Government Policy Statement on the Importance of the Pohokura Gas Field for Energy Security
[ Last Updated 28 November 2005 ]
Hon Pete Hodgson
Minister of Energy
April 2003
Contents
Pohokura is the only significant new gas field (over 500PJ) that can be brought into commercial production quickly.
Gas Policy
The expected end of the life of the Maui gas field signals the need for significant changes in gas supply arrangements in the New Zealand market. Production from an increased number of smaller gas fields will require more sophisticated market arrangements, including improved arrangements for gas balancing and reconciliation than currently exist.
The Government's policy for the development of New Zealand's gas industry, and its expectations for industry action, is outlined in its Government Policy Statement - Development of New Zealand's Gas Industry.
That policy statement outlines the Government's expectations for better gas wholesale market arrangements and industry governance structures. This includes developing open access arrangements to the Maui pipeline.
This additional policy statement sets out the Government's views on the importance of the development of the Pohokura gas field to help remove uncertainty about New Zealand's medium term energy security including facilitation of early decisions on new electricity generation investment.
Energy Security Risks
Gas is an important fuel for electricity generation. Currently New Zealand has 2,134MW of gas powered thermal generation capacity. With over 60 percent of New Zealand's generation based on hydro, thermal capacity is important for base load generation as well as for dry-year reserve.
With steadily increasing demand for electricity, New Zealand needs an additional 150MW of electricity generation per annum to meet demand growth.
New generation capacity is crucial for economic growth. Without the timely construction of new generation, supply will be insufficient (even with significant improvements in energy efficiency and demand management) and electricity prices will rise substantially.
Renewable energy will play an increasingly important role in New Zealand's electricity generation mix. The National Energy Efficiency and Conservation Strategy targets at least a 20 percent improvement in energy efficiency and an additional 30 petajoules (PJ) of consumer energy from renewable sources by 2012. These outcomes are a key part of New Zealand's climate change policy.
Notwithstanding these initiatives, gas will continue to be an important fuel for electricity generation. It is a premium fuel for large-scale generation plant. Direct use of gas will also continue to be an important component of New Zealand's energy future.
The petrochemical industry has been a major user of gas. It has been anticipated that petrochemical production would substantially reduce as the Maui field declined and gas at the Maui Contract price had been exhausted. However, a buoyant world market for methanol and the need to service the Asia Pacific region mean that New Zealand petrochemical production could continue for several years. Consequently, there is uncertainty where new gas will be used.
Uncertainty of Gas Supply - Maui Re-Determination
For over two decades, Maui has dominated the New Zealand gas market. Due to its plentiful gas supply and the nature of the Maui contract, gas prices are significantly lower than world prices. Apart from Maui, a number of smaller fields are in production. The largest of these are Kapuni, TAWN,1Mangahewa, McKee and Rimu.
As a result of low gas prices, until recently, incentives for petroleum exploration have been muted. With the expected decline of Maui, exploration has increased significantly over the last few years. Currently there are 68 exploration permits / licences granted over seven basins.
The next commercial field of any significant size that is expected to be brought into production as Maui declines is Pohokura (reserves estimated at 600-700PJ). Gas from the Kupe field is also a possibility, but it is known to be a technically challenging and expensive field to develop. There are some interesting structures (possibly Pohokura size) off the East Coast of the lower North Island and Canterbury. However, the absence of gas transmission infrastructure in these regions reduces the likelihood they will be developed in the near future.
A recent re-determination of the Maui field has put economically recoverable reserves (ERR) at 3,562PJ. This is considerably less than earlier industry expectations. At 7 February 2003, there was only 352PJ of Maui gas remaining at Maui contract prices. This has substantially brought forward the need for production from new gas fields, especially for electricity generation.
Pohokura and the National Interest
Pohokura is the only sizeable commercial field available to meet the requirement for significant quantities of new gas.
The Government recognises that it is not certain that gas from Pohokura will be secured for electricity generation. However, investment decisions on a number of generation projects are currently on hold until there is greater certainty on the future of gas supply. The timely supply of gas from Pohokura is, therefore, important to provide greater certainty over where the gas is used, enabling new generation investment decisions (whether gas or alternative fuels) to be made.
Accordingly, gas from Pohokura needs to be successfully marketed and in production in a timeframe and manner that ensures that national energy security and economic growth interests are met. This is particularly important to ensure that new electricity generation projects can be built in a timely manner to meet growing electricity demand.
Back to Top