Need New Zealand fear a new oil shock? Richard Kennaway discusses the prospects of a new oil crisis and the implications for New Zealand.

• Author: Kennaway, Richard

It is now just on 30 years since the first oil shock of 1973. That shock came at a time when New Zealand was particularly vulnerable to its effects. It had a huge impact on New Zealand's energy policies and on the economy generally especially in the period from 1975-79. It also had a major continuing impact on New Zealand's external relations and foreign policy.

For various reasons including changes in both the domestic environment and in the international environment, much of this impact was lost in the 1980s and 1990s. In particular many of the changes in energy policies were reversed, while the impacts on foreign policy and on the economy were in some respect longer lasting. Towards the end of the 1990s, however, and now into the new century, there are some indications that the conditions that led to the oil crises of the 1970s are starting to be recreated.

In the last quarter of 1973 the members of OAPEC (Organisation of Arab Petroleum Exporting Countries) took the decision in the context of the Yom Kippur War to quadruple the price of oil from $US3 to nearly $US12 a barrel. They also decided to curtail supply by 5 per cent a month until there was some significant progress in their dispute with Israel. In 1979 the price reached nearly $US30 or $70 a barrel in 1998 US dollar terms.

The implications for New Zealand came at a time when the country was particularly vulnerable. New Zealand energy consumption had been growing very fast over several decades and primary energy availability overall had more than tripled in 30 years from 109 PJ in 1944 to 332 PJ in 1974. There was a strong expectation that this rapid growth would continue into an indefinite future. Indeed, the electricity planners were expecting that there would be a further quadrupling in electricity production by the end of the century. At the same time there had been a major shift in the relative share of energy sources from 1944, when coal accounted for 66 per cent of primary energy availability, to the situation by 1974 when the share of coal had dropped to just 18 per cent, oil had increased sharply to 61 per cent plus another 4 per cent for natural gas, and hydro-electricity and other renewables had also increased from 10 to 21 per cent. (1)

This shift in energy sources had meant a huge fall in energy self-sufficiency. In 1944 New Zealand was 73 per cent self-sufficient in primary energy availability, with just 27 per cent being accounted for by imported oil and no local oil or gas production. By 1974 self-sufficiency had fallen to 42 per cent with imported oil accounting for 58 per cent. (2) It is true that these self-sufficiency ratios could have been expected in any case to rise since the Maui gas field (also with some oil condensate) had been discovered in 1968, and the `take or pay' agreement had been signed by Bob Tizard on behalf of the Labour government just a few months before the onset of the 1973 oil crisis.

Huge implications

The first oil shock of 1973 had huge implications for New Zealand's domestic policy and economy and also for foreign policy, and many of these implications were compounded by the second oil shock of 1978-79.

The implications for domestic policy, and for energy policy in particular, were in some cases relatively short-lived. With benefit of hindsight it is somewhat ironic that they reached their peak in a period of Muldoon-led National government and were associated in particular with the tenure of George Gair as Minister of Energy (until he was replaced by Bill Birch in 1978). Among the most significant changes in energy policy was a noticeable increase in concern for resource and environmental sustainability and conservation, exemplified by the introduction of car-less days and government loans for solar water heating. There was also an increased emphasis on planning for the energy sector as a whole. As we shall see, many of these changes turned out to be relatively short lived.

The impact on the New Zealand economy overall and also on its foreign policy and external relations, however, were in many ways longer lasting. The main overall impact on the economy was on the balance of payments, which changed from a surplus in the early 1970s to a substantial deficit later in the decade. The crisis thus inaugurated the long process of external borrowing and growing foreign debts that hampered the New Zealand economy so greatly for much of the 1980s and 1990s.

Major impact

As regards external relations, one major impact of the crises was a widening in the ambit of foreign policy. Traditionally the main emphasis had been on defence and security relations, and economic and environmental aspects...