Energy 'crisis' claim sparks gas debate

By CHRIS DANIELS, energy writer

Investment banker Chris Stone made something of a splash at this year's New Zealand Petroleum Conference.

Stone, executive director of Wellington firm McDouall Stuart, told the audience at Auckland's Hyatt hotel that New Zealand faced an energy crisis caused by a failure to secure new energy to replace natural gas from the diminishing Maui gas field.

This gas is used to fire thermal power stations that provide the backbone of electricity generation and is its saviour in dry years.

What was "once a challenge, is now a crisis", said Stone. The death of Maui was leaving a huge supply gap: 10,000 gigawatt hours a year - the equivalent of four Project Aquas - within 10 years.

"New Zealand has not been an attractive place to explore," he said. Exploration activity needed to triple and the country had to be made "compellingly attractive".

Stone's argument is simple: the expected high energy prices, caused by a scarcity of gas, will cripple the economy.

First we would see the departure of our "energy exporters" - namely Methanex, which turns natural gas into methanol for export, and Comalco, the biggest electricity user.

Added to this would be the cost of actual power shortfalls, such as economic disruption in a dry year crisis and the subsequent loss of investor confidence. Industries sensitive to energy prices would inevitably shrink. Many vital "value added" industries rely on big energy inputs, such as timber processing and the dairy industry.

Added together, says Stone, the possible economic impact of expected high energy prices could be between $3 billion and $8 billion a year. That would mean a cut in our GDP of anywhere between 3 per cent and 7 per cent.

Stone's gloomy assessment is shared by Mac Beggs, a geologist and exploration consultant at Wellington company Geosphere.

"Panic is appropriate," he says. The Government must move swiftly, which in Beggs' book also means the public must be more accepting of mistakes when they come.

"It's not a policy situation where Government can afford to be as deliberate as you'd like it to be in an ideal world and so therefore as the electorate we shouldn't expect that," he said.

"I'm expecting some silly things to be done, but they shouldn't fear that and we shouldn't be too hard on them.

"There's been a lot of buck-passing, I don't think it's just a government issue, within the industry there's been a lot of unjustified reliance on other people taking risks to the point that no one's taken them and we're all in the same poo."

But Todd Energy managing director Richard Tweedie, in a speech and a presentation given to the industry, did not agree it was time to panic.

New Zealand had had a continuing exploration programme, he said, gas discoveries continued to be made, and the success rate was "okay".

"It is business as usual, not cause for panic," said Tweedie.

He believes that talk of a looming gas supply crisis is overblown, saying that remaining reserves mean that there is enough gas until 2023 to meet residential, commercial, industrial and existing electricity demand.

"This gives New Zealand plenty of time to find further gas.

"The horror stories of running out of gas before 2010 are mischievous."

Dry winters, when there was not enough water for South Island hydro stations, were a problem, said Tweedie.

"A dry winter highlights our shortage of electricity generation, which in turn highlights a tight gas market.

"However the alleged lack of availability of gas to electricity generators is mainly a problem of their own making. They have not contracted available gas."

Adam Feeley, group manager of Crown Resources at the Ministry of Economic Development, is the man who had to sit and listen to charges of Government procrastination - of fiddling while the natural gas reserves burn out.

Associate Energy Minister Harry Duynhoven says that all options for promoting New Zealand to explorers are on the table.

Feeley says officials are working hard to find ways to increase the rate of oil and gas exploration.

"We know what the strengths of New Zealand are, we know the kind of people we want down here, now we have to go and both figuratively and literally knock on some doors."

In the next month, Feeley and his team will present ideas for stimulating exploration to ministers.

These would "test the appetite" of the Government, and provide guidance about which directions were politically acceptable.

"The Government is part of the solution, but industry must play its part as well. I think there's a growing acceptance of this."

Officials are trying to make it much easier for potential explorers to get their hands on geological research, vital for assessing the likelihood of oil and gas in particular areas.

A harder-nosed approach to which companies are awarded licences to drill will be noticeable, with financial viability counting for more. Crown Minerals (part of Crown Resources) does not want to see small companies spend the first few years of their licence scratching around for partners to help pay to drill the exploration wells.

The latest oil and gas explorer to list on the stock exchange is Austral Pacific (formerly Indo-Pacific).

Chief executive Dave Bennett sees the Government's role in promoting the industry as critical.

He says the Crown, as owner of the resources, is a participant in the process, not just a beneficiary in the form of an enormous royalty stream.

"As any rental property owner knows, if one wants to maintain the flow of rental income, it is necessary to reinvest in fixing the leaks in the roof, painting the property and putting up new curtains from time to time," he said.

The Government will soon be working out just how much of a refit the fading old rental property needs.

Most delegates at the Hyatt conference will tell them that the risks of renovations being done on the cheap will be severe and unwelcome.