Contact says demand means imported gas - at a cost

David Baldwin. Photo / Mark Mitchell

Contact Energy is preparing to import gas if needed but warns it will be the most expensive of all generation options.

Managing director David Baldwin says it is estimated imported gas used in generation would be twice as expensive as existing domestic supplies.

Without major discoveries, the company believes domestic gas available for power generation is not assured and it had already been hurt by steep price rises in the past year.

For long periods during the 12 months to June 30 the switch from cheap Maui gas to onerously contracted Maui and Pohokura gas meant Contact was left with no option but to run its gas-fired stations at a loss.

New base-load gas-fired generation remains unlikely.

"Even if you took the most conservative demand profile for gas there looks to be a need to import gas sometime in the middle of the next decade in order to meet demand," Baldwin said.

While explorers, such as Todd Energy, are confident major gas discoveries to replace the dwindling giant Maui field will be made, Contact is preparing to import gas although it is changing tack on how that would be done.

The company and Genesis Energy had planned a land-based terminal at New Plymouth but had taken the decision to write down its $2.8 million initial investment because there was a cheaper, more flexible alternative.

New technology would allow Contact to buy LNG by the boat load which can be gasified on tankers and pumped straight into its $250 million Aharoa gas storage facility.

Baldwin said a large investment in heavy LNG terminal infrastructure would effectively commit the country to importing gas for many years.

LNG import proposals are likely to be contentious because they expose New Zealand to international gas prices and would impact on electricity prices, energy security and could discourage domestic exploration.

Across the Tasman, Contact's parent, Origin Energy, yesterday announced it had secured a site for a coal seam gas to liquefied natural gas plant in a joint venture with ConocoPhillips at the Port of Gladstone in Queensland.

Origin says the joint venture is on track for a final investment decision on the project by the end of 2010 and first LNG production by the end of 2014.

Contact sees its longer term future in hydro and wind generation which it concedes are complicated to consent with geothermal filling the gap in the medium term.

Coal did not have a bright future, Baldwin said.

"It's our view that coal-fired generation will phase out towards the middle part of next decade."

It may be used for dry year, reserve generation but with carbon pricing and high costs of maintaining ageing plant, it was cheaper to generate from new geothermal than existing coal-fired plants.