Electricity and Gas Industries Bill

At first glance, Part 5 of the Electricity and Gas Industries Bill does not seem to be very significant. But it does have an important theme running through it: the theme of disclosure. I draw the Committee’s attention to clause 47, “Functions of the Minister of Energy”, and in particular to clause 47(d), which states “the collection and disclosure of information in connection with petroleum reserves and petroleum production in order to—(i) promote informed investment decisions; and (ii) improve security of supply in the gas and electricity markets.” I want to deal with subparagraph (i) first, and to say that disclosure is important. It is important to the Crown so that the Crown is in a position whereby it can ascertain reserves. I say to the members of the Committee that that is a pivotal component in the planning of any economy—it is pivotal to our prosperity. How we get companies to cooperate in full disclosure is really a matter of contention, and the way the Minister has gone about it is a way that I do not think is right. I believe that we would get much better disclosure if we relied on goodwill. Certainly, we can legislate for and threaten all kinds of punitive actions, just as the Minister is intending to do under this legislation—particularly under Part 4—but in the end that is the stick approach.

The National Party suggests that we surely need a bit of a carrot. Surely it would have been better to design legislation that had the support of the industry. This is an issue that we cannot ignore. How can we hope to have goodwill for this legislation, when all the major submitters said that we have it wrong? I want to name some of those submitters, because they are big hitters. They are household names across this country: the Electricity Networks Association, Contact Energy Ltd, Federated Farmers, Mighty River Power, the Major Electricity Users Group, Powerco, Vector Ltd, TrustPower Ltd—and the list goes on past that point. Surely we should have listened—or the Minister should have listened—to the concerns those industry experts were raising, particularly if we want to be assured as a country that we are getting full disclosure about our petroleum reserves, so that we can have some confidence that we can plan for our future prosperity. I come back to subparagraph (ii) of clause 47(d), which states: “improve security of supply in the gas and electricity markets.” That sounds good, and of course we all want that to occur. But again, how does one guarantee that security if one puts in legislation that the major industry groups say just will not fly?

I know the Minister in the chair, the Hon Harry Duynhoven, would like to take a call and respond to that issue, because it is a very critical question. I know that that member, coming from New Plymouth where this is an important issue that he will be dealing with on a daily basis, will want to rise and answer that question. If I go back to Part 4 briefly—that gets carried forward into the security argument—we have a situation whereby the Minister is prescribing in law that after having gone through exploration and having found gas or petroleum reserves, the companies that have risked hundreds of millions of dollars of venture capital will now be put into the position of having to share that infrastructure.

It seems quite extraordinary that we should be debating Part 5 in the context of the events that have happened in the last week. I think it was over the weekend that we saw the price of crude oil go past US$50 per barrel for the first time in history. As an immediate consequence of that we saw the finance leaders, finance spokespeople, and financiers of the G7 countries all rush off to Washington to huddle down with Alan Greenspan in order to look at the effect of that news on the economic future of the Western World. Believe me, when petroleum does get to that kind of height—as I know very well, because I worked in the industry during the 1970s—we really do have to start asking some questions about our economic future. It was interesting to me that the first thing to come out of the conference in Washington over the last weekend was the agreement of all the G7 nations that one of the vital things that has to happen is that we need to have better information about the world’s oil and gas reserves, going forward. So it is amazing that the Minister on this occasion has had the foresight to identify, a long way in advance of the rest of the world, a problem that just in these last few days has really come into such critical focus.

I would like to add too, of course, that we have had the scandal of the Royal Dutch / Shell Group probably deliberately understating its reserves by up to 20 percent, and the huge fallout that has occurred all over the world when a company that was hitherto regarded as a bit of a paragon of virtue was found to be involved in deception, if not in fraud, to that extent.

Brian Connell: This is not going to help that.

GORDON COPELAND: This bill will help to address that, because it states that the companies permanently need to give good information to the Secretary of Energy about what they have discovered in the ground here in New Zealand, so that the results can be published, and so that we all know what is going on. I ask the Committee to remember that I spent 14 years of my life in the oil industry, so I do know something about this particular subject. I have been involved in the drilling of a lot of wells in this country, and subsequently in bringing the oil on to the shore and processing it, and so on and so forth. It is just simply true that we have had very, very poor information on the reserves of petroleum and gas in this country. Sometimes the information has been deliberately withheld for a whole range of different competitive reasons. It is true that the very large oil companies are able, basically, to plug the holes in the ground even when they discover oil, if they think it suits their books to leave it there for a few more years until the price goes up. That is quite common; it happens on a routine basis within the industry. That is really not very satisfactory from the point of view of New Zealand’s energy future.

I believe that it is very, very important for this bill to be passed, so that we do henceforth get good-quality information about where this country is, in terms of its oil and gas reserves. That will enable us all to plan sensibly to keep this country running. It is as simple as this, actually: good decisions require good information, and one cannot make good decisions without good information. This bill will provide good, improved information about our oil reserves and our potential oil discoveries, so that all of us can plan and make decisions accordingly.

Part 5 deals with the collection and disclosure of information in connection with petroleum reserves and petroleum production, in order to promote informed investment decisions and improve security of supply in the gas and electricity markets, as we have heard from the previous speakers. But there is quite a difference of opinion about whether the rest of the bill that we have been debating over the last few days will actually promote investment and investment decisions. Most of what we have heard indicates that it will not. The sharing of the infrastructure for processing will lead to decreased investment, as people will have to share a processing plant at the direction of the Minister.

It is markets and profits that drive a great deal of this exploration, and we have heard that there are companies that do invest in searching for new reserves, and do not give that information freely to others or competitors. They keep that information to themselves so that they can develop those areas when the price is right. Some of the development costs might be quite high because of the difficulty of exploration especially in offshore reserves, where the extraction costs can be very high.

There is actually a need to have some information about what petroleum and gas reserves there are, in order for the country to be able to plan for the future. One thing we do all know is that these are non-renewable sources, and sooner or later we will have to invest in renewable forms of energy and develop them. I think most people in this country can remember, unless they were born in the 1980s or later, carless days and carpooling.

Lindsay Tisch: I got married on a carless day.

Dr LYNDA SCOTT: Our junior whip got married on a carless day. It would have been interesting getting everybody to the church on time. How did the member manage that?

Lindsay Tisch: Good question!

Dr LYNDA SCOTT: A good question! People had to carpool and to use buses on Mr Tisch’s wedding day, because it was a careless day.

Lindsay Tisch: It was 30 years ago.

Dr LYNDA SCOTT: And it was 30 years ago. We do remember those times, when all of a sudden there was a dramatic increase in the price of crude oil and New Zealand had great difficulty importing what we needed. We had carless days and carpooling, and then “think big” to try to make New Zealand more independent. We now see that the price of crude oil has reached US$50 per barrel and may go higher, and that will have a significant economic impact. So the disclosure of actual petroleum reserves and gas reserves around New Zealand is needed to enable the Government to plan. I have to say that the Government has been in power for 5 years, and what has it done? What has it actually done to develop electricity and gas reserves? We know that the Māui gasfield is running down markedly, but nothing has happened. The wheels of Government turn very, very slowly.

Brian Connell: It’s the Minister’s fault.

Dr LYNDA SCOTT: It is the Minister’s fault—that is quite correct. It is the Minister’s fault because Ministers are the ones who are in charge of actually getting something done.

We know that submitters stated that many of the parts of this bill are wrong; Contact Energy, Federated Farmers, Mighty River Power, and TrustPower should be listened to. They are the people who are out there. All too often this Government listens to the officials who sit in Wellington, never get out in the field, and do not understand how the actual economics is working on a day-to-day basis. They give information based, often, on theory as opposed to the facts, and the Ministers listen to that and do not come up with the correct answers for this country. We have seen that time and time again—that the people who come to select committees are not listened to. I am a great fan of the select committee process. I think it is an excellent way to get industry players and those who are materially affected by a bill to come along and actually say something about the particular matter, look at the details of the bill, and make recommendations. Those people should be listened to. In this case, a lot of the submitters have stated that in this part the Government has got it wrong.

I rise on behalf of the ACT party to speak to the Electricity and Gas Industries Bill. We are debating Part 5, and members have accurately identified that the most significant clause is the one that requires the disclosure of petroleum reserves and production information to the chief executive, and their publication by the chief executive. When we hear about shortages of petroleum products, that measure sounds sensible, but I say to the Committee that it is just another case of people thinking: “Here’s a problem. Let’s pass a law.”

Let me give an example. In the whole time that I have been a member of Parliament, the field that has dominated has been the Māui field. It appears to me—I have some sort of theory about it—that about every 2 years the size of that field changes. Right at the moment it is on a downward slope, and people are deciding that there is nothing there. I say to the Committee that I would not be at all surprised if the petroleum industry drilled a couple more holes, and people came back in a year’s time and said: “Forgive us for saying that. We have found some more.” One might think maybe they have engaged in shenanigans—and there might have been a bit of that—but this is not a science. The size of petroleum reserves is not an easy thing to judge.

At the moment the Shell company, a mighty oil company, is being hammered for having misstated its reserves.

Gordon Copeland: It overstated them.

Hon RICHARD PREBBLE: It overstated them, and by quite a substantial amount. But it may be, as I was reading in a different article, that the overstatement of the reserves is actually correct, and that the company got hammered because it had not actually drilled enough to be able to state its assessment with the sort of certainty that the stock exchange wants. When I look at this bill, I see that there is nothing set out in this regulation as to how an oil company is to decide what its reserves are. This law is actually meaningless. It could not be enforced. One would not be able to prove anything.

I am sure that Mr Copeland, who comes from the oil area, has had the experience I have had of various enthusiastic people coming to me to tell me that New Zealand is the next Saudi Arabia of the world. They are sure that there is oil out there.

Gordon Copeland: It would be great, wouldn’t it?

Hon RICHARD PREBBLE: I actually think it is, and I can tell the member when we are going to discover it: on the day that someone comes up with a workable hydrogen-powered car! Then we will discover that New Zealand has been sitting on huge hydrocarbon reserves, and if successive Governments had had a better tax regime, we might have found that out—though it may well be that the style of our reserves is very much different from the sort of geology in Texas, and that is why we never found them. One might ask “Why is that?”. Well, the people who actually make the decisions whether to drill here are based in Houston rather than Auckland or Wellington.

But I just say to the Committee that my objection to this part is really my objection to the whole bill. The Government thinks we can answer this problem by law and regulation, and by the wisdom of the chief executive of the department, whereas in fact the answer is the market—and it always has been. If we had had a freer market in oil and petroleum products, I personally have no doubt at all that we would have found much more substantial oil reserves. I say to the member Mr Copeland, who I know was in the oil industry, and who has talked about fears of a rise in the price of petroleum products, that, yes, we do see that China, even though it is the fifth-biggest producer of oil, is now a very substantial importer, but there is no doubt in my mind that the market will actually produce an enormous quantity of oil products. It is just a matter of time for the market signals to go through.

But here is a clause that actually states to people: “If you go to the trouble of finding oil, of investing money, this Government will make you give away that piece of proprietary information to someone who has not spent a dollar.” Why would people bother looking for oil, when a socialist Government would socialise the advantages that they gained from their efforts in drilling for oil? I suspect that this clause will work, as many laws do, in the exact opposite way than members hope.

I did not intend to take another call, but I was fired into action by Mr Copeland’s contribution. He said that he had 14 years of experience in the oil industry. If he says he has that experience, then I accept he has it, but, from listening to his contribution, I think it must have been spent down the well. His answer to the problems we are facing in New Zealand at the moment is to pass law like this.

Mr Copeland should be very careful before he runs down companies like Shell and accuses them of perpetrating frauds. Companies like Shell have an international reputation, and if we do not seek to look after that reputation, I ask Mr Copeland why they would bother to invest in New Zealand, especially given just how difficult it is becoming to invest here.

Mr Copeland, with his 14 years of experience—which must have been 1 year repeated 14 times—has told us that we need to pass this sort of law, and that it will guarantee disclosure. I do not know which planet Mr Copeland has been on, but passing another unnecessary law does not guarantee disclosure, at all. I have said previously how we guarantee disclosure—that is, that we get cooperation through goodwill.

Gordon Copeland: Do you think I’m being dishonest?

BRIAN CONNELL: I am not accusing Mr Copeland of what he has accused Shell of being, at all.

Hon Roger Sowry: He did it in a good, Christian way.

BRIAN CONNELL: Yes, he did do it in a good, Christian way. He was very quick to point out that that company had perpetrated a fraud, but in his own disclosure he left out some very critical components. This is not an exact science. When people start to drill they do not exactly know what they have got. The Government is asking some of these companies—companies that have invested tens of millions of dollars—to say to their opposition: “Come on in. We’ll give you a leg-up. We will share with you, at our risk, our information.” If that will not drive people into being very cautious about disclosure, I do not know what will.

I say to Mr Copeland and the Minister of Energy that they should have taken a more strategic view than just saying they would legislate. That is a bureaucrat’s answer to a pragmatic problem. I know that Harry Duynhoven does not believe in this stuff. He is a Minister who gets things done. He does not believe in bureaucratic responses to pragmatic problems. He knows that in order to attract capital to this country we have to put out a hand of friendship to businesses, not slap them down every time they venture here. We should think through what is being suggested. We want full disclosure—we have agreed with that; all the parties in the House agree with that—but we are saying to companies: “Your having spent money finding petroleum reserves, we are going to share them around with your opposition by inviting them in.” It just will not happen. Why would one give one’s opposition a leg-up? It simply will not happen.

If we go through clauses 48 and 49 we can see how prescriptive they are. I again have to ask Mr Copeland and others whether they have thought about the compliance implications for companies coming into New Zealand. It is very prescriptive stuff. In fact, it is almost draconian. Companies like Shell—the one that Mr Copeland wants to put down—have choices and options. They do not have to come here. He does not seem to understand that. If companies are to come here, we must offer them an even playing field, and this measure will not provide that. Let us have a look at clause 48, which includes some of the things that these companies will have to do. For example, section 90A(1) states: “Every holder of a permit relating to petroleum must provide to the Secretary all information in connection with” whatever they have discovered.

I wish to respond to a couple of points that have been made. First of all in relation to Shell, the fact is that the chief executive officer and the chairman of that company resigned, and that actually says it all. The company will now continue with its proud tradition of actually trying to avoid employing people like that again. As I mentioned, it has hitherto been a paragon of virtue in the industrial world. It is a great company, and I have always enjoyed my association with Shell. Anything construed otherwise is wrong.

The contributions made by both the National Party and the ACT party made it sound as though they never expect to be in Government. If they are in Government in 2005—and I am open to that possibility, by the way—then I think they will be very pleased that these provisions are here. The difference is that right now the Labour Party is in Government, and in 2005 we intend to be in Government, so, therefore, we think this will be a very useful thing for the Government of the day to have. Members should bear this in mind: it will be for the Government of the day to decide how it uses this information, and some of the draconian sorts of scenarios that have been put up by the two parties of the right I find quite surprising because I rather hope that if they are in Government in 2005 they will apply these provisions very sensibly. I am sure they will.