Earlier this month, Todd Energy claimed problems in getting open access to the Maui pipeline could delay developments of the major offshore Pohokura gas field and the smaller onshore Rimu-Kauri fields and associated prospects.
Todd Energy managing director Richard Tweedie also said pipeline owner Natural Gas Corporation was making excessive profits from its high-pressure North Island reticulation network. “They are creaming it.”
NGC was trying to force gas companies to use its pipelines north of Taranaki to the main Auckland market “at ridiculous pricing”, Tweedie said;
He also accused the government and some of the three gas wholesalers -- Methanex, Contact Energy and NGC -- of “playing games” regarding third party access to the Maui pipeline, which runs from Oaonui in Taranaki to Rotowaro in the Waikato and is the country’s largest capacity pipeline.
He declined to elaborate, but said fair and open third-party access was vital to the development of the $750 million offshore Pohokura gas field and, to a lesser extent, the onshore Rimu-Kauri oil fields and associated prospects.
Tweedie said the pipeline industry needed serious restructuring.
However, today NGC elaborated on its initial response, which was that there were no barriers to entry into the transmission market and that anyone could build a pipeline network.
NGC communications manager Keith FitzPatrick denied that NGC earned unacceptably high profits from its gas transmission. “This is evident in publicly available information, particularly disclosures under the Gas (Information Disclosure) Regulations1997.”
The Ministry of Economic Development had indicated a range of 7.5-10% in the accounting rate of profit was appropriate for electricity distribution companies, a comparable business to gas transmission.
NGC’s accounting rate of profit in the last five years had ranged from 6.5-8.4% and last year was 7.2%.
Over the same period, NGC’s revenue from gas transported had declined from $1.16 to $0.71 per gigajoule . “This trend achieves exactly what the current regulatory regime is designed to do,” FitzPatrick said.
NCG chief executive Phil James had earlier said NGC had to be as efficient and competitive as anyone else and that big companies, with financial scale, were able to achieve synergies in the marketplace.
Tweedie said the light-handed approach had failed and that the continual threat of regulation was not sustainable when building a long-term regulatory regime.
The solution was government intervention to prevent monopolist carriers making as much profit as possible.
However, FitzPatrick said the gas industry had successfully managed a transition from a protected world of exclusive franchise supply areas, bundled utility supply contracts and heavy handed regulation, to one of retail competition, open access (on NGC’s pipelines at least) and light handed regulation.
NGC had facilitated much of this change, through the development of access terms and conditions, and competitive pricing methodologies. suited to a competitive market.
Pipeline owners were disciplined by the threat of bypass (rendering assets redundant), the risk of regulatory or legal intervention and the need to preserve commercial confidentiality.
NGC was the only gas transmission company providing non-discriminatory open access to its pipelines and the only transmission signatory to the industry’s Access Code, which set the framework and principles for pipeline access.
NGC argued better governance arrangements - agreed rules and systems among rivals in the gas business _ was better than government regulation, added FitzPatrick.
Contact Energy is arguing for the establishment of a wholesale gas market that will allow customers to buy gas from the smaller fields that will replace the dwindling Maui field.
“A whole lot of things that worked well in the past and work very well at the moment won't work in the future," said Contact corporate affairs general manager David Hunt recently, referring to the post-Maui gas market.
The government’s gas review team is investigating what it sees are the best interests of a robust and flexible industry. The review panel is due to report back to Energy Minister Pete Hodgson next month or in June.
