Origin and partners defend Kupe gas field cost blowout

The backers of the billion-dollar Kupe gas project were yesterday playing down the cost blowout that has more than doubled initial estimates for the project.

The joint venture partners confirmed that development of the Taranaki gas field will go ahead, as they revealed a significant cost increase on the development of the field.

Kupe - the country's second-largest undeveloped gas field - is scheduled to start delivering gas by 2009, said NZX-listed NZ Oil & Gas, one of the partners in the project.

The project will provide New Zealand with 15 per cent of its gas needs and will also produce LPG and light oil. Finance Minister Michael Cullen said the deal was "a vital step in securing our energy future".

The joint venture partners said yesterday they have budgeted $980 million for the Kupe joint venture - up considerably on initial estimates of $400 million and estimates of $800 million last year.

Tony Wood, general manager of public and government affairs for Australian company Origin Energy, another partner in the venture, attributed the escalations to rising construction and labour prices and said $400 million had been an early estimate and the scope of the project had changed.

The amount of LPG to be extracted had increased and a new onshore plant would be built instead of using an existing onshore gas facility as previously planned. Gas from the field was to come ashore and be piped into the existing gas treatment plant at Kapuni.

But Wood said the rising Kupe costs were offset by factors such as higher gas prices. Construction of the project will start in September.

Kupe was discovered by NZOG in 1986, but cheap natural gas from the huge Maui field made it uneconomic to develop Kupe until now.

A declining Maui field and the looming shortage of natural gas have prompted a surge in exploration and drilling for new fields, with Kupe and Pohokura the first to come on stream.

Kupe is expected to produce around 20 petajoules of gas annually, compared with the giant Maui field which produces around 60 petajoules annually. The undeveloped Pohokura field, discovered in February 2000 immediately off the coast at Motunui, could produce up to 40 to 60 petajoules of gas annually.

The project is 50 per cent owned by Origin, 31 per cent by Genesis, 15 per cent by NZOG and 4 per cent by Mitsui E&P New Zealand.

Murray Jackson, state-owned enterprise Genesis Energy's chief executive, said the deal's approval would assure long-term gas supplies, particularly for the new Huntly power plant. Stripping out LPG from production would preserve New Zealand's ability to meet the bottled gas market.

Origin's managing director and chief executive, Grant King, said the deal included designing a new onshore production station to process gas.

Gordon Ward of NZOG said estimates of LPG extraction from the Kupe field had doubled.

Shares in the company closed up 2c at $1 yesterday. Origin shares were up 27c to A$7.22 on the Australian market.

Cullen said the Kupe approval would help deal with uncertainty caused by the declining supply from Maui and the new project was a major boost for jobs and the economy of the south Taranaki region.