The decisions central to what would be later be called 'Think Big' were made as a result of a period of intense activity by the Liquid Fuels Trust Board. The Board's brief was straightforward; show how to reduce imports of transport fuels. And it had a major gas resource available to it as a feedstock.
The Programme Management Group (PMG), the Board's technical staff led by Dr Basil Walker, started work in August 1978. At that stage, following on from the previous findings of the inter-departmental committee, the proposal to substitute 15 percent of petrol with methanol (methanol blending) was given most attention. Up to three years work was projected. The first contract, on the cost of methanol production, was let.
When the Board itself began to meet, the Chairman, Dr Colin Maiden, and some of its members could see that blending could make only a small contribution towards increased liquid fuels self-sufficiency, and pressed for an investigation into synthetic petrol.
A Minister Imbued with the Need for Action
Not the least of the influences on the Board was an able first-time Minister who had assumed the Energy portfolio in late 1978, William F Birch; a man imbued with the need for action. The gas projects were viewed as an opportunity to bring life to an ailing economy.
Acting in concert with the Minister to give urgency to the investigations was the oil market. Towards the end of 1978, OPEC (the Organisation of Petroleum Exporting Countries) announced a further 14.5 percent rise in the term contract price of oil. Then a political revolution occurred in Iran, its oil industry was paralysed and 5.7 million barrels per day of production were withdrawn from world supply. The multi-national oil companies declared force-majeure, and it appeared likely that New Zealand would suffer a shortfall of 18 percent in its crude oil needs.
A Gasoline Crisis
Weekend sales of gasoline were banned and, on 30 July 1979, carless days were introduced. OPEC raised its prices again in July and New Zealand was paying $19 a barrel, compared with $12 at the beginning of the year. These increases in oil price contributed substantially to the continuing worsening of the country's terms of trade. The cost of oil was the major component of the balance of payments deficit.
The Board let contracts to three major petrochemical consulting firms, Lurgi of West Germany, and Badger and Ralph M Parsons of the USA, to advise on the production of synthetic transport fuels from natural gas. Essentially two choices were available, the Fischer Tropsch process used commercially with a coal feedstock at SASOL in South Africa and the yet untried Mobil process in which the gas was made into methanol which then was converted to gasoline by the breakthrough zeolite catalyst ZSM-5.
Investigations were set in train into a whole range of possible gas uses and at the Board meetings the table was weighed down with project briefs, proposals, progress reports and comment from the technical staff. This productivity was in large part due to the enormous work capacity of the technical director.
Supply System Modelling
Aided by the Boston consulting group, A D Little, who had been appointed general advisor to the Board, the Applied Maths Division of the D.S.I.R. constructed a linear programming model of the New Zealand transport fuels supply system, including the Whangarei oil refinery.
An early finding of this modelling work was that, if the refinery were expanded as was proposed with a catalytic cracker, the viability of some of the options for increasing transport fuels self-sufficiency would be prejudiced. (Expansion of the refinery at Marsden Point near Whangarei had been under discussion for a number of years. Without adequate refining capacity, imports of refined product were needed as well as crude oil in order to meet the total demand.)
The Opportunity Value of the Gas
A substantial background study was carried out which looked at the various possible uses of the gas and the value (opportunity cost) which could be placed on the gas in each use. Apart from methanol blending (M15), other options were compressed natural gas (CNG), liquefied petroleum gas (LPG), methanol as a base fuel, the Fischer Tropsch and Mobil synthetic fuel processes, and export of the gas in a liquefied form (LNG).
Compressed Natural Gas
Among the findings was that the gas had a high value when used for CNG, thus supporting the Government introduction of incentives for CNG conversions announced in the 1979 Budget. (The CNG programme arose from work sponsored by the New Zealand Energy Research and Development Committee (NZERDC) also chaired by Dr Maiden, which had been set up following the first oil crisis in 1973.)
Methanol blending continued to get attention with a visit being made by Board and PMG members to major motor vehicle manufacturers in the United States, Europe and Japan to gain information and assess interest. The smallness of the New Zealand market in relation to their total production made manufacturers reluctant to give special attention to the problems of running vehicles on methanol blends, despite the seriousness of the world oil situation. Use of methanol as a base fuel was being explored but was clearly a long way in the future, as significant engine modifications were necessary.
Mr Birch, the Minister of Energy, had managed to get the Board to agree that it would make its recommendations by 31 August 1979. Armed with a weighty 400 pages of status reports, it held three meetings during the month. As well as covering the economics and practicalities of the major gas use possibilities, these reports dealt with the technical details of gas availability, forecasts of liquid fuels demands, forecasts of oil prices, and interactions with the refinery based on the modeling work.
Out of the deliberations came the Board's first report to the Minister recommending an allocation of Maui gas. A conservative approach was taken to the rate of depletion, it being proposed that it should be kept at the level of the cumulative take-or-pay quantities in the Maui agreement.
This would leave half the gas remaining in the ground in the year 2000. A synthetic fuels project to take between one quarter and one third of the gas was proposed as a contribution to self-sufficiency. Whether this was to be Fischer Tropsch or Mobil was not specified at this stage as a full analysis had not been done of the studies by Lurgi, Badger, and Parsons.
No recommendation was made on methanol blending but the Board advised that the refinery expansion should not be specifically designed to accommodate blending. It should however be smaller than planned and based on a hydrocracker to take account of the synthetic fuel proposal. It should also take account of the gasoline substitution created by the conversion of 12,000 vehicles to CNG and LPG by 1985.
Gas should be allocated to a methanol plant designed to achieve economies of scale, i.e. of a size up to 2500 tonnes/day. The principal function of this plant would be to produce export methanol but in the medium to longer term it was envisaged that the methanol could be used locally.
Finally it was recommended that the ethane and heavier constitutions of the gas stream - the gas liquids - be reserved for the extraction of LPG, and as the basis of a possible plastics industry.
Commercial interest had been aroused by the Board's activities and during the year the Government received proposals from oil companies and others, including its own company, Petrocorp, to variously build plants for methanol, Mobil gasoline, synthetic gasoline and diesel by the Fischer-Tropsch route and liquefied natural gas.
Liquefied Natural Gas
Only this last possibility was not acknowledged by the Board's recommendations. This was despite the fact that it apparently was a more profitable use of the gas than other options. Various factors weighed against LNG in the minds of Board members. It was most economic as a large project exporting a large proportion of the field contents. As such it would not make any contribution to self-sufficiency in transport fuels, though its returns could have made the country better able to afford imported oil. A major factor against it was the environmental opposition it was likely to arouse because of the enormous consequences of an LNG explosion, however remote the chances of this might be.
A choice had still to be made on the method of synthetic fuel production. The Board heard from representatives from the consulting firms it had contracted to advise it, from SASOL and from Mobil, which had now put in its own proposal.
Further results were obtained from the modelling work looking at interactions with the refinery and the conclusion was reached that the Mobil process should be preferred. It made better use of the natural gas feedstock, producing a greater volume of liquids than the Fischer-Tropsch processes. Even taking into account the need to balance production by variation of the refinery output to meet the New Zealand demands of diesel as well as gasoline, at the size recommended by the Board it was more economic than Fischer-Tropsch even though the latter process itself could produce both diesel and gasoline. The Board's consultants had expressed confidence that the Mobil process could be scaled up from the bench scale and Mobil had reinforced this by proposing to construct a commercial plant.
With the subsequent Government decision to accept the Board's recommendations, New Zealand became a pioneer in the production of synthetic fuels through its use of the remarkable shape-selective zeolite catalyst (ZSM-5) which transforms methanol into the hydrocarbons which constitute high octane gasoline.
The Core of "Think Big"
The construction of the Mobil gasoline plant at Motunui, the complementary expansion of the oil refinery at Whangarei and the building of a stand-alone plant to produce methanol for export formed the core of the National Government's 'Think Big' policy. Together they had a capital cost in excess of three billion dollars.
Today the manufacture of gasoline has been abandoned but the Motunui plant together with the nearby stand-alone plant at Waitara continues to produce export methanol . The combined production capacity is 2,430,000 tonnes per year.
Several other projects, including the New Zealand Steel expansion, the Electrification of the North Island Main Trunk Railway and a third potline at the Bluff aluminium smelter, were also given the go-ahead for construction in the early 1980s.
Did New Zealand Benefit?
The "Think Big" implementation decisions were made by the Muldoon National administration which, somewhat to its own surprise, regained power in the 1981 general election. "Think Big"'s high profile distracted from the realisation that fundamental changes were needed in the New Zealand economy. Subsequently the significant state involvement in the projects was removed by their sale by the nominally Labour Government which succeeded it.
No definitive study appears to be available as to whether there was a positive economic benefit to New Zealand from Think Big or whether it simply raised the country's debt levels. Undoubtedly economic activity was sustained during the construction period but the basic justification for the projects, a permanently higher oil price, did not eventutate. Oil prices subsequently dropped in real terms.
Some benefits were captured by construction workers, particularly on the Motunui and NZ Steel projects. Their actions escalated costs and construction timetables.