While Contact last Friday announced a $NZ2 billion ($A1.8 billion) renewable fuels investment plan – focused mainly on geothermal – chief executive David Baldwin on Monday told the 2007 National Power Conference in Auckland that new gas-fired generation will still play an “absolutely critical” role and government must maintain a level playing field in its treatment of renewable fuels and natural gas.
Genesis CEO Murray Jackson said these were turbulent times for the two energy companies, which use over 100 petajoules a year of gas out of New Zealand’s 170PJ-plus annual total.
While there was widespread concern over climate change, demand for energy was continuing to grow, and costs and hence prices, were continually increasing.
The country’s hydro lakes had recently dropped from 120% of their normal level to less than 100% and Genesis was running the country’s largest power plant, the 1000MW Huntly gas and coal-fired power station, on all three available units as a precautionary measure to conserve hydro lake storage as the country headed into the peak demand periods of autumn and winter.
It was also imperative that the current coal and gas-fired generation fleet be upgraded, Jackson added.
Huntly currently emitted over 4 million tonnes per annum (MMtpa) of carbon, but Genesis’ latest project, a 350MW-plus combined-cycle gas-fired station known as e3p, would effectively reduce greenhouse gas emissions by about 1MMtpa when fully commissioned in mid-2007.
The company’s proposed Rodney power station project would further reduce carbon emissions by another 1MMtpa from the planned 2009 start date.
New Zealand needed to add a further 150MW of electricity generation each year just to keep pace with predicted growth in demand, Jackson added.
“New Zealand needs low cost electricity to match export competition and natural gas is the best of the baseload options and the one that best of all can keep electricity prices down,” he said.
Jackson warned that any premature closing of the Huntly power station – could cost the country up to $2.5 billion.
Closing Huntly in 2012 – as outlined in the government’s draft energy strategy – would necessitate Genesis or other players spending up to $2 billion on new plant and another $500 million on associated transmission lines.
Later, Energy Minister David Parker admitted he and Jackson had differing views on future roles of natural gas and coal but said “no one in government is pretending that the world, including New Zealand, will not depend on oil and gas for a long time to come”.
He said the Government, mainly through Crown Minerals, had in recent years put in place incentives, including reduced royalties for gas, to attract more exploration for oil and gas.
“There is nothing hypocritical in the Government helping explorers with developments of black gold and exporting most of this, while wanting the country to be carbon neutral,” he said.
But Parker conceded that the Government’s draft energy strategy – which proposes all new electricity generation be renewable wherever possible and taxing any new fossil-fuelled power stations – could see less exploration effort, not more, as companies assessed the investment potential of New Zealand.
Solid Energy CEO Don Elder presented several possible oil and natural gas price scenarios versus likely carbon tax charges.
The two dominant drivers for businesses involved in the energy sector were the availability and cost of energy and costs of carbon.
He said some overseas experts predicted the price of crude oil in 2017 could be anywhere from $US50-400 per barrel, while the international price of carbon could be anywhere from $US5-170 per tonne of emissions.
Elder said the price of natural gas in New Zealand could be in the $NZ8-25 per GJ range (up from the present $5.50-6.50/GJ).
If this proved to be true that would be good for Contact Energy, with its decision to delay any decision on its Otahuhu C gas-fired power station.
Other fossil fuels – coal, lignite (brown coal) and coal seam methane – as well as geosequestration – all became more economic if world oil prices increased.
