Industry Participants

Structure of the Gas Industry

The natural gas industry comprises four main sectors:

Exploration and production
Transmission
Distribution
Major users and the retail sector
 

Exploration and Production

Producing fields

There are 14 fields and wells that produce gas in New Zealand, all in the Taranaki region. Production is currently dominated by the Pohokura field, which started production in 2006, and the Maui field. Shell and Todd Energy-owned subsidiaries control the majority of New Zealand production.

The giant Maui gas field was discovered in 1969, and initially offered more gas than New Zealand needed for domestic use. In the early 1980s, the government sponsored a number of large construction projects to promote economic development in the face of sharply rising world oil prices. Some of these ‘Think Big’ projects were dependent on Maui gas, including an ammonia-urea plant, the Motunui synthetic petrol plant, and the Waitara methanol plant. In addition, other types of gas demand, particularly power generation, continued to grow throughout the 1990s and into this decade.

A series of market reforms were implemented in the 1990s, the gas industry moving to market-based pricing and the government reducing its previously heavy commercial involvement in the market.

In 2008, total net gas production in New Zealand decreased by 6% to 155 PJ. This was caused by a combination of a drop in gas demand for electricity generation (as a consequence of plant outages, more coal generation at Huntly and increased geothermal generation) and a drop in consumer energy demand. (This information is sourced from the 2009 MED Energy Data File and at the time of writing, it is the most up-to-date information available from the industry.)

Gross Gas Production by Field for 2008

Pohokura 40.6%

Maui 29.8%

Kapuni 12.2%

Tui 4.4%

McKee 4.0%

Mangahewa 2.9%

Turangi 2.8%

Rimu/Kauri1 1.3%

Kaimiro/Ngatoro 1.1%

Other 0.9%

Exploration and development

In 2004, the Government announced packages to encourage gas exploration and development. These incentives, which range from tax breaks to government-funded seismic surveys, coupled with the decline in the Maui field, have resulted in a substantial increase in exploration and development activity in recent years. In 2007, 42 new wells were drilled in New Zealand (compared with 30 in 2006) with a record 17 being drilled offshore. Exploration and development continues to be centred in the Taranaki region (both onshore and offshore) due to the high success factor of drilling in this area. However, there is significant new exploration being conducted in the Great South basin and Canterbury basin east of the South Island, and in the East Coast basin of the North Island.

All major basins in New Zealand exhibit hydrocarbon seeps, but there has been little historic exploration outside the Taranaki basin. Even the Taranaki basin is considered lightly explored on an international scale, with one well per 72,000 acres having been drilled. The potential for major gas and oils finds in the wider New Zealand Exclusive Economic Zone (the area of sea and seabed that extends 12 to 200 nautical miles offshore) is considered high.

Transmission 

Transmission pipelines transport large volumes of natural gas under high pressure, from production fields to distribution networks or to large customers, along the pipeline.

Transmission systems generally operate at pressures above 2,000 kPa. There are over 3,400 km of high-pressure gas transmission pipelines in New Zealand. The major ones are:

• Vector’s network, which extends to most major North Island centres; and
•  the Maui pipeline, extending from South Taranaki north to Huntly, owned by Maui Development Limited.

The two major transmission pipelines operate on open access arrangements allowing all parties to ship gas through their pipelines. The Maui Pipeline is 30 inches in diameter and runs from Oaonui processing plant to Huntly. The Vector network is comprised of over 2,300 km of high-pressure pipeline delivering gas throughout the North Island. Other transmission pipelines are owned by Origin Energy, Shell and Todd Energy.

Distribution

Distribution networks transport gas from gate stations (transmission pipeline delivery points) and reticulate it into residential houses, offices, hospitals, factories, and other businesses.

There are more than 2,800 km of intermediate, medium, and low-pressure gas distribution pipeline networks in the North Island connected to the high-pressure transmission system.

There are four gas distributors: GasNet, Powerco, Nova Gas, and Vector.

Major Users and the Retail Sector

Major users

Total observed gas consumption (including electricity generation, co-generation, other transformation and petrochemical production) decreased from approximately 167 PJ to almost 154 PJ in 2008. This was due to a drop in demand for electricity generation and a drop in consumer energy demand.

Electricity generation (including co-generation) accounted for about 54% of New Zealand’s total gas consumption in 2008. Contact Energy Limited (Otahuhu B, Taranaki Combined Cycle, and New Plymouth), Genesis Power Limited (Huntly, including the new E3P combined cycle plant), and Mighty River Power (Southdown) are the main thermal electricity generators in New Zealand using natural gas.

In 2008, the industrial sector accounted for 20% of total gas consumption. From companies surveyed (according to the MED Data File 2009), the number of industrial consumers reported by gas suppliers remains relatively high compared with earlier years, but has decreased recently. Major users that are supplied directly from the transmission system include New Zealand Steel, Carter Holt Harvey, Degussa Peroxide, Fonterra Co-operative, NZ Refinery Company, and Tasman Pulp and Paper. Many smaller industrial users are connected to gas distribution networks.

Gas Consumption by Sector for 2008

Electricity Generation 54.5%

Industrial 20.1%

Methanol 14.7%

Ammonia/Urea 4.0%

Residential 2.8%

Commercial 2.2%

Other Transformation 1.6%

Transport Industry 0.1%

Residential 2.8%

Commercial 2.2%

Retailers and retail gas users

Retailers compete to sell natural gas to smaller gas users (including residential households, hospitals, and factories) who do not purchase directly from gas producers. Retailers effectively aggregate all the purchases of many smaller users to form a sizable purchase from gas suppliers. They also pay the transportation tariffs associated with transmission and distribution so that they can offer a convenient, bundled product to retail customers.

There are a number of retailers operating in New Zealand. Many of these share parent companies but provide differing service areas or products. They are: The Auckland Gas Company, Bay of Plenty Energy, Contact Energy, E Gas, Energy Direct, Genesis Energy, Mercury Energy, Nova Gas, and On Gas.