Potential Gas Feed Crisis Turns New Zealand Power to Coal, Exploration, Import, and Privatization Prospects

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). With a critical gas supply shortage predicted from 2010 onwards, the New Zealand government and power generation sector are looking to build new capacity in coal-fired plants and renewables. To keep up with growth in demand, a mothballed plant is to be converted from oil feed to coal. Current national generation capacity is around 9,000 MW.

Mighty River Power (MRP) is seeking resource consent for the Marsden B power plant, which was built in 1978 as an oil-fired plant, but was never commissioned. Marsden Point is the site of New Zealand’s only oil refinery. The upgraded plant will have a 320 MW capacity and would transmit power into the greater Auckland market. The plant, at Marsden Point south of Whangarei, could be ready for commissioning in the second half of 2008.

Doug Heffernan MRP's chief executive said, "Marsden Point has sound infrastructure, with a good deep water port for bringing in coal, access to transmission and cooling water, and a location in a growing market, with additional straightforward existing transmission access to the Greater Auckland region." MRP provides up to 22% of New Zealand's power needs during peak demand.

In another recent announcement, Genesis Energy announced that it will proceed with the construction of a 385 MW, $340 million combined-cycle natural gas-fired plant known as the Huntly E3P, which will be commissioned in 2008/2009. The government has agreed to underwrite part of the project's debt repayments, if it experiences gas shortages. Genesis and Contact Energy have commissioned research which shows that gas could be imported for 50 years at prices that would match gas prices in the domestic market. But the study showed that investment in infrastructure for imported gas was expensive. The minister of energy, Peter Hodgson, is bullish about the prospect of new gas fields being discovered, but accepts that contingency plans have to be made, in case they are not. Genesis and its partners in the Cardiff joint venture are exploring in the Taranaki region onshore and offshore, which is said to have good potential.

Genesis is also looking at the feasibility of building a new $520 million coal-fired power station at Huntly, which could be operational in 2009. Energy Minister Hodgson says with rising power demand and drought and opposition to new dam projects diminishing hydro's share of the power market, coal and gas fired generation make up the gap, with windpower and geothermal sources adding to the mix. In 2000, hydropower accounted for 67% of the country's power supply, but by 2025 this contribution could be down to 50%. There is some discussion of nuclear power generation, with a few 'radical' greens on the pro side, against a deeply rooted 'keep New Zealand a nuclear-free' zone lobby.

Ironically, the country's gas shortage may be eased if Methanex (TO:MX) (Vancouver, Canada) closes down production. The methanol producer, the country's biggest gas user, has cut its production to 40% of plant capacity and could close down within two years, if no new gas reserves are located.

Genesis Chief Executive, Murray Jackson, has said that the need to build transmission and distribution networks to cope with extremes of weather was "reaching a state of emergency". Upgrade of the national transmission grid could be partly funded by the state's Transpower’s selling some of its lower capacity lines to private companies. That would provide growth for line companies and free up capital for the big grid upgrade. Jackson also said that the three state-owned power companies, Meridian Energy, Genesis Power, and Mighty River Power, had the capacity to expand and deliver value for shareholders. He said that in the eyes of the government, they have a lot of potential for privatization.