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3 Key Findings

3.1 Summary of Case Studies

Discovery, Development and Production of Maui

Success Story

Maui was discovered by the Shell-BP-Todd (SBPT) consortium in 1969 and started production in 1979. With an estimated 3830 billion cubic feet of gas reserves, it was one of the largest offshore gas fields ever discovered at that time.

Key factors underlying Maui’s successful development include:

  • Exploration Technology – Acquisition of New Zealand’s first seismic data by SBPT reduced their exploration risk and led to the discovery of the Kapuni and then Maui fields; also, the discovery was made during the first deployment of an offshore drilling rig to New Zealand

  • Policy – The Continental Shelf Act 1964 vested offshore resources with the New Zealand government and allowed the issuing of permits; the government’s role as the major purchaser of Maui gas (through the Take-or-Pay agreement) enabled the economic production of the field; the oil crisis in the 1970s led to the development of supportive policies eg, energy self-sufficiency and efficiency

  • Energy Demand – The international oil crisis and associated high prices and short supplies in the Pacific created a substitution opportunity for fuelling the thermal power stations then being built and meeting the country’s needs for transport fuels

  • Maui Joint Venture – This provided for government the sharing of production risk, infrastructure development, cost overruns in platform construction and redesign, as well as the ‘upside’.

Photo of an oil rig of the Taranaki coast.

Oil and Gas Exploration

Established industry

New Zealand has an active exploration industry focused on the Taranaki Basin where it has been successful in the past. Expansion of the industry is primarily dependent on the capital and know-how of international exploration companies, as well as their business decisions based on global market factors and their appreciation of prospectivity.

New Zealand currently ranks 14th internationally in terms of attractiveness to exploration investment.5

Reported barriers to expanding exploration activity includes:

  • highly competitive international exploration ‘marketplace’, including higher prospectivity in other parts of the world, closer proximity to markets, better access to equipment, availability of and access to high-quality exploration data

  • relatively small New Zealand gas market, historically low prices for gas in New Zealand due to oversupply from Maui, and associated transportation and logistics issues related to New Zealand’s distance to other markets

  • infrequency in recent times of economically significant discoveries like Maui (2000 discovery of the 700 petajoules (PJ) Pohokura field being an exception) that would stimulate exploration activity

  • no discoveries to date of a scale to justify development of new infrastructure and production outside the Taranaki Basin

  • predominance of gas rather than the more desirable oil in the New Zealand Basin structures.

Wave and Tidal Energy

Emergent opportunity

This is an emergent industry reliant on technology developed overseas. An industry grouping, Aotearoa Wave and Tidal Energy Association (AWATEA), has just been formed and there are approximately 12 projects at various stages presently underway. However, none are expected to be capable of deployment within at least a 24-month timeframe.

Photo of harnessing wave and tidal energy with the LIMPET (Land Installed Marine Powered Energy Transformer) a shoreline energy converter sited on the island of Islay, off Scotland’s west coast.

Reported barriers to the development of the wave and tidal energy industry in New Zealand are mainly related to their uncertainty in respect of the operation of the Resource Management Act (1991). The RMA is a de facto ‘portal’ for development but is seen as inefficient in dealing with novel projects for which plans are almost always silent. Specific issues identified by respondents include the:

  • ‘not in my back yard’ (NIMBY) issue, the ease with which objections can be lodged under the RMA and the potential for perceived vexatious objectors

  • high perceived costs and complexities of consent applications relative to the small scale of the proof-of-concept or technology demonstration projects currently being planned

  • absence of a specific protocol for offshore wave and tidal projects that would streamline and standardise the application process for both the industry and consenting regional authorities, thereby minimising inconsistent processing of applications across regions

  • perceived sovereign risk as a result of the ongoing Foreshore and Seabed debate, the Moratorium on Aquaculture, and the Minister of Conservation’s veto powers over restricted coastal activities;

  • perceived business risk in the allocation regime posed by the ‘first in, first served’ policy and the potential for both ‘free riders’ and speculators to secure occupancy and use rights ahead of industry trailblazers

  • reliance on predominantly overseas-developed technology that is largely still pre-commercial and unproven, and which is expected to be relatively expensive to import to New Zealand

  • uncertainty over the cost of, and responsibility for, infrastructure development and access to the national grid as a result of the low priority given to wave and tidal energy by the big power companies

  • investment difficulties due to negative media reporting of deficiencies and failures of the RMA process.

Such uncertainties, compounded, impose a risk premium that severely dampens any business case already burdened with significant technology risk. In effect, the required capital investment will not be forthcoming until greater clarity is achieved, or unless the risks are offset through tax concessions, revenue guarantees, or similar instruments.

Gas Hydrates

Future opportunity

Gas hydrates (or methane hydrates) present a future opportunity. It is not immediately commercialisable due to the technical complexities of extraction, transportation, environmental implications; and a fundamental lack of scientific and engineering knowledge of the resource.

New Zealand gas hydrate deposits have been discovered offshore in the Hikurangi (East Coast) and Fiordland margins. There are additional indications of deposits in Canterbury, Great South and Taranaki Basins.

Japan (USD$50m pa funding), Canada and the United States lead gas hydrate research worldwide. Scientists from the Institute of Geological and Nuclear Sciences (GNS), Canterbury and Otago Universities are currently leading New Zealand research efforts.

Photo of gas hydrate deposits.

3.2 Reported Cross-Sectoral Issues and Barriers

The case studies highlighted uniformly the following issues (as categorised under subheadings) – the need to:

Policy

  • address inconsistent application of environmental policy across different regional councils and government departments, particularly in respect of project planning processes - inconsistencies leading to delays and increased opportunity costs

  • develop consent processes scaled to meet the scope of typical projects in frontier industries eg, exploration, proof-of-concept, technology demonstration, site assessment

  • acknowledge and secure property rights of trailblazers / pioneers in frontier industries – the present allocation regime with its ‘first in, first served’ policy undermines investment in the industries: it permits ‘free riders’ and speculators to secure property and use rights to resources without contributing to the development of the industry

  • develop mechanisms to sanction speculators who secure use rights over resources but do not maximise the value of those resources to the New Zealand economy in a timely manner – note that the previous two points are important and interwoven: one person’s pioneer / trailblazer is another’s speculator

  • design property rights and systems for their allocation and administration: these should balance incentives to pioneers and trailblazers with constraints on pure speculators and monopolists, to foster the emergence of effective market dynamics in emerging commercial sectors

Technology and Specialist Equipment

  • develop mechanisms that would provide timely access to new technologies and specialist equipment given New Zealand’s reliance on overseas technologies and expertise. This results from the limited capacity New Zealand has, to meet the high research and development (R&D) costs for new frontier activities

  • consider ways of attracting specialist operators and expertise to New Zealand in the face of worldwide demand and competition for equipment (eg, oil and gas drilling rigs) and expertise: the tight supply is reportedly leading to significantly increased costs and delays in deployment. Such delays in turn threaten tenure to prospective areas

Investment

  • address the impact of policy-related sovereign risk issues (eg, Foreshore and Seabed, Aquaculture Moratorium) and business risk issues (eg, allocation regime) on inwards investment: inconsistent and ad hoc policy is leading to uncertainty and perceptions of unreasonable risk

  • encourage pioneering investments that have the potential to seed developments from which new sectors can emerge. These may need to be favoured with taxation or other provisions (such as flow-through of losses to shareholders) to overcome risks that cannot be minimised

Infrastructure

  • facilitate development at the ‘frontier’ stage with some level of government commitment, by supporting the development of new infrastructure, expertise and investment because of the high infrastructure costs for new industries;

  • develop scientific, engineering and technical skills to enable rapid response to new frontier opportunities: despite the significant economic potential, none of the universities in New Zealand have programmes dedicated to addressing new opportunities like wave and tidal energy or gas hydrates

Resource Data

  • have better access to accurate and up-to-date resource and site data as the key driver to increasing industry activity

  • more intensive mapping of available site, resource and reserve data: this should be considered a national priority due to the strategic and economic value of the data to New Zealand

  • more closely align science and engineering research: the focus should be on developing potential solutions to specific opportunities rather than on undertaking scientific research with limited or isolated application

3.3 Context for Policy Development

A. ‘Frontier Territories’ and ‘Frontier Activities’

The concept of the ocean as a ‘frontier territory’ is the fundamental theme emerging from the investigation and should be considered a central tenet in the development of the new Oceans Policy framework.

The case studies in this report are classic ‘frontier activities’, characterised by:

  • significant technical risk

  • high start-up costs

  • gaps in policy, governance and management regimes (at least at frontier level)

  • a long / convoluted / complex / uncertain path to market in the early stages of the industry.

While these points may seem obvious, they provide an important contextual consideration that is often overlooked as policy development tends to lag economic development requirements.

Production from the Maui oil and gas field took 10 years from its initial discovery. It required the pioneering of an offshore gas production system in New Zealand (an activity that was then novel elsewhere in the world), new structural designs, new onshore infrastructure, new ‘enabling’ policies (energy self-sufficiency, empowering legislation, Take-or-Pay Agreement etc) and new utilisation opportunities for the gas (synthetic fuels, methanol, other chemical derivatives, thermal fuels for power generation, liquefied petroleum gas (LPG), compressed natural gas (CNG) etc) to facilitate its economic development. While this process was consistent with international practice at the time, its application in New Zealand was ‘unique’.

Oil and gas exploration is the definitive frontier activity in New Zealand. Exploration activity occurs despite:

  • often limited geophysical information available for the permit area (which increases risk and costs)

  • high prospecting costs (up to $100m to effect all of the work required to identify an offshore prospect and test it by drilling)

  • low success rates (9 out of 10 prospecting wells drilled may be ‘dry’ holes despite promising seismic data).

The future development of a gas hydrates industry is likely to share most if not all of the features of both current oil and gas exploration, and the economic development of Maui. Current investment is limited to publicly funded research. Although not a newly discovered resource, its potential as a significant energy source and economic opportunity is yet to be firmly established. The technical complexities involved in mining, processing and transportation of the hydrates in a useable form to market will mimic the conditions faced by New Zealand’s embryonic exploration industry in Taranaki up to the Kapuni discovery in 1959, and in the development of Maui in the 1970s – but on a significantly larger scale. The enabling legislative steps were taken well in advance (Petroleum Act 1937; Continental Shelf Act 1964) of first commercial exploitation. Consideration should now be given to the adequacy of the enabling framework for future sectors such as wave and tidal energy. At present this is simply subjected to the blunt instrument of the RMA and faced with a turbulent electricity sector regulatory regime. For the gas hydrate potential, the Crown Minerals Act may prove similarly sub-optimal.

The embryonic wave and tidal energy industry in New Zealand also shares many of the characteristics of a ‘frontier’ activity: generation technology is still at an early stage of development and largely unproven. The novelty of the proposed activity in New Zealand is expected to result in delays in the consent application process, and niche markets will need to be identified and developed for an energy source that is projected to cost 3-4 times more per kWh than wind power.

The commercial development of frontier opportunities will require a high return to match the high risk

At its most fundamental level, the development of economic opportunities in New Zealand’s ocean territory will require a strong business case, in particular, a return commensurate with the perceived level of risk involved.

The economic production of Maui required a high degree of certainty over the sale of a large quantity of gas for a sustained period of time. This certainty was provided by the Take-or-Pay Agreement entered into by the government of the time, which obliged the Crown to purchase the agreed volume of gas over a 30-year period, irrespective of whether the gas could be utilised at the time it had to be paid for. In consideration of this, the government gained a 50% share in the field. This intervention supported the economic development of Maui by offsetting the sovereign risk against a property right.

The gas hydrates case supports the greatest potential economic return to the country. It also carries the highest risk due to the technical complexities of extraction, transportation and production, along with environmental concerns that are still to be researched and are some considerable way from being resolved. While Japan has an annual gas hydrates R&D budget of US$50m per annum, New Zealand’s effort is limited to the activities of one small scientific team led by Dr Ingo Pecher at GNS in Wellington.

Given New Zealand’s current vulnerabilities in respect of future thermal fuels supply (consideration of CNG importation is currently underway) and substantial indigenous sources of gas hydrate, a strong case could be made for a quantum increase in research effort towards expanding the excellent geoscience base in this country and complementing it with technological and environmental lines of enquiry. A dedicated agency, similar to the Liquid Fuels Trust Board (LFTB) of the Maui era, may well be justified.

In the exploration sector, the risk-return hurdle is also extremely high as an offshore prospecting programme may cost between NZ$7m and $10m over the term of the permit. Oil and gas exploration has in recent years expanded with specific instruments such as frontier basin seismic surveys, and the enhancement of systems to provide existing exploration data at low or no cost. Substantial arrangements in place for this, are intended to reduce risk and increase exploration activity. With the progressive depletion of Maui and other developed fields in Taranaki, New Zealand’s exploration sector needs to be increasingly focussed on frontier areas. Success in such areas will raise infrastructural and potentially environmental issues that have been successfully addressed in Taranaki over the course of several decades. The Taranaki experience should be able to be adapted effectively to those regions where the industry proves successful in the future, so that the value of discoveries can be maximised.

The risk-return hurdle in wave and tidal energy is much lower than for hydrocarbons, but is no less significant. The development of the wave and tidal energy industry is likely to struggle to become established until generation costs are reduced (currently estimated at 3-4 times the cost of wind per kWh due to technology costs) and next-generation technology becomes available.

Besides the project sponsor, the costs and benefits of an operational wave or tidal power scheme will be borne locally and regionally. Pioneering development might best be catalysed by facilitation by local or regional interests. These include local government but also potentially economic development agencies, lines companies and/or iwi entities. This route to commercialisation could well facilitate or promote project development through providing access to designated (non-consent) sites and guaranteed production revenue.

The ‘high risk, high return’ argument has also been used to explain the lack of current activity in the offshore mining of manganese nodules. Despite innovative ‘enabling’ technology currently being available (which was demonstrated at the 1999 CAE Conference at Te Papa, Wellington), the world price for manganese at present or for the foreseeable future does not justify commercial production.

An internationally competitive risk and return scenario

New Zealand is both reliant on the capital and expertise of multinational companies in the commercial development of ocean opportunities (eg, gas and oil). It is exposed to the global market for these vital components of the commercialisation process. In this respect, the global market may be both a threat and an opportunity for emergent industries in New Zealand.

On a negative note, New Zealand is ranked only 14th in the world in attractiveness to exploration investment6. This ranking is due to the predominance of gas rather than oil in the Basins, the low price for gas in New Zealand due to the historic surplus from Maui and a small domestic market, distance to other markets and related logistics costs, and lower prospectivity than other regions in the world. A number of government initiatives have been launched to increase exploration activity, including a $15m programme to acquire seismic data with a database development project to provide data access to exploration companies.

On a positive note, there are indications that New Zealand’s low population density and vigorous wave and tidal environment are attracting overseas technology developers. Two respondents to this study indicated approaches by European technology companies who were unable to secure access to suitable sites in their home countries; they were interested in partnering up with New Zealand companies to demonstrate and prove their technology here. This is perhaps an opportunity for government intervention to assist in overcoming the risk hurdle the incumbents face, develop the local industry by expediting access to new technology, and also capitalise on a potential international scientific and economic opportunity.

It has been suggested that New Zealand could capitalise on the opportunity through the development of a ‘marine energy technology incubation park’, with research and pilot facilities that would facilitate the plugging-in of new technologies for testing or demonstration purposes.

The first frontier projects are never fully commercial

As demonstrated by Maui and other projects internationally such as Wave Hub UK, and the European Marine Energy Centre (EMEC – wave and tidal energy), some level of government assistance at an early stage is central to the development of new frontier industries. At its optimal level, government interventions will assist in the development of these frontier industries by providing certainty and confidence to pioneers by minimising completion risk. This can avoid a project failing due to the incapacity of the sponsor to complete the development stage or other factors outside the immediate control of the pioneer. Such factors include sovereign risk or more broadly, retrospective application of new legislation or shifts in government policies.

The level of intervention should be commensurate with the risk-return profile of the opportunity

The successful development and production of the Maui gas and oil field required a 30-year commitment by the government to purchase an agreed volume of gas at an agreed price irrespective of utilisation. The government was the only possible purchaser due to factors underlying the economic development of the field.

The economic development of the gas hydrates opportunity may require a similar level of commitment, perhaps even on a larger scale. This is because of the complexities of discovery, development and production demonstrated by the high levels of gas hydrate R&D being undertaken by Japan, the US and Canada; New Zealand is in no position to emulate these. Japan in particular is striving to achieve a target of commercial production of gas hydrates by 2013.

Despite the huge economic potential of gas hydrates to the country, New Zealand is not in a position to match the level of funding by Japan, the US and Canada. However, the case study has indicated that New Zealand researchers are implementing, and are continuing to develop, ‘smart’ ways of leveraging their available contribution to these international efforts. In doing so, we share the results of the international R&D activities.

Anecdotal evidence from respondents suggests that increasing New Zealand researchers’ visibility and participation at international conferences is an extremely cost-effective mechanism for increasing scientific collaboration. Participation at one international conference cost the host organisation less than NZ$5,000; it has since led to an exchange programme and invitations to the host organisation to participate in a fully funded survey of one of the gas hydrate zones in New Zealand approximately 12 months later. The opportunity cost of otherwise purchasing participation would be in the hundreds of thousands of dollars.

The study team applauds the approaches being taken by the respondents and other members of the New Zealand scientific community. Yet we wish to caution that such activities should be driven by strategic game plans rather than short-term science objectives.

Unlike gas hydrates, the exploration and the wave and tidal sectors are nearer-term opportunities. Interventions are, or should be, scaled accordingly to achieve a primary objective of minimising ‘opportunity costs’ to both the pioneers and the New Zealand economy from delays to the development of the industry.

A wide range of interventions is currently available to the exploration sector, including tax incentives and adjustments to the royalty regime and free access to seismic data. Yet wave and tidal proponents have limited support. Although not unexpected given the emergent nature of the industry and the lack of capital formation within the current industry grouping, it does suggest a need for some facilitative action from government.

Interventions suggested by the respondents included:

  • MFE facilitation of the development of a Code of Practice for the industry

  • sponsorship of a test case of this Code of Practice through the Environment Court to identify the issues involved in securing resource consent for this new and novel activity

  • funding for more site and resource data research

  • further research to gauge the feasibility of developing a ‘marine energy technology incubation park’ in New Zealand. The two marine parks in Europe (Wave Hub in the United Kingdom and EMEC in Portugal) have allowed the wave and tidal energy industry there to develop at a faster rate.

It has been suggested that a New Zealand marine energy technologies incubation park, should it be viable, would have benefits, such as:

  • providing New Zealand with advance access to new technologies

  • opportunities to test and demonstrate new technologies under New Zealand conditions

  • capacity building opportunities across the sector.

B. Development of Frontier Opportunities Will Require New Zealand to Compete Internationally for Investment and Expertise

The case studies are characterised as ‘frontier’ activities by a dependence on the capital, resources and know-how of multinational companies. This dependence is the result, among other things, of New Zealand’s small economy being unable to provide the high levels of R&D funding and investment required to develop these frontier opportunities, or to support a permanent pool of indigenous expertise.

Multinational companies make their business decisions within a global context; and in many cases it is inevitable that opportunities in other parts of the world will prove more attractive for investment than particular opportunities in New Zealand. Three key factors play a part: acceptable returns on investment, acceptable levels of risk, and certainty of completion.

All three factors are within the scope of government intervention. The appropriate mechanism to do so will be a policy framework that balances the risk return equation to provide pioneers with an acceptable rate of return which does not compromise competition in the frontier activity. At the same time, it will also explicitly support and incentivise the identification and commercial development of new and novel economic opportunities.

Suitable generic policy instruments could include ‘flow-through’ tax concessions that allow tax losses from frontier activities to be offset against the tax liabilities of investors in such projects. Alternatively, ‘bounties’ could reward the first successful fully commercial projects in specific frontier industries, and the development and testing of Codes of Practice for new frontier activities at an early stage of the industry (ie, before they become commercially necessary).

C. Commercial Development of Frontier Opportunities Will Inevitably Challenge Conventional Resource Law and Governance

The identification of new and unique opportunities in frontier territories, and the drivers for their commercialisation, often emerge well in advance of relevant governing policy. This is because conventional policy development is concerned with managing risk, and is therefore generally more reactive than proactive; and tends to focus on known or existing (quantifiable) activities.

Frontier activities are, by their very nature, pioneering endeavours undertaken in the unknown. They have longer-term commercial time horizons and higher risk tolerances than ‘business-as-usual’ projects in established industries (eg, Japan’s US$50m/pa gas hydrates R&D budget to achieve commercial production by 2016).

Consequently, the study team has formed a view that in order for New Zealand Oceans Policy to be supportive of frontier activities, it must give effect to the principle that there should be tolerance of risk commensurate with the uncertainty prevalent in frontier activities posed by the lack of information. Frontier opportunities are activities for which considerable allowances are made to the conventional business case evaluation process. These are needed because there is insufficient data about the specific opportunity and even more critically, a lack of knowledge regarding potential consequences. Yet the potential returns from successful development can justify this latitude. Our argument is that without greater tolerance for risk, pioneers may be unwilling to develop these opportunities. This is ultimately to the detriment of the New Zealand economy.

We accept that this is at odds with the dominant paradigm, but believe that it is consistent with international best practice and the science of risk management.

3.4 Recommended Interventions

The successful governance of frontier territory opportunities will require a policy framework that:

  • is based on clear principles to provide continuity and consistency to pioneers and developers

  • manages with risk, rather than attempts to manage risk

  • maximises the opportunity value to New Zealand of the resource opportunities

  • actively provides for and supports the emergence of entrepreneurial and pioneering activity.

The Ministry’s key contribution to the development of the case study (and other appropriate) industries may well be the leadership and facilitation role it can play in:

a. facilitating the advance development of consent protocols / codes of practice for specific new and novel activities; and in taking test cases through to the Environment Court in order to identify and resolve issues before the protocols are needed commercially

b. facilitating consistent and standardised application of policy across the country. One opportunity would be to develop a training programme for regional councils around the Taranaki Regional Council’s extensive expertise and experience in processing offshore consent applications

c. facilitating better communication and understanding of the RMA and success stories, both to reduce uncertainty and to prevent the small number of negative stories to evolve into urban myth. In the wave and tidal energy industry, in particular, we note that participants reported RMA hurdles impacting on their business without having verified them or seeking external advice

d. facilitating the development of a wide skills base that would support the commercialisation of new, novel and undiscovered opportunities by:

  • encouraging universities to expand their existing academic programmes to include relevant learning modules for near-term opportunities in the oceans
  • encouraging linkages with best-of-breed programmes and researchers at other academic institutions
  • encouraging a closer alignment between science and engineering research, as both fields complement each other and are central to the development of potential solutions.

At a broad policy level, we add the following suggestions:

e. ellocate regimes to both incentivise commercial development of opportunities and also sanction applicants who act as speculators or squatters on resource opportunities (as seen in the aquaculture sector)

f. include more flexibility in management and consent regimes to reflect the embryonic state of the case study industries (with their focus on R&D, proof-of-concept, technology demonstration and site evaluation, rather than commercial deployment) and allow for better scaling of consent requirements to the scope of projects

g. greater consideration of the impact of jurisdictional boundaries (particularly between regional councils) on nearshore activities compared to frontier activities undertaken beyond the territorial limits.

3.5 Summary and Conclusions

The principal theme emerging from this investigation is that the New Zealand’s Exclusive Economic Zone and its continental shelf extensions should be considered as ‘Frontier Territory’ as these areas are basically ‘un-charted’. As a country we are only just beginning to understand the marine environment, the ocean process that operates within these boundaries, and the resource potential that lies within. As this understanding grows and knowledge increases, it is inevitable that new resource opportunities present themselves. We argue that to capitalise on these emergent opportunities, it is appropriate to accept a higher risk tolerance in respect of commercial development activity and that focus should be given to policies and practices that are adaptive to the risk circumstances in this context.

This is reflected in the case studies, seemingly characterised by, among others:

  • gaps in resource information

  • high upstream investment requirements (exploration and prospecting, site evaluation, resource mapping, new pre-commercial technology)

  • a ‘first-in, first-served’ allocation regime if one is available

  • the absence of a specific management regime for commercialisation of the resources

  • the need for new infrastructure.

The respondents to this investigation are aware that as ‘trailblazers’ or pioneers, they will be exposed to the high costs of:

  • creating precedents with the relevant regional and Crown authorities

  • pioneering consent and other regulatory protocols and processes

  • developing infrastructure

  • quantifying and qualifying economic opportunities, at the risk of ‘free riders’ and speculators obtaining occupancy and use rights to resources that they have sought to secure for themselves. They are also aware that as new or novel activities, governmental policies impacting on their businesses could be applied retrospectively at anytime.

CAE suggest that the following policy considerations be deliberated on, in the development of Oceans Policy, to encourage the development of new and novel opportunities in New Zealand’s oceans; and to support the transformation of their embryonic industries into mature industries contributing significantly to the national economy:

  1. ‘New Zealand’s Economic Future lies in its Oceans’ – the diminishing of terrestrial resources will focus attention on developing new economic opportunities in the oceans. Oceans Policy must be flexible enough to allow new opportunities to be developed in a cost-effective manner with all due regard to applicable allocation, governance and management regimes.

  2. ‘The Ocean is Frontier Territory’ – Oceans Policy should reflect the fact that ‘frontier activities’ are unique because they will involve significant technical risk, high costs and a long uncertain complex pathway to market in the early stages of the development of the industries. Ocean Policy should also recognise that pioneers are operating in a dearth of information, in hazardous conditions and have to react quickly to both hazards and opportunities.

  3. ‘Frontier Opportunities are Business Development Opportunities’ – without an appropriate business case, and a return commensurate with the risk involved, there is no viable opportunity for policy to support.

  4. ‘Risk and Return, Opportunity Costs and the Time Value of Money are the Key Drivers to the Development of Frontier Opportunities’ – frontier opportunities are by necessity speculative. Long-term opportunities are likely to be driven by risk-return considerations, while immediate and near-term opportunities will be driven by the opportunity costs and time value of money. The provision of ‘certainty’ through policy is thus especially crucial for near term opportunities where the commercial viability of a pioneering project is particularly sensitive to delays and impediments to the business plan.

  5. ‘New Zealand Opportunities Must be Both Nationally and Internationally Competitive’ – the commercial development of opportunities in New Zealand will require competitive business cases firstly, because New Zealand is dependent on multinational companies, who operate in a global market for their capital, expertise and resources; and secondly, because local markets need to be established to support the development of infrastructure, supply chains etc for economic production.

  6. ‘Early Projects in Frontier Industries are Rarely Fully Commercial’ – the first few projects in ‘frontier industries’ have historically benefited from a level of government intervention to clarify policy principles, formalise property rights, establish certainty and reduce completion risk.

  7. ‘Frontier Projects require Flexible and Discretionary Policy Frameworks’ – policy elements that control established industries may not be appropriate for embryonic or emergent industries. Under the current RMA regime it is apparent that the scope of required reporting, investigation costs and timeframes required for planning approvals are disproportionate to the scale of early-stage projects; being predominantly technology demonstration and evaluation projects.

  8. ‘Policy Frameworks for Frontier Activities Must be Based on Clear Principles’ – clear principles will provide certainty to pioneers; and the clearer the principle, the sooner an opportunity is likely to be commercialised.

  9. ‘Policy Frameworks for Frontier Activities Must Maximise the Opportunity Value to New Zealand’ – this includes ensuring sufficiently robust policy mechanisms are in place to balance, among other things, the natural desire by pioneers for monopolies versus the government’s role to promote and support competition.

  10. ‘Conventional Policy Frameworks Must and Should Apply Once an Industry is Established’ – the availability of infrastructure and supply chains to support the commercialisation of a frontier opportunity generally indicate the difference between a mature and an emergent industry.

3.6 Issues for Further Investigation

The study team has the view that encouraging the sustainable development of new economic opportunities in New Zealand’s Ocean Territory will require their treatment as ‘frontier opportunities’; and a policy framework that will ‘manage with risk’ rather than attempt to manage all risks inherent in frontier activities.

The development of a policy framework that ‘manages with risk’ requires further investigation into the following issues:

  1. What are the underlying issues to the adoption of a risk-based approach?

  2. What are the optimal levels of ‘risk tolerance’ for new economic opportunities in New Zealand’s Oceans, which would actively support, encourage and incentivise the development for new marine opportunities, without imposing undue risk or fiscal burdens on the New Zealand economy – as the development of Maui has been found to have done?

  3. What are the optimal balance points between providing pioneers with sufficient incentives to investigate and develop frontier opportunities, while ensuring sufficient competition to maximise the opportunity value to the New Zealand economy?

  4. Should work programmes be a standard requirement for all new frontier activities? Work programmes could address the issues faced in the aquaculture allocation model, in which speculators were able to lock up optimal aquaculture sites through the consent process without any intention of utilising the resource directly themselves.

  5. The results of these investigations could then provide the basis for a focused Risk Management Framework for Offshore Frontier Activities.

5 United Kingdom Trade & Investment (n.d.). The Oil And Gas Market in New Zealand, a Sector Summary. p7.

6 United Kingdom Trade & Investment (no date). The Oil And Gas Market in New Zealand, a Sector Summary. p 7.

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