Energy chief calls for new rules

By FIONA ROTHERHAM

CHRISTCHURCH - Common regulations covering gas and electricity are needed to give exploration companies an incentive to find new reserves at a time when gas resources are becoming depleted, says Todd Energy chief executive Richard Tweedie.

He told delegates at the 2000 Petroleum Conference yesterday that gas should be included in any new regulation arising from the Government's review of the Electricity Reform Act 1998, which separated electricity lines and energy companies.

Gas is not covered under the review, but Mr Tweedie said a separate review would not be needed as the two markets were now so interdependent.

Because of this and the similar cost and physical structure of the companies involved, "it would be appropriate and efficient to impose similar cross-ownership restrictions and regulatory requirements on both sectors," he said.

New proposals for the UK electricity and gas market had found common regulation was appropriate and efficient.

A key part of the British rules was a ban on activities distorting competition. Such a move in New Zealand would prevent cross-subsidy, give cost transparency, allow non-discriminatory access at an equal cost to all parties and crate efficiency in gas transmission and distribution that would benefit consumers.

The wholesale price of gas was low, but retail prices had been pushed up by rapidly escalating pipeline charges, Mr Tweedie said.

The present flexible system should be changed to one barring monopoly overpricing and regulating monopoly asset pricing to let consumer demand set the price energy producers received.

"That is the factor ultimately that will decide if gas resources are brought to market and whether companies continue to explore to produce new resources," Mr Tweedie said.

Earlier, the conference was told gas exploration efforts had to treble to guarantee sufficient supply to replace the dwindling Maui field, which now accounts for more than 70 per cent of production.

Exploration companies said they had little incentive to bring known reserves to market, as supply contracts already balanced demand at artificially low prices under the Maui contract.

Until recently, the Natural Gas Corporation and Contact Energy were drawing less gas than contracted for under the take-or-pay provisions, and were therefore accumulating considerable prepaid gas reserves.

This created a hostile environment for any new reserves.

Both companies recently offloaded their prepaid gas, and matched entitlements with forward demand.

Ord Minnett energy analyst Chris Stone said these developments had eased the immediate excess gas supply, but Maui's capacity to meet foreseeable gas loads over the remaining life of the field suggested new market opportunities for uncommitted independent gas remained limited.

Drilling for new discoveries was hampered by the absence of an open gas market and high exploration costs, he said.

After Maui, the gas market would have the opportunity to make considerably better profits than those of the past 20 years.