“It’s a difficult balancing act and a complex mix of priorities,” Ministry of Economic Development deputy secretary (energy and networks division) David Smol told the third annual Gas Industry Reform Conference in Wellington.
The government said more gas discoveries were needed as natural gas was the best of the fossil fuels and would form part of New Zealand’s sustainable energy future, while imported LNG would be less economic than domestic gas.
There would a gas supply shortfall from about 2010-17, even with the likely departure of methanol manufacturer Methanex and the Genesis Energy Huntly dual-fired power station running on coal, not gas, said Smol.
But Todd Energy chief executive Richard Tweedie told delegates there was no gas supply-demand crisis and that existing 2P (P50) reserves, of 2400 petajoules, were sufficient until 2021, even with 32PJ per year of additional gas-fired electricity generation.
There was also 1000PJ of upside potential from existing fields to meet demand until at least 2030, according to Tweedie.
Despite recent Crown Minerals moves to attract more players and increase exploration activity for gas, New Zealand largely remained a negative exploration destination, he argued.
Prospectivity was perceived to be poor; there was the tyranny of distance from major energy centres and the associated extra costs; a small gas market and unfavourable consenting, regulatory and fiscal environments.
“You don’t easily go into this business, there are high failure rates and the odds of success are worse than winning Lotto,” he said.
Other speakers agreed more needed to do be done to boost exploration, not just for gas but also for oil.
Mighty River Power gas development manager John Bay suggested the government scrap the Ad Valorem Royalty (AVR) rate and rely on the Accounting Profits Royalty (APR) for all oil and gas fields. This would lengthen the economic life of existing fields and aid the development of new ones, he argued.
“Just to replace Maui would take 150 or so wells drilled which, at the present rate of exploration, will take about 15 years. That’s way too little, too late,” Bay said.
New Zealand Oil & Gas chief executive Gordon Ward said gas usage had declined by 38% since Maui’s peak production of 2001. The immediate impact of this decline would be the demise of the NZ$1 billion methanol export business, he said.
Longer term impacts would be a lot of expensive oil, coal and LNG imports, according to Ward.
Energy self-sufficiency had dropped from above 50% to below 18% and, with oil prices over US$60 per barrel this would have a very detrimental affect, probably NZ$4 billion this year, on foreign exchange earnings - “the last thing an already sick looking national account deficit needs”.
More than 100 delegates and speakers are attending the third annual gas industry reform conference hosted by event organiser Conferenz.
