Cheaper gas likely from pipeline threat

By Mark Reynolds

Three major gas users in Auckland have banded together in an attempt to break the Natural Gas Corporation's monopoly on the bulk transmission of gas to the city.

The action of the three companies - Contact Energy, Qest New Zealand (formerly Enerco), and Southdown Co-Generation - is likely to result in NGC at least having to reduce its pipeline charges, which should ultimately be reflected in lower energy costs for Aucklanders. The move could alternatively see the companies build a new 80km gas transmission line, at a cost of about $80 million.

The companies currently transport gas to Auckland from production fields in Taranaki through a transmission system NGC operates. Most of the system - the so-called Maui line, is owned by Maui Developments, which is in turn owned by Fletcher Challenge Energy and Shell-Todd Petroleum. The Maui line begins near New Plymouth and ends at Huntly.

NGC separately owns and operates an 80km stretch of pipeline that runs from Rotowaro, near Huntly, through to Westfield in South Auckland. It is that stretch of pipeline that the three bulk users want to break the monopoly on.

The companies have sought tenders for the construction of a competing service, saying in tender advertisements that their "combined gas transportation requirement is sufficient to support a dedicated pipeline." The 39 petajoules of gas they need to transport annually is used mainly in electricity plants such as Contact Energy's Otahuhu power station and the Southdown power station that Qest and TransAlta New Zealand jointly own.

The gas these companies gas use represents about two-thirds of the total volume currently transported through the corporation-owned line.

NGC communications manager Keith Fitzpatrick would not comment on the potential loss of revenue if a competing pipeline was built. But he said the corporation was talking with at least one of the companies about transmission prices. That company is Contact Energy, which is currently renegotiating its annual transmission contract.

Contact spokesman Bruce Thompson declined to comment on whether Contact and its partners were serious about building a new pipeline, or were simply using the threat of such action to leverage a better deal with NGC.

For the corporation, the haggling over the transmission costs comes at a sensitive time. To begin with, NGC has just completed a $19 million reinforcement and expansion of its Rotowaro-Auckland system. The upgrade doubled NGC's ability to deliver gas to Auckland and was especially aimed at ensuring the company could meet extra demand from Contact's new Otahuhu B power plant.

The pricing dispute also comes as NGC considers splitting its operations into three, including creating a new listed transmission company that would generate much of its income from the Auckland gas line.