NGC, which is a likely bidder for Pohokura gas, said in its submission to the Commerce Commission that gas supply will be limited from 2005-15. It said that if Pohokura gas is sold jointly - as requested by Shell NZ, Todd Energy and Preussag Energie/OMV Petroleum - there will be at most two to three potential major gas suppliers.
It notes that Todd Energy, which holds a 16.14% stake in Pohokura, also owns all of the smaller onshore Mangahewa and McKee fields. NGC says if Todd can determine a price for Pohokura gas under the joint marketing arrangements, it will be able to sell its Mangahewa and McKee gas knowing the price of its "competitor" Pohokura gas.
This will make it easy for Todd to co-ordinate pricing across the main gas sources, leading to shrinking competition and higher prices at the wellhead.
NGC has suggested a “middle ground”, with the marketing of Pohokura gas being controlled by one partner, for example OMV. This will reduce the number of potential sellers but ensure the sale of gas from Pohokura and other Todd-controlled fields is not co-ordinated.
NGC says Kapuni gas is marketed separately, which proves such a thing can be done. (However, separate selling by owners Shell and Todd was only allowed after High Court action aimed at breaking Fletcher Challenge Energy’s then stranglehold on marketing Kapuni gas.)
NGC says it “strongly supports the early development of the Pohokura and other gas fields” to ensure a diverse and reliable gas supply with Maui dwindling.
However, it says gas price rises should be a result of market conditions and normal competitive processes, so it is necessary to ensure there are robust arrangements in place that allow the effective development of the gas sector.
Meanwhile, gas distributor and retailer Nova Gas, majority-owned by Todd Energy, says separate marketing could delay development of the Pohokura field and might increase gas prices because of the risk of gas shortages.
Nova says all Pohokura gas is likely to be bought by electricity generators regardless of any joint or separate selling arrangements. Retailers buying gas from electricity generators would mean higher prices and reduced competition.
Another likely buyer of Pohokura gas, Genesis Power, says it doesn’t oppose joint marketing, though it says it is worried Shell, Todd and Preussag/OMV might possess controlling interests or total ownership in most non-contracted gas reserves. It has urged the commission to put safeguards in place to ensure Pohokura gas is made available to more than one party, given that the Pohokura partners will control “the gateway” to a scarce resource.
The Major Electricity Users Group (MEUG) says the future gas market needs to be split between the near term (to December 2004) “transition phase” and the longer term: MEUG agrees with the Pohokura partners’ case that new market structures would bring detrimental delays and high transaction costs.
However, it has warned the market power of the joint venture will be high and their ability to dictate timing and quantities of Pohokura gas to be released to the market would create public detriments.
Finally, Indo-Pacific Energy said it is obvious the Pohokura joint venture should be able to jointly market the gas and co-operate to bring the project to fruition.
“If the commission needs more information “on the blood-on-the-walls style of meetings in this industry, which ensure that no-one gets away with anything, let me know and I'll try to think of where to start,” said corporate affairs manager Jenni Lean.
Shell, Todd and Preussag Energie (which OMV is buying) say, in their application to the commission, that production from the Pohokura field could start as early as late 2004, but would be delayed by at least three years if the commission refuses their joint selling proposal.
The commission expects to deliver its draft ruling on the joint selling request by May 1.
