Natural gas offers a pathway to a sustainable lower carbon future, writes Frank Duffield.
Two recent announcements relating to global energy point to how New Zealand can make a serious contribution to the global challenge of climate change.
After years of negotiation, Russia and China have reached agreement on the supply by Russia of $400 billion worth of natural gas.
And last week President Obama introduced tougher policies to limit the use of coal in United States power generation.
These developments are significant for New Zealand, and especially for Otago and Southland, given their energy development potential.
Here is why.
China is our main export market.
We must pay attention to its economic and social development.
The deal with Russia will secure competitive energy from a new source, and the gas will displace coal in power generation and residential heating.
This is good news.
A recent report of the International Panel on Climate Change (IPCC) highlights that despite decades of effort, CO2 in the atmosphere continues to increase.
Coal-burning is a factor.
Coal is the biggest source of emissions in the energy sector and its consumption continues to grow.
The International Energy Agency predicts that by 2035 it will have increased by 17%.
Urgent action is needed, but switching to current renewable energy technologies is not enough.
They cannot contribute on the scale needed.
They offer only intermittent supply.
Moreover, they are costly, leading to consumer resistance and growing scepticism about climate change and our need or ability to deal with it.
Yet, there is a way forward and President Obama is taking it, encouraged that the US is at last reducing its CO2 emissions.
This is a direct result of the US shale gas boom.
That has enabled gas to replace coal in US power plants, and natural gas produces less than half the CO2 emissions of coal.
This difference is significant. Worldwide consumption of coal is huge.
So just a modest switch to natural gas will lead to a reduction in global CO2 emissions on a scale no other measures can match.
The IPCC report explicitly highlights this potential and the US experience illustrates what is possible.
In 2012, the share of natural gas in US power generation rose from 24% to 30%.
US CO2 emissions fell by 300 million tonnes.
By comparison, global investment in renewable energies in 2012 saved an estimated 250 million tonnes of CO2 emissions.
But that investment came with subsidies of $60 billion.
It is this benefit from natural gas that creates an opportunity for New Zealand.
We have one of the biggest exclusive economic zones in the world, and its resources are largely unexplored.
Some would argue it should stay that way, but that is unrealistic.
If we are to maintain our society and our place in the world, we need to make the most of our resources.
We ought at least to understand what we have, and then we can assess what to do.
Indications are the hydrocarbon reserves could be substantial.
Those in the Great Southern Basin are likely to be largely natural gas.
If confirmed, new technologies will enable economic production in the form of liquefied natural gas (lng).
We then have the possibility to export, which would make a far greater contribution to the reduction of global CO2 levels than any measures we can take at home.
There is a ready market. China is well aware of the challenges it is facing.
Despite massive renewable energy investment, coal consumption and emissions will rise and its latest five-year plan therefore prioritises natural gas use.
India, too, wants more gas.
The Great Southern Basin will be a new, stable source of supply for these markets, worth a premium over more Russian pipeline gas or lng from an unstable Middle East.
Of course natural gas is a hydrocarbon and produces CO2, so it is not a long-term solution.
But it offers a pathway to a sustainable lower carbon future, giving us the time to research viable and affordable energy alternatives.
Research is the second way New Zealand can ''punch above its weight'' on climate change.
We could earmark some of the revenues from natural gas exports to fund a research programme on long-term alternatives to hydrocarbon energy.
This is what Norway is doing with its oil-financed sovereign fund. In several of the most promising technologies, New Zealand already has a world-leading position.
Mighty River Power is taking geothermal expertise to the United States and Asia, and our forestry expertise creates biomass potential.
And solar and wind turbines can play a part, as our windmills run twice as often as the global average.
We are also a leader in smart grid technology.
Of relevance to southern New Zealand's coal resource is the global effort to develop carbon capture from coal-burning.
What better place than Otago and Southland, rich in energy potential, to locate much of the research effort an energy export-based sovereign fund could finance?
• Frank Duffield is an honorary fellow at the University of Auckland Business School's Energy Centre.
