This week's announcement of the government's plans to reopen New Zealand's territorial waters to oil drilling comes as no surprise. All three coalition parties campaigned on reversing the 2018 ban on offshore oil exploration.

But it flies in the face of projections that demand for oil could peak as early as this decade.

Minister for Resources Shane Jones has confirmed the government plans to reverse the ban later this year and seeks to incentivize oil investors by paying them a bond in case their drilling rights are cancelled by future governments.

The government is also considering weakening a law that requires oil and gas permit holders to pay for the decommissioning and clean-up of wells. This law was passed in 2021 in response to taxpayers having to pick up a NZ $400 million bill for decommissioning the Tui oil field after the financial collapse of the oil company.

The government's decisions go against projections by many sources, including the International Energy Agency, that demand for oil will decline soon, as we electrify the global transport fleet. Consequently, investment in oil exploration is projected to decline too.

Peak oil demand

The use of fossil fuels is due to decline this decade, according to several major oil companies. A 2023 report by Shell projects fossil fuel use dropping rapidly in coming decades, while BP thinks oil demand for combustion has already peaked.

Many large organizations think peak oil demand will happen this decade or in the 2030s. This includes the International Energy Agency (IEA), which has predicted demand for oil will peak before 2030.

The Organization of Petroleum Exporting Countries (OPEC) and Exxon Mobil are bullishly stating they see oil growth continuing, albeit at a slower rate, into the 2040s. But at the same time, Exxon Mobil is investing significantly in renewable energy, lithium mining and carbon capture technology.

Even if oil demand peaks later than forecast, the progression from prospecting to exploration and mining can take decades. Projects prospected now may not yield fuel until demand is already in decline.

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