While Contact chief executive Steve Barrett is confident his company will have sufficient gas to meet its core operational requirements until late this decade, the continuing tight supply situation rules out any new gas-fired projects such as Otahuhu C in south Auckland.
“We are confident we have contracted enough gas to fuel our existing thermal portfolio through to the end of the decade,” he told EnergyReview.Net.
But gas supply beyond the end of the decade remained a concern and Contact was working on range of options to secure further fuel supplies and was actively signaling its interest to potential suppliers.
Barrett said the Contact-Mighty River Power drilling fund initiative announced last March had had “plenty of people clapping from the sidelines, but none willing to join in” so far. The fund was to accelerate drilling for gas in onshore and offshore Taranaki.
Provided sufficient gas became available, Contact believed Otahuhu C was likely to be the next significant thermal project after Genesis Energy’s 385MW “e3p” combined cycle plant came onstream at Huntly in late 2006.
While the financial result was pleasing, Barrett said the most significant achievement was Contact’s “refuelling” of almost every major component of its generation fleet.
Contact had been granted resource consents for the continued operation of its Clutha hydro and Wairakei geothermal facilities and had entered into contracts involving new expenditures of almost NZ$1 billion before the end of the decade.
Much of this was for the acquisition of additional gas supply - mainly from the Pohokura field - and long-term commitments for heavy maintenance at Contact’s combined cycle gas-fired stations (TCC in Stratford, and Otahuhu A and B) and the construction of the binary plant at Wairakei. A 10MW upgrade of Otahuhu B was scheduled.
“These developments are the result of many years of hard work by key teams within Contact, and give the company security for the near term and breathing space to plan for the post-Maui future,” Barrett said.
Contact executive advisor Liz Kelly said the Maui partners - Shell NZ, OMV Petroleum and Todd Energy - were considering additional drilling at Maui within the year. It is known perhaps an extra 200PJ of gas, from Ihi and perhaps other prospects/plays, could be recovered through directional drilling from the existing Maui A or B platforms.
Barrett said Contact was able to insulate its customers from the large swings in wholesale electricity prices - by offering retail tariffs that reflected average hydrological conditions - but not from underlying increases in fuel and technology costs as New Zealand moved to the “more constrained and costly” post-Maui age.
Barrett defended recent retail power price increases (about 12% in the last year), saying prices needed to reflect rising medium-term production costs and to allow Contact and other players to invest in new sources of fuel and technologies to meet future demand.
While further tariff increases would be necessary, they were now “within striking distance” of the level needed to underpin the development of new generation plant and fuel sources.
Barrett last week said LNG was a viable backstop option if explorers failed to find enough domestic gas and that likely LNG prices, of NZ$6.50-7.50 per gigajoule, would be “within striking distance” of the expected cost of post-Maui gas.
“We are moving from the Maui era characterised by a relatively secure and fuel-rich environment to one in which scarcity and uncertainty will tend to prevail. This is especially so during the next few years as we move from dependence on Maui to reliance on a range of smaller existing and new fields.”
The changing dynamics of Contact’s gas business meant a substantial fall in total gas consumption for the year – for internal use and to retail and industrial customers - from 71.6 PJ to only 50.6 PJ.
