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July 19, 2010 | by  | in Features |
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The Slippery Slope of Exploratory Mining

By 1 June—over a month after the sinking of BP’s Deepwater Horizon rig—the resulting slick of oil in the Gulf of Mexico had been declared “a spill of national significance”: a decidedly dispassionate assessment of a catastrophe that incited outrage and anguish across the globe.

The New York Times reported that more than 20,000 people and 1400 vessels were involved in containment and cleanup efforts, recovering around 13.1 million gallons of oil-water mix—and 745-odd dead animals. Approximately 60,683 square miles of ocean—equating to 25 per cent of federal waters in the Gulf—were closed to fishing, while the government and BP worked fruitlessly to stem the ruptured well.

On 1 June, here in New Zealand, Energy and Resources Minister Gerry Brownlee announced that the government had awarded a five-year exploration permit to the world’s fourth-largest energy company, the Brazilian giant Petrobras International Braspetro BV, granting them the right to drill a 12,330-square kilometre area off the east coast of the North Island.

To make such plans in the middle of the biggest environmental disaster in the United States’ history sounded like a “bad joke”, to quote Greenpeace. Petrobras’ credentials failed to impress the Green Party and East Coast iwi Ngati Porou, but Brownlee made it clear that he did not intend to back down.

Those in the industry are quick to point out that Petrobras has only been awarded a permit to explore, not to mine, and so the potential for damage is currently limited. The Green Party and Greenpeace refute this, describing it as irresponsible to drill at all while the cause of the Deepwater Horizon blowout is unknown. It’s fair to say that although it’s too early to predict what Petrobras’ investigation may lead to, there is already plenty of debate.

The bidding process

On 10 December 2008, the Ministry of Economic Development (MED) released the Raukumara Blocks Offer to international tender until 28 January 2010. The proposal covered two permit areas over the Raukumara Basin, a 25,000 square-kilometre area north of East Cape, at the northern end of the East Coast Basin.

The term ‘bid’ is misleading, as the companies involved (which the government refuses to identify, thus ensuring “the integrity of the blocks offer process”) did not offer a monetary amount. Instead, they specified a work programme that, if they were successful, they would execute in the area. Petroleum Exploration and Production Association of New Zealand (PEPANZ) executive officer John Pfahlert explains:

“Money is one aspect—i.e., they do actually have to have the money to do the work they say that they are going to do, but they bid to do a certain programme of work, which generally ends with the drilling of an exploration well.”

The government evaluated the programmes that they received in order to ensure that they were feasible and “supported by the financial and technical capability needed to give effect”. Although this seems somewhat ambiguous, Pfahlert insists that the factors taken into account by the government were not “opaque”: rather, “a bunch of criteria” was recognised.

“The reputation of the company, their track record overseas, the amount of money they’ve got behind them, the likelihood that they will deliver on the work programme, the expertise they may bring to New Zealand,” he lists. “Those sorts of things.”

Petrobras—the largest company in Latin America, present in 28 countries—successfully secured the rights to explore Raukumura Basin. Its oil and gas reserves in 2008 alone equated to 15.1 billion barrels, while according to the company’s website, its 2009-2013 business plan predicts “investments in the order of $174.4 billion real”—approximately NZ$137.2 billion.

Pfahlert doubts that the government was concerned by whether a particular company’s practices were considered environmentally friendly or not, as there are other processes in place to monitor this.

“Generally, I wouldn’t expect it to have a high weighting [in the decision making process], no,” he says. “Simply because any subsequent consents [a company] might need to obtain to undertake operations would have to be obtained in the normal manner under the Resource Management Act (RMA), or with Maritime New Zealand.

“You wouldn’t normally expect the government to be second-guessing companies’ environmental track records when there’s a regime in place that will deal with that anyway.”

Pfahlert reiterates that, at this early stage in the venture, Petrobras’ operations are limited, as “they don’t actually have permission to mine at all”.

“There’s a two-phase process that the government goes through—once you’ve made a commercial discovery, you have the right to exchange the exploration permit for a mining permit, but it’s a separate process.”

The MED outlines the minimum requirements for Petrobras’ proposed staged work programme as completing a regional 2D seismic survey, followed by a 3D survey; drilling one well, with at least 12 months’ notice of drilling given to the MED beforehand; and reporting and presenting a full review of the Basin’s potential post-drilling. At least one of the projects must be carried out within the first 18 months of Petrobras’ permit—and at this stage, the company expects to be drilling for gas, rather than oil.

Pfahlert believes that the drilling of a well probably won’t occur until year four or year five.

“At the end of year five, they have to make a decision about whether they’re going to carry on or not—though that will actually be determined by whether they’ve found anything,” he says. “If they find nothing, there’s every realistic chance they’ll drop the permit, and hand back any information they obtained to the MED, which can then try and attract someone else to show an interest in the area.”

What New Zealand stands to gain

Pfahlert describes drilling for “financial and commercial discovery” as a hit-and-miss affair.

“Internationally, the odds are that for every oil hole you drill, you drill nine or ten that are duds,” he says. “I think in New Zealand, the odds are a bit longer than that—maybe one in ten to one in 20. So, there’s a 90 per cent chance that every hole that’s drilled, around the world, is going to fail. That’s just the odds of the exploration business.”

However, if drilling does uncover minerals, “there are very significant rewards,” agrees Pfahlert.

“If there is a commercial discovery, these projects pay themselves off very quickly and get a lot of return to the Crown.”

Aside from Brownlee’s promise of increased “long-term regional development”, as well as more jobs for New Zealanders, the MED is hopeful that Petrobras’ investment will further the economic relationship between New Zealand and Brazil—the world’s eighth largest economy.

Pfahlert points to the success of the five wells of the Kupe project in Taranaki, drilled about 32 kilometres off the coast.

“I think the company there spent about $1.3 billion on capital costs, and around half of that went into New Zealand’s economy; it had around 800 people involved in its construction phase, and there are probably 100 people employed full-time on an ongoing basis.”

It seems hard to overestimate the monetary value of a commercially viable petroleum find. Last week, almost $700 million dollars’ worth of additional oil and gas reserves were confirmed to have been discovered at the Kupe field. New Zealand Oil & Gas’ chief executive David Salisbury told The New Zealand Herald that the company’s 15 per cent stake in the project could, at current prices, equate to close to a $100 million share in the increased reserve.

It’s no wonder that the Vancouver-based Fraser Institute recently named New Zealand as the second most attractive country to invest in for petroleum exploration—especially, as Pfahlert points out, “[companies] have drilled for and exploited the oil in all the easy places.

“The reason that companies have started coming to New Zealand is that the global demand for oil keeps growing, and the places where you find it keep becoming perhaps less popular to go to. Increasingly, companies will look to invest in places they perhaps wouldn’t have looked at 15 or 20 years ago.”

The MED says that education and health are among the sectors that benefit from petroleum and gas production, as the Crown collects royalties from extraction of minerals. Pfahlert also notes that the companies involved pay tax, which will benefit the economy.

“That’s where it’s no different to any other commercial enterprise, I guess.”

Gambling with the environment

Where the energy industry does differ significantly is the high amount of risk involved, as exemplified by the Deepwater Horizon disaster. The poor timing of Brownlee’s announcement provoked immediate concern that Petrobras’ mining could result in such a catastrophe. Others have pointed out that if both the United States Government and BP have struggled to manage the spill, New Zealand stands no hope of managing such a disaster. There is a suggestion, in fact, that New Zealand is in over its head.

Dr Rosalind Archer, a senior lecturer in Engineering Science at Auckland University, points to data released by America’s Society of Petroleum Engineers to show that “While there can never be an absolute guarantee that any offshore operation is perfectly safe… if international best practices are followed, the risk of an oil spill due to a blowout is extremely low.”

Indeed, Petrobras’ health and safety record has improved immensely over the past decade, since the explosion of its 36 Oil Platform on 15 March 2001. Then the largest floating, semi-submersible platform in the world, it exploded off the coast of Brazil, killing 11 workers, and sank five days later with an estimated 1500 tonnes of crude oil remaining onboard. An investigation found a number of causal factors (including human error), which were worsened by the lack of an adequate contingency plan.

To its credit, Petrobras was quick to learn from its mistakes. The Dow Jones Sustainability Index (DJSI) recently named the company as one of the most sustainable outfits in the world today, and especially praised it for its “benchmark” score for ‘Management System and Environmental Policy’. Management & Excellence (M&E) reported that Petrobras was the world’s most sustainable oil company, with a rating of 92.25 per cent.

Certainly, Petrobras’ “pedigree”, to quote Brownlee, is impressive—but can any positive report or glowing safety record excuse the potential risk?

“It’s a difficult issue: the chance of a major environmental disaster is extremely small. However, the consequences of such a disaster could be huge,” says Dr Archer. “If Petrobras’ exploration activities are monitored and managed appropriately, I am not uncomfortable with the balance between the economic gains that could be achieved, and the inherent risk.”

Green Party co-leader Dr Russel Norman is not so magnanimous. In a statement dated 31 May, he described the government’s planned offshore drilling as “environmentally reckless”, and challenged them to suspend any programme until “[oil companies] knew exactly what went wrong with Deepwater Horizon, they can ensure that it won’t happen again, and that if it ever does happen again, they have the ability to plug the well”.

Dr Cath Wallace, a senior lecturer within the School of Government’s Environmental Studies department at Victoria University, says that the Environment and Conservation Organisations (ECO) of New Zealand—where she specialises in public policy—agrees with Norman’s proposal.

“And we are not alone. The International Union for Conservation of Nature has also called for a pause while these issues are sorted out.”

Dr Wallace asserts that the potential economic gains of Petrobras’ exploration, no matter how vast, cannot adequately justify the risk of an environmental disaster—even if a commercial discovery is as unlikely as Pfahlert claims.

“In any of these issues, you need to consider not only the probability, but also the severity of harm,” she says. “The reality is that New Zealand does not have the capability of dealing with any major blowout or disaster.”

To some extent, this has been admitted by the agencies involved. In an article published on Scoop.co.nz, Maritime New Zealand’s media advisor Sophie Hazelhurst said that a spill exceeding 3500 tonnes of oil would surpass the planning, equipment and training that the organisation has in place. New Zealand would therefore be forced to seek help from overseas countries such as Singapore, Australia and the United Kingdom.

Furthermore, Dr Wallace believes that mining will damage New Zealand’s ‘clean and green’ image overseas—just as the government’s proposal to mine conservation land did. In April, Bob Lancaster, founder of Nelson- and Sheffield-based hiking company High Places, was quoted on Radio New Zealand’s Morning Report as stating that international press had described New Zealand’s potential mining of protected areas as “state vandalism”.

“We are losing our international reputation for environmental responsibility, and that will rebound on us in markets all over the world,” argues Dr Wallace, who maintains that the government is pursuing “a very old-fashioned resource extractive economic strategy”.

“We need to wean ourselves off fossil fuels, for the sake of the atmosphere,” she continues. “A much sounder and more effective approach would be to pursue economic benefit from an intact environment—that way, we maintain our environment and economy into the future.”

What safety nets are in place?

Despite suggestion to the contrary, Pfahlert feels that New Zealand is prepared to handle Petrobras’ proposal.

“I’ll put a caveat on it, though: there is certainly room for improvement, and in fact, most of the agencies are looking to improve the regulatory environment to make sure that it really is world-best practice.”

The MED has commissioned an independent study, due this year, on New Zealand’s health, safety and environmental provisions around minerals activities, such as deep-sea drilling. For this reason, Pfahlert dismisses suggestion that a standalone agency be erected solely to monitor Petrobras’ practice as “a complete waste of money”.

What is needed, Pfahlert maintains, is “one regulatory system” relating to practices taking part in the Exclusive Economic Zone (EEZ) 12 miles offshore, “irrespective of who’s doing them”.

“We’re expecting the government to introduce a piece of legislation to deal with the same sorts of things that the RMA considers,” he says. “You wouldn’t want to set up a system just for the Raukumara Basin with one company. That’d be foolish in my view.”

Pfahlert says that the proposed Environmental Protection Authority, which Environment Minister Nick Smith hopes to be functional by 1 July 2011, will also play some role in processing legislation and consent applications.

Dr Archer reiterates that Petrobras’ permit to explore the Raukumara Basin does not mean that deepwater drilling is imminent; in fact, she predicts it won’t occur before 2013 at the earliest. Consequently, it’s tempting to disregard the developments in New Zealand’s minerals extractions until minerals are indeed extracted.

Although Petrobras’ exploration seems inevitable, as further details of Deepwater Horizon come to light, we should be primed to react to them—especially if we are to prevent any deepwater catastrophes occurring on New Zealand horizons.

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About the Author ()

Elle started out at Salient reviewing music. In 2010, she wrote features and Animal of The Week, which an informal poll revealed to be 40% of Victoria students' favourite part of the magazine. Alongside Uther Dean, she was co-editor for 2011. In 2012, she is chief features writer.

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