He told the 2007 National Power Conference in Auckland yesterday afternoon that the Government and some media portrayed fossil fuels as “old and dirty”, whereas renewable fuels were promoted as “new, clean and green”, but warned it would be hard to substitute oil as a transport fuel and switching to renewables carried an economic cost.

In addition, security of supply, particularly in electricity, was important and the greater the level of renewable electricity, the more gas-fired generation was needed as backup, according to Stone.

Yet the Government’s recent draft energy barely mentioned natural gas, when gas would continue to play a critical role in the country’s electricity system for years to come and was becoming scarce, with about 81% of known proven and probable (2P) gas reserves already having been extracted.

New Zealand had also produced about 86% of its known 2P oil reserves and the country’s energy consumption was growing at about 3% per year.

So a natural gas supply gap was likely to occur between 2010 and 2015, he said.

Stone urged the New Zealand oil and gas industry to define its future path and “to make that path as smooth as possible”.

Stone said that with a strong sector, New Zealand could be 50% self sufficient in oil by 2012 and 100% self sufficient in gas.

A weak sector would mean more reliance on imports, with oil self sufficiency dropping from its present 14% to only 10% and gas self sufficiency of only 50%, necessitating imports in the form of liquefied natural gas or possibly compressed natural gas.

There were significant economic benefits for New Zealand and for petroleum regions from a strong oil and gas sector.

The current account benefits of having a strong domestic oil and gas sector were about $NZ3.7 billion per year greater than with a weak petroleum industry and there were flow-on effects from a strong domestic exploration and production industry.

“You just have to go to Taranaki and see how buoyant their economy is,” Stone said.

He acknowledged New Zealand’s oil and gas fiscal regime was good but said more needed to be done to encourage investment in exploration as the level of local equity funding was restricted and the investment regime was poor.

“The level of investment is not high enough and is less than demand growth,” he said.

He encouraged oil companies to continue exploring, saying there was still the potential for Maui-sized gas discoveries, of 3 trillion cubic feet or more, to be made in the Great South Basin, offshore Canterbury and offshore Taranaki.

Meanwhile, Contact Energy business development manager Frank Geoghegan said it was odd the Government’s draft energy strategy made no mention of LNG when the use of LNG was consistent with the strategy’s aims of reducing greenhouse gases.

He said LNG was 60% cleaner than coal, which was now used extensively in Genesis Energy’s 1000MW Huntly dual-fuelled (gas and coal) power station.

Contact and its Gasbridge partner, Genesis Energy, were continuing with their LNG investigations and resource consents applications for a possible $600 million LNG terminal, storage tanks and regasification plant at Port Taranaki could be lodged late this year or early next.

“However, we will hold off making any development decision for as long as possible. LNG will only go ahead it is the next best step, though more gas is needed soon.”

When Contact and Genesis first mentioned LNG, they believed LNG could be landed in New Zealand for $NZ6.50-7.50 per gigajoule. Now, with international LNG prices equating to about $NZ7.75-10/GJ, that meant electricity generation from LNG would cost about the same as using wind, geothermal or some other renewables, adding another layer of complexity to the LNG equation, he said.

There were alternatives to a port-based LNG importation and regasification scheme, Geoghegan said.

An offshore LNG importation project, hooking up to existing gas pipelines to shore, or even a land-based gasification plant was possible.

Importing gas as CNG relied on emerging technology and was not necessarily cheaper, he warned.

“We believe LNG is a sound and sensible insurance policy that we have to arrange but not necessarily use,” Geoghegan said.

But Stone said LNG could be a double-edged sword.

“LNG would completely change the dynamic of the gas industry, it would be a very lumpy investment and quite a complex equation,” he said.

Stone recently told Petroleum magazine that LNG requires significant capital investment for liquefaction, transportation and regasification and the smallest known LNG contracts exceeded 60 petajoules per year.

There was a possibility that LNG imports could discourage local gas exploration, but it was also possible that future cheap indigenous gas finds could undercut LNG prices, he said.