LNG seen as 'last resort' to meet New Zealand gas shortfall

Sydney (Platts)--23Mar2006

Plans for an LNG import terminal in New Zealand would only proceed as a
backstop option to ensure the nation did not run out of indigenous supplies of
natural gas, the project proponents Contact Energy and Genesis Energy said
Friday.
A final decision on whether to proceed with the LNG proposal would be
left as late as possible, but planning and preparation were required now,
Contact Energy chief executive David Hunt and Genesis Energy chief executive
Murray Jackson said in a statement.
"It is important for New Zealanders to understand that the LNG option
will only be pursued as a last resort," Jackson said. "It is also important
for people to understand that if we are to be ready with the LNG backstop, we
need to plan for it now."
New Zealand's major source of gas, the Maui field off the North Island,
is expected to be depleted in 2007. Maui currently produces around two-thirds
of the country's natural gas and provides the feedstock to generate about 25%
of its electricity.
At present only a few small new gas fields are being developed in New
Zealand and exploration success has been limited, leaving the country facing
the prospect of needing imports after the end of this decade.
Both Contact and Genesis would prefer that domestic natural gas sources
were found to meet New Zealand's demand and both companies have been actively
exploring for reserves, Jackson said. But the companies are committed to
ensuring there was sufficient gas to keep New Zealand's industries and
electricity plants running.
"Importing LNG may have an important role to play in bridging a gap in
supply of natural gas in New Zealand and we are planning to ensure this option
is available if required," he added.
A recent tightening of electricity supply, driven by low lake levels at
New Zealand's hydro facilities, has reinforced the importance of secure and
flexible thermal electricity generation. "Around a quarter of New Zealand's
total electricity is generated with natural gas and this is becoming
increasingly important to New Zealand in balancing the natural fluctuations
inherent in wind and hydro generation," Hunt said.
Genesis and Contact have been working on the site selection process for
the LNG import terminal since November 2004 when they completed a study which
found that LNG was a feasible option for meeting the looming gas supply
shortfall. At the time, it was estimated that LNG could be imported into New
Zealand at NZ$6.50-7.50 ($4.05-4.67)/GJ, although international gas prices
have run up sharply since then.
The initial project is expected to deliver around 60 PJ/year of gas, or
about half New Zealand's requirements beyond 2010, and would cost NZ$550-600
million. Based on the feasibility study pricing, the imports would cost around
NZ$400 million annually.
A spokesman for Genesis Energy told Platts earlier this month that a
decision on the preferred site for the terminal was imminent. The companies
said Friday, however, that they expected to announce the decision by mid-2006.
--Christine Forster, christine_forster@platts.com


 

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