Gas production in New Zealand began in 1970 with the development of the Kapuni Gas Field, located in the Taranaki region of the country’s North Island. Since then, approximately 5,686 billion cubic feet (Bcf) of gas has been produced.
The country has approximately 2,023 Bcf of proved and probable (2P) gas reserves, representing approximately 13 years of reserves at the current rate of consumption. The nation’s reserves are growing, with gas reserves having increased by 17 per cent in 2007.
Gas exploration
Mr Brownlee explains that, while the future for gas exploration and production in New Zealand looks positive, the nation is struggling to attract explorers due to its geographical location.
“Our most pressing issue is trying to attract explorers to New Zealand. This is a challenging task given that we are a frontier area a long way from global industry infrastructure.”?
The New Zealand Government is looking at and working on a range of measures to improve this, currently funding seismic data acquisition for gas exploration companies, as well as providing a tax exemption for non-resident offshore rig operators and what Mr Brownlee describes as a “relatively generous royalty regime”?.
He cites the development of Origin Energy’s Kupe Gas Field, located south of the offshore Taranaki Basin, as a particularly exciting new development, adding that as the Maui Gas Field declines in production it is important that new projects, such as Kupe, come online. The Kupe field has an estimated resource of 230 PJ of 2P sales gas reserves, plus considerable condensate and LPG, with additional reserves potential.
“The competitiveness of gas versus alternative fuels is largely supply driven,”? says Mr Brownlee. “As supplies of gas under the Maui gas contract are about to end, wholesale gas prices have risen to reflect the long-run marginal cost of bringing new gas supplies on stream.
“In order to limit future gas price rises, it is essential that new sources of domestic gas are discovered and brought on stream in a timely manner.”?
He explains that the Crown, the Ministry of Economic Development, the Commerce Commission, the Gas Industry Company and gas industry participants all have a responsibility to ensure that the gas industry is competitive.
Initiatives such as the new Part 4 of the Commerce Act, which places a form of price control and information disclosure on gas pipeline businesses, and the various gas governance arrangements being pursued by Gas Industry Company – switching, downstream reconciliation, balancing, interconnection, Maui Pipeline Operating Code and the Vector Transmission Code change requests – are all designed to make the industry as competitive as possible.
Climate change
Mr Brownlee says that gas will continue to play an important role in New Zealand’s energy future, as the Government phases in an emissions trading scheme (ETS) between 2008 and 2013.
“An ETS would impose some additional costs on the gas industry, although it is not clear to what extent. It appears unlikely, however, that an ETS charge would alter the relative economics of gas versus coal for electricity generation.
“Gas is a relatively clean source of energy and some power companies will need to either maintain or expand gas powered stations within their portfolios to meet growing demand over the long term.”?
In addition, Mr Brownlee says that New Zealand is in the early stages of investigating the potential of carbon capture and storage (CCS) projects.
“We have much work to do in order to establish whether CCS is a viable option for us,”? he says, noting that the country’s unique energy mix and environment has to be taken into account.
“Internationally, New Zealand supports CCS deployment, particularly in significant CO2-emitting economies, recognising that global uptake of CCS is likely to contribute to reducing global CO2 emissions in the future.”?
Future options
A number of gas projects could develop in the future, including an LNG import terminal and the development of coal seam gas (CSG) fields, both on the North and South Islands.
Contact Energy and Genesis Energy have proposed the Gasbridge Project, which would import LNG from overseas to provide a backup solution in the event that New Zealand is unable to supply sufficient gas to meet demand.
However, Mr Brownlee doesn’t rule out the possibility of LNG for export. “Were New Zealand to discover a major gas find – such as in the Great South Basin – it may be able to be liquefied for export,”? he says.
Recently, CSG exploration has occurred in New Zealand, with Solid Energy operating a project in the Waikato region on the North Island, Comet Ridge and Chartwell Energy drilling in the same region, and L&M Petroleum exploring for CSG in the South Island.
“CSG is a relatively high-cost means of producing gas, although in the case of sub-bituminous coal reserves in the Waikato it has the advantage of being located close to New Zealand’s largest demand centres.
“At this stage, it appears unlikely that CSG will offer anything more than a niche source of gas supply.”?
Reticulated natural gas is available on the North Island, with bottled LPG available throughout New Zealand.
“Reticulated gas networks in the South Island are limited to LPG in localised areas. Due to economies of scale and the distance from existing gas fields, it appears unlikely that a natural gas pipeline network will ever develop in the South Island.”?
Reserves for the future
Mr Brownlee is hopeful that New Zealand will be able to significantly increase the amount of oil and gas produced domestically over the next
20 years.
With ongoing exploration activity, New Zealand’s 2P and probable reserves are growing and Mr Brownlee is optimistic about the industry’s future.
“The future for exploration and production in New Zealand is bright,”? he says.