Transport and Energy

Economic Impact of the Oil and Gas Sector on the Taranaki Region and New Zealand

Monday May 14, 2012

Economic impact analysis

In the year to March 2006, the oil and gas sector employed 817 Full Time Equivalents (FTEs) and generated NZ$741 million of GDP in the Taranaki region. It accounted for 17 percent of the region’s GDP.
Nationally, the oil and gas sector employed 904 FTEs and generated NZ$827 million of GDP. The sector accounted for around 0.5 percent of national GDP.
Applying multiplier analysis, the oil and gas sector contributed a total of:

• NZ$1.0 billion to the Taranaki economy and employed close to 3,000 FTEs.
• NZ$1.6 billion to the New Zealand economy and employed over 8,600 FTEs.

Construction costs for projects should be considered separately from, and additional to, the operational costs identified above. These costs vary, depending on the size and location of the field, with offshore fields usually considerably more expensive to develop than those onshore; the number of wells considered necessary to drain the field of its recoverable reserves; and the types of wells, whether vertical or horizontal, which is more complex and costly. This will impact both the total cost of the project and the proportion of that cost which can be captured locally.

For example, the offshore Kupe gas/condensate field has a total project cost of around NZ$1.08 billion). Of this, around NZ$618 million is expected to be spent in the Taranaki region in total. Applying multiplier analysis, this project can be expected to generate NZ$240 million in regional GDP and employ 3,000 FTEs for one year.

Total costs for the onshore Cheal oil field development were about NZ$30 million. However, a relatively higher proportion of the expenditure was likely to have been spent locally.
Strategic importance to the Taranaki region
Taranaki is the centre of the oil and gas sector in New Zealand, accounting for 90 percent of all employment and GDP activity.
The oil and gas sector in Taranaki is a world-class industry applying cutting-edge technology and proprietary intellectual property. This has had flow on effects into the industries and businesses in the region but also into the wider community.

• The sector has developed the capability in a number of industries such as engineering and construction, which can then be applied in other areas such as boatbuilding.

• The sector attracts international people to the region who bring wider benefits through participation in the local economy through governance and social participation.

The oil and gas sector is a cornerstone of the Taranaki economy, generating 17 percent of the region’s GDP but, more importantly, contributing to the capability and capacity within a number of key industries and businesses in the region.
There has been significant investment in infrastructure through gas pipelines such as the Maui pipeline, production facilities and Port Taranaki. It would be very costly and difficult to replicate this infrastructure in another region. Similarly, businesses that require a significant amount of gas for production (Methanex, Ballance) are located in the region. The sector has been operating in the region for a long time. There is an understanding in the community and local government of the importance of the oil and gas sector to the economy. This long-term relationship and understanding makes it easier for the sector to operate in the region.
Several industries in Taranaki rely on the oil and gas sector for a significant portion of their activity. For example, close to 30 percent of computer services output is to the oil and gas sector. For non-building construction the proportion is 20 percent and for other business services, 19 percent.
The oil and gas sector is a significant export earner. An estimated 85 percent of output generated in the sector is exported. This is close to 18 percent of the region’s total exports.
Businesses that provide dedicated services to the industry are based in the Taranaki region. Similarly, the expertise and resources needed in the sector tend to be based in the Taranaki region.


Therefore, any future activity in the oil and gas sector, whether it be exploration or extraction, in Taranaki or nationally (for example, the Great South Basin), is likely to require significant contributions from, and generate activity in, the Taranaki region.
Strategic importance to the National economy
The sector plays a necessary role in providing secure energy supply for economic activity and growth. There is a significant gas network in the North Island and a number of businesses and households rely on gas for their energy needs. Gas is also used to generate electricity and plays an important role in complementing hydro and wind generation, especially as these are subject to the whims of nature.
The sector contributes new technology, improves work practices, and demands high skilled labour – all key drivers of economic growth and transformation. The oil and gas sector is capital intensive. It employs cutting edge technology and best practice processes. Employees are generally highly skilled. The labour productivity of workers in the oil and gas sector is significantly higher than the national average.
The oil and gas sector makes significant contributions to the government by way of royalties. Between 1970 and 2005, over NZ$2.8 billion was collected through petroleum royalties.


Constraints to growth

Exploration intentions are high and new production fields have recently come on-stream, with several more in construction. . Increasing demand for energy, combined with government efforts to increase exploration, has seen activity increase noticeably over the last few years.
In a tight labour market, particularly for skilled labour, attracting the necessary labour will be the key constraint on growth in the oil and gas sector. The sector employs skilled labour, with these skills being applicable anywhere in the world. Increasing activity means that the demand for skilled labour will also increase, with much of this demand being global as well as local.