Policy / The economic and environmental cost of the seven-year exploration ban will be felt long after its removal / Joseph Murphy
New Zealand’s government has taken various steps to revitalise its ailing oil and gas sector, including by overturning a ban this year on new oil and gas exploration imposed by the previous administration in 2018. That ban and other policies had a profoundly negative impact on both the country’s oil and gas sector and its broader economy and energy security. As the current government works to undo that damage and signal New Zealand is once more “open for business”, the experience serves as a case study for other countries seeking to balance climate action with economic and societal concerns.
This report aims to examine this topic in depth, as well as drawing comparisons with the policies of other countries—primarily Norway and the UK.
New Zealand is blessed with a significantly green energy mix, drawing on its abundant hydropower resources to generate more than half of its electricity in 2024. Geothermal, wind and solar contributed another third, while gas contributed under 10% and coal just over 5%. Yet gas, and to a lesser extent coal, have traditionally played a key balancing role—“when it doesn’t rain, the sun doesn’t shine and the wind doesn’t blow,” John Carnegie, CEO of Kiwi energy industry association Energy Resources Aotearoa, told Petroleum Economist.
The intermittency of hydropower was highlighted in the summer of 2024, when prolonged dry weather depleted reservoirs, contributing to a spike in electricity costs. In early August last year, the wholesale electricity cost spiked at more than NZ$800/MWh ($450/MWh). Given the country’s heavy reliance on variable renewables, prices are very volatile, and in good conditions they can go as low as under NZ$1/MWh.
While New Zealand imports coal, all gas is produced locally, with the country lacking the means to import LNG. This means there is no substitute for domestic supply at New Zealand’s gas-fired power plants or for industries using gas as feedstock. But both production and reserves have declined significantly in recent years. Government data shows proven and probable gas reserves fell by 27% in 2024, to only 948PJ, following a 20% drop the previous year. From a past high of 200PJ, annual output was down to 122PJ in 2024, and the government warned in June that it would dip below 100PJ as soon as 2026—three years earlier than previously anticipated. The acceleration of the decline is a consequence of the policies put in place by the previous government under Prime Minister Jacinda Ardern, according to the industry.
Shutting down exploration
In April 2018, Ardern’s government announced that with the exception of onshore Taranaki, no new oil and gas explorations permits would be granted—a bold step that was celebrated by some environmental groups as a historic victory for climate action. New Zealand’s waters—encompassing one of the world’s largest exclusive economic zones—were declared off-limits to future oil and gas exploration.
Yet from the start, the exploration ban was controversial. The political opposition branded it “economic vandalism”, arguing it would do little for climate change while inflicting outsized harm on the economy. “This decision will ensure the demise of an industry that provides over 8,000 high-paying jobs and NZ$2.5b for the economy,” warned the New Zealand National Party, then in opposition but now leading a coalition government.
The ban has even inflicted environmental harm, according to Carnegie, as during times of low renewables output, New Zealand has had to import more coal because of the sharp decline in gas production. Besides the fact that coal produces more emissions than gas when burned, imported energy leads to greater emissions than domestic energy as a result of transport.
The government sought to quell fears about the ban’s negative impact. Existing oil and gas permits—31 exploration permits, 22 of them offshore, covering 100,000km2—were untouched by the ban. The government also allowed a block offer to go ahead that year but limited it to the onshore Taranaki Basin, the country’s oil and gas heartland. It maintained that existing permits, some with decades of drilling rights remaining, would be sufficient to maintain supply and give industry and the broader economy time to transition. The government had set a target of reaching 100% renewable power generation by 2030—a goal that has since been nixed by the current administration. It also promised that jobs would not be affected by the decision.
Shockwaves through the industry
In practice, the ban sent shockwaves through the oil and gas sector. The pledge by Ardern’s Labour party to restrict exploration caused “an immediate chill on any interest going forward in exploration and future development in New Zealand”, Nikki Martin, president & CEO at EnerGeo Alliance, the global trade association for the energy geoscience and exploration industry, told Petroleum Economist. Martin noted the measure was decided upon without any input from the industry.
The ban was announced at a time when, globally, there was a “fad” among governments to perform their commitment to a more green agenda, Dustin Van Liew, EnerGeo’s senior vice-president for global policy, added.
“Targeting exploration may seem politically expedient because the policymaker does not have to suffer the ramifications of that decision. The policymaker leading the charge for that will probably be long out of office before the country and its citizens feel the effect of that decision,” he said.
From the point where first exploration data is acquired to the point where a potential discovery reaches first production can take up to ten years. That means the ban’s effects will be felt for at least a decade after it was enacted. Some of EnerGeo’s members had recently acquired geoscience data that they were trying to license when the ban was announced and were prevented from recouping their investment.
In the years after the ban, exploration activity in New Zealand slowed to a trickle. Major IOCs that held exploration acreage began scaling back or exiting.
In mid-2019, Chevron and Norway’s Equinor abandoned a joint venture and surrendered three offshore permits spanning 25,000km² off North Island’s east coast. This area—roughly a quarter of New Zealand’s then-active exploration portfolio—had been considered a promising frontier, particularly for gas.
Other exploration initiatives were likewise shelved. Austrian producer OMV drilled one high-profile deepwater well—Tawhaki-1—in the Great South Basin in 2020, which came up dry. But plans for additional wildcat wells in frontier basins were put on hold. By 2021, all exploration permits in New Zealand’s frontier basins—areas outside Taranaki, had been relinquished, leaving no frontier acreage under permit versus 82,000km² before the ban was announced. The permits that were handed back included those in basins such as Pegasus, where Chevron and Equinor had operated, the offshore Northland-Reinga, and parts of the Canterbury and Great South basins.
At the time of the ban, 20 international and five local companies were engaged in exploration and production in New Zealand, but that number has since shrunk to nine in total.
The absence of new exploration means oil or gas discoveries made in New Zealand since the ban have not been appraised. Projects that might have extended the life of existing developments were cancelled or indefinitely postponed.
One much-touted opportunity, the Barque prospect off Canterbury, estimated to hold up to 11tcf of gas and 1.5b bl of liquids in best-estimate unrisked resources, was never drilled after New Zealand Oil & Gas and Beach Energy walked away from the project in 2021. A 2017 analysis by local consultancy MartinJenkins estimated that development of the field could have generated around NZ$32b in government revenue over its lifetime through taxes and royalties. The study also suggested that the construction phase alone could have supported roughly 5,700 jobs annually and contributed around NZ$7.1b to New Zealand’s GDP.
As exploration dried up, New Zealand’s existing oil and gas fields continued to deplete—some faster than expected. Several of the country’s largest producing fields—such as Pohokura and Maui in Taranaki—have struggled with declining well pressures and technical challenges. The ban discouraged expensive work needed to maximise recovery from these mature fields, critics said. For example, Simon Court, a Member of Parliament for the ACT Party, argued in 2021 that companies were not bringing drilling rigs to New Zealand to revive production at existing fields because they could not use those rigs to also explore for new resources.
"There has been a great reluctance to bring any of that gear, because the people that own the gas fields, and who might want to develop new ones, do not see a future for gas—that is because the government has told them there is no future for gas," Court said.
Domestic oil production—from legacy fields like Maari and Tui—has also dwindled to a small fraction of demand, and closure of the country’s only oil refinery at Marsden Point, and conversion to an import terminal in 2022, means New Zealand now imports 100% of its refined petroleum fuels.
Broader economic consequences
The consequences of falling gas production have been felt across New Zealand’s energy system, Carnegie said. As noted, gas contributed around 10% of electricity supply in 2024 and 13.5% of total energy supply. Beyond electricity generation, it is a critical fuel for industrial heat and chemical manufacturing. As local supply tightened, major gas users were forced to cut back.
Consumption of gas in 2024 dropped to its lowest level since 2011 as industries and power plants had less fuel available. Methanex—the nation’s largest gas consumer, operating one methanol plant in Taranaki—temporarily idled its operations in 2024 in August that year, selling its contracted gas to electricity generators to help keep lights on during a winter supply crunch. The country’s only urea fertiliser manufacturer, Ballance Agri-Nutrients, warned this August that it might have to halt production at its Taranaki ammonia-urea plant in early 2026 because it could not secure enough gas feedstock.
An August survey by energy management company Optima and BusinessNZ Energy Council—a group representing energy-sector business, government and research organisations—found gas prices for consumers had more than doubled over five years, leading about half of surveyed industrial businesses to raise their own prices or lay off staff to offset energy costs.
The high gas prices also fed through into electricity bills. With less firm gas supply, electricity spot prices have become more volatile, especially in dry years when hydroelectric output is down.
Ironically, given the intent of the ban, the gas shortfall has at times led to the increased burning of higher-emitting coal to bridge the gap in power supply. As domestic coal supply is also falling, New Zealand became a net importer of coal for the first time in 2020. Imports hit a record high the following year, at more than 1.8mt.
Resources Minister Shane Jones summarised how he saw the general impact of the ban in June, stating that “New Zealanders were bearing the brunt of this constrained gas supply, and energy security concerns are impacting investor sentiment. These factors are taking a toll on our economic growth and prosperity.”
“We are seeing businesses in the regions closing as a result, with Kiwis losing their jobs, and we are importing… Indonesian coal to meet peak energy demand,” he said. PE