3Redefining the O&G IndustryGlobal economic growth can only besustained by energy.Oil currently accounts for 35 percent of global primaryenergy, ahead of coal at 29 percent and natural gas at24 percent, (in aggregate accounting for 88 percent ofprimary energy consumption). Per capita primary energyconsumption globally, which reached a plateau followingthe 1970’s oil crisis, has surged during the last decadedriven by rising demand from emerging economies suchas China and India.Despite shifts and aspirations towards greater use ofrenewable energy sources, in 2050 more people andincreased wealth will raise overall energy demands,with much of this increase stemming from developingcountries, and continuing (if not increasing) overallglobal requirements for oil and gas.World energy consumption - million tonnes oil equivalent (TOE) (pa)World Consumption - million toePer Capita Consumption - toe120001.8100001.680001.460001.240001.020000.8019651970 1975 1980 1985 1990 1995 2000 20050.6Source: BP statistical Review, RockpointCHANGING ENERGY MIXMillion barrels oil equivalent per dayRISING GLOBAL ENERGY DEMAND100 = global primary energy demand 2000400300300200200highhighlowlow1001000Coal2000Gas2025*Large Scale Hydro02000 2025* 2050*OilNuclearAlternative Energy* Shell estimates Source: Royal Dutch Shell12<strong>The</strong> <strong>Wealth</strong> <strong>Beneath</strong> <strong>Our</strong> <strong>Feet</strong>
While the public at large is familiar with the downstreamO&G industry from direct experience at the petrolpump and in the home, the upstream O&G industry andmidstream activity is largely unknown*.Higher profile O&G activities periodically appear in themedia, such as the arrival of an offshore drilling rig or thecommissioning of a new field or a negative impact such asthe Gulf Coast oil spill. However, the day-to-day activitiesand economic benefits of exploration, production andprocessing of oil and gas products are more remote andconsequently not broadly acknowledged. Even within<strong>Taranaki</strong>, the physical presence and cultural significanceof the dairy industry gives it a far greater profile than theO&G industry.When economically significantsectors hold little attention in thewider public conscious, this can leadto shortcomings in policy formulationand official data provision. This isthe case with the O&G industry,and is further exacerbated by theglobal nature of the industry, thecomplexity of the technologiesemployed, the project nature of majordevelopments, and the intricatesupply chain requirements to supportlong-term O&G resources.New Zealand benefits directly from the export ofdomestic crude oil and gas (as methanol), and viathe Government’s receipt of petroleum royalties andcorporate tax levied on the industry. A gap does existin the statistical definition of the O&G industry. Officialdefinitions capture only those companies that definethemselves as ‘oil and gas extraction’, ‘petroleumexploration’ or ‘petroleum exploration services’. Suchnarrow measurements exclude by far the larger part ofthe industry, being all suppliers to the O&G companiessuch as engineering and equipment suppliers,fabricators, service companies and consultants thatexclusively, or at least largely, operate within thesector. Similarly, the role the industry plays in enablingmidstream activity, energy supply and security,infrastructure development, and business capability aregenerally not considered. As this study demonstrates,conventional economic multiplier analysis also presentschallenges in capturing this wider economic benefit.While it is apparent that the Government understandsthe importance of and is actively fostering the explorationand production (upstream) portion of the O&G industryin New Zealand, this <strong>report</strong> seeks to better describe theimportance of the wider O&G industry to New Zealandbut also to <strong>Taranaki</strong>.<strong>The</strong> O&G Value Chain<strong>The</strong> O&G industry can be viewed as a <strong>full</strong>y global industry,and comprising three sequential components - Upstream,Midstream and Downstream.Upsteam (E&P) Midstream Downstream••Exploration••Appraisal••Development••Production••Pre-processing••Processing••Storage••Refining*••Petrochemicals*••Transportation(pipelines, ships,trucks)••Marketing••Distribution••Storage••Retailing••Trading*Refining and petrochemical can be associated with downstream activities, however for the purposes of this <strong>report</strong> they are defined as midstream.<strong>The</strong> <strong>Wealth</strong> <strong>Beneath</strong> <strong>Our</strong> <strong>Feet</strong>13
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