Hopes for Taranaki energy fuel international tendering

By CHRIS DANIELS, energy writer

Oil and gas exploration in Taranaki is heating up, while the Government lauds the latest tender round for exploration permits.

Associate Energy Minister Harry Duynhoven is talking up the latest bidding round, saying he has been encouraged by the level of overseas interest in exploration here.

Whether this interest is sufficient to provide New Zealand's energy users with enough gas to power future demand will depend to a large degree on the success of exploration in the next few years.

The biggest users of natural gas, Contact and Genesis, who burn it to make electricity in their power stations, are nervous about future gas supplies, so are investigating the importation of liquefied natural gas (LNG) to cover any possible shortfall.

"There are a lot of companies that realise importing LNG is going to be a quantum leap in price," said Duynhoven.

"In between LNG and Maui there are an array of potentially viable discoveries and niches exist for those discoveries."

Fields which on paper had not been considered viable, were now becoming attractive.

"Domestically sourced natural gas remains an important and economically attractive component of New Zealand's overall energy needs," said Duynhoven.

"For this to remain the case, a significant increase in exploration activity is required if new discoveries are to replace existing production."

Advisers were working on methods to try to increase exploration activity, he said.

These ideas ranged from the tax treatment of exploration companies, through to the co-ordination of bringing in equipment such as drilling rigs.

Another much-anticipated development that will play a big part in securing new gas supplies for New Zealand's electricity generators was confirmed last week with the sale of 50 per cent of the Kupe gasfield to Australian energy company Origin.

Gas from Kupe, which was discovered in the late 1980s, is due to start flowing in 2007, after it is developed at an expected cost of more than $200 million.

State-owned energy giant Genesis, which owns the Huntly Power station, has gone from being an 81 per cent owner of the Kupe field to 31 per cent.

Origin Energy has paid $33 million for a 50 per cent interest in Kupe and will be the operator. NZX-listed New Zealand Oil & Gas (NZOG) owns a 15 per cent interest in Kupe, after selling a 4 per cent stake to Japanese firm Mitsui.

Genesis is planning to build a 385-megawatt gas-fired power station at its Huntly site, which is likely to use Kupe gas.

This week it took delivery of a new 40MW turbine to be installed at Huntly, ready to generate electricity this winter.

The existing Huntly station, designed to run on coal and gas, operates at only 36 per cent efficiency, while the new turbine will run at 41 per cent efficiency, meaning more electricity generated from each unit of gas burned.

The bidding

* 17 blocks, nine offshore and eight onshore, were offered in the latest bidding round.

* 23 bids were made from 18 companies.

* All blocks are offered with a minimum requirement to drill a well within four years.

* In two of the permits, the successful bidders have committed to drill wells as early as 12 months and a further four permits have been awarded with the promise to drill a well within 2 years.