Explorer threatens gas-fired station

Richard Tweedie

Energy explorer and producer Todd Energy is threatening to build its own power station - an investment of hundreds of millions of dollars - if big electricity generators import liquefied natural gas.

In a combative speech to an Auckland energy conference yesterday, Todd Energy managing director Richard Tweedie said the company was investigating building a 200MW gas-fired power station.

"If LNG takes place, it could materially damage the gas market," he said. So if power generators such as Contact and Genesis imported LNG, Todd would rather make electricity to sell into the wholesale market than sell its gas.

This would move Todd away from its role as New Zealand's biggest locally owned oil and gas exploration and production company.

The big power generators are also New Zealand's biggest power retailers, able to match their supply with demand from their business and residential customers. Tweedie said insufficient competition had led to "significant market dysfunction" in the electricity sector.

"It's a jack-up," he said, with the state protecting and favouring its own enterprises - Meridian, Genesis, Mighty River Power and Transpower.

He cited the recent Government decision to partly underwrite Genesis for building its new gas-fired power station at Huntly as an example. This had been a "normal commercial risk", which did not require state assistance.

About a third of New Zealand's electricity is generated in gas-fired power stations.

Fears of a looming shortfall of gas were overstated, said Tweedie, who also criticised the failure of a drilling and exploration fund launched last year by Contact and Mighty River.

He said the fund was designed to pay out at least $80 million - but had paid nothing so far.

Nor had there been a clear process or criteria for applications.

"One would suspect the overture was PR spin," he said. "Apart from the fancy PR announcement there has been nothing."

On a different front, Tweedie said after royalties and levies, companies such as Todd were paying an effective tax rate of 54 per cent. And despite the Government's recent changes to royalty rules, major explorers were not coming to New Zealand.

Given the country's remoteness and the prospects of finding hydrocarbons, such companies would be attracted here only by "outstanding fiscal terms".

Tweedie said New Zealand had a window of "some years" before a decision was needed on the next source of fuel.

The big power generators - Contact and Genesis - were bemoaning that they could not enter contracts for the supply of gas for their power stations. However, they simply did not want to make the necessary commercial arrangements.

"There's a lot more gas there than a lot of these people are saying," Tweedie said.

Earlier, Energy Minister Trevor Mallard talked up the Government's commitment to gas exploration, outlining its reduction of royalty payments and the relaxation of the tax regime for oil rig workers.

Todd Energy low-down

* Todd Energy is one of the business interests of Wellington's Todd family.
* After a long history in the vehicle industry, Todd set up petrol stations in the early 1930s.
* It began exploring for oil in the 1950s and was involved in the discovery of the Kapuni field and the Maui gas field in the late 1960s.
* While it is a big player in gas and oil exploration, it also runs electricity "co-generation" plants and an assortment of hydro and geothermal plants.
* A private company, its profitability and many financial details of its activities are unknown.