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Oil and gas

by  Roger Gregg and Carl Walrond

Petroleum emerges from deep underground in various forms: as solids; yellow, brown, and black liquids; and bubbling gas. When burnt, oil and gas generate electricity, fuel cars and aircraft, and provide heating.


The need for oil and gas

Oil and gas, also known as hydrocarbons or petroleum, are the energy sources that power cars and aeroplanes, and provide heating in many parts of the world. When hydrocarbons come out of the ground they are a mixture of colourless gases, light-yellow to dark-brown and black liquids, semi-solids (waxes and bitumen) and solids (asphalt, tar and pitch). To be useable, hydrocarbons first need to be processed at an oil refinery or gas plant.

Growing demand

People are using oil at an increasing rate. While the world is not about to run out, retrieval of easily extractable oil is predicted to peak soon. Pessimists say this may have already happened, or that the peak will occur around 2016, while optimists think 2040 is a more realistic date.

New Zealand supply

Although a small amount of oil was found near Taranaki in 1865, until the late 20th century virtually all the petrol and oil used in New Zealand was imported. Most towns had their own reticulated gas, made from bituminous coal.

The discovery of the onshore Kāpuni gas field (1959), the huge offshore Māui gas field (1969) and the McKee oilfield (1979) confirmed the hydrocarbon potential of Taranaki. These, and other more recent discoveries, allowed New Zealand to be self-sufficient in natural gas from the 1970s and to attain some domestic oil supply over the 1980s and 1990s. The depletion of the Māui gas field (which also produced some oil) has seen both oil and gas production drop drastically over the early 2000s.

New Zealand use

New Zealand imports most of its oil, so it is very vulnerable to increases in the international oil price. Major consumers of oil products (petrol, diesel, aviation fuel and fuel oil) in the year ended March 2005 were domestic transport (84%), industrial users (7%), agricultural users (5%), commercial users (3%) and residential users (1%). Oil consumption in the year ended March 2005 was 250 petajoules – a 5% increase on the March 2003 figure.

Companies

Four international companies dominate petroleum distribution and retailing: BP, Mobil, Shell and Caltex. These companies have interests in the Marsden Point oil refinery and between them they own most bulk-storage facilities and many of the country’s petrol stations.

A New Zealand-owned company, Todd Brothers, imported petrol from Russia from the 1930s onwards, which was marketed under the Europa brand. BP purchased Europa in the 1970s, and it was phased out.

Whale grease

Māori on the East Coast of the North Island knew of oil seeps. In 1874, some were amused when they heard of the Poverty Bay Petroleum and Kerosene Company’s plans to put down a bore. According to Māori tradition, the oil was only on the surface – where a whale had slipped out of the hands of the priest Rongokako.

Oil refinery

New Zealand’s only oil refinery is at Marsden Point, Whāngārei, and it is designed to supply the majority of New Zealand’s demand. The country consumes 35–40 million barrels of oil per year or slightly over 100,000 barrels per day. This is only a small proportion of global consumption, which was 80 million barrels per day in 2004. The refinery operates on low-grade (and relatively low-cost) Middle East crude oil. About 94% of the hydrocarbons it processes are imported, with the remainder sourced from New Zealand fields. New Zealand’s higher-quality oil and condensate (light oil) are sold at higher prices on the international market – much of it to Australia.

The Marsden Point refinery produces a full range of petroleum products, including petrol, diesel, jet fuel and fuel oil. It is designed to make environmentally sound low-sulfur fuels. The sulfur extracted from the crude oil during refining is used locally to make fertiliser.


How oil and gas form

Oil and gas are made of carbon and hydrogen compounds. They occur naturally in the earth’s crust at shallow to moderate depths (1–12 kilometres). The formation and trapping of oil and gas requires the combination of a number of significant events, involving the presence of a suitable source rock, its burial, and the preservation of hydrocarbons.

Source rock

Oil and gas formed when organic material (land plants and marine plankton) was laid down in peat swamps, estuaries and shallow seas. Sediments buried this material, preserving it from decay.

Burial

The next stage involved burial to just the right depth (3–5 kilometres). The heat (over 130º C) and pressure at this depth slowly cook the material, converting it to oil and gas.

Preservation

As oil and gas are buoyant, they move upwards through gaps in surrounding rock and eventually seep out at the earth’s surface, unless their rise is blocked. Underground geological features, such as domes or different sedimentary rock layers (impermeable rocks on top of porous reservoir rocks), trap and seal in the oil and gas.

Exploration

Oil and gas exploration focuses on finding these trap features (known as prospects). The first step is to examine the surface geology to decide if the right types of rock are present. The next stage is usually to undertake seismic surveys, which bounce sound waves off underground rock layers. This tells geologists what the rock structures below the ground are like – and whether there are places where oil and gas may be trapped.

Once a suitable structure is found, drilling to depths of many kilometres is needed to test whether any oil or gas is present. A good reservoir rock must be both porous (with gaps to store oil and gas) and permeable (the spaces must be connected). This allows oil and gas to move through the reservoir rock and be extracted.


Oil and gas basins

A sedimentary basin is a depression in the earth’s crust into which sediments have been deposited over millions of years. The sedimentary basins in New Zealand that are likely to contain oil and gas are young (less than 80 million years old), and most have many faults that offset the rock layers.

When did sedimentary basins form?

New Zealand’s key sedimentary basins started forming after the breakup of Gondwana, about 85 million years ago, and the opening of the sea floor in the Tasman Sea. Rivers, eroding the nearby land, transported sediments containing organic material into these basins. This allowed shoreline sands to be deposited, followed by marine silts and mud many kilometres thick. These sands were compacted by the weight of the overlying sediment. Being both porous and permeable, they made ideal reservoir rocks. Impermeable overlying silts, mud and carbonates formed seals.

A drowned spirit

The Sugar Loaf Islands and the New Plymouth foreshore in Taranaki were known for their oily waters and strong smell of hydrogen sulfide, as The New Zealand mining handbook of 1906 reported. A Māori story has it that an atua (spirit) drowned there, and is still decomposing.

Different sedimentary basins

In most New Zealand basins, oil and gas formed only over the past 20 million years. During this period the New Zealand land mass was uplifted and eroded. Sediments kilometres deep were deposited, and rock layers were moved by faults, which produced many underground structural traps (places where rocks containing petroleum are capped and sealed by impermeable rocks).

Around New Zealand, there are eight sedimentary basins, onshore and underlying the continental shelf, with known or potential hydrocarbons. In addition, there are several deep-water basins offshore. Commercial quantities of oil and gas have only been produced from structural traps in the Taranaki Basin. There has been considerable exploration in other basins: Northland, Canterbury, the Great South Basin, western Southland and Westland, but none of the finds have been commercially viable.

In the Taranaki and East Coast basins, the most promising traps consist of structures formed by rock compression. Other traps were formed by changes in the types of sediment deposited, which allowed reservoir rocks to be trapped in impermeable siltstones and mudstones. This occurred particularly in the Northland, East Coast and Great South basins.

In New Zealand basins, the paths that oil and gas have taken from source rocks to reservoir rocks are poorly understood – in some, faults may have acted as pathways.


Early petroleum exploration, 1865–1960

Moturoa field, Taranaki

Seepages (places where oil seeps out of the ground) were the first sites that oil drillers targeted in New Zealand. Known seepages occur on the New Plymouth foreshore, Kōtuku on the West Coast, and Waitangi, north of Gisborne. At New Plymouth, bubbles of gas were seen along the coast, and on calm days an oily sheen could be seen on the sea water. In early 1865, gunsmith Edward M. Smith collected samples of oil he found among boulders at Ngāmotu Beach, on the New Plymouth foreshore. He sent them to Britain for analysis. Following this, the Taranaki provincial government offered £400 for the discovery of a commercial find of petroleum.

In 1865, a well was dug at Moturoa, on the New Plymouth foreshore, and in 1866 it struck gas at 7 metres and oil at 20 metres. Other wells soon appeared, but only a few barrels of oil were recovered in the first years. In 1904, some Australians brought the first steel drilling rig to New Zealand, and two years later they struck oil and gas. By 1913, crude oil was being held in storage in New Plymouth. A refinery was built, but local production was spasmodic and could not sustain it. In the late 1920s, a second refinery was built by locals (it closed in 1975). During the 1950s, some pumps sold Peak Petrol (named after Mt Taranaki), and the local council used Taranaki diesel in its vehicles.

Blowouts

In 1912, wooden derricks (drill platforms) were common. One of these, No. 5 derrick in the Moturoa field at New Plymouth, was saturated with petroleum as the result of numerous blowouts at the bore over several days in July. When another blowout occurred, the derrick was immediately engulfed in flames and burned to the ground.

Gas country

In 1937, the government passed the Petroleum Act to encourage overseas companies to look for oil and gas. Over the next decade, there was considerable exploration in several parts of the North Island and the West Coast of the South Island, spurred on by the need to find oil during the Second World War. Although several deep holes were drilled, all were dry.

In 1951, D’Arcy Exploration, overseas consultants for the New Zealand government, stated that the country was a gas prospect, but there was little chance of finding oil – and it was oil that the companies were really interested in. The impression that only gas could be found in New Zealand persisted for several decades.

Discovery of Kāpuni

In 1954, the Todd Brothers company obtained government leases to explore large areas of the North Island, and it involved two overseas oil companies, Shell and BP, in the work. The first large-scale seismic surveys were carried out in Taranaki farmland, revealing a promising underground structure near Kāpuni.

One Sunday morning in 1959, a drill rig at Kāpuni struck gas at a depth of 4,000 metres. The pressure was such that it forced the drilling mud back up the shaft, plastering the rig and workers with muck. Kāpuni was only a moderate-sized gas field by world standards, but it was large enough to meet the country’s requirements for gas.

Kāpuni gas replaced the gas produced from coal, which led to the demise of gasworks throughout the country. A gas treatment plant was built to reduce the water and carbon dioxide content of the gas before it was reticulated to users. High-pressure pipelines were laid to take the gas to Wellington and Auckland.


The Māui gas field

The beginning of offshore exploration

By the early 1960s, changes in technology made it possible to explore for oil and gas in shallow offshore waters. After passing the Continental Shelf Act in 1964, the New Zealand government began allocating the first offshore exploration licences. Seismic surveys revealed a number of possible structures, and in early 1969 the ship Discoverer II was brought to New Zealand to drill the first offshore holes.

The third hole drilled found gas and some condensate (light oil) in a large dome-like structure 33 kilometres off the Taranaki coast. This came to be known as the Māui field.

The gas problem

More than eight times larger than the Kāpuni gas field, Māui was big on an international scale. It was not clear how the gas could be used, especially as it would be expensive to develop offshore facilities, and Kāpuni already met all of New Zealand’s gas needs.

In 1973 there was a sudden, worldwide increase in the price of oil following war in the Middle East. This had a dramatic effect on the New Zealand economy. The government decided to burn Māui gas to generate electricity and extract the accompanying condensate for use as fuel. As part of an agreement with the Shell–BP–Todd consortium to develop the Māui field, a take-or-pay agreement was signed. This obliged the government to pay for an agreed amount of gas every year for 30 years.

Development of the Māui field

An offshore platform (Māui A) was built in 1979 to extract the Māui gas and condensate. A second platform (Māui B) was built in 1993 to allow extraction of additional hydrocarbons. This discovered significant amounts of previously undetected oil. Oil and gas from Māui B are transported to Māui A by a sea-floor pipeline and from there to shore.

Think Big

The amount of gas needed for electricity generation was less than estimated. Penalised by both the take-or-pay agreement and soaring international oil prices in 1979, the government embarked on a radical plan that became known as Think Big. Two petrochemical plants were built in Taranaki to use Māui gas for industrial development.

The most ambitious of these was the Motunui synfuel plant – the first of its type in the world, which converted gas to methanol (methyl alcohol), then to synthetic petrol. While technically successful, it began losing money when world oil prices fell in the late 1980s. The Motunui plant then switched to making methanol for export, which is what the Waitara valley plant did.

As the Māui gas field began to run out in the early 2000s, these plants no longer had a cheap supply of gas. Motunui closed in 2004, and the Waitara valley plant ceased production in 2005.

A gridiron scrum

The only way to get to Taranaki’s offshore oil platforms, Māui A and Māui B, is by helicopter. Wearing a bulky survival suit in case of ditching into the sea, a 1994 journalist found the ride far from comfortable: ‘It’s definitely not business class inside. Passenger seating consists of two padded benches facing each other, and we are packed in tight. With headsets on to deaden the racket, we look like a gridiron scrum about to go down.’ 1

Electricity and heating

Gas for electricity generation is piped to stations in Taranaki, Huntly and Auckland. Electricity production from gas grew steadily from the 1970s, then declined in the 2000s as the Māui field was depleted. Gas provided 16% of the country’s electricity in 2005, down from 30% three years earlier.

Gas is also reticulated for industrial and domestic consumption, which absorbed about 30% of production in 2005. This is transported around the North Island through 2,600 kilometres of high-pressure pipelines.

LPG and CNG

Minor uses of the gas are as LPG (liquefied petroleum gas) and CNG (compressed natural gas). There has been revived interest in the use of LPG as a vehicle fuel since the international oil price rose after 2003. Unlike CNG, LPG is distributed in the South Island.

CNG was a popular substitute for petrol in vehicles in the North Island. CNG sales rose rapidly and peaked in 1985. The decline in international oil prices over the 1980s saw CNG’s popularity wane, but there has been a slight growth in CNG production over the 2000s.

Footnotes
  1. Warren Judd, ‘New Zealand’s search for oil.’ New Zealand Geographic 23 (1994): 31. › Back

The amount of oil and gas found

Finding oil

New Zealand had traditionally been seen by oil-exploration companies as gas country. A major change in attitude occurred in 1979 when Petrocorp, a government-owned exploration company, discovered the onshore McKee oilfield. Although relatively small, it had an enormous effect in demonstrating that oil could be found in the New Zealand region. The offshore Maari and Tui discoveries, made in 1998 and 2003, are predominantly oil.

By January 2005, a total of some 6,258 bcf (billion cubic feet) of gas and 444 million barrels of oil had been discovered in New Zealand. In addition, some 238 bcf of gas and 27 million barrels of oil were found in fields that were still undergoing appraisal. Almost all of it has been found in the Taranaki basin.

Burnt out

The Māui field was among the largest gas fields in the world when found in 1969. It dominates discoveries, having original reserves of 3,439 bcf (billion cubic feet) of gas and 219 million barrels of oil. At 1 January 2005, the field’s oil reserves were estimated to be 92% depleted, and gas reserves were 91% depleted. However, in 2012 new drilling techniques accessing pockets of 'bypass' gass promised to extend the field's life by up to 10 years.

Taranaki basin

The Taranaki basin covers an area of about 100,000 square kilometres on the west coast of the North Island. Most of the basin, including the Māui field, is offshore. Although much smaller, the majority of producing fields are onshore, largely because it is cheaper to explore and drill there.

In Taranaki more than 350 onshore and offshore wells have been drilled since the mid-1950s, when modern exploration started. Of these, only 120 were wildcats (drill holes testing new exploration targets).

The near depletion of the Kāpuni and Māui gas fields has given added impetus to ongoing exploration and development of new fields.

Discoveries from 1980 to the early 2000s

Some small onshore and offshore fields were discovered in the 1990s and early 2000s in Taranaki. Pohokura, discovered in 2000 off the north Taranaki coast, is by far the largest and will be New Zealand’s second offshore oil and gas field to be developed. The Pohokura platform will be the third to be installed (after Māui A in 1979 and Māui B in 1992). The drilling of production wells from the Pohokura platform was scheduled for 2006.

Since 1980 discoveries include the Maari (1983, oil), Tui (2003, oil), and Karewa (2003, gas) fields. The offshore Kupe field (1986, gas) is expected to start producing in 2008. Onshore finds include the Goldie (2001, oil), Surrey (2002, oil and gas), and Kahili (2002, gas–condensate) fields. Many of these fields are still under appraisal, but all are small.

There was considerable exploration activity during 2004 when 32 wells were drilled. Of these, 17 were being appraised or developing known reserves. Of the 15 exploration wells, two discovered petroleum. During 2004 and 2005, there were large-scale seismic surveys carried out on- and offshore.

Other basins

The rest of New Zealand is underexplored. Most sedimentary basins have potential, and many untested structural traps could be larger than the giant Māui field. A substantial find is most likely to occur in an offshore basin such as the Great South Basin. Although exploration work, especially offshore, is very expensive, rising oil prices may make more drilling economic.

In the mid-2000s, the government was keen to encourage exploration in other basins, such as the East Coast and Canterbury. It encouraged oil companies by lowering royalties on petroleum finds and providing free seismic data.

Acknowledgements to Richard Cook (GNS Science)


External links and sources

More suggestions and sources


How to cite this page: Roger Gregg and Carl Walrond, 'Oil and gas', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/oil-and-gas/print (accessed 22 November 2019)

Story by Roger Gregg and Carl Walrond, published 12 Jun 2006