Estimates Debate — Vote Energy

I was intrigued by the Minister’s explanation today to the House of Representatives—and I guess to those in the country who are enthusiastic enough to listen in to it—as to why power prices for every home, commercial enterprise, and industry in New Zealand have skyrocketed over recent years. I was involved in the 1999 election campaign 7 years ago—the Government having been in office for 7 years now. Labour said then that it would effect a change to power prices—that it would stabilise power prices and bring them under control for New Zealand voters. All we have seen in that time is a 40 percent increase, on average, across the country in power prices for residences throughout New Zealand. Labour has been in Government for 7 years, and that is what we have seen.

I was intrigued by the Minister’s answer to a question today in which he said that the reason why power prices have skyrocketed under Labour over the last 7 years is the cheap cost of Māui gas prior to that and the rundown of Māui gas in recent times, with cheap gas becoming more and more scarce. He said that for that reason, power companies are starting to build other facilities that are cost-effective and cost-competitive in their use of resources, whether they are burning coal or oil or whether they are into hydro or wind generation, and that electricity is being generated at a much higher cost than before. In other words, he conceded that one of the solutions to keeping power prices low is to find a replacement for Māui gas—to discover other massive gas reserves, which we know exist around this country.

I ask the Minister why he has allowed the Associate Minister of Energy, Harry Duynhoven, to oversee a bleak rundown of exploration enthusiasm around the country. The block offers—the offers put up off the coast of Northland in recent months—have not been taken up by exploration companies. Around Taranaki and the East Coast of the North Island, block offers have not been taken up in recent months by exploration companies. I know that Trevor Mallard said in the House that that was because of tornadoes or hurricanes off the coast of America. That is funny, because an awful lot of exploration by rigs seems to take place everywhere else in the world, regardless of tornadoes and hurricanes off America, while no exploration is done in New Zealand. So that cannot be the reason. I will tell members what the reason is. Here is a headline from the Independent: “Govt drags its feet on oil exploration”. Bryan Gundersen, a partner at Kensington Swan, stated that overseas investors “highlighted barriers to investment” in oil exploration and gas exploration in New Zealand. Another headline from the Independent is: “Explorers’ begging bowl goes unfilled”.

No enthusiasm exists for exploration in New Zealand, for two simple reasons. Firstly, the Government’s regime of taxation and royalties is such a burden to investors that they are not bothering to invest here. Secondly, the Government has clamped down on work programmes for exploration companies so much that they cannot meet the goals the Government sets. The hurdles are just too tough; the bureaucracy is too stern. The exploration companies are being ground under the heels of bureaucrats. That is why exploration companies across the world, and even in this country, will not take up the challenge of finding more cheap gas under our territorial seas, which would help to keep electricity prices under control. The Minister will stand up and brag about a whole lot of block offers that have been taken up recently, but he will exaggerate the truth. The number of block offers put up compared with those that have actually been taken up is absolutely appalling. We have seen a rundown in exploration enthusiasm in this country.

Dealing with that last point, there is no doubt that the overhang of the price controls on Māui Gas suppressed exploration for new oil and gas in New Zealand. That is why the very good work, which the industry acknowledges widely, of the Hon Pete Hodgson as the then Minister was so important to get through the impasse so that companies would start exploring for more gas—and they are. Indeed, already this year we have seen announcements of increases in gas reserves as a consequence of those initiatives.

It is true also that fossil fuel prices around the world have close to doubled. We have seen that at the petrol pump. We have seen also the influence of rising prices, in terms of the effect of the rise in gas prices, on electricity. It is true also that we have problems in the electricity sector, not the least of which are those caused by under-investment in the transmission part of the electricity sector, where for many, many years Transpower was stymied in its investment in new infrastructure by the rules imposed upon it by the previous National Government. That Government directed, through a policy statement, that Transpower not invest in upgrades to its grid, notwithstanding increases in demand for electricity, unless it had agreement from its consumers—effectively local lines companies and major generators. Those local lines companies and generators would not reach agreement with Transpower as to its being paid extra for the extra money it had to spend, so Transpower did not spend that money.

Again, that problem was remedied by the Hon Pete Hodgson, who caused a change in the rules to allow Transpower to charge for the extra investment it had to make in lines. As a consequence, the diminishing expenditure on lines in the late 1990s, which had dropped to as low as around $52 million in capital expenditure in 1998-99—and $63 million, $61 million, and $84 million in the following years—has now risen to over $300 million per annum as Transpower does some of the upgrading that is so overdue.

In terms of other energy issues, it is true that the country needs to use its energy more efficiently. In a prior call Dr Smith criticised the performance of the Government, but he should acknowledge that it was not until the first National Energy Efficiency and Conservation Strategy was drafted that we actually had a meaningful strategy to pursue. It is true that pursuit of the strategy has not been perfect, and that the Government thinks better can be done. That is why the Government has called for the National Energy Efficiency and Conservation Strategy to be recast with sectoral targets that it anticipates will lead to more efficiency within each sector by better identifying who is responsible for achieving those targets.

It is true also that some of the other measures the Government has in place in climate change policy have brought forward renewable energy. Indeed, one of the great successes of the Hon Pete Hodgson, when he had responsibility for climate change and energy issues, was to bring forward the development of wind power. Had the Projects to Reduce Emissions programme not been in place, it is likely that much of the wind power development that we now see already being brought to the market and also being planned to be brought to the market in the next 2 to 3 years would not have occurred.

As a consequence of Mr Hodgson’s lead in those areas, the Government, through the projects to reduce emission, has quantified New Zealand’s wind resource. We have proven that it is probably the best wind power generation resource in the world. We have brought it to market in probably the most cost-effective manner in the world, and now wind competes at the margin for new generation in a way that would not otherwise have occurred. As a consequence, as we build more generating capacity in New Zealand—and more generating capacity is necessary; we cannot rely completely on improved energy efficiency—it is likely that a very significant proportion of new generation in the next decade is likely to be wind generation. That is good, because it takes pressure off our gas resources, and it is good also because wind generation does not produce greenhouse gas emissions. Both of those outcomes are very desirable.

It is true that for four main reasons energy policy is experiencing a rethink around the world. We have had a very fast rate of increase in fossil fuel prices. We have had energy security concerns as a consequence of civil unrest in places like Iraq and Nigeria, and problems in Venezuela, for example. We have also had the peak oil debate, where people are concerned that the production of oil is peaking, and that as a consequence of its peak it will become unavailable. My own view is that that is not realistic. I do not think we are facing a future shortage of oil, but what is true is that we have seen a peak of cheap oil. There are large additional reservoirs of oil in oil shales and deeper wells, and there is also coal to liquids technology. But each of those technologies and sources is considerably more expensive than the traditional sources of oil that the world has had over the last decade or two. So I say that we have had peak cheap oil.

As a consequence of those factors, plus the fourth concern about the effects of greenhouse gasses on the atmosphere—or the ability of the atmosphere to absorb greenhouse gasses without the world warming—we have heightened concern around the world about energy policy. That is why this Government is grappling with those issues through our climate change policy settings and, in particular, through the New Zealand Energy Strategy, through which New Zealanders will have an ability to submit on what they think should be the future direction of New Zealand’s energy sector. I think we will see an increased emphasis on renewables and increased emphasis on energy efficiency, so that in the future we will have an energy system that is not as insecure, as reliant on imported fossil fuels; nor as exposed to those energy security and price vulnerability issues that exist for imported fossil fuels.

The time allocated to the consideration of the estimates referred to in the Appropriation (2006/07 Estimates) Bill has expired. I shall now put as one question the remaining votes and provisions of the bill.

The question was put that Vote Lands, Vote Customs, Vote Youth Development, Vote Statistics, Vote Consumer Affairs, Vote National Archives, Vote National Library, Vote Community and Voluntary Sector, Vote Foreign Affairs and Trade, Vote Official Development Assistance, Vote Racing, Vote Revenue, the preamble, clauses 1 to 14, and schedules 1 to 7 be agreed to.

I move, That the report be adopted.