Gas Outlook - Key Issues. Presentation to Investors - Queenstown site visit February 2003

Transcription

1 Gas Outlook - Key Issues Presentation to Investors - Queenstown site visit February 2003

2 Supply/demand outlook Contents What is Contact doing? What can the Government do? Conclusion 2

3 Supply demand outlook 3

4 Underlying facts! Maui redetermination outcome due soon - substantial contractual shortfall expected! Pohokura not available until late 2005 at earliest, provided it gets timely RMA consents! Kupe owners don t appear to see rapid development as a priority! Other developed fields are too small to pick up the slack! From discovery, major new field takes min 4 years to develop 4

5 Supply and demand NZ Gas Supply/Demand 300 (post Maui Redetermination) PJ/annum Kupe Pohokura Maui Ngatoro/Kaimiro Kapuni Mangahewa TAW Rimu McKee Demand (excl Petrochemical) Demand Source : Contact estimates - chart does not match individual gas assets to individual users 5

6 NZ is entering a new phase Maui Bridge Post-Maui Characteristics:! Energy abundance! Low cost! Very flexible! Very reliable 2002 ~ 2007 Expected features:! Uncertain supply! Higher costs! Loss of flexibility! Less reliable From ~ 2007 Probable features:! Diverse sources! Relatively high cost?! Little flexibility! Reasonably reliable? 6

7 Implications for bridge phase Lead times are too long for major new gas discoveries to be of any help in this phase NZ will be reliant on gas resources that have already been discovered Accordingly: even with Maui running to 2009, a supply deficit could be felt as early as this winter gas suppliers unable to provide guaranteed supply gas prices will be higher system will run near to capacity - interruptions more likely alternative energy sources much more important 7

8 Implications for post-maui phase No substantial gas sources have been identified to meet post-maui demand But, lead times are sufficient to be cautiously optimistic that resources will be available when required Optimism is based on: NZ is gas prone lift in gas price is stimulating exploration interest work underway to ensure new gas can come to market (pipeline open access, development of balancing mechanism) 8

9 Who is affected by tightness in bridge period? Significant effect! Petrochemical! Electricity generators! Gas wholesalers and retailers! Industrial gas users - significant Petrochem Gas Demand for YE Mar 2002 = 236PJ Generation Moderate effect! Household or small commercial gas users Res idential Commercial Industrial Source : MED Datafile July

10 What is Contact doing? 10

11 Contact s planning! Power generation! Seeking gas from all known sources! Accelerating work on cost-effective non-thermal options! Seeking to reinstate liquid fuel capability for New Plymouth! Examining LNG as an option! Industrial customers! Contacting all major customers to explain the new outlook! Reflecting higher costs into prices! Renewing contracts but not able to provide assured further rollover! Residential and commercial customers! Reflecting higher costs into prices over time! Likely maximum of annual contract term 11

12 Contact s advice to major customers! Explaining uncertain supply outlook in near term! Advising inability to offer assurance of supply! Likelihood of shorter contract terms during transition phase - 12 months maximum! Advising these customers to consider:! whether to retain/reinstate/install alternative fuel capability as backup! their ability to interrupt processing! planning for significant energy input price increases 12

13 What might new gas cost at the wellhead? NB - these are not Contact estimates $/GJ Maui Grant Samuel est. Shell est. LNG est. 13

14 How would end user prices be affected? Indicative effect of 100% price increase at wellhead Percent cost increase Wellhead Petrochemical Generation Industrial Commercial Residential Source Contact estimates 14

15 What can the Government do? 15

16 Recommended priorities for Government 1 Ensure a sensible Maui contract profile Bridge 2 Enforce all reasonable endeavours obligation on Maui partners 3 Act to swiftly develop Kupe, or pass it to owner who will develop 4 Discourage joint marketing of gas for Pohokura & Kupe 5 Don t impede use of alternative fossil fuels, especially in dry year 6 Ensure RMA doesn t block new field development 16

17 Recommended priorities for Government 1 Ensure robust regulatory environment Post Maui 2 Ensure open access to pipelines 3 Discourage joint marketing of gas 4 Enforce use it or lose it provision in prospecting licences 5 Ensure royalty regime is consistent with prospectivity 17

18 Conclusion Gas supplies may not meet demand over remainder of decade transitional issue industry-wide Timely development of Kupe and Pohokura essential Discovery and development of new gas reserves essential Major gas users need to prepare contingency plans Higher gas and electricity tariffs will part of life in the near term 18