Genesis to buy Government's Kupe stake

By CHRIS DANIELS energy writer

The Government is selling its 11 per cent stake in the Kupe offshore gas field to state-owned power generator Genesis.

While no price has yet been settled, the Government hopes the sale will bring the gas field into production much sooner, meaning new gas-fuelled power stations will be built more quickly.

Energy Minister Pete Hodgson announced the deal yesterday, at the same time criticising the way the wholesale electricity market was operating.

He said the high prices, which had not been reached since the cold, dry winter of 2001, were "untenable".

Prices have again gone through the roof in the past week, and some energy-intensive industries have been forced to cut production as a result.

To add to concerns about lake levels, Contact Energy has taken the Taranaki gas-fired power station out of service for at least a month for maintenance which it says is crucial to its coping with winter production.

Hydro storage lakes are currently at 71 per cent of their average for this time of the year. Inflows into the lakes were 72 per cent of average. The water is more crucial this winter than in the past, as Maui gas, which was previously drawn down by thermal power generators to compensate for low rainfall, is no longer available to the same level. The Kupe gas field has not been exploited in the 17 years since it was first discovered because of the dominance of the cheap Maui gas.

Genesis has already delayed plans for a new gas-fired electric power station at its Huntly site, as it has been unable to secure contracts for enough gas.

Its private sector rival, Contact, has also shelved plans for a similar station next to its Otahuhu station, saying it needs long-term gas contracts to succeed.

Genesis will now own 81 per cent of the Kupe field, with the rest owned by listed explorer NZOG.

Genesis chief executive Murray Jackson said he planned to run the Huntly power station, New Zealand's largest thermal plant, at full capacity over winter.

That meant 1000 megawatts of power would be generated from the station at peak times, when demand for its power was highest.

Full output would happen only when there was enough demand for electricity, said Jackson.

New Zealand was enjoying very mild weather at the moment, so the station was not yet producing at its winter levels.

"We've got everything going that we can get our hands on," said Jackson.

Current prices in the wholesale electricity market were being set by the hydro-electric generators.

Huntly was not running at full capacity now because other generators were "in the market" at lower prices, he said. Geothermal generators, for example, did not have to pay for their power.

Jackson said the high prices had prompted businesses to come to Genesis looking for protection over winter.

"We've had a lot of people seeking contract cover from us because of their exposure and I appreciate their concern." he said.

But the "hedge position" of Genesis was almost closed off, said Jackson, meaning it had almost no uncommitted capacity available to offer customers for the winter.



Border:

Head1: Production cutbacks

Body1: * Pulp and paper maker Pan Pac, based near Napier, has cut production to 70 per cent of normal capacity, due mainly to shipping commitments. High power prices at one stage led it to cut production by half.

* Nelson fish processing company Sealord is shutting one of its plants until winter. It has hedging cover for power prices through the winter months, but none at the moment. About 400 staff have been stood down from their work, but continue to be paid.

* Fletcher Building's Pacific Steel subsidiary has been struggling with production cuts over the past month. Its latest attempt to save paying high power prices is shifting two days of weekday production to weekends, when prices are cheaper. It told the Stock Exchange last week that if prices continued at March levels through this month, profits would be hit by $10 million.

* Aluminium maker Comalco, which uses about one-sixth of the nation's electricity, cut its production 10 per cent - the amount of power that it buys on the wholesale market.

* Carter Holt Harvey's Kinleith pulp mill, one of the biggest power users, has been closed due to industrial action, a state of affairs that some say has saved businesses from an even worse electricity crisis.