Is the “Aberdeen of the South” an idea past its time?

Guest post by Professor Colin Campbell-Hunt

There are very many of us in Dunedin who will want to welcome Shell and the promise of economic activity that exploration brings. If I were to look ahead only 10 years I might be one. But I have learned a thing or two about oil and gas in the last few years that would urge caution. This is an industry that only has a decade or so of growth left, so if we want our city to invest in infrastructure for industries that will secure our prosperity for the future, oil and gas exploration should be well down the list. Here’s why.

First, even the short-term benefits may be much less than we might think. A 2012 study by the economic consultancy BERL concludes that the prime contractor for engineering and construction would be a large offshore-based multinational. Some sub-contracting work may come to local New Zealand firms, but BERL concludes that few New Zealand companies outside of Taranaki have the expertise required to win contracts for the work.

Second, the same BERL study concludes that the number of sustained jobs created for the local economy would settle at around 200 following a spurt of up to 1,000 jobs during a three-year development phase. It is unlikely that the oil or gas produced would come ashore; more likely it would be shipped directly from a sea-based platform.

So far, the project looks to make reasonable sense, both for Shell, and for Dunedin. But look out beyond 2020 and the horizon looks a lot darker for the oil industry.

The third – and far more serious concern – arises from the effect on the planet’s climate of burning fossil fuels and releasing carbon dioxide CO2 and other greenhouse gases into the atmosphere. Climate modellers at the Potsdam Institute in Germany estimate that if we put another 500 billion tonnes of CO2 into the atmosphere beyond 2013 levels, we would face a one-in-four chance of the planet warming by more than 2C. And if we were to increase that to 1,000 billion tonnes, the chances rise to 50:50.

So how much CO2 is there for us to burn? A 2013 study by the Grantham Institute at the London School of Economics reports that the world’s current proven reserves already contain between 3 and 6 times more CO2 than we could safely throw into the skies. Corporate oil alone has more than enough reserves to blow out the 500 billion tonne budget.

Why does the 2C limit matter? Beyond 2C, science warns that we open ourselves to the possibility of runaway climate change wreaking serious havoc to the world’s population, economy, food supply and political stability. These are not the wild imaginings of prophets of doom who would urge us to climb up a hill somewhere and wait for the world to end. These are level-headed assessment of risks that the human (and non-human) populations of earth are facing right now.

So where is this going to leave the oil industry? At the present rate of emissions, we will hit the 500 billion tonne warning sign in just ten years. If we wanted to keep our chances of avoiding more radical change to just 1-in-4, that would have to be the end of CO2 emissions – not another tonne, ever. Of course that is not going to happen. We are riding on a super tanker that is going to take years to bring to a halt, and this is something that is increasingly accepted – with dismay – by the people who follow these trends. The fact that the oil industry is willing to invest in exploration for new sources of hydrocarbon when we already have far more than we should ever burn tells us that they don’t believe the political will to change our ways will stiffen up any time soon. Which in turn tells us that we, the voters, want to keep our good life for as long as we can too.

But spool forward 10 years, or twenty. The pressures of climate change are only going to get stronger; the realisation of the risks we are running can only get firmer; the prospect of controls being placed on the burning of CO2 can only get greater. A far-offshore gas field is expected to have a life of 35 years. If we are beginning to understand the dangers of climate change now in 2014, we can be very sure they will have radically changed the rules for the oil industry by 2060.

So should Dunedin hitch its economic wagon to this dying industry? Should we be building the public infrastructures to support an industry that has such a poor long-term future? Should we be anxious to attract a business that might deliver 1,000 jobs for three years, then only a quarter of that for however many years it takes before expensive deep sea gas wells get shut down – if indeed they are ever put into production?

There has to be a better way. Developing assets – both physical and human – for the city’s infrastructure to be ready for a low-carbon economy and low-carbon lifestyles will give us a far greater chance of delivering benefit over their productive life than any investments we may be tempted to devote to a dying oil industry.

Colin Campbell-Hunt is a Professor in the University of Otago Business School and has written widely on New Zealand’s competitiveness.