Oil – a crude economic driver.

Reports Finn Jackson:

In recent months, the oil price slump has been well documented, written about, discussed, and by some has been seen as the foreshadowing of a major global economic crash.

The slump has partially come around due to previously high oil prices, which drove down the demand for oil. As well as this, the return to production for countries such as Libya, and a sudden boom in oil production has lead to the market being swamped in a tide of cheap oil. In the first few weeks of 2015, oil prices have regularly dipped below $50 USD per barrel, down from the height of $115 USD PB last year.

China is no longer buying the oil they used to. They are in downturn, and no longer need the oil they used to to get things done. America meanwhile, thanks to fracking, is now poised to become a major oil exporter, whereas before they were a major importer. Fracking has therefore helped fuel the crisis, and has launched a game of economic hardball from which only the very strongest will survive.

The effects of this slump on the economies of Russia (who were depending on high oil prices to keep themselves afloat through sanctions over the Ukraine crisis, and who’s economy is, not mincing words, the equivalent of a donkey that doesn’t know that it’s dead yet), Venezuela (who depends oil for 95% of its revenue), and Saudi Arabia (who have recently decided to withdraw most of their production and are depending on their $750 billion USD savings fund to keep themselves afloat until the prices improve), and to a lesser extent Canada (those bloody oil sands), Mexico, and Iran. All the existing markets, basically. But what of all the potential markets, who were opening up large block offers for oil companies recently? What of, for example, the country who many economists were calling the potential “Saudi Arabia of the South Pacific”? What of “Clean and green” New Zealand?

Block Offer 2015 consists of seven blocks altogether, three onshore and four offshore. These are:

15NRN-R1: Offshore Northland-Reinga-New Caledonia basins.
15TAR-R1: Offshore Taranaki basin.
15TAR-R2: Onshore Taranaki basin.
15PEG-R1: Offshore Pegasus and Offshore East Coast basins.
15WEC-R1: Onshore West Coast basin.
15WEC-R2: Onshore West Coast basin.
15GSC-R1: Offshore Great-South and Canterbury basins.

(You can view their exact locations on the graphic below, sourced from www.nzpam.govt.nz, New Zealand Petroleum and Minerals).

Altogether, the Block Offer consists of 476,00 square kilometers, the biggest block being 187,851.8 square kilometers (Offshore Northland-Reinga-New Caledonia basins), and the smallest being 1,290.1 square kilometers (Onshore Taranaki basin). But with the oil prices so low, and thus the profit margin having shrunk since the Block Offer was made, is there really any economic sense in selling off these huge chunks of land to overseas companies? If we must sell them, wouldn’t it make much more sense to wait until oil prices begin recovering, rather than going all for it now, when oil prices are at something like a six-year low? Because if we do sell them off now, it’s the same risk for less profit. Is that a sensible choice for a pro-market government to make? If anything, the release of a new “Saudi Arabia” into the market would worsen the crisis. The current figures show that the world is beginning to move beyond oil, into sustainable alternatives, which don’t threaten the future of our cities, countries and even our species. If National insists that they’re a sensible, pro-market economy party, why are they investing in a resource that a) isn’t actually making very much money at the moment, b) will run out eventually, and c) threatens the future of our country? If their idea of a strong economy depends on Oil and Dairy, which have both suffered major tumbles in the last year, ado they really have the credentials to run a smooth, strong economy?


One thought on “Oil – a crude economic driver.

  1. One the Saudis control the price of oil.2 the Russia economy is not a dead donkey! they have plenty of foreign reserves to see them through this manufactured crisis created by the connivince of Nato and U S policy makers.Just as an aside mh17 was shot down by Ukarinian fighter jets 3 drilling for oil of the coast of N Z is economic suidice.We take all the risk as a country with none of the benefits.4 this govt. is the most incompentent and cooupt we .have had.The deflation been caused by the oil price fall will lead to the next crash.Only a major crisis might get Kiwis to rethink what is competent economic policy.Remember assessing economic policy our govts of the past 30 years have been taken their orders from America.

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