Basil Sharp and Frank Duffield: Oil and gas reserves can be part of low carbon future

Maari oil field off the coast of Taranaki. Photo / Rob Tucker

New Zealanders face a dilemma. We must generate economic growth to build and sustain the sort of society we want, but how can we do this without threatening some of the very qualities of life that we value most?

One obvious strategy is through a low-carbon economy. However, developing this will take longer and cost more than many people realise, and in the meantime we must ensure that we have continued access to the energy we need. Energy is an essential input into our economy and daily lives.

Much current debate on the question of mineral resources ignores this reality. As a result, we run the risk of making hard-to-reverse decisions that will handicap future generations, while missing out on significant economic development opportunities that could actually enhance our environmental credentials.

Consider energy supply. We are a world leader in renewable electricity generation. Wind and hydro power can help us maintain that position, but as yet they are not capable of providing reliable, economic base-load supply. Wind is intermittent and, as we know too well, drought can severely limit hydro-power output.

Back-up electricity capacity is therefore essential. Natural gas-fuelled generation is the best option, providing the necessary scale and flexibility, while bringing greater efficiency and lower CO2 emissions. Yet New Zealand's existing gas reserves will last only a decade. That is a major vulnerability.

When it comes to transport, like it or not we will remain dependent on oil for many years to come. The International Energy Agency forecasts that in 2035, almost half of global primary energy demand will still be met by oil and gas. Oil supply will be insecure and expensive, and our own reserves are limited. The era of cheap oil has gone. Here is a further vulnerability.

We need to consider our options carefully. A first step would be to better identify our underexplored oil and gas resources. New exploration and production techniques offer the possibility of significantly increasing domestic production. Even moderate success would provide a more secure platform upon which to plan for a truly viable lower carbon energy future, by exploiting and exporting competitive advantages we already enjoy.

North America demonstrates the possibilities. Through continued exploration, it has substantially increased reserves, especially of natural gas - the price of which is now a fraction of that in Europe and Asia. This is a factor in the US economic recovery. More significantly, this low price is leading to major initiatives to use gas in transport which in turn will deliver significantly lower carbon emissions and ease demand for oil.

Of course, exploration and production of oil, gas and other mineral resources come with risks, and much new oil and gas results from drilling techniques that cause concern. So we need to be satisfied that exploitation is possible without consequences that outweigh the benefits.

As for deepwater exploration - and indeed all mining - the lesson of recent disasters is that sound regulation, effective oversight and transparent management are essential. There are, after all, many deepwater wells and mines operating successfully around the world.

So let us learn the lessons from recent experiences and take the opportunity to establish world leadership in this area. The relatively modest scale of our activities, the stable, open and consultative nature of our society, and our commitment as a people to environmental protection can all be harnessed to develop safe and sustainable models of project implementation and oversight.

The wealth that comes from exploiting existing resources can bankroll the development of renewable energy technologies where we already enjoy competitive advantages. We are already a world leader in geothermal power. We are, too, world renowned for our forestry. Developments in biofuel production from wood and waste suggest that in time, and with adequate planning and commitment, we can grow a large portion of our future fuel needs. Our wind turbines typically generate electricity at twice the global average.

This, together with our engineering and computing skills, provides the chance to lead in the development of smart grids, optimising electricity production and consumption across a range of complementary primary resources. Carbon capture from coal production offers further possibilities.

This will require good decision-making, allocation of sufficient resources for research and development, and careful planning. But it can lead to real export opportunities in a world looking for new energy alternatives.

There is a great game plan here. It begins with a clear understanding of where we are and calls for decisions soon on how to make the most of our resources. It asks us to focus on enhancing our established areas of excellence. It requires persistence and determination. With these we could establish ourselves as a global leader in skills and technology.

The alternative is to compete in a global scramble to secure the energy we need, simply to sustain ourselves in the short term. In such a scramble our limited economic resources, our small size and our geographic location would cripple us. And the sustainable future we all desire would be as far off as ever.

Professor Basil Sharp is director of the University of Auckland Business School's Energy Centre. Frank Duffield is Honorary Fellow at the Energy Centre and has more than 30 years' international experience in the energy industry.