Maui gas potential shunned

By FIONA ROTHERHAM

Two potential gas pockets within the Maui field are likely to remain undeveloped, despite reserves running out.

The pockets, alongside the Ihi fault, are thought to contain between 160 and 180 petajoules of recoverable gas - almost enough to meet New Zealand's yearly gas demand.

The Maui field, off Taranaki, accounts for more than 70 per cent of the country's annual gas production.

It is entering the last third of its life with no new gas discoveries of sufficient size to replace it.

The field's three mining companies, Fletcher Challenge Energy, Shell and Todd, are assessing whether the Maui contract requires them to develop the Ihi prospect.

At issue is whether it would be economic.

They receive a contracted price of $1.50 a gigajoule for Maui gas, but the Ihi prospect may still be uneconomic to develop after the contract ends in 2009, despite forecasts that gas prices will rise sharply.

Associated infrastructure costs would be high for handling a relatively small amount of gas.

The companies contract directly to the Crown. Under the 1990 back-to-back contracts, the Crown on-sells at a margin to Contact, the Natural Gas Corporation and Methanex.

According to an internal Maui partners' letter obtained by the Herald, new analysis of the Maui field indicates there is a high probability of identifying or proving gas alongside the Ihi fault, which had been bypassed for development.

But the Ihi gas is thought to be high in carbon dioxide, much more than allowed for in the Maui gas specification.

The Maui field companies have said that there are sufficient reserves left in the field to meet the contract.

Estimates of the remaining gas were revised upwards by 40 per cent to net production of 1522 petajoules early last year.

The letter, to the firms' joint-venture company Maui Development, said that, based on the sellers' current assessments, remaining reserves and forward demand under the maximum daily quotas could converge in late 2003.

However, if Ihi reserves could be proved, this convergence would proably not occur until 2006.

Maui Development has refused to comment.

It is understood the Ihi gas pockets have been assessed as the best potential left in the field.

Fletcher Challenge Energy has said previously that the partners plan to target the deeper Ihi formation for gas.

But Todd Petroleum boss Richard Tweedie said the question was whether the partners would spend the money to do it at the current Maui gas price.

The contract requires the companies to act as a "reasonable and prudent operator," drilling all wells necessary to meet the contract obligations. In Mr Tweedie's view, the contract only requires them to drill if the gas is economic to produce.

The trade-off could be a renegotiation of the contract price for that particular gas to make it economic to develop.

Agreement would be needed from all three downstream purchasers and the Crown.