LNG 'best alternative' to fill shortfall

Importing liquefied natural gas offers the best alternative to cover the potential shortfall created by the depletion of the Maui field, says two large gas users Genesis and Contact.

They were responding to a Business Herald report that Todd Energy and others were exploring the potential of compressed natural gas imports because the technology overcame objections to LNG.

Genesis said: "The transport of CNG between countries has not been done and, even if you could do it, it would not provide the sort of volumes of gas that we need. We are pretty much convinced that, at some point, we are going to take a hard decision to build a LNG terminal."

Contact said CNG did not provide the volume or flexibility offered by LNG technology.

"Shipping CNG is an unproven technology, and there is not an established international market in its trade. LNG, on the other hand, has been safely traded for 40 years in a mature international market."

The electricity generators are jointly investigating a proposal to each year import about 60 PJ of LNG, equal to half New Zealand's annual gas demand. Todd Energy managing director Richard Tweedie believes a hasty decision to import LNG may squander the chances of New Zealand using indigenous energy sources to make up the shortfall left by Maui, which will be largely depleted next year.

An LNG import terminal to transform the liquid to gas and store it could cost as much as $1 billion. It would need to be underwritten by contracts for as long as 15 years from major gas users such as Contact and Genesis.

But these contracts would cut demand for gas and reduce the incentives for local oil and gas exploration. Tweedie also warns of the potential dangers of becoming overly reliant on offshore energy sources.

CNG may overcome these objections as it could be piped directly into the gas grid, avoiding the need for a terminal and give energy users the flexibility to switch to indigenous gas if more is found.

Tweedie said: "It does not have any of the problems of regasification of LNG. It can be brought straight into New Zealand and be put straight into the pipeline system. The CNG alternative is a lot more benign, and there is a lot of it in Papua New Guinea."

He concedes CNG has problems such as the potential costs, the unproven technology and the fact CNG ships are unlikely to be able to import as much energy as can be brought in an LNG ship.

Still, his views have won support from industry analysts, who warn the adoption of LNG would lock in high energy prices for the long term.

McDouall Stuart analyst Chris Stone said CNG suppliers might only need three-year contracts to underwrite the necessary infrastructure. If gas was found locally, users could quickly swap to a new supplier.

"I think CNG makes a lot of sense. It may be more expensive, but there is less capital expenditure required up front."

Another analyst agreed but doubts the CNG option would fly as it would need the support of Contact and Genesis. Even if the generators agreed to the plan they would probably finance it themselves, cutting companies such as Todd Energy out of the loop.

The analysts said that although CNG could not be imported in such large volumes, this could be overcome with a dedicated service between New Zealand and the offshore gas fields.