The offshore area available for exploration in New Zealand had shrunk by more than 80% since 2018, Petroleum Exploration and Production Association of New Zealand (Pepanz) chief executive John Carnegie said.
"It raises questions about New Zealand’s long-term energy security, given the absence of affordable, realistic alternatives to natural gas to power our industry and keep electricity prices down," he said.
"Nationally, we need a balanced and affordable energy system and we think that natural gas has a vital role to play."
Complex commercial and regulatory factors in oil and gas exploration meant the chances of developing the Toroa block in the Great South Basin were increasingly unlikely, Mr Carnegie said.
"Let’s be frank — it probably is not looking optimistic."
The response to Covid-19, the cost of bringing a rig to New Zealand and the regulatory environment were all factors, he said.
Drilling usually occurred in more than one location, as a means of sharing the cost.
"This can’t happen now, given Toroa is the last permit in the area," Mr Carnegie said.
Regionally, it was sad for Otago and Southland, because the economic benefits could have been immense, he said.
"It’s important that we never say never."
He said the industry would know "fairly soon" what was going to happen to Toroa.
A Climate Change Commission initial report to the Government had highlighted the important role of natural gas in the electricity system out to 2050, Mr Carnegie said.
"By the same token, the commission highlighted what you could only describe as a near farcical scenario, where we could end up importing gas in the form of lng from Australia instead of developing our own resources, and enjoying the jobs and royalties that that would create."
Pepanz members were continuing to invest in existing assets to ensure supply in the short and medium term.
"But beyond that, we actually need exploration," he said.
"Importantly, we need the right conditions to encourage that investment."
Mr Carnegie said it was ironic to be discussing "permanent sterilisation" of potential resource — because permits handed back were never to be returned under the current regulatory regime — in the same week Genesis Energy announced that Huntly power station would bring its third coal-fired electricity unit out of storage, due in part to help address looming shortages in the gas market.
