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Trevor Mallard Speech to the Gas Association

Gas a key to govt's sustainable energy development

Trevor Mallard Speech to the Gas Association Industry Forum, Carlton Hotel, Auckland

I am delighted to have the opportunity to attend this year’s Gas Industry Forum. It's a welcome opportunity in my new role as Minister of Energy to become acquainted with the Gas Association of New Zealand and to meet first hand players in the gas sector, who are a key component of New Zealand’s energy scene.

Tonight I want to touch on a few matters that I believe are important for the association and its members. Specifically, I want to talk about the role of gas in the government’s sustainable development framework as it relates to energy, the government’s view of the policy settings in the gas sector, and the new governance arrangements that have been put in place to cover the gas industry.

There is no doubt that gas has an important role to play in New Zealand’s future.

This government is committed to achieving growth through sustainable development. By that we mean development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.

The challenge is to ensure that an integrated approach is adopted to meet economic, environmental, social and cultural needs over time.

The government’s Sustainable Development Programme of Action, released in January 2003, sets out its principles for sustainable development policy and decision-making. Energy is one of the four action areas identified in the programme.

Last October, the government released its sustainable energy discussion paper, which is designed to engender discussion and consideration and, in time, assist New Zealand to make the transition to a sustainable energy future.

This government is strongly of the view that gas is a key component in the deliverance of a sustainable energy future.

Gas has a number of advantages: -greenhouse gas emissions per unit of energy for gas are less than for coal or oil.

So as emissions restrictions invariably tighten, the use of gas will increasingly provide a competitive advantage.

Also, gas use often has a smaller environmental footprint than alternative thermal fuel options and direct use can enhance energy efficiency.

In New Zealand and globally, gas will be a key bridging fuel in the transition from an energy market based on fossil fuels to one based on renewables over the next century.

I am reasonably comfortable at this point in time with the policy settings that govern the commercial aspects of the industry. In this term of government alone, we have implemented a raft of policy initiatives to facilitate the New Zealand gas sector’s transition to the post-Maui era. And these are worth repeating. This Government has: Reduced royalties to encourage the exploration and development of gas.

Relaxed the tax regime as it relates to upstream exploration to reduce costs for rig operators to make it more attractive for explorers.

Provided funding for the acquisition of geophysical seismic data.

Facilitated the renegotiation of the Maui Gas Contract, which has clearly defined the reserves left under the contract and removed the Maui price overhang.

Invited the Maui Development Limited parties and users to develop a suitable access regime for the Maui pipeline.

Legislated for a co-regulatory model of governance for the New Zealand gas sector and approved the Gas Industry Company as the industry body.

We have not been idle in the face of the challenges that confront us in the gas sector, and policy initiatives have been introduced that span the gas industry, from the upstream exploration and production sector through to gas retailing.

I am now looking for the New Zealand gas industry to put runs on the board and deliver the outcomes the government expects within these policy settings. The government’s short to medium term role with respect to commercial matters in the gas sector will now turn to focus on working closely with the Gas Industry Company to help it deliver the outcomes the government requires.

This leads us to gas industry governance.

The government through the passage of the Electricity and Gas Industries Bill in October 2004 has implemented the governance structure for the New Zealand gas sector. We now expect the industry to deliver on the requirements and outcomes the government expects.

Let me stress that we intend to work collaboratively with industry to ensure success.

One of my first acts on becoming the Minister of Energy was to announce the approval of the Gas Industry Company, as the industry body responsible for developing recommendations on regulations and rules for gas governance.

The Gas Industry Company is an important cog in the government's set of initiatives to move the New Zealand gas sector forward and to develop the new market arrangements that will be required in the post-Maui era.

I am confident that it will be able to deliver the necessary recommendations for the development of rules and regulations in the areas of gas processing, wholesaling, transmission, distribution and retailing.

I urge GANZ and its members, some of which will also be shareholders of the Gas Industry Company, to work collaboratively with it, and share your expertise, so we can really enhance the prospects of the successful and timely introduction of the various measures.

As you move forward it is important that you remember that the gas sector, like the electricity sector, has a public dimension that is not evident to the same extent in many other markets.

The government does not directly operate in the gas market.

However, the public look to governments for the delivery of safe, reliable and competitively priced energy. And when this does not occur, they look to governments for help and for action.

It is for this reason and also because energy is an important driver of economic activity that our government does not - and cannot - display blind faith in energy markets.

The government implements and reviews policy settings and regularly monitors the operations of critical elements of the market to ensure that the markets are performing satisfactorily.

It is important that gas industry participants are aware of these public dimensions and that these considerations are taken into account when decisions are taken and strategies are developed.

Major issues like the development of pipeline access regimes may go to the core of developing an effective and enduring gas industry in New Zealand.

But it is also important that the gas industry does not lose sight of the need to produce sensible solutions for matters which run to the heart of public concerns, for example customer switching and billing matters.

The importance of good residential customer relations should not be underestimated. The residential gas market is the “public face” of the industry and consumers will be quick to call for regulatory control if they believe they are not getting a fair deal.

I would like to congratulate GANZ for leading the work to develop the National Gas Outage Contingency Plan.

This is a great example of the gas industry working collaboratively to develop systems and practices to address an important strategic matter. My officials inform me that you have undertaken a couple of exercises that have proceeded well, and that as recently as ten days ago the contingency plan was activated when there was a gas supply disruption on the Maui platform.

Finally, I am aware that GANZ is in the initial stages of exploring the opportunities for the sale internationally of New Zealand gas technologies.

I understand that New Zealand’s gas industry is well respected internationally for its technology, best practices, training and safety. I wish you all every success with your initiatives in this regard. As you are no doubt aware, the government is currently in the process of negotiating a free trade agreement with China, which would facilitate this initiative along with the export initiatives of many of our other industries.

Thank you.

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