Basin review, Markets, Projects

New Zealand unlocks new gas potential

A case of unrealised potential

The New Zealand Ministry of Economic Development commissioned McDouall Stuart in early 2009 to produce an independent report outlining ways in which government could play a greater role in realising the potential of New Zealand’s petroleum sector.

The report, entitled Stepping up: Options for developing the potential of New Zealand’s oil, gas and minerals sector, found four key, above-ground barriers to greater investment in the industry including:

“¢ Regulatory uncertainty

“¢ Access to acreage

“¢ Access to infrastructure

“¢ Access to resources.

According to the report, these factors weigh against investment in the industry, particularly when considered alongside the below-ground risk of perceived low prospectivity.

Taking into account these findings, the New Zealand Government released an Action Plan on the petroleum sector aimed at repositioning itself as proactive in the development of petroleum resources.

The Action Plan included proposed changes to the current regulatory environment as well as a review into the Government’s capacity to manage the petroleum estate as it expands. The seven point plan aims to increase information available on New Zealand’s current and prospective petroleum basins and raise the profile of the sector.

Currently accounting for around $NZ2.4 billion ($1.8 billion) per annum of New Zealand’s export revenue, the petroleum sector’s contribution could increase tenfold by 2025 if estimated resources are developed.

“The immediate focus must be on increasing exploration activity and improving the knowledge of our petroleum basins,”? said New Zealand Energy and Resources Minister Gerry Brownlee.

New Zealand’s lead national body representing the oil and gas exploration and production industry, Petroleum Exploration and Production Association (PEPANZ), is one of the many interested parties to have submitted a detailed response to the Government’s Action Plan.

“For the sector to be successful, the Government must create a policy environment which is certain, and which is conducive to attracting and retaining capital in a sector where investment is highly mobile,”? said PEPANZ Executive Officer John Pfahlert.

“Industry welcomes the position adopted by the Government, which sends an important signal to international investors – we are prospective for hydrocarbons, and we are open for business,”? said Mr Pfahlert.

Moving on from Maui

The Maui Gas Field has been the most significant source of New Zealand’s natural gas since it commenced production in 1979 – producing more than 50 per cent of New Zealand’s gas from 1980-2006. However, since peak production of 176.32 billion cubic feet (Bcf) of gas in 2001, production at the Maui Field has continued to decline, producing just 45.27 billion cubic feet (Bcf) of gas in 2008.

The decline in production has sparked renewed interest in the exploration and production (E&P) sector.

In its Stepping up report, McDouall Stuart profiles the key players in New Zealand’s petroleum E&P industry. It is their assessment that the major E&P companies do not regard New Zealand’s Taranaki Basin as an enticing investment prospect, citing the departures of BP and Shell from exploration activities in the region. The report speculates that this is because “Prospectivity is not regarded as high and the resource base is considered too small to achieve materiality.”

The report states “The absence of super-majors from the New Zealand exploration scene leaves the most active E&P players as either second-tier multinationals or local companies.”?

Drilling the industry

Exploration drilling programs aiming at potential coal seam gas (CSG) and conventional gas resources are currently being undertaken by various companies throughout New Zealand’s petroleum basins.

L&M Energy (formerly L&M CSG) booked New Zealand’s first independently verified coal seam gas resource at its Ohai permit in western Southland in October 2009. After recording an initial resource of 173 petajoules (PJ), the company is continuing its CSG drilling program targeting permits in both the North and South islands.

Then Chairman of L&M CSG Geoff Loudon commented “What is unfolding before us is not dissimilar to the pioneering days of Australia’s CSG sector.”?

Other companies branching out from traditional gas drilling to explore an estimated 15 billion tonnes of New Zealand’s in-ground coal resources include Comet Ridge, Chartwell Energy, Solid Energy, Resource Development Technologies and Pike River Coal.

Comet Ridge spud its Macdonald-6P pilot production well near Greymouth in New Zealand with Horizon Drilling’s Rig 11. Work on installing gas and water flowlines and treatment facilities for produced water is well advanced. Field installation of these facilities and pipelines will follow the drilling and the completion of two pilot production wells, which are also planned.

Conventional gas drilling programs are continuing in both on and offshore fields. Greymouth Petroleum Group estimates its new Kowhai gas condensate field in onshore north Taranaki contains reserves of 134 petajoules (PJ) of gas and 3.2 million barrels of condensate.

The company plans to build a 3 megawatt (MW) power station and associated gas pipelines, which are expected to be commissioned in 2010.

In the Canterbury Basin, Origin Energy and Anadarko New Zealand Company have agreed to drill Origin’s offshore exploration permit PEP 38262, while Cue Energy and Todd Energy subsidiary Todd Exploration have entered into a farmin agreement for two offshore gas exploration permits located in the Taranaki Basin.

New Zealand Energy and Resources Minister Gerry Brownlee opened bidding for six new petroleum exploration blocks across the Reinga Basin off the northwest coast of New Zealand in January 2010, and the onshore Kahili Gas Field, located in Taranaki, in February 2010.

Mr Brownlee has said that the exploration and production of New Zealand’s gas reserves lessens the prospect of the nation becoming reliant on expensive, imported gas.

Gas to market

Kupe

Origin Energy’s Kupe Gas Field Development was officially opened by New Zealand Prime Minister John Key on 18 March 2010, following successful commissioning.

The Kupe Gas Field Development is made up of an unmanned offshore platform with three production wells, a 30 kilometre raw gas pipeline running from the platform to the shore, an onshore production station near Hawera, and light crude storage and export facilities near Port Taranaki, New Plymouth on the North Island.

It is estimated that over the life of the project, Kupe will produce a total of approximately 254 petajoules (PJ) of natural gas, 1.1 million tonnes of LPG and 14.7 million barrels of crude oil.

Origin Managing Director Grant King said “At peak, it is expected that the Kupe gas project will produce 10-15 per cent of New Zealand’s current annual gas demand and 50 per cent of its LPG current demand.”?

The project is a joint venture between Origin, Genesis Energy, New Zealand Oil and Gas and Mitsui E&P Australia.

Todd LPG plant

Major earthworks have commenced at Todd Energy’s $NZ65 million ($51 million) LPG plant, located in Taranaki, New Zealand.

Earthworks for the plant and associated storage and load out facilities are expected to be completed in May 2010, with main plant construction to commence in December 2010.

Transfield Worley NZ Ltd is carrying out the engineering, procurement and construction (EPC) of the LPG plant, with Enerflex System supplying the recovery plant packaged process equipment. Fabrication work, mechanical and electrical installation work is to be tendered to local contractors.

Design for pipeline modifications required as part of the project is being completed by engineering company Plant & Platform Ltd.

Once commissioned, the LPG plant will produce LPG sourced from the Mangahewa and Pohokura fields.

Gas storage and power generation

The second stage of Contact Energy’s Ahuroa Gas Storage development, located in the central Taranaki district, is nearing completion.

The company has reported that a total of 6 PJ of natural gas has been injected into the reservoir to date. The second stage of the project involves the drilling of three additional wells to enable the continuation of injection.

Installation of the gas extraction and processing equipment began in March, and the project is expected to be completed and commissioned during the fourth quarter of 2010. The company will then be able to extract gas at a rate of approximately 45 terajoules per day.

The company’s 200 MW gas-fired peaking power station at Stratford is approaching the commissioning stage and is on track to be in commercial operation in winter 2010.

The fast-start plant will support greater volumes of weather-dependent renewables in the electricity system and contribute to the country’s security of supply.

Transmission

New Zealand has introduced a compulsory code that the gas industry must follow during events that impact on the normal operation of pipelines.

Vector has been appointed by the Gas Industry Company (GIC) to act as the critical contingency operator under the Governance (Critical Contingency Management) Regulations 2008.

The role vests the company with the power to direct pipeline users to take specific actions during a national gas supply emergency.

Prior to these regulations, the gas industry operated under the voluntary National Gas Outage Contingency Plan, where critical contingencies were managed by Vector and industry groups.

Vector’s high pressure gas transmission system is over 2,286 km long and delivers natural gas to local distribution pipeline systems supplying all the major population centres in the North Island of New Zealand. The company also operates the 313 km onshore Maui Gas Pipeline and manages pipeline easements totalling more than 2,500 km, covering its own pipelines and petroleum product pipelines on behalf of oil and gas companies.

GIC is also undertaking research with gas market participants about their concerns held regarding pipeline capacity – in particular, capacity constraint on Vector’s North Pipeline. Once complete, a report setting out the issues and options of addressing them will be compiled and presented to the Ministry of Energy and Resources.

Placing the plan into action

While industry continues to invest in New Zealand’s gas, the Government is busy fleshing out the details of the work programs that make up its Action Plan, in consultation with key stakeholders.

In total, 18 substantive submissions on the Government’s Action Plan and the supporting expert reports were received from industry participants. A spokesperson for New Zealand’s Ministry of Economic Development said that the submissions indicated strong support for the overall direction of the Government’s proposals.

Moving forward, the Government plans to continue consulting with submitters and stakeholders in an attempt to strike a balance between Government and market-led development of the industry through the elaboration and implementation of its Action Plan.

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