Maui going dry before due date

By CHRIS DANIELS, Energy writer

The Maui gas field, which has provided New Zealand with the cheapest natural gas in the world, will run out two years earlier than expected.

New computer modelling technology has revealed that production from the huge Taranaki field will start tapering off in 2007, rather than 2009.

Cheap Maui gas, which accounts for more than 70 per cent of the country's annual gas production, has been pumped into homes across New Zealand since the late 1970s.

Major customers of the field were told last week that despite an original contract to supply the Crown with 4085 petajoules of gas for 30 years, this is likely now to be around only 3800 petajoules. One petajoule of energy would supply all New Zealand's electricity needs for two days.

Domestic and smaller commercial gas consumers use such a small percentage of the total gas generated that they will not be affected by the gas production dropping off earlier than expected.

Dr Lloyd Taylor, chairman of Maui Development (MDL), the company jointly owned by Shell and Todd Energy, said New Zealand enjoyed the cheapest natural gas in the OECD thanks to the cheap contracts organised by the Government in the 1970s.

MDL sells gas to the Crown, which then sells it to users.

"There has been no incentive to go out and find more gas because no price signals have been sent through to the supply side," said Dr Taylor.

"We are now in a situation where that environment is now coming to an end - the issue being we may have two years less time than we thought to address it."

In similar gas finds around the world, the biggest field has always been discovered first.

This had been Maui, brought into production in the 1970s.

Then the Kapuni and Pohukura fields, probably one-quarter to one-third the size of Maui, were discovered. .

Three main customers buy Maui gas - methanol maker Methanex buys around 45 per cent, power generator Contact buys between 35 and 40 per cent, and Natural Gas Corporation buys the rest.

Contact Energy's corporate affairs manager, David Hunt, said it was too early to say what implications yesterday's announcement would have on the value of Contact, which uses Maui gas to generate electricity in its thermal power stations.

"There will be a transition to new sources of gas a bit sooner than would have normally occurred.

"At this stage it's our expectation that the new gas is likely to be a little more expensive than Maui.

"That will obviously put up the cost of a major input through our business.

"On the other hand, we would hope that ultimately those costs will be reflected through into energy prices."

Mr Hunt said all the indications showed there were sufficient gas supplies to meet demand.