The new agreements mean more certain gas supplies for Contact and NGC, as well as throwing the Taranaki Methanex plants a lifeline until at least the end of 2005.
After a year of protracted negotiations, the new contracts will effectively extend the life of New Zealand’s formerly largest gas field, open up the Maui pipeline to non-Maui gas, and do away with any government involvement, some would say interference, in Maui gas sales.
There was a collective sigh of relief at the Methanex Motunui complex today as news of the deals got around. “Although it may prove to be only a temporary reprieve, it’s terrific that we can keep running our plants at partial capacity until at least the end of next year,” said one Methanex worker.
The Maui partners, Shell NZ, OMV, and Todd Energy have undertaken to deliver 367PJ of gas, the economically recoverable amount determined by independent expert Netherland Sewell and Associates, to the Crown between January 1, 2003 and June 30, 2009. Of that amount 39% will be prepaid gas.
The Maui partners have agreed to provide make-up gas or liquidated damages if the total quantity is not delivered.
Any remaining gas will be supplied in accordance with the agreed demand profiles of NGC and Contact, and the Maui partners have undertaken to maximise the availability of Maui gas to meet these demands.
There will no longer be take-or-pay obligations for Contact and NGC, although there will be obligations to provide weekly nominations as well as forecasts of future demand on a “good faith basis”.
The new arrangements also provide an incentive for the Maui partners to develop additional gas within the field, as they will be able to sell the supplies at “market prices”. However, this gas can only be offered for sale if the partners establish (at an 85% confidence level) that there are reserves in excess of required contractual obligations.
A total of 40PJ of likely available additional gas, as indicated by a recent unspecified reserves report, has been reserved for sale to Methanex.
Contact and NGC have first right of refusal in respect of any other additional gas sales, on the same terms and conditions as any offers from third parties.
Methanex president Bruce Aitken said the agreement for 40PJ of extra gas, together with entitlements from other fields, would allow Methanex to produce approximately one million tonnes of methanol in New Zealand this year and up to 500,000 tonnes of methanol in 2005 “if economic conditions warrant”.
“We are delighted to be able to maintain a level of production at our New Zealand plants in 2004 that will be very helpful in supplying our customers in the Asia Pacific region and we have gained valuable flexibility to operate our plants in 2005 if the current strong methanol market conditions continue.”
“We are continuing to pursue opportunities to acquire additional gas to supply our New Zealand facilities on commercially acceptable terms,” Aitken added.
Contact chief executive Stephen Barrett said the new arrangements were a significant step forward, and would provide a number of important benefits.
"Contact now has a solid basis on which to plan the use of its remaining Maui gas reserves. The arrangements provide a high level of assurance for delivery of remaining contractual entitlements. They also preserve a significant flexibility over delivery profile, which will be very important as we move to new gas sources later in the decade."
As at March 31, Contact held entitlements to 167PJ of the remaining economically recoverable reserves in Maui.
NGC chief executive Phil James said NGC was “satisfied” with the outcome of the complex discussions.
“We now have certainty around quantities, including access to our prepaid and advance paid gas entitlements, and the market generally can now plan ahead with greater clarity. In particular, the agreements will remove an overhang of uncertainty for explorers, who can now better evaluate opportunities for new gas."
NGC's share of the 367PJ now totals approximately 49PJ, including 44PJ of prepaid and advance-paid gas, which NGC expects will be used by mid-2006.
Shell NZ EP commercial manager Ajit Bansal described the deals as “a breakthrough” that will help ensure maximum recovery of gas from the field.
“While final reserves figures for the incremental gas to be extracted are yet to be determined, there is no doubt this deal will ensure the maximum economic recovery from the Maui gas field, extending its life beyond 2007 and contributing to New Zealand’s security of gas supply,” Bansal said.
