Jan 14, 2008

Security Of New Zealand's Oil Supplies

Ever worried about the security of New Zealand's oil supplies? You should be. So is Michael Richardson writing in today's NZ herald.

What can countries do to protect themselves from another dislocation in the global supply of oil?

Member states of the IEA such as New Zealand that are net oil importers are supposed to hold emergency reserves equivalent to at least 90 days of their oil imports of the previous year, even though it is expensive to do so.

At least until recently, the Government has been lax in fulfilling this obligation. New Zealand relies on imported oil (costing $4.4 billion in 2006) for around half its energy needs. Its oil production has been declining since 1997 when it met around 45 per cent of national demand. Last year, the country consumed just over 150,000 barrels of oil per day. Self-sufficiency is now down to about 15 per cent. The steady decline in local oil output in the past decade prompted the Government to decide in 2005 to secure additional oil stocks.

In December 2006 the Energy Minister, David Parker, announced that from the start of 2007 the country would meet its IEA obligation to hold 90 days of oil reserves.

But has Parker honoured this commitment? The article highlights the strange system that New Zealand has chosen to adopt. It does not encourage us here at The Hive.

Would this scheme work as intended in a crisis in which the demand for oil could become acutely competitive? It has yet to be tested.