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Energy Study Pinpoints Thermal Fuel Issues

15 December 2004

Energy Study Pinpoints Thermal Fuel Issues

An independent study of New Zealand’s thermal energy needs says the forecast decline in the giant Maui gas field provides a window of opportunity for energy exploration which could avoid the need to import thermal fuels.

The year-long study by Canterbury-based CAE (Centre for Advanced Engineering) says the recent upturn in gas exploration has had some initial success, and it warns against plans to import Liquefied Natural Gas (LNG) as a substitute for indigenous reserves.

New Zealand’s cheap Maui gas for been used to produce up to 30% of the country’s electricity needs for the past 25 years. With the run-down of the Maui field, the energy sector now faces a difficult transition to alternative fuel sources – raising concerns about economic competitiveness, environmental outcomes and costs for consumers.

CAE’s executive director, Dr George Hooper, say the study is the first fully independent assessment of thermal energy supply and demand situation and has looked at all of the major thermal fuel options – indigenous gas, imported gas, coal, coal-seam gas and various petroleum gas distillates.

“The key difference between the Maui era and now is that the remaining thermal reserves are low relative to our rate of consumption,” says Dr Hooper. “The situation has given upstream companies a much improved business case for investment and exploration. There has been a long awaited upturn in this activity.

“Our investigations forecast a supply gap in indigenous natural gas from about 2012 unless new discoveries are made. However the fundamentals for successful gas exploration are good, and with the higher level of exploration occurring now there are good prospects for restoring New Zealand’s gas inventory and improving our energy supply security.”

He says an early commitment to imported LNG will discourage new prospecting. “Our investigations show a likely LNG price in the region of $8.70/GJ, based on a New Zealand dollar at 55 cents US and oil at around US$30 a barrel.

“We should be extremely wary about what bringing in higher-cost fuels will mean for New Zealand’s energy security in the long term. If LNG is established we will continue to be over-dependent on one type of thermal fuel, just as we have been with Maui gas.”

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“If a company or consortium can bring in LNG and accept all of the commercial risk then that is their decision. But if the government intends to take a role in an LNG network, such as underwriting some of the commercial risk, then the LNG network becomes a matter of public policy. In that scenario there must be full consultation with all of the industry stakeholders.

“Commercial proposals should look at a full range of thermal fuel options so that we can see all of the economic and environmental implications.

“For major energy users the price of thermal fuel will be critical. Higher costs will adversely impact on New Zealand’s international competitiveness and the economy as a whole. Public policy needs to examine the risks between establishing thermal fuels certainty and the impact on indigenous production.”

Dr Hooper says LNG will not resolve a dry-hydro electricity shortage and could discourage further investment in other energy forms. “Our study suggests that committing to an LNG network too soon will take value out of the economy by discouraging the development of indigenous reserves.”

The CAE study shows that New Zealand has a number of thermal fuel alternatives. There is enough coal for 230 years of current thermal needs, but the coal industry needs the chance to demonstrate the fuel’s economic and environmental viability. Coal-seam gas production is a possibility but the suitability of New Zealand coal seams remains unproven.

The study also urges further investigation into Compressed Natural Gas (CNG). While it has lower density than LNG and requires more storage volume, it is also easier to transport and process and therefore may be more competitive. The study rules out diesel and fuel oil for electricity generation on the basis of costs.

A full copy of the study is available as a PDF file on the CAE website www.caenz.com

About CAE CAE is an independent-think tank and research facilitator associated with the University of Canterbury and funded by grants and sponsorships. CAE’s mission is to advance social progress and economic growth for New Zealand through broadening national understanding of emerging technologies and facilitating early adoption of advanced technology solutions. www.canenz.com

ENDS

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