Price rise seen as key to gas hunt

By CHRIS DANIELS energy writer

Higher gas prices, the need for more investment in exploration and the effects of Maui gas running out dominated proceedings at the New Zealand Petroleum Conference yesterday.

The event, organised by the Government and oil and gas industry players, is designed to showcase New Zealand as an attractive place to invest, with representatives from all big oil companies present.

Tim Warren, Shell's regional business director for East Asia and Australasia, said New Zealand was a good place to explore for oil and gas, but was hampered by the high cost of bringing equipment such as drilling rigs to such a remote location.

He said the cost of getting a rig to New Zealand and back to its home sometimes accounted for half the cost of exploring a prospect.

Shell's new Pohokura gas field in Taranaki is due to come on stream in a few years, but there needed to be some big changes in the industry before the billions of dollars needed for exploration investment began flowing to New Zealand.

"While Pohokura is a large field it is only about one quarter the size of Maui," said Mr Warren. "What this means is that the New Zealand exploration community will need to find additional Pohokura-sized or larger fields in the next few years or the nation will face a significant gas shortfall in the 2007-2009 timeframe.

"New Zealand ranks near the top of the international scorecard as far as culture, business terms and conditions, and stability.

"The quality of the technical and business resources available to the industry is also excellent. The biggest challenge is to be able to successfully compete with other countries for investment capital."

Gas prices will need to "migrate towards the global norm", said Mr Warren, otherwise companies would not find it worthwhile putting their money into New Zealand.

"This means that the current average New Zealand wellhead price of less than $US1 [per gigajoule]will need to increase to at least $US3."

Mr Warren said that when making an investment decision about exploring for oil and gas in New Zealand, proposals had to be weighed up against competing prospects around the world.

New Zealand enjoys the cheapest natural gas in the OECD, thanks to the cheap contracts organised by the Government in the 1970s.

Mr Warren said that as the largest holder of gas and oil reserves in New Zealand, Shell "remained committed to utilising its worldwide technical and financial strength to search for new indigenous gas supplies to meet the nation's needs post-Maui."

Former Geologic and Nuclear Sciences geophysicist and now private consultant Mac Beggs told the conference that exploration companies were being too conservative when it came to drilling for oil and gas in New Zealand.

Giving the conference a review of the past two years in the industry, Mr Beggs said 10 to 15 years ago, there was a lot of scepticism about whether there were actually large reserves of oil and gas around New Zealand.

These qualms had now been dispelled, but sufficient money was still not being spent on exploration. The depletion of the Maui field meant such investment had to happen now.

"A historically significant transformation is in progress," he said.