Mercury to lift power prices

By CHRIS DANIELS

State-owned Mercury Energy is today set to reveal big electricity price rises to reflect New Zealand's dwindling supply of natural gas.

The move will underscore the urgency of talks in Auckland this week by the local gas industry to consider where future supplies of the vital fuel may come from.

Mighty River Power, which owns the Auckland-based Mercury brand, is expected to match increases introduced in the past year by its rivals.

Tariff structures will also be changed to take into account recent Government directives to the industry that it should provide special billing regimes to help those who do not use much electricity.

Fellow state-owned power company Genesis last month increased prices for its Wellington customers by an average of 12 per cent.

Mercury holds a similarly dominant position for most of Auckland.

It will blame the price rises largely on the rapidly depleting Maui field, used to generate about 25 per cent of New Zealand's electricity, and the absence of any obvious replacement.

This problem yesterday dominated proceedings at the annual Gas Industry Reform conference at Auckland's Crowne Plaza hotel.

Chris Stone, a director of investment bank McDouall Stuart and a former geophysicist with oil and gas exploration companies, told the conference there were "good returns beckoning" for those wanting to invest in the business.

Stone and McDouall Stuart helped raise $8 million in an initial public offering for locally listed gas explorer Austral Pacific (formerly Indo-Pacific) last year.

He said that there was a lot of local money looking to invest in the sector, but investors needed larger companies to put their money into.

"There is between $150 million and $250 million of capital available to the right vehicle to invest in New Zealand exploration and production," Stone said.

That optimistic view was shared by other speakers, including Todd Energy managing director Richard Tweedie and Methanex managing director Harvey Weake.

All told of an active exploration scene, with two drilling rigs operating off the coast for the first time in many years. Tweedie said there was time to find more gas and, since prices were increasing, there were strong incentives to do so.

Contact Energy chief executive Steve Barrett said there was also a need to gain control from a small group of companies that dominate gas exploration and production, including Todd Energy, Shell and the European energy company OMV.

They own the Pohokura gas field, which is due to come into production next year.

Barrett again criticised the Government's decision to provide an underwriting guarantee for Genesis, one of its energy companies. The deal helped Genesis get private finance to build its new gas-fired power station at Huntly. It was a "slippery slope" when the Government started intervening in this way.

Energy Minister Pete Hodgson said the Government's help for Genesis was a "one-off deal", given to the SOE because "it was the only game in town". The chance of the Government being called on to make good on the deal was very low.

Another big talking point at the Auckland conference was whether plans should be made to import natural gas (LNG). Using LNG would mean a big investment in terminals, but it is being touted as a "bridge" until new fields are discovered.