Offshore Holds Promise But Outlook Still Murky
BMI View: Shell reported promising results from its exploration campaign at New Zealand's Maui field which is in decline. While an uptick in offshore activity could help to lift output, the outcome of such efforts remains uncertain with New Zealand's upstream hit by the loss of three major international oil companies (IOC's).
Royal Dutch Shell reported that its nascent two month old effort to uncover more gas at New Zealand's Maui field was on track. Work on the US$75 - US$100mn e xploration campaign could continue into early 2014 according to Shell's New Zealand chairman Rob Jager. He went to say the firs t well off New Zea land's Tankaria coast hit the targeted depth and encountered gas, but 'the question is how much and can we produce.'
Maui once produced 90% of New Zealand's gas, but the field is in decline, with p r oduction falling from 4.9bn cubic meters (bcm) in 2001 to 0.871bcm by 2011. However , new technology could help unlock more of Maui's remaining gas reserves. According to Jager, Shell plans to use technology that was not available a decade ago 'to squeeze as much out of it (Maui) as we can.'
|Maui Output Slips Dragging Overall Output Lower|
|New Zealand Gas Production By Field (bcm)|
With overall production below the previous decade's average , new supplies of gas will be necessary to avoid any supply disruptions in the future . A draft report on New Zealand's gas outlook to 2027 conducted by an energy consultancy , Concept , offers an optimistic scenario for gas supply. The draft highlights :
A greater diversity of supply rather than relia nce on a single field ;
With ' sufficient reserves to last through the mid-2020's base d on current' consumption rates supply security seems stable ;
Robust exploration supporting a positive supply outlook.
Howe ver there is no guarantee that exploration will yield commercial discoveries necessary to prevent a more dramatic tightening of supplies. While the country may hold untapped gas potential, it remains uncertain whether sufficient investment will be directed toward uncovering these deposits given the country remains a small market with the attractiveness of offshore exploration limited by a remote and environmentally challenging operating environment.
Although New Zealand has improved regulatory terms and endorsed hydraulic fracturing (fracking) in a bid to boost interest in the country's upstream sector, the country remains a frontier play despite long standing oil production ( see, Interim Reports Give Fracking Green Light,' November 30 2012, and 'New Round Offers Fresh Offshore Opportunities,' June 11,2012 ) . Indeed while promisingly a host of large r players moved in to the country's upstream in recent years, confidence in the sector has been impacted with the loss of Anadarko and Petrobras in 2012, and Apache in early 2013.
The loss of more well funded operators , with for example Petrobras exiting after a sustained campaign by environmental ist to prevent drilling, will see the country's hydrocarbons sector continue to be dominated by smaller and less well funded players who will face more challenges in funding expensive exploration campaigns . Moreover with Apache and Canada's TAG Oil assessing unconventional opportunities in New Zealand , the exit of the former will deprive industry of badly needed experience in developing such resources, which could be sizable if current estimates prove accurate ( see, 'Watching Tag's Campaign For Unconventional Potential,' April 24 ).