News from New Zealand - 09/24/2015

Everything is getting worse, nothing is getting any better.

Heavy rain, flooding in North Island spark warnings

Stuff,

24 September, 2015

The Moutoa sluice gates and floodway in Horowhenua were opened as river levels rose

Heavy rain has slammed the North Island with flooding cutting off roads, causing slips and swelling rivers.

Police are warning Hawke's Bay and Gisborne drivers to take extreme care on the roads as heavy rain and surface flooding continue to plague the regions, which are subject to severe weather warnings.

A treacherous and disrupted week for motorists using East Coast highways continued on Thursday, with SH2 between Napier to Wairoa the latest section of main road to be closed due to flooding and slips.

SIMON HENDERY/FAIRFAX MEDIA

Stormwater overflow after heavy rains leads to flooding of a carpark at the Eastern Institute of Technology (EIT) in Taradadle, Napier.

The road was closed north of Devil's Elbow and in the vicinity of the Mohaka Viaduct, near Raupunga.

The Hawke's Bay region had been hit by multiple slips and trees down on numerous rural roads and there was also surface flooding in both rural and urban areas, Inspector Dean Clifford of eastern districts police said.

Motorists were urged to delay travel, particularly through rural areas if possible.

MURRAY WILSON/FAIRFAX MEDIA

Waters run through the Moutoa sluice gates on the Manawatu.

"There is a lot of wet, unstable ground that could potentially cause problems and road blockages so drivers need to be very careful," Clifford said.

SH5 between Napier and Taupo reopened on Thursday morning after being closed due to a slip in the Esk Valley near Napier. Police said slips and flooding meant the highway remained reduced to one lane in several areas.

SH2 between Napier and Wairoa remained closed but will open temporarily between 3pm-5pm.  It will then close for the night.

MURRAY WILSON/FAIRFAX MEDIA

The Moutoa sluice gates, flood protection scheme for the Lower Manawatu River, were opened at 11am today after heavy rains.

While heavy rain is expected to continue falling in Hawke's Bay and Gisborne until Friday, Hawke's Bay Regional Council said river levels were expected to recede from Thursday afternoon as the intensity of the rain reduced.

Hawke's Bay Regional Council chief executive and local Civil Defence emergency management group controller Liz Lambert said the region's major rivers were at high levels, but were not threatening to breach flood control banks.

"These sorts of flows mean there will have been water up on berms of most rivers, and possibly shifted any debris that has been laying around waiting for a free ride downstream," she said.

"Care should be taken around all the major rivers and tributaries, and it is likely the worst of the flooding is over, and we shall see the rivers slowly recede during the day."

Gisborne Civil Defence spokeswoman Louise Bennett said the were no further reports of major damage on Thursday morning, but the continued rain was not helping the clean-up.

"There has been overnight rain and the odd heavy shower. There are forecasts of further heavy showers and there is a weather watch in place," she said.

The Gisborne Council would be doing all it could to get out and clean up the damage caused by flooding earlier in the week, she said.

"We will also be trying to reach residents effected by the floods. A lot of people have suffered damage."

The council would be keeping a close eye on river levels and road conditions, Bennett said.

The Hawke's Bay Regional Council said the rain had been steady in Central Hawke's Bay through the night.

In the last 24 hours, rainfall totals ranged from 60mm to 160mm in the region.

Council spokesman Drew Broadley said the Waipawa River and Tukituki River were full but the banks should hold the water.

"The Tukituki River at Shag Rock will likely continue to rise about another 200mm to 300mm. But all rivers are coping well and there are no concerns," he said.

On Monday, Gisborne had 150mm of rain in 24 hours, swelling the Taruheru and Waimata rivers.

The rain has continued to fall, but the regions were coping, emergency response authorities said.

Plunging oil prices could bring exploration industry to its knees

Oil and gas exploration in New Zealand threatens to grind to a halt, as economists warn of a structural fall in prices.

While oil production is at the highest level in four years, the level of exploration is set to plunge on fears the oil price could take years to recover.

Stuff,

23 September, 2015

No offshore exploration drilling rigs are due to enter New Zealand waters in the coming summer, with Statistics New Zealand highlighting a drop in exploration already.

The oil industry claims the fall in drilling comes after a string of major projects came to an end, but acknowledges oil companies are cutting costs.

World oil prices have plunged in recent months, as the Chinese economy cools, reducing its demand for energy imports.

The drop in demand in one of the world's fastest growing economies follows a massive increase in production in the United States, driven largely by improvements in technology making previously uneconomic reserves viable for production. Now the world's largest economy, once a major importer, is producing enough oil to satisfy its own domestic needs.

In June 2014 the price of crude oil was above US$100 a barrel, but has fallen to below US$50 a barrel. Analysts at US investment bank Goldman Sachs warned recently that the price could fall as low as US$20 a barrel.

Westpac economists said this week that low world prices may push some producers out of the market, limiting further sharp falls, but were unlikely to rise far above US$60 a barrel by 2017.

Unlike previous sharp movements in the price of oil which matched economic cycles, the current fall appeared to be structural, Westpac economist David Norman said.

"We just have a new environment where oil and gas are just being produced in different ways and that's meaning that longer term we just can't see prices rocketing up to where they were before," Norman said.

Already employment in the industry is in decline in New Zealand, and further cuts are expected. Norman said the 6950 full time equivalents employed in the industry by March 2014 was up from just over 4000 in 2000, however between 2012 and 2014, employment fell 5.5 per cent.

"With mineral commodity prices continuing to fall since then, we would expect 2015 data, when available, to show an even greater fall."

Although no authoritative figures on the drop in exploration in 2015 have been made public, Statistics New Zealand has pointed to a fall in exploration. Between 2012 and 2014 there were around 30 exploration wells drilled in a calendar year, a number set to drop sharply when figures are published in early 2016.

The drop in exploration comes at a time of unusually high local oil production.

A recent report from the Ministry of Business, Innovation and Employment showed that the amount of crude oil produced in New Zealand was 24.5 petajoules in the three months to June 30, the highest quarterly production since September 2011, driven by improvements to the Tui and Maari fields in Taranaki.

But Norman warned exploration had currently "dried up" so there was "a reduction in the likelihood that we're going to have any new extraction come on stream in the future because we're not actually looking for new reserves".

The oil industry maintains that the recent movement in price is cyclical, as was the recent drop off in exploration.

"We incidentally had come off a period in the collective work programmes [of oil explorers] where you've seen a lot of exploration and drilling because that's the phase they were at. That was coincidence that that happened," said Cameron Madgwick, the chief executive of industry body Pepanz said.

As part of government permit allocations companies had committed to drilling in the 2016/17 summer, Madgwick said, with oil companies having to look through price fluctuations because of the nature of the industry.

"People in this industry have to take a long term view anyway. Even if you made a successful discovery through exploration drilling tomorrow, you're probably 10 years off production by the time you've developed the field."

He admitted though that even aside from the patterns of drilling programmes, the current climate was one which was leading to cost cuts within the industry.

"In the current financial environment, if there are activities that you can defer then that would be the prudent thing to do."

KPMG concerned by banks' exposure to dairy sector as rural debt soars

Stuff,

24 September, 2015

Farm debt is growing at its fastest rate since the global financial crisis, with banks' exposure to dairy labelled "concerning".

On Wednesday morning KPMG released its latest report into the banking sector's performance in the June quarter.

Total lending reached a new record high, with agricultural loans up 7.6 per cent year-on-year, the fastest growth since September 2008.

The debt boom comes at a time when Fonterra's forecast farm gate milk price is just $3.85 per kilo of milk solids, well below break-even.

MetService is also forecasting the most severe El Niño weather pattern in more than 20 years will create a "scorcher" summer.

The New Zealand Institute of Economic Research warned a "material weather event" could knock agricultural GDP, but also said recession was "far from inevitable".

Dairy prices have shown some signs of recovery in recent auctions, but KPMG head of financial services John Kensington said banks' exposure to dairy was concerning.

The increase in rural lending had been driven by farmers either borrowing more or repaying less debt than they otherwise would have, he said.

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Those likely to be worst affected were new dairy farmers who had borrowed heavily to get into the industry.

Kensington said there was a very good chance banks would be forced to increase their provisions for bad debts.

The other factor driving lending growth was a 5.6 per cent increase in home lending, the highest rate in over five years.

Kensington said the heated Auckland market was responsible, with new information emerging every week about hotspots and million dollar suburbs.

"When the music does stop, and prices do come off a little bit, you'll have some people in trouble," he said.

The extent of any fallout would depend on the manner in which house prices eased, he said.

"Does it stop by gradually slowing down, or does it stop with a crash?"

If there was a crash, banks' residential lending growth would stop, Kensington said.

He said those who had bought recently at elevated prices with high leverage could end up underwater.

"I think it's something that must more and more come into people's minds. We can't just keep on going up forever – not at the ridiculous rates we're seeing."

Collective bank profits were little changed from the previous quarter, at $1.26 billion.

Kensington said lending volumes had driven the growth, with margins remaining tight and some bank expenses increasing.

I doubt, in the context of abrupt climate change, that there will be anything 'typical' about this el-Nino

El Nino points to a recession, but there's hope

Stuff,
24 September, 2015

Farmers will be hoping to avoid a repeat of the dry conditions of previous El Ninos, especially those who suffered during last summer's drought.

It is one thing to predict an El Nino, but quite another to forecast the economic consequences on agricultural production of one.

Nevertheless, the New Zealand Institute for Economic Research has given it a go.

Its predictions: the forthcoming El Nino will knock agricultural GDP, but a recession is far from inevitable.

READ MORE:

* El Nino expected to give a rough ride to farmers in spring and summer* El Nino now officially confirmed* Farmers suffer in drought-stricken North Canterbury

Climate scientists have recently forecast this season's El Nino will rank alongside the severe El Ninos of 1972-73, 1982-83 and 1997-98, which all had a negative impact on GDP.

Dr Kirdan Lees of the NZIER says there are reasons for guarded optimism when comparing the impact of previous El Ninos with the one imminent.

For a start, forecasting is much more accurate today than in the past.

"I think we are better prepared and you can see a bit of that happening at the moment. We would never have got this quality of forecasting in 1982-83," Lees said.

As a result of these forecasts, farmers have been changing their practices, for example not carrying so much stock.

Farming is also more efficient, with more production from each animal through improved genetics and management.

Land under irrigation has also increased, 720,000 hectares by 2012. This gives those farmers who benefit from irrigation some resilience, as long as the water does not run out - which it may well do in an El Nino.

"You could get to a tipping point in that irrigation only gets you so far and there's just no more water to use.

"But farmers today are also more likely to be creative in dealing with drought - they can see it coming and use alternative feed practices and shift stock around to reduce exposure to dry conditions," Lees said.

He said there were unknowns which made it difficult to predict, especially how an El Nino might affect particular regions.

Not every El Nino has had the same impact because of other economic "noise". For example, in 1997-98 the Asian crisis added adversity to the very dry year.

Typically, El Nino conditions knock Australia and New Zealand but favour the United States and the euro area, lifting growth in those areas.