In a fuels update presentation released to the NZX yesterday, the country’s largest listed energy company said it needed to purchase about 50 petajoules of gas a year to support its existing generation and retail business.
The development of the long-planned Otahuhu-C combined cycle gas-fired station in Auckland would require an additional 10-20PJ of gas a year.
However, Contact estimated it would have access to 50PJ or more of gas a year, including that from the nearly completed Pohokura project off north Taranaki, only until 2009-2010.
This included its entitlements to the remaining contracted Maui gas and the option Contact has to at least 120PJ of additional gas under the Right of First Refusal (ROFR) arrangements contained within the revised Maui gas contracting arrangements of 2004.
In March, retiring chief executive David Hunt said Contact’s ability to effectively use Maui ROFR gas would depend on the profile under which it would be delivered and the terms of supply. It would not address the longer-term challenges Contact faced.
Contact yesterday said the existing Maui contracts provided enough flexibility to allow the company to offset rising fixed costs until 2009, though that would change when it had to find new supply contracts.
“The increased cost and decreasing flexibility in new gas contracts remains a challenge.”
The company could adjust its operating and trading strategies to lessen the cost of lost flexibility, such as operating its more efficient combined cycle gas stations (the 380MW Otahuhu B and 367MW Taranaki Combined Cycle plants) at a higher capacity.
Limited quantities of gas would continue to adversely affect the operation of its aging single-cycle 450MW New Plymouth station.
“Contact’s Maui legacy entitlements have provided flexibility for no additional cost to the unit price of gas … (continued) flexibility is key to Contact’s ability to maintain and grow its thermal generation portfolio.
“The most important strategic issue facing Contact is the need to secure a reasonably priced and flexible gas supply.”
Contact, which is proposing to merge with its Australian parent company Origin Energy, is investigating the feasibility of liquefied natural gas importation with New Zealand’s other large gas user, government-owned Genesis Energy. A decision is expected before the second half of the year.
