors.    


There will also be an increasing need for second-hand bicycle shops and collectives such as The Hub Community Bike Shop that I visited in Bellingham, United States last year. 

From a long term sustainability viewpoint an area of interest is the development of wooden and especially bamboo framed bicycles. The great thing about bamboo is that it grows well almost anywhere with no required inputs and it grows quickly. Professionally manufactured bicycles can set you back thousands of dollars but there is also real potential to build one yourself at a relatively low monetary and energy cost. Initiatives such as the Bamboo Bike Project already exist in bringing low cost bamboo bicycles to the masses in Africa.   

So we may be able to build bicycles for a long time yet but where will we ride them? Not many people stop to think how reliant modern cyclists are on automobile infrastructure. Richard Heinberg writes in The End of Growth that where he lives in Sonoma County, California, 90 percent of roads are being left to deteriorate and gradually return to gravel as there is no money for continuing upkeep. It is likely that this will also be a trend elsewhere as the 'business as usual' approach comes up against hard resource limits. 

All in all cycling is a long way from peaking. The massive resurgence in the popularity of cycling has a long way to go yet. There is however no doubt that in the future our bicycles will more likely be a mixture of bits and pieces that we scrape together from the local bike co-op rather than a shiny new Cannondale. And while that might not be so good for Cannondale it will do both our health and the planet a lot of good.   

This post was inspired by Chris @pavementsedge and his blog post 'Peak Bicycling'

$365 Million Marsden Point Refinery Upgrade Approved

Shareholders voted on Friday to approve the $365 Million Marsden Point Refinery upgrade despite the rejection of the plans by two major oil companies. Sixty-five percent of investors voted in favour of the plans and it is understood that Chevron and Mobil were the two companies to object to the upgrade. 

I speculated last week why these companies may have been looking to avoid investing more money in oil refining in New Zealand. Mobil is well known to be trying to exit the New Zealand market although Chevron appears to be in for the long haul after approving the $4 million refurbishment of fuel storage tanks in Timaru after increasing pressure from Z Energy to make use of the assets or sell up.

James Schofield, from Craig's Investment Partners, told TVNZ's Breakfast on Saturday morning that the upgrade would have little impact on petrol prices a the pump." The reality is the major factors for pump prices are crude prices, foreign exchange and tax." Schofield was cautious due to global refinery capacity currently being over-supplied and preferred to delay any development until the global refining outlook strengthened

Refining NZ's Chief Executive, Ken Rivers said "My aim for my customers is to provide a more reliable supply, a more cost-effective supply and a supply with a lower environmental impact."

Energy and Resources Minister Phil Heatley yesterday welcomed the announcement "Spending $365 million on this upgrade will mean 700 new jobs, higher energy efficiency and fewer carbon emissions." 

Neither Rivers nor Heatley seem to understand that increasing the refinery capacity by 10 percent will of course increase carbon emissions. I am dubious about any commitment the New Zealand government has to reducing carbon emissions when it supports increasing refinery capacity as well as a massive increase in oil and gas exploration. It appears to be playing lip service to environmental concerns while doing everything in it's capacity to support projects that will increase carbon emissions and New Zealand's reliance on fossil fuels. Business as usual as always. 

Sunday, April 22, 2012

Seven Myths Deniers Use To 'Debunk' Peak Oil, Debunked

Peak oil is a fact, not a theory. From US conventional oil production peaking in 1970 to global conventional oil production peaking in 2006 the figures are indisputable. Even institutions such as the International Energy Agency (IEA) and publications like The Economist that are not known for alarmism have admitted that oil production from conventional sources has peaked. So why are there still commentators out there that refuse to believe peak oil? Similar to the climate change debate many, but not all of the most vocal deniers tend to be politically conservative, pro-business and by their refusal to take into account basic statistics, anti-science. They are ideologically opposed to what will happen now that we are living in a post-peak world in terms of reduced energy use per capita and the inevitable downsizing of the global economy. So what are their arguments and why are they so wrong? The top seven are listed below:

1. "Peak oilers say oil is running out, it's not"
At best this is a misunderstanding, at worst this is a straw-man argument deliberately fabricated to cast doubt on the assertions of those concerned with the realities of peak oil. No peak oiler worth their salt has ever argued that we are running out of peak oil. Sure there may have been a couple of fringe bloggers arguing the case alongside conspiracy theories about alien abduction cover-ups and laser guided death unicorns but no one takes them seriously. The issue is not when oil will run out, it is about when oil production will peak. Global conventional oil production peaked in 2006 according to the IEA's 2010 World Energy Outlook. Unconventional oil has filled the gap for now at least but there is a lot of scepticism as to how long this can last.  

2. "Fracking will save us from peak oil"
While it is certainly true that the massive increase in fracking was unforeseen by most peak oilers it is merely a game extender, not a game changer. Oil from fracking currently accounted for less than 5 percent of the daily U.S. consumption last year. This is even after a 750 percent increase in tight oil production since 2003. Clearly there needs to be an unprecedented increase in exploration and drilling for oil from fracking to even begin making a dent in the wider scale of things.

The other trouble with fracking is that production figures for individual wells commonly decline 60-80 percent in the first year followed by a more gradual decline. This means new wells must constantly be drilled to avoid production for a whole area dropping off very quickly.

The U.S. Energy Information Administration (EIA) forecasts that domestic production of tight oil will max out at 1,325,000 barrels a day by 2030. This is only 7 percent of the current U.S. daily consumption. And no one seriously believes that the U.S. economy can grow without increasing oil consumption. The numbers don't stack up, it's as simple as that.


3. "The United States is now or will soon be a net oil exporter"
The rise of tight oil extracted through fracking has been hailed as a new era for U.S. energy independence. Some have even gone as far as saying that the U.S. is now a net oil exporter. The devil is in the details however. On a Btu basis the U.S. imported 58 percent of the oil it consumed in 2011

Now it is true that the U.S. became a net oil product exporter in 2011 for the first time in over sixty years. This is however very different from being a net oil exporter. Gasoline, diesel and heating oil made up the majority of these products. However much of this oil was initially imported as crude from overseas, refined in the U.S. and then exported back out. This doesn't make the U.S. a net oil exporter. Total net crude and product imports did fall 11 percent in 2011 to 8.436 million barrels a day, the lowest point since 2005. And domestic oil output did rise 3.6 percent to 5.673 million barrels a day. But this still leaves a 48.7% difference  between imports and domestic oil output, a huge gap that the IEA forecasts will not be closed as far out as 2035. 

4. "Oil production is still increasing annually"
Like many peak oil denier myths this old gem is true up to a point. But only if you include unconventional oil, natural gas liquids and biofuels. Which means that when you take those figures away you get...that's right...a peak in the production of oil from conventional sources. And as we see from the example in the U.S. it is highly unlikely that unconventional plays will be able to take up much of the slack.  


5. "Saudia Arabia will ramp up production to ease prices soon"
Crude oil prices have been over US$100 a barrel since February 2011. This is after steadily climbing from a low of US$42 a barrel in December 2008 after the last recession killed demand. The question is: with oil prices so high for so long, why hasn't Saudi Arabia stepped in already to ease prices? Saudi Arabia produced the highest amount in thirty years in November 2011 and then actually decreased output and exports the following month. The increased November output dropped prices by $3.00 per barrel to $107.97 for December. The easing was shortlived however with average March 2012 prices sitting at $126.4 per barrel, the highest price since July 2008. Production capacity figures for OPEC countries are notorious for being inflated and there is increasing scepticism that Saudi Arabia couldn't priduce any more oil even if it wanted to. 

6. "East Africa is the new Middle East"
Madagascar has been targeted by Exxon and Norway's Statoil since 2005. Statoil has found a billion barrels of oil equivalent. That may seem like a huge find but consider this: the largest conventional oil field in the world, Ghawar in Saudi Arabia, has produced 65 billion barrels of oil since 1951 from initial reserves of over 100 billion barrels. The Madagascar field extends down to Mozambique where Anadarko have found 1.3 billion barrels of oil. Further inland Tallow has found 1 billion barrels of proven reserves in the Ugandan Albert basin. Plenty of other African countries are now being explored by a number of interests but they have yet to show any major finds.

Oil pundits might be saying "game on" but really all there is to show at the moment is a lot of hope and we all know that at the end of the day hope won't fill the gas tank. I should know, I tried that plenty of times in my student days. The truth is that most of the new oil finds throughout the world are less than 2 billion barrels each. The global annual consumption is currently a little less than 33 billion barrels per year. There is a huge disconnect between the size of the fields currently being discovered and the predicted future demand for oil.


7. "There is always a new frontier"
The question is why do we need new frontiers if oil production isn't peaking? It is an odd concept that oil companies would spend millions of dollars in politically unstable countries and areas where the physical barriers are immense such as the Arctic just for the hell of it. The truth is all the low hanging fruit have been picked. All the easy to access and produce oil has been found and developed. What we are seeing now is increased exploration in increasingly economically dubious areas such as the Canadian tar sands, deepwater drilling, and fracking and horizontal drilling in tight oil plays. 

It is as if the pundits pushing this line have never seen a globe before. The world is round. There is a finite amount of land and ocean that can realistically be developed to economically produce oil. From all the evidence that has been collated over the last few years it appears that we are pushing up against these limits right now. 

The biggest oil find since the 1960s, the Kashagan oilfield in the Caspian Sea has 13 billion barrels of proven reserves. Development of the field has however been plagued with funding problems with Shell shutting its Caspian office in May last year. At this stage it is unlikely this field will produce anything close to the original estimates due to ingoing delays with development.  

So there we have it: Seven Myths Deniers Use To 'Debunk' Peak Oil, Debunked. Feel free to leave a comment below or follow me on Twitter @southernlimitnz 

Saturday, April 21, 2012

The Reasons Why The Marsden Point Refinery Expansion May Not Happen

Interesting news surrounding plans to significantly extend refining capacity at Marsden Point has come to light. It appears that not everyone involved is as enthusiastic towards the plans as was first reported. New Zealand Refining, the company that runs Marsden Point did not get unanimous support from its shareholders for the new development.

NZ Refining's shareholding consists of BP (24%), Mobil (19%), Z Energy (17%), Chevron (13%) and Canadian investor Garlow Management (8%). Minority shareholders make up the remaining 19%. The oil companies own 73% of the shares and their representatives have 70% of the seats at the board table. This means that two of the three major oil companies must approve of the plans before they can go ahead. A majority of the directors supported the project plans but some directors were opposed (I am unsure at this stage which ones). No explanation has yet been released detailing the reason for the opposition.  

NZ Refining plans to spend $365 million to expand and update its petrol refining manufacturing plant. The continuous catalyst regeneration (CCR) technology is expected to boost its share of the New Zealand petrol market from 55% to 65%. NZ Refining believes that once fully commissioned this will boost margins by U.S. $1.10 per barrel and and increase revenue by $70 million per year. 

The answer to the director opposition may come from what is happening overseas. It appears that the big oil companies are trying to reduce their stake in refining operations throughout the world in an effort to reduce the volatility seen in earnings since the 2008 recession. This comes even as profits from refining petrol and diesel have been increasing to their highest levels since 2007.

Their appears to be a mass exodus by big oil companies from refining in the United States. Sunoco is closing its two oil refineries in July 2012 in Philadelphia and Pennsylvania. Those two facilities alone process over 500,000 barrels a day. Last year ConocoPhillips announced two plant closures in Pennsylvania and New Jersey as well as another closure in Alaska. At the end of March this year The HESS Corp announced the permanent closure of the United States third largest oil refinery. Refineries on the East Coast of the U.S. supply 40% of the petrol sales and 60% of the diesel and other fuel oils. Of that, half comes from the Sunoco & ConocoPhillips plants that are targeted for closure.  

At the beginning of last year more refineries were on the market than at any time before. Prices for some refineries had plummeted by 80% compared to 2006 prices. Big profits can still be made from refining but their is increasing uncertainty with highly volatile oil prices. The average Brent crude price for March was 10% higher than the same time last year and 59% higher than the same time two years ago.

Because 90% of the feedstock for the Marsden Point refinery is shipped from overseas the refinery is especially vulnerable to swings in oil prices as opposed to refineries overseas that are situated close to sources of oil. Another problem is the scale of size. Marsden Point refines roughly 32 million barrels per year which is about the same as what the U.S. refines every two days. There is also evidence that New Zealand traffic volumes per capita have been decreasing since 2005 with an annual decline of 4-5%.

All these factors point towards the possibility that investment in oil refining might not be the sure game it once was. This has been reflected in the reluctance by some of the NZ Refining directors in signing off on the expansion plans. The final vote is due this coming Friday and it will be interesting to see what the outcome will be. Watch this space.

Friday, April 13, 2012

Predicting the Future: The Link Between Crude Oil Prices and Recessions

Prediction is a messy business at the best of times. It has a well known tendency to leave those with strong opinions on how the future will turn out looking silly when events inevitably play out completely differently. So for today's post, rather than make any outright claims to where things are heading I will instead point to a few indicators to look out for in the coming months and years that may have some bearing on global economic events. I am not an economist and I do not claim that the below graphs are in any way scientific. I do however have training in statistics and I believe there is enough crossover there to at least have some relevance to today's discussion.

In October 2008, former CIBC World Markets Chief Economist Jeff Rubin and current CIBC World Markets Senior Economist Peter Buchanan published a report arguing that high oil prices had caused the 2008 recession. They detailed how four out of the last five global recessions had been preceded by oil shocks (Figure 1). The 1973 Middle East War, the 1979 Iranian Revolution, the 1990 Iraq War and considerable decreases in OPEC production after the Asian Economic crisis in 1998 all lead to spikes in the price of oil. These spikes were then followed by a recession in what the IMF defines as advanced economies (North America, Western Europe and Japan). The IMF defines a global recession as 3 percent or less growth in the global economy and this is shown in Figure 1 by the horizontal red line. We can see that under this definition we are still essentially in a recession beginning back in 2007 with the U.S. Housing Bubble. Many mainstream commentators however are stating that the global economy is now recovering and back on track.  

Figure 1: Crude oil prices, advanced economies GDP growth and recessions, 1970-2012. (1970-1981 crude oil prices Arabian Light from http://chartsbin.com/view/oau, March 1982-Febuary 2012 crude oil prices dated Brent http://www.indexmundi.com/commodities/?commodity=crude-oil-brent&months=360, March 2012 crude oil price Brent price from http://www.livemint.com/2012/04/04203155/Brent-crude-prices-rose-in-Mar.html. Advanced economies GDP growth from http://www.imf.org/external/pubs/ft/weo/2009/update/01/index.htm

In order for economies to keep growing in our energy hungry world they need to consume more oil (energy) than they did the year before. As the price of oil grows it is necessary to spend more money just to consume the same amount of oil than they did before let alone increase the amount of oil consumed. This puts strain on the economy from the bottom up as citizens spend more of their income on filling up their vehicles than on consumption. In turn this puts pressure on companies that have decreased sales of consumer products, staff are laid off, and the newly unemployed find it impossible to find new jobs in a contracting market and can no longer afford to pay off car loan repayments, mortgages and other debts. It is a vicious feedback loop that continues until the market contracts enough that demand for oil drops. This leads to a drop in oil prices which in turn helps to fuel growth by providing (relatively) cheap energy. 

The price of oil is of course not the only condition that causes a recession but it does seem to have an extraordinarily large impact on setting up the conditions for a recession to occur. Given that knowledge how does out current situation look? Are we heading for another economic contraction? If we compare the current oil price trends to those seen leading up to the last five recessions (not including the 1998 Asian economic crisis) we get some idea of what it takes to set up the conditions for a recession. This is not to say that if these conditions are met that a recession or economic contraction is  is inevitable but there is at the very least a fair chance that growth will slow.

Figure 2: Average percentage crude oil price increase from eighteen, twelve and six months before the peak crude price for each recession period. Dates in brackets represent the period surveyed. Middle East War and Iranian Revolution  crude oil prices Arabian Light from http://chartsbin.com/view/oau, all other crude oil prices dated Brent from http://www.indexmundi.com/commodities/?commodity=crude-oil-brent&months=360 except March 2012 crude oil price Brent price from http://www.livemint.com/2012/04/04203155/Brent-crude-prices-rose-in-Mar.html.

Figure 2 shows the huge average percentage price increases in crude oil that occurred in the eighteen months before each recession. For our current situation Brent crude prices increased 11% on average in the last six months. The Dot-com Bubble and the Housing Bubble saw a 16% and 17% rise respectively in the six months directly before oil prices peaked. It will be interesting to see what happens in the coming months if the six month average moves towards that 16% threshold. Brent crude would have to increase to US$133 per barrel for this to happen but it is not unlikely as sanctions on Iran begin to bite and other troubles in the Middle East flare up.

As I said at the beginning of this post economic soothsaying is a messy business and no one can ever predict how world events will unfold with any great confidence. I will update these figure as new average Brent  price data comes in and add new analyses as the months roll on. 

Sunday, April 8, 2012

New Zealand’s Potential for Oil Independence in an Uncertain World

Ever since United States oil production peaked in the 1970s there has been debate about the ability of North America to become self reliant by producing all its own oil. Fast forward forty years and this conversation is still taking place and the U.S. is still no closer to oil independence. So what about New Zealand? Could we possibly provide for our own oil needs in the coming years?

I would like to state outright that I carryout this exercise purely as a thought exercise. I don’t believe there is much likelihoodof New Zealand becoming oil independent. Even if it was possible in energy terms, the political outfall would make it extremely difficult to implement. We are an exporting nation and part of our trade agreements with other countriesrely on us accepting their imports and oil is a huge part of this. It is also highly unlikely that we could produce and refine all out own oil and produceoil derived products at rates cheaper than that imported.

New Zealand imports 50.4 million barrels per year (2009) which accounts for 92% of domestic use. We produce 22 million barrels of oil per year (2010) and export 17.2 million barrels of oil per year (2009).  It is clear that current domestic production would have to increase massively in order to insulate New Zealand from global fluctuations in crude oil prices.

Crude oil is refined at Marsden Point inWhitianga. About 90% of the feedstock comes from overseas and 10% is local crude produced as a by-productof gas production at Kapuni. Roughly 32 million barrels of oil are refined every year. One pipeline carries aviation fuel to Auckland Airportand a 170km pipeline runs to the Wiri depot in South Auckland. The Wiriterminal is the largest storage depot in New Zealand, jointly controlled by the four major oil companies, Mobil, Caltex, Shell and BP. Gull built its own private depot in Mount Maunganui in 1999.

The majority of New Zealand exploration and production has been carried out in the Taranaki Basin. This began in the 1950’sand the two biggest oil fields currently producing are the Tui and Maari fields.  The Taranaki Basin is now in decliningproduction and is expected to produce another 171 million barrels of oil according to New Zealand Petroleum and Minerals, a subsidiary of the Ministry For Economic Development. At 2010 consumption rates  of 54.6 millionbarrels of oil per year New Zealand would exhaust this supply within threeyears. This is clearly not a feasible option for long term energy independence. TAG Oil however believes there is 600 million barrels of proven reserves left in Taranaki and this has the potential togive us eleven years at 2010 consumption rates.

Elsewhere in New Zealand limited exploration has occurred in the East Coast Basin, Canterbury Basin and the Great South Basin. Currently the most promising area is the East Coast Basin.Two fields, one north of Gisborne and one between Napier and Danneverke arecurrently being explored. TAG Oil believes there is an undiscovered resource potential of 12.65 billion barrels of unconventional original oil in place (OOIP) and 1.74 billion barrels of conventional OOIP. The potential recovery rates of 12% are similar to that ofthe North Dakota Bakken deposit in the United States. This means roughly 1.52 billion barrels of unconventional oil and 182 million barrels of conventionaloil are thought to be recoverable from this area.

Being generous and assuming TAG Oil’sestimates are correct there are currently 2.3 billion barrels of recoverableoil from both the Taranaki and East Coast Basin. This would give us another forty-two years before these fields ran dry at 2010 consumption. If we expectour economy to grow however we would assume that our oil consumption would groweach year and so it is likely we would require far more oil during this time period.

It is clear that with current known discoveries New Zealand has no chance of being oil independent. Our reliance onoil leaves us open to the whim of the market and we can see that affecting us with record high petrol prices seen at the pump recently. An increasing numberof New Zealanders can no longer afford the lifestyles they have come to expectand we see that with reports of people staying at home during the Easterholiday break.

It is time for the National government to get real on providing sustainable transport alternatives for all New Zealanders. The time of low petrol prices is over and all indicators point to the situation only getting worse in the coming years. 

Monday, April 2, 2012

Fracking Benefits Overblown?

Why is it that oil and gas companies such as TAG Oil and Apache are so aggressively pursuing exploration of gas fields in New Zealand when US gas prices are at a 10 year record low of US$2.176 per mBtu?  In January both Chesapeake Energy and ConocoPhillips announced plans to reduce gas natural gas output and shift towards more oil drilling. Futures as far forward as December 2017 were last week trading at below the US$5 per mBtu level that most companies require to make an adequate return on capital.

One of the reasons that natural gas production has still remained high even with these companies signalling changing tactics is that many of the wells currently producing are condensate wells. This means they not only produce natural gas but also natural gas liquids and oil. With Brent crude currently sitting at $123 a barrel and even higher prices for natural gas liquids this is more than enough to offset the low natural gas prices.

This brings us to New Zealand, the so called “Texas of the south” . A document from TAG Oil that was presented to investors in December 2012 threw around phrases such as the East Coast “literally leaking oil and gas” and announced the potential of “billions of barrels of oil.” TAG has said it has identified almost 700,000ha of conventional and unconventional targets. These unconventional targets are both deep sea resources such as Deepwater Horizon as well as land-based rigs using the controversial technique of hydraulic fracturing or “fracking.”  

It would appear that with gas prices so low both now and for the at least the next five years TAG Oil is hoping to strike oil and strike it big. How much to trust the “billions of barrels of oil” line is however highly debatable. It is not uncommon for any extractive resource company to inflate the economic benefits in order to garner support. Oil companies are no different. Big numbers are the proverbial carrot dangled in front of those that inhabit both local and central government.  With traditionally high unemployment in the East Coast any promise of jobs is bound to make the public more accepting of controversial practices such as fracking.  

However, there is also concern about the ability for wells using fracking to provide long term economic benefits. A new well with multiple fractures costs between NZ$2.4 million and NZ$12.2 million to drill. After one year a well using fracking can have production fall by between 63 to 85 per cent compared to 25 to 40 per cent for a conventional well.  

It is clear that these foreign oil companies such as TAG and Apache are here to make a quick buck. What will be left when the wells dry up is anyone’s guess but it certainly won’t be jobs.