Gas Industry - Frequently Asked Media Questions

Gas Industry - Frequently Asked Media Questions

Frequently asked questions about future supplies of natural gas

February 2005

Q. Is New Zealand running out of natural gas?

A. No, there are a number of existing producing gas fields to offset Maui, such as Kapuni, and new discoveries, such as Pohokura and Kupe, that are currently being developed for production. These wells will provide gas for the reticulated market for the foreseeable future. This means the continued supply of gas for homes, hospitals, restaurants, light industry, schools and so on.

Further, there is an active exploration programme that both the Industry and Government believe will find more gas. For instance the Minister of Energy said in April 2004 "There's no doubt that New Zealand has plenty of gas - we just have to drill enough holes to find it in economic quantities and locations, and attract the capital necessary to develop the fields."

Q. Why are people worrying about natural gas running out?

A. It is a well-known fact that supplies of natural gas from the giant Maui field are declining. Once these are depleted, until further gas fields are found, there will possibly be insufficient gas for electricity generation, the petrochemical industry and possibly large industrial users, such as the dairy, forestry and meat industries. However, for smaller customers on the reticulated network, such as homes, hospitals, schools and restaurants, which accounts for only about 5% of the current market there is plenty of gas for as far forward as can be seen.

This is why there is a strong focus from both Industry and Government on finding new gas fields.

Q. But we're told that Maui Gas will run out in 2007, what will we do for gas supplies then?

A. Alternative fields, such as Pohokura and Kupe are expected to provide sufficient natural gas in the short term. Maui will not necessarily stop producing gas, what the run-out means is that the cost of extracting further gas will be uneconomic at the current price, so supplies could continue to come from Maui in the future, but at a higher price and hence a reduced rate. Further, an intensive exploration programme is now in place, and several minor natural gas finds have recently been announced.

Q. Won't we simply switch to LNG (liquefied natural gas) supplies brought in from overseas for electricity generation and heavy industry?

A. There are many issues to be canvassed before any definitive decision can be made to use LNG as a replacement fuel. These issues include the cost of the fuel and its transport to New Zealand, Resource Management issues with storage tanks at ports capacity of existing pipelines, reliability of supply and so on. LNG is not necessarily an easy or logical answer.

Q. Should residential and commercial gas users consider converting to electricity?

A. That's their decision, but they can be assured that there is plenty of gas for the reticulated market for the foreseeable future. Further, while price rises are expected as the cost of new supplies from new fields are incurred, the price of natural gas is expected to retain its competitive relativity with electricity.

Q. What is this reticulated market anyway?

A. The reticulated market consists of the consumers, large and small, supplied from the network of pipelines containing natural gas extending from the Taranaki fields north as far as Whangarei, east as far as Gisborne, and south through to Wellington and up the East Coast to Hastings.

Q. Aren't wind farms and the like going to take up any shortage of natural gas for electricity generation?

A. No, not at the moment, 44% of natural gas produced is burnt to generate electricity. This generates 24.4% of total electricity generated (MED, Energy Datafile, January 2004). This is a very large percentage of New Zealand's electricity requirements, and cannot, at this stage, be replaced by planned or existing alternative energy sources.

Q. Who owns the natural gas produced in New Zealand?

A. The Government owns all oil and gas, and makes it available to explorers under a petroleum prospecting and (in the case of discovery) petroleum mining regime. When a discovery is made, explorers develop the field for production. When oil and gas are produced, the field owners pay the Government a royalty and sell the products to downstream (i.e. wholesalers and retailers) buyers.

Q. What's being done to find more gas?

A. The NZ Government has an active programme of providing areas, called blocks, for oil and gas prospecting. These blocks are regularly auctioned, and winners have the rights to drill exploration wells in those areas. As well, Government has moved to make the taxation environment for exploration more attractive with changes to the taxation and royalty regimes for explorers.

There are a number of exploration projects currently underway, with drilling on both the west and eastern coasts of the North Island.

There is considerable optimism about a number of drilling projects, such as the very public speculation about the Mangatoa prospect in northern Taranaki. Media reports have speculated this could be huge. However, until the reserves are proven, such prospects cannot be relied upon.

Q. Why don't we just move to renewable power sources like wind and solar power?

A. Government is encouraging such a move, however technology and resources do not yet mean these alternatives to hydro and gas fired electricity can fully replace current electricity production. Also, while providing useful additional power from projects such as the Tararua wind farms, these technologies are dependent on the availability of wind and sunshine. Government is also promoting energy efficiency in an effort to reduce power usage. Natural gas and hydro will both be needed in the foreseeable future as primary sources of electricity generation.

Q. Won't New Zealand's obligations under the Kyoto Protocol mean that it will be no longer economical to use natural gas to generate electricity?

A. Natural Gas will be subject to Government's carbon tax regime as part of its Greenhouse Gas policy under the Kyoto Protocol. This will mean that the price of electricity will rise to cover the cost of the tax. The cost will most likely be passed on to the consumer. Until such time as a substantial resource substitute for natural gas can be found, gas will continue to be burned to generate electricity.

Q. Is it true that natural gas prices will increase as Maui runs out and new gas supplies come on stream?

A. Yes, prices will increase. In the past New Zealand relied on relatively cheap Maui gas, and now that the true price of exploration and production will need to be paid, prices will go up. The price of Maui gas was extraordinarily low in comparison to international prices. However, it should be noted that the price of natural gas will remain relative to the price of electricity.

Further information about natural gas supplies and Gas Industry issues can be found on the GANZ website at http://www.ganz.org.nz/, or by calling the Gas Association of New Zealand on 04 472 9220.

ENDS

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