Contact Energy Media Statement
21 May 2004
Contact Energy and Shell New Zealand today announced new arrangements that simplify the gas contracts between them.
The new arrangements have two main effects for Contact:
they provide much greater certainty about supplies for its existing gas-fired power stations, and have freed up a substantial portion of generating capacity which has been offered to major consumers through the electricity hedge market.
Contact Energy has reached an agreement with Shell New Zealand to purchase gas from the Pohokura gas field, and deal with a range of related issues. Shell New Zealand is one of the three joint venture partners in the Pohokura gas field, and holds a 48% interest in the field.
As part of the new arrangements, Contact and Shell have agreed to reconstitute the set of gas contracts they hold which were associated with the development of the Taranaki Combined Cycle (TCC) station in the mid-1990s. Those contracts were developed by other parties, but are now held by Contact and Shell because the original parties sold their interests in the project over time.
While the TCC gas contracts were complex, their broad effect was to oblige Shell to supply up to 20.4 PJ per year of fuel to Contact, beginning from the date on which Contact’s Maui entitlement is exhausted and running until 30 June 2010. Contact in turn was effectively obliged to manage its Maui entitlements in such a way as to defer the commencement date for the supply of ‘make-up’ fuel from Shell. Any failure by Contact to honour this requirement would undermine the obligation on Shell.
These arrangements created difficulties for both parties, as neither could plan with any certainty around a firm start date for the supply of make-up fuel. These difficulties were magnified by the uncertainties around Contact’s Maui gas entitlements that became apparent after the Maui redetermination process.
The new arrangements agreed between Contact and Shell have been formulated to address these issues. In summary, they provide for Contact’s Maui commitment to end on 30 September 2007 and for Shell to supply up to 20.4 PJ per year of gas to Contact beginning from 1 October 2007. It is anticipated the supply will be from the Pohokura gas field. That obligation will continue until the termination of the original agreements, on 30 June 2010. The additional commitments reflect amended pricing arrangements.
Contact and Shell have also reached an agreement to terminate the 76 MW long term hedge contract that was associated with the TCC development. This frees up an important slice of capacity within Contact’s hedge book, and the company has already moved to offer some additional capacity into the market.
“Today’s announcement is an important milestone for the company,” said Contact’s Chief Executive, Mr Stephen Barrett.
“This agreement has two major benefits for Contact. It provides access to an additional source of non Maui gas and, equally importantly, provides a much more certain basis for Contact to plan the efficient use of its remaining Maui entitlements,” said Mr Barrett.
“Together with our existing supply arrangements and the recently announced purchase of Pohokura gas from OMV New Zealand, this arrangement provides sufficient gas to allow Contact to run its modern combined cycle power stations at Otahuhu B and Stratford. These stations can generate enough electricity to meet the needs of over 600,000 households, or around a third of New Zealand’s entire household demand for electricity.”
“Over the last month, Contact has entered into two major gas purchase contracts, with a combined value of many hundreds of millions of dollars. We see these contracts as important commitments for the company and for New Zealand, as they will help to underpin the development of a vital new fuel source for the nation.”
“While this agreement with Shell represents another important step forward for Contact, we are still keen to secure further additional sources of gas, and will be continuing with a wide-ranging effort on this front.”