Oil and gas in New Zealand
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Last month, New Zealand’s oil and gas drilling ban – in place since 2018 – was lifted as the country grapples with an energy crisis and fears of deindustrialization.
In bringing this about, prime minister and center-right leaning National Party leader Christopher Luxon both fulfilled a longstanding pledge as well as undid a signature move of his predecessor and former center-left Labour Party leader Jacinda Ardern.
Seven years ago, much to the surprise and dismay of many, Ardern declared the age of oil and gas was over and said the New Zealand government won’t issue any more permits for offshore hydrocarbon exploration in its South Pacific exclusive zone.
It was a systemic shock for a country sitting on viable oil deposits and 1 trillion cubic feet of natural gas primarily extracted from the Taranaki basin on the country’s North Island, with major exploration clusters in fields of Kapuni, Pohokura, and Kupe.
While existing permits were unaffected, the move signalled a massive change in direction for New Zealand a year on from a defeat for the previous right-wing government that favored expanding the oil and gas industry.
The effects of what both preceded and followed a ban the industry saw coming are being felt to this day, and are unlikely to go away any time soon.
Lifting Of The Ban Is No Panacea
In the absence of fresh prospection and supply coming onstream, New Zealand’s ageing gas wells suffered a decline in output. Data released by the country’s Ministry of Business, Innovation and Employment in June indicated gas production had almost halved in the last ten years, and was down 19% on the year. Headline supply levels are currently hovering at their lowest since the 1980s.
After adjusting for inflation, natural gas prices in New Zealand have been rising across all consumption segments in double figures, be it for residential, commercial, industrial or wholesale consumers.
Unsurprisingly, for many the end of the ban could not come soon enough. However, it is unlikely to be the panacea some think it may be as the damage could well be lasting.
Even before Ardern took office and the ban came into effect, the industry saw it coming based on the very public stance that she took against oil and gas exploration. As a consequence, most oil and gas majors exited New Zealand even before the ban came into place. The investment decline and loss of confidence that followed is now nearing a decade.
Worryingly, deindustrialization appears to be glaring in the eyes of many. Because an array of energy intensive heavy industries from fertilizer manufacturers to aluminum recyclers are warning of temporary shutdowns to permanent closures due to gas shortages and high prices.
Acutely aware of the unfolding crisis, and one that’s not of his making, Nuxon appears to have directed his administration to pull out all the stops. Not only has the ban been lifted, the new law repealing it will allow companies to apply as early as September for new hydrocarbon exploration permits beyond onshore Taranaki.
New Zealand’s latest budget also included NZ$200 million ($118.2 million) for “co-investment” in new natural gas fields.
Announcing the shift in stance, New Zealand resources minister Shane Jones, said: “The ill-fated exploration ban in 2018 has exacerbated shortages in our domestic gas supply by obliterating new investment in the exploration and development needed to meet our future gas needs. Reserves are also falling faster than anticipated.
“This government is pragmatic about the vital role natural gas will play in our energy mix in the decades ahead and we have set a course for greater energy security backed by our own indigenous reserves.”
However, even if fresh investment pours near instantly into exploration projects in New Zealand from next month, it would take at least a decade from final investment decisions for the new supplies to make any sort of meaningful impact. With renewable energy capacity unable to fill the gaps in the country’s current household and business demand, gas rationing and even turning to coal is being contemplated.
U.K. Must Take Note
The market dynamic that has unfolded in New Zealand largely caused by Ardern’s dash to end oil and gas licensing has not gone unnoticed in political circles thousands of miles away in the U.K.
Its where another left-leaning Labour Party government appears to be heading down a similar anti-hydrocarbon pathway under prime minister Sir Kier Starmer and energy secretary Ed Miliband.
British opposition parties – Reform UK and the Conservatives – are demanding Starmer and Miliband ditch their plans to block new North Sea licenses to ease concerns over energy security and rising prices.
Specifically on the cost of usage, U.K. industrial electricity prices are deemed to be 46% higher than the International Energy Agency’s median price, around 50% higher than in France and Germany, and four times higher than the U.S. and Canada.
U.K. household electricity bills are also around the fourth-highest in the world, and the highest in Europe. That’s as the government continues to import more natural gas from Norway, which taps North Sea fields and continental shelf the U.K. itself has rights to.
Even the after effects of New Zealand’s oil and gas drilling ban did not create such a bizarre set of circumstances and pricing pain points. And the move’s painful unwinding offers a further warning, if the current U.K. government is any mood to take heed.
Source: https://www.forbes.com/sites/gauravsharma/2025/08/19/end-of-new-zealands-oil-and-gas-drilling-ban-wont-take-its-pain-away/
