GAS

NZ gas shortfall could push up prices next year: Contact

NATURAL gas has powered Contact Energy to a $NZ280.9 million ($A234.7 million) profit for the 200...

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But the availability and pricing of future gas remains a top priority for New Zealand’s largest listed energy company. Chief executive David Baldwin said the end of cheap Maui gas will soon mean more expensive operating costs for Contact’s own gas-fired stations, as well as dearer wholesale and retail gas to its customers.

Baldwin told media and analysts in Wellington this morning that the company’s gas-fired plants – at Otahuhu, Auckland, and New Plymouth and Stratford in Taranaki – had increased generation by 41% to cover a 23% fall in hydro generation caused by the driest year in the South Island in 29 years, coupled with a cold winter.

Total generation was up 10%, to about 11,500 gigawatt hours, and Contact’s average wholesale electricity price was about $93 per GWh, compared with only $49/GWh for the preceding period.

The company’s gas generation assets had helped deliver earnings before net interest, tax, depreciation, amortisation and financial instruments (EBITDAF) of $557 million for the year, up 14% on the preceding period.

But 2006 was probably the last time that the bulk of Contact’s contracted gas would be from relatively cheap and flexible “367” Maui gas – gas covered under the original Maui supply contract.

Baldwin predicted dearer wholesale gas and retail gas, up 50-60% over the next year or so, for Contact customers.

Only 367 gas was priced to include partial transmission costs and its supply had been flexible. Other gas supplies were dearer and less flexible.

Baldwin said Contact’s top three priorities were ensuring adequate gas supplies for existing power stations post-2010, ensuring adequate gas supplies post-2010 for any new plant, and maintaining profit margins.

Contact was already using some market-priced Maui ROFR (right of first refusal) gas and it might use up to 40 petajoules a year in future. Contact is entitled to about 61% of the 200PJ-plus of additional gas the Maui partners – Shell, Todd Energy and OMV – offered to the market in April.

If Contact could secure a good chunk of the second tranche of Pohokura gas, that would help the case for its planned Otahuhu-C combined cycle power station.

While Contact would prefer indigenous gas, the company was still working with gas and power player Genesis in investigating the case for liquefied natural gas imports and it expected to announce a preferred site for importation soon, according to Baldwin.

He did not elaborate on timing or the likelihood of Port Taranaki being chosen ahead of Marsden Point for any import terminal and regasification facilities.

Baldwin said if New Zealand was unable to source sufficient new natural gas, it was likely coal, which produced more than twice the level of carbon dioxide emissions than gas, would be used to meet any future energy shortfalls.

He said the failed Origin-Contact merger had cost Contact about $8.6 million. Origin and Contact called off their controversial planned merger in June, citing a lack of support from key Contact shareholders. Origin, a 51.4% shareholder in Contact, also refused to improve the terms of its offer to Contact minority shareholders.

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