The Nation: Energy Minister Megan Woods

Press Release – The Nation

On Newshub Nation: Simon Shepherd interviews Energy Minister Megan Woods

Energy Minister Megan Woods says regulating the price of petrol is one of the options that will be considered but no decisions would be made until the Commerce Commission comes back with their market report.

Asked why the ban on oil and gas had been rushed through, with just two weeks for submissions, Megan Woods said the oil industry was only one of many stakeholders to be considered. “We have responsibilities as a government and we wanted to ensure that we can get Block Offer 2018 progressing through.”

The Energy Minister said that MBIE’s advice the ban would not reduce greenhouse gases is based on “outmoded thinking” that producers would then move production to a country where fossil fuels could be burned without controls. “That simply isn’t the case. If you have a look what’s happened in China in the last couple of years, they’ve got a more rigid ETS than we have coming in to play.”

Asked on what research she was basing her claims that the ban would reduce greenhouse gases, she said it it was a “widely held” fact and MBIE’s information did not take into account “rapid change that is happening around the world”

She says the 20 percent of power in New Zealand still produced using coal and gas would be replaced by geo-thermal power and by utilizing battery storage technology. “We have a large amount of consented but not built thermal capacity through our geothermal capacity” and “batteries change everything, when we do have the ability to store that and use it at times when consumption’s higher.”

Simon Shepherd: This morning the average price for 91 octane ranged from $2.31 in Hawkes Bay, $2.40 in Auckland to $2.45 in Christchurch. So are consumers being fleeced? The petrol companies say their pricing is fair and the Commerce Commission investigation will prove that. Instead fuel companies are blaming the price hikes on increased oil prices and the weak Kiwi dollar. I asked Energy Minister Megan Woods why she doesn’t believe them.
Megan Woods: Well, I think one of the things that we have to do is get all the information. When MBIE undertook its study, which the previous government initiated and reported to me at the end of last year, a couple of companies wouldn’t play ball. So that is why we’re looking to make these changes so that, actually, we can look at this, and we can test those. But what we do know is that we have a huge price differential across the country, which that MBIE study found wasn’t wholly accounted for in transport costs. So there’s a lot of unanswered questions here that we need to delve deeper in to.

Simon Shepherd: Okay. Which is why the Commerce Commission’s going to be given the power to do a market study. If the Commerce Commission does find that profit margins are unreasonable, what could you actually do about it?

So one of the things that we can do is we can have a look at both the wholesale and the retail market, because one of the things that earlier MBIE report found was that we couldn’t wholly account for everything that we did see. There was a massive transfer of hundreds of millions of dollars from consumers’ pockets to the fuel companies. So having a look at how it is that market operates. And what we know that in the South Island and Wellington region, where we don’t have the same number of players able to enter the market, that we’re paying higher prices. So, looking at terminal access — so one of the things that— we only have a couple of companies that can access the terminal at Lyttelton — and whether there is other ways in which entrance can enter the market in the South Island—

So could you force other entrance into the South Island? Can you regulate for that?

Well, that’s one of the things that we can look at, but one of the things we’ll also need to look at is the fact that actually construction has begun on a new terminal at Timaru, which will allow more entrance to come in so, hopefully, things will be advanced by that stage and be able to look at whether or not the presence of that terminal has basically opened up the market and allowed for that more competitive environment.

Could you actually regulate, though? Could you step in and set the price?

Well, I think, people were talking about price regulation, but I think it’s important to remember there’s other ways to look at that. And that’s about both the wholesale and the retail market and that terminal access and making sure that actually—

So that’s a ‘no’, is it?

No, I’m saying that it’s an option, but, look, we won’t be making any decisions until we get the Commerce Commission reporting back to us. But what I am saying is that where we have more competition — i.e. in the upper North Island — that you

are seeing lower prices, that there is a huge differential across the country, so allowing players more in does alter the price.

Okay. I understand that. It seems to be a perfect storm at the moment. Not only are there rising oil prices, a weakening dollar, but also increasing petrol taxes being put on by your government. Why not just give motorists a break and say, ‘Okay, we’re just going to postpone future taxes for the moment’?

Because of the 39 cent increase in the price of a per litre of petrol that we’ve seen in the last 12 months, only a fraction of that has been an increase in excise. And let’s remember, excises go on all the time. And one of the things that we do know that since 2008, New Zealand has gone from having one of the lowest pre-tax prices of petrol to the highest in the OECD so that we’ve seen that as increasing. So I have absolutely no faith — and, certainly, the prime minister has absolutely no faith — that if we were to simply remove the excise, that we wouldn’t see that. And that just gobbled up in one simple shift that the fuel companies did.

All right, Minister. I just want to move on to our next topic, which is the proposed ban on future offshore oil and gas exploration. Now, that goes to the select committee next week. Why was it only two weeks for submissions for this?

Well, one of the things in the advice that I got from officials is that in order for us to proceed in an orderly fashion with Block Offer 2018, that, actually, we needed to do this under a quickened process. And I was determined that we would have a select committee process, that we wouldn’t do all of this under urgency. I didn’t think that would be right or fair. But I think one of the things to realise with this is that we are doing the bare minimum of changes to the act, in order to put into place the changes that the prime minister announced on the 12th of April, that what we have committed to with all the stakeholders, the industry and New Zealanders is that the long-term changes around the purpose of the act — all those kind of things — will be done under a consultative arrangement where we can have a much longer conversation.

The industry has told us that they — and they’ve told you as well — that they’re happy to skip the Block Offer for 2018, move past that so the review is done in an orderly fashion. So why the urgency to get this ban through?

Look, the oil industry aren’t the only stakeholders here. And we have responsibilities as a government. We wanted to ensure that we can get Block Offer 2018 progressing through, and that we can see that. One of the things that is really important is that we’re sending very certain signals. We’ve announced a long-term managed transition. That represents the change. And it’s really important that we demonstrate to the world that things are proceeding in an orderly fashion. And I think it’s important to remember that the industry is only one of the stakeholders available here.

Sure. Is it an orderly fashion here? That’s the question here. Is it an orderly fashion? It seems to be rushed. The industry is saying it’s a poor process. MBIE, which gave you advice initially, said, ‘Don’t do it. It goes against policy objectives. And it doesn’t actually reduce greenhouse gases.’

Well, actually, I take it— I don’t agree with a number of those statements. If I start with the last one — in terms of ‘doesn’t reduce greenhouse gases and emissions’ — that’s just not something I agree with. A lot of that assumption is premised on some quite outmoded thinking now. What it assumes is that if you cease production in New Zealand, that producers will just move production to a country where you can just burn fossil fuels without any controls over it — i.e. China. And that simply isn’t the case. If you have a look what’s happened in China in the last couple of years, they’ve got a more rigid ETS than we have coming in to play. They have a cap and trade system, so production that moves there means that other production has to come offline.

So what is the premise that you’re basing it on that it does reduce greenhouse gases? Where is that research, because nobody’s seen that?

Look, that’s all the information that’s available around what China is doing, and it’s very common knowledge.

But in New Zealand? In New Zealand?

Look, there are a number of people that agree with this analysis.

Apart from Greenpeace, who?

It’s widely held. You just need to look at what China is doing with its ETS. It’s not an interpretation. It’s a matter of fact. What I would like to point out, that MBIE did say in its regulatory impact statement that it included with the bill is they pointed out that they hadn’t been able to take into account either technological change or what other countries were doing. This is very much an example of where the analysis that the regulatory impact statement did couldn’t take into account the rapid change that is happening around the world.

But MBIE said in its initial report that it could possibly raise global emissions by shipping off production for various things to China, which burns coal, and it had negligible effects on greenhouse gases in New Zealand in its initial report. In its second report, it said it would affect the economy between $1.8 billion and $23.5 billion. You have gone against both of those reports, haven’t you? You’ve dismissed them.

Look, I don’t agree with them. It’s not the first or last time that a minister won’t agree with all the advice they receive. Let’s remember, this is advice, not instruction. Let’s have a look at that number that’s been given — actually the full range, if you take the extremities of all the numbers that were in that report that MBIE produced, it ranges from a couple of hundred million through to tens of billions of dollars, which I think shows what we said at the time that we made this announcement. That we’re dealing with unknown unknowns. Let’s bear in mind that we are respecting all the expiration permits that exist out there.

You may be honouring those permits, but there is no guarantee that there’s anything going to be found, and, as MBIE has stated, there’s only 10 years of gas left. What is the plan B if we don’t find anything else, and we run out of gas in 10 years?

Look, what I will point to — that 10 year prediction of gas is actually what we’ve always said. For the last few decades, we’ve always said there’s 10 years of gas. It’s just the way the calculations work, and that gets routinely updated. We can point to people like Genesis that have said that they’ve got certainty of gas through to the 2030s. We can see other decisions that have been made from industry — like, for example, Todd investing in $100 million peaking plant post our announcement — that shows that they have far greater certainty than the 10 years. That’s just a routine assessment.

Why put out the 10 year figure? Why would MBIE tell you about that 10 year figure? The industry has to go on something. Every year, it’s either been between 10 and 14 years. At the moment, it’s at 10 years — that’s the lower end of the predictions. You need a plan B in case we don’t find anything else. What is it? Do we have to burn more coal?

No, definitely not. In terms of the other part of the answer to that is that we have 100,000 square kilometres off the coast of New Zealand currently under exploration permit. That’s the size of the North Island. It’s factors time bigger than what is currently in production. I think if we’re going to hit something else or find something else, it will be in what we’ve already got consented— sorry, that we’ve got under permit and is eligible to go through to a drilling permit. In terms of the plan B, in terms of what the alternatives are, we are blessed as a country with alternatives. Most countries look at us with a huge amount of envy. Not only do we have hydro that we’ve invested in, we have access to wind and solar, but we also have—

But that’s only 80 percent. We still rely on coal and gas to get us through the dry years, and, yes, we do have access to those, but we don’t have enormous reserves in terms of reservoirs. We do have dry years. We need this stuff to get us through.

Yeah, and look that’s where we have options. We have a large amount of consented but not built thermal capacity through our geothermal capacity. Most countries in the world can’t point to that — the fact that you can have non-weather dependent renewable forms of electricity.

Will that fill the gap? If the gas runs out, are you saying that that consented stuff that hasn’t been built yet will fill the gap and make sure that we have security of energy supply?

Yeah, and, look, there’s a range of things that will come into that security of supply. There’s not only our thermal capacity, which puts us in a unique position globally, but there’s also if we look at the technology in the way that’s changing again. I go back to the fact that the regulatory impact statement wasn’t taking into account those technological changes. Things like a couple of months ago, I opened the battery storage facility at Penrose, which means that we can store solar and wind — things that we’ve traditionally had to use only when they’re produced, which, obviously, for a country that has its peaks at night-time and in the winter, provides some challenges. But batteries change everything, when we do have the ability to store that and use it at times when consumption’s higher. So technology is moving along at a rapid rate like this. And that Penrose facility is entirely scalable.

Minister, finally, will you water down the ban in response to submissions?

Look, we’ll listen to all the submissions. I don’t know how many have come in. I’m sure I’ll find that out next week.

2000 have come in.

There’s 2000. And I’m sure they’ll represent a range of views. But look one of the things that select committees are absolutely critical for, and why I was so keen to ensure that we did have a select committee process, is to stress test the legislation to make sure that it actually functions in a way that it’s meant to.

Okay, Energy Minister Dr Megan Woods, thank you for your time.

Thank you very much.

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