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Showdown likely over Pohokura marketing

The Pohokura partners are likely to come out fighting at next month's Commerce Commission confere...

Showdown likely over Pohokura marketing

They disagree with all the commission's requirements, as outlined by the commission's draft decision on the partners' application to jointly market and sell gas from the possible 1tcf field.

The commission last month found joint marketing and selling would be to the significant detriment of the New Zealand public. However, the commission said the potential public good could outweigh that "large overall detriment" if the Pohokura partners agreed to limiting the time period of the authorisation to five years; ensuring first gas from Pohokura was available by February 2006, with full production capability from June 2006; restricting the authorisation to not apply to any successors of the applicants; and ring-fencing marketing of the Pohokura field.

The joint submission - by Shell New Zealand, Todd Energy and OMV Petroleum - to that draft decision says any joint marketing and selling requirement would only delay the Pohokura project by at least three years, not the one year as stated by the commission.

There would be no detriments associated with joint marketing, the partners say, and the commission has understated the resulting public benefits from the proposed joint marketing arrangements. "As the benefits exceed the detriments, the commission should grant authorisation unconditionally," say the partners.

Their submission says the imposition of a five-year limitation to the authorisation would mean some or all of the applicants being unable to secure funding of the remaining development costs, and their being unable to enter into gas supply contracts for longer than five years. Both Genesis Power and Contact Energy had stated their need for long-term gas supply contracts from Pohokura to support investment in new electricity generation facilities.

The requirement that the field be developed by certain dates was unacceptable as the applicants would then face intolerable investment risks, through delays caused by any number of reasons, including equipment delay or failure, bad weather, or terrorist activity.

The partners say it is inaccurate to characterise joint marketing as being equivalent to marketing by a single entity. "There will be competitive tensions between the joint venture parties which will impact upon the ultimate joint venture decisions relating to the sale of gas."

The joint venture parties have conflicting interests in aspects of the appraisal and development of the field, but those conflicts are manageable in the context of an overall joint effort to develop the field co-operatively, working together on the key issues of appraisal, development and marketing.

"The commission persists in making the assertion that Shell and Todd are weak competitors without substantiating that in any way, even when invited to do so by Todd," says the submission.

The submission said was unclear what the commission meant by ring fencing and it would be impracticable for each partner to have sales and marketing teams dedicated solely to Pohokura, to the exclusion of other fields they might have interests in.

"No final investment decision will be made by any of the Pohokura joint venture parties until such time as there is certainty over the proposed process relating to the sale of gas from the field. A cornerstone contract or contracts will be required.

"Accordingly, any superficial ring fencing arrangements will be meaningless and each of the joint venture parties will face particular problems with potential ring fencing arrangements."

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