Questions in NZ Parliamentary Question Time, 24 August 2004

JEANETTE FITZSIMONS (Co-Leader-Green) to the Minister of Finance:
Has Treasury revised its assumption that crude oil prices will
ease back to an ‘equilibrium’ price of US$19 per barrel; if so,
what are the Government’s current assumptions for oil price trends
between now and 2020?

Hon Dr MICHAEL CULLEN (Minister of Finance): Treasury is yet
to begin its revised forecasting round for the December Economic
and Fiscal Update. When that happens it will specifically identify
the need to revisit the assumption for oil price trends.

Jeanette Fitzsimons: What planning, if any, is the Government
doing to reduce the dependence of the New Zealand economy on
oil, in light of the fact that the price of light crude today
is nearly US$48 a barrel?

Hon Dr MICHAEL CULLEN: My colleague the Minister of Energy is
working hard on sustainable energy options. It would be helpful
if some of those options, such as hydropower and wind power,
were more enthusiastically supported by the Green Party.

Rodney Hide: Given the concern over high petrol prices, has the
Minister sought the advice and guidance of Mr Jim Anderton, the
self-styled ‘Minister for Lower Prices’-as he told this House
on 30 March, 2000-or is Mr Anderton missing in action on this
one, as well?

Hon Dr MICHAEL CULLEN: Mr Anderton has certainly expressed concerns
to me about the impacts of rising oil prices. Perhaps we could
all hope that the various elements in this House will use their
best endeavours to ensure, for example, that the Middle Eastern
situation settles down.

Jeanette Fitzsimons: What does the Minister understand by the
term ‘peak oil’, and when does he expect it to occur?

Hon Dr MICHAEL CULLEN: I have to confess that, for once, the
member has floored me; I do not understand what is meant by the
term ‘peak oil’.

Jeanette Fitzsimons: Does the Minister agree, then, that the
price of any commodity is likely to rise over time, when demand
is increasing exponentially while supplies are being restricted
by physical limits; and does he agree that oil is a commodity
that has just such characteristics?

Hon Dr MICHAEL CULLEN: In theoretical terms, yes; in practical
terms, no. We have yet to reach the point where it is at all
clear that new discoveries in oil-and I now think I understand
what the member was getting at before-fall below the level of
the projected demand for oil. At the present time, the production
of oil is actually outrunning demand, and stockpiling is occurring.
Prices are high because of, primarily, the uncertainty in the
Middle East, plus the growing demand from China, plus the somewhat
confused situation-to put it kindly-surrounding oil and gas companies
in Russia.

Jeanette Fitzsimons: Has the Minister been advised that the current
oil demand is 81 million barrels a day and the total capacity
of the world’s oilfields to produce oil is 82.5 million barrels
a day; and does he think that that provides sufficient headroom
for demand to continue to increase-for example, with China’s
40 percent increase in demand in the last year?

Hon Dr MICHAEL CULLEN: Clearly, therefore, the member has confirmed
what I have just said: supply is actually exceeding demand at
the present time. And, as prices rise, that will encourage both
new exploration and also new exploitation of known reserves that
were previously uneconomic to exploit-for example, the extremely
large Canadian oil shale reserves.

Jeanette Fitzsimons: Has the Minister been advised that for some
time now oil discoveries have been running at the rate of one
barrel for every four that are burned, and how long does he think
that that can continue; further, has he been advised that Canadian
shale and tar sands oil will be extremely expensive compared
with current supplies, as well as a lot dirtier?

Hon Dr MICHAEL CULLEN: Certainly on the last point, given the
nature of the area there are severe environmental issues, and
exploitation would certainly be more expensive. But it does seem
to me rather odd that a Green Party member would bemoan a rise
in price for a limited product.