NEW ZEALAND
OVERVIEW _______________________________________________________________________ 3
1. Energy Outlook _________________________________________________________________ 4
2. Oil ___________________________________________________________________________ 5
2.1 Market Features and Key Issues ___________________________________________________________ 5
2.2 Oil Supply Infrastructure _________________________________________________________________ 8
2.3 Decision-making Structure for Oil Emergencies ______________________________________________ 10
2.4 Stocks _______________________________________________________________________________ 10
3. Other Measures _______________________________________________________________ 12
3.1 Demand Restraint ______________________________________________________________________ 12
3.2 Fuel Switching _________________________________________________________________________ 13
3.3 Surge Oil Production ____________________________________________________________________ 14
3.4 Relaxing Fuel Specifications ______________________________________________________________ 14
4. Natural Gas ___________________________________________________________________ 15
4.1 Market Features and Key Issues __________________________________________________________ 15
4.2 Natural Gas Supply Infrastructure _________________________________________________________ 17
4.3 Emergency Policy for Natural Gas _________________________________________________________ 18
List of Figures
Total Primary Energy Supply .................................................................................................................................4
Electricity Generation by Fuel ...............................................................................................................................5
Domestic Oil Production and Demand ..................................................................................................................6
Oil Demand in 2009 (kb/d) ....................................................................................................................................6
Oil Consumption by Product .................................................................................................................................7
Crude Oil Imports by Source .................................................................................................................................8
Oil Infrastructure Map...........................................................................................................................................9
Total New Zealand Oil Stocks by Type ................................................................................................................11
Oil Consumption by Sector ..................................................................................................................................13
Natural Gas Consumption by Sector ...................................................................................................................16
Gas Infrastructure Map .......................................................................................................................................17
NEW ZEALAND
OVERVIEW
New Zealand’s relative geographical isolation from the global oil market supply chain creates a
particular challenge to oil supply security. Fortunately, New Zealand has relatively abundant
domestic fossil fuel resources, compared to most IEA countries. It has large reserves of coal and
some reserves of natural gas and oil. The country has been fully self-sufficient in natural gas
supplies; however, domestic natural gas fields are declining rapidly.
Oil consumption has grown steadily since the mid-1980s, and although there is some domestic
production, imports are necessary to meet around half of New Zealand’s oil demand. Most
imports are in the form of crude oil, primarily from the Middle East. Following an upgrade, New
Zealand’s sole refinery is able to supply approximately 80% of the country’s product demand.
New Zealand places no minimum stockholding obligation on industry, and until 2007, it relied on
the industry’s normal stockholding practices to meet the country’s overall minimum 90-day net
import obligation as a member of the IEA. Rising import dependency over the past decade resulted
in the country being temporarily in a state of non-compliance with regards to minimum stock
levels.
In response to this, the New Zealand government acquired stockholding in other IEA member
countries, in the form of ticket reservations, as of 2007. These tickets represent around 0.8 million
barrels of public stocks in 2010 (down from 3.7 million barrels in 2007). Because of its growing
domestic production in recent years, New Zealand’s net imports have dropped, thereby reducing
its IEA stockholding obligation.
All tickets are held directly by the New Zealand government, rather than through an agency on the
government's behalf. In an IEA co-ordinated action, New Zealand would likely contribute to the
collective response by releasing these public stocks and implementing a campaign for voluntary
demand restraint.
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NEW ZEALAND
1. Energy Outlook
Compared to most IEA countries, New Zealand has relatively abundant domestic fossil fuel resources. It
has large reserves of coal – a large share of which is exported – and some reserves of natural gas and oil.
New Zealand’s TPES has more than doubled since 1973, growing from 8 million tonnes of oil equivalent
(Mtoe) to over 17 Mtoe in 2008. Overall TPES has been relatively stable over the past decade, with the
decrease in natural gas consumption being compensated for by an increase in renewable energies.
Total Primary Energy Supply
1973
2008
Coal
16%
Hydro/Renew/
other
29%
Coal
10%
Hydro/Renew.
/other
34%
Natural Gas
3%
Oil
37%
Nuclear
0%
Nuclear
0%
Oil
52%
8 020 ktoe
*Data excludes electricity trade.
Natural Gas
20%
16 906 ktoe
Source: Energy Balances of OECD Countries, IEA
The supply of natural gas has grown by an astounding 1117% over the 35-year period, due to the
development of sizeable gas fields as of the 1980s. The country has been fully self-sufficient in natural
gas supplies, but domestic natural gas fields are now declining rapidly. Because of New Zealand’s
inability to import natural gas (no LNG terminals and no pipeline connections to other countries), gas
consumption has declined somewhat in recent years, in line with declining production.
The supply of renewables (and particularly hydro) has grown by 154% since 1973. Oil and coal, although
also growing in absolute terms (by 47% and 41%, respectively, over the same period), have declined as a
percentage of the country’s TPES.
As for oil demand, eighty-three percent comes from the transport sector, and an additional 11% is
consumed by industry. For natural gas, 57% of demand is for power generation, with industry ranking
second with 32% of gas demand.
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NEW ZEALAND
Electricity Generation by Fuel
50
TWh
45
40
Other
35
Hydro
30
Nuclear
25
20
Natural Gas
15
Oil
10
Coal
5
Electricity Useˆ
0
Source: Energy Balances of OECD Countries, IEA
The main input for power generation is renewable energy – particularly hydro power (51% of power
generation in 2008), of which New Zealand has abundant resources. Nevertheless, natural gas remains
an important source of electricity generation, accounting for a quarter of inputs in 2008. Successive
governments have made a strong push for the development of intermittent renewable energies (e.g.
wind, wave, etc.), and these renewable fuels (particularly, wind) are expected to contribute
progressively more to the country’s power generation mix (with a long-term target of 90% of power
generation from renewable energies).
Whilst commendable from an environmental point of view, the intermittent nature of wind and other
renewable sources means that power generation based on these intermittent renewables will require
additional back-up capacity from hydro and hydrocarbon-based generation, and the bulk of this back-up
capacity is expected to be gas-fired (mainly due to of the increasing economic costs of coal-fired
generation, due to emissions). Thus, gas is set to play an ever-increasing role in the country’s power
generation system, particularly in times of power crises. More importantly, because of the increasing
reliance on gas-fired plants as back-up capacity, the electricity sector will be exposed to heightened
dependence on gas-fired power generation in times of emergency, and times when power generation
based on intermittent renewables (e.g. wind or wave) diminish temporarily. Thus, additional spare
capacity for gas-fired generation will be required.
2. Oil
2.1 Market Features and Key Issues
Domestic oil production
All of New Zealand’s oil production is from fields in the Taranaki Basin, located on the west coast of the
North Island. Most of the basin is located offshore, but the majority of small producing fields are
onshore. Most oil produced in New Zealand is light, sweet crude. However, New Zealand’s sole refinery
is geared towards sour crude. Thus, most oil produced in New Zealand is exported. All oil from New
Zealand fields is transported to market via tanker.
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With the streaming of the Tui field and the recently commissioned Maari field, New Zealand’s total
domestic oil production rate in 2008 reached 58 kb/d, an increase of over 40% from 2007. In 2009, New
Zealand produced oil from 17 fields in the Taranaki region, with the two offshore fields, Pohokura
(12.5 kb/d) and Tui (35 kb/d), dominating production in 2008.
New Zealand’s production is expected to peak in 2010. Thereafter, however, New Zealand’s
progressively declining domestic production will have a significant impact on the country’s oil security.
The fast rate of expected decline after 2010 is notably due to the fact that recent fields that have come
online, such as Tui, are relatively small and have a high rate of depletion.
Exploration activity has increased in recent years. The main focus remains on Taranaki, but there has
also been activity in other areas, including the east coast of the North Island, off the east coast of the
South Island, and in the lower South Island. The New Zealand government recently accepted bids for
exploration in the Great South Basin (off the bottom of the South Island), which is seen as the most
likely location for a major oil/gas discovery.
Domestic Oil Production and Demand
200
180
160
140
kb/d
120
100
80
60
40
20
0
Jul-07 Sep-07 Nov-07 Jan-08 Mar08
Crude Oil
May- Jul-08 Sep-08 Nov-08 Jan-09 Mar08
09
NGLs
May- Jul-09 Sep-09 Nov-09 Jan-10 Mar09
10
Non Conventional Oils
May10
Oil Demand
Source: IEA Monthly Oil Statistics
Oil demand
New Zealand’s oil demand has grown steadily since the mid1980s, driven primarily by transport consumption. Total New
Zealand oil demand in 2009 averaged slightly more than
154 kb/d. As in many OECD countries, the transportation sector
accounts for an increasing share of total oil demand, reaching
83% in 2008. As a result of the increasing demand for transport
fuels, demand has grown steadily since the mid-1980s.
Motor gasoline, gas/diesel oil, and jet kerosene are the main
transportation fuels. Demand for diesel oil has grown at a
notably rapid pace, averaging 5.8% in the period from 2000 to
2008, compared to a rate of 2% for total oil demand.
Oil Demand in 2009 (kb/d)
LPG and Ethane
Naphtha
Gasoline
Kerosene
Diesel
Heating/other Gasoil
Residual Fuels
Other Products
Total Products
5
58
22
48
4
5
13
156
Oil demand is expected to continue to grow at a very similar rate, and future oil demand growth will be
the result of increases in the use of these transport fuels. Consumption in all other sectors is expected
to remain the same or to decline.
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NEW ZEALAND
Oil Consumption by Product
180
thousand barrels per day
160
140
120
Motor Gas
100
Jet and Kerosene
80
Diesel
60
Other Gasoil
40
Residual Fuels
20
Other
-
Source: Monthly Oil Statistics, IEA
Taxes and maximum price mechanism
New Zealand has the fifth lowest taxation levels on gasoline in the OECD. These taxes include excise tax
(which is paid into the National Land Transport Management Fund), the Petroleum or Engine Fuels
Monitoring Levy (PEML), the Local Authorities Fuel Tax (LAFT), the Accident Compensation Corporation
Levy (ACC), and the Goods and Services Tax (GST, 12.5%).
Diesel is not subject to excise tax, because all diesel vehicles are subject to road user charges, which
help to fund the government entity responsible for national highways (Transit New Zealand). However,
diesel fuel does incur the LAFT, PEML and GST. Road user charges for diesel vehicles vary depending on
the type of vehicle. As an example, for a 2-ton vehicle, travelling 20 000 km per annum at a fuel
efficiency of 9 litres per 100 km, the road user charge would be equivalent to about NZD 0.40/litre.
Imports/exports and import dependency
New Zealand’s relative geographical isolation from the global oil market supply chain creates a particular
challenge to oil supply security. Oil consumption has grown steadily since the mid-1980s, and although
there is some domestic production, imports have historically been necessary to meet the majority of
New Zealand’s oil demand. Domestic production – which stood at above 50% of crude oil requirements
in 2008 – will have peaked in 2009-2010, and is expected to decline rapidly in the upcoming years if no
new oil fields are discovered.
New Zealand’s indigenous crude is generally light and sweet and is sold internationally, because New
Zealand’s sole refinery can run on heavier and sourer – and hence cheaper – imported crudes.
Around two-thirds of oil imports are in the form of crude oil (primarily from the Middle East, and to a
lesser extent, from Asia). Only a third of New Zealand’s imports are in the form of products.
New Zealand’s sole refinery (Marsden Point – NZRC) is historically able to supply approximately threequarters of the country’s product demand, and the remaining fuels are thus imported (primarily from
Singapore, Australia and Korea). As demand for these fuels – particularly road transport fuels –
continues to rise, imports of these products will necessarily rise further. In 2008, gasoline and diesel
already accounted for some 84% of product imports. Subsequent to a refinery upgrade, the country’s
refinery should be able to meet around 80% of the country’s motor fuels, thereby reducing the country’s
dependence on imported products.
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Crude Oil Imports by Source
100
thousand barrels per day
90
Other
80
70
Malaysia
60
50
Indonesia
40
Singapore
30
20
Total OPEC
10
-
Total OECD Pacific
Source: Monthly Oil Statistics, IEA
Oil Company Operations
At the wholesale level, New Zealand is a highly concentrated market, with the four oil majors (BP,
Caltex, ExxonMobil and Shell) maintaining an all-products market share of around 98% in 2008. At the
retail level, there is more competition, with at least 15 branded networks and a rising number of
unbranded sites. Collectively, these smaller networks account for over 15% of the retail market.
In 2008, Shell was the market leader, with estimated gasoline and diesel market shares of 29% and 27%,
respectively, followed by BP, Chevron (Caltex) and ExxonMobil. Gull is the biggest independent retailer,
with a market share of 3%, but the company has found its retail scope geographically limited to the
northern half of the North Island because its only storage terminal is located in Mount Maunganui.
Shell and ExxonMobil were both seeking to sell their downstream assets in New Zealandin 2009, as the
small size of the New Zealand market does not fit with the companies’ corporate focus on the big
demand centres of the Asia-Pacific region. The key assets up for sale are the offtake agreement at the
refinery and access to the coastal distribution and storage terminal networks. This provides a
nationwide distribution network supplied with the lowest cost – something that has consistently
hindered new entrants from entering the New Zealand market. Press reports have suggested that
Woolworths, the Warehouse, Infratil and Gull have shown a sustained interest in all or part of the assets
on sale. As of early 2010, Shell indicated that it was in exclusive negotiations with a consortium of
Intratil and the New Zealand Superannuation Fund.
2.2 Oil Supply Infrastructure
Refining
New Zealand has only one refinery, the New Zealand Refining Company (NZRC) at Marsden Point, near
Whangarei on the North Island. The refinery completed the Point Forward Project (PFP) in late 2009,
increasing the refinery’s topping capacity from 104 kb/d to approximately 120 kb/d. The NZRC is able to
supply approximately 80% of the country’s refined product demand. The refinery runs imported, mostly
sour crude oil, coming primarily from Saudi Arabia and other Near-Middle East countries, as well as from
Australia, Indonesia and Malaysia.
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NEW ZEALAND
The NZRC is a “toll refiner” – i.e. it charges a fee to convert crude oil and other feedstock into refined
products. This fee is based on the difference between the value of initial feedstocks and final products,
according to reported Singapore prices. NZRC profits are not affected by downstream pricing decisions
of the four oil companies (BP, Chevron, ExxonMobil and Shell1) that own the majority of the refinery. Of
note, the four oil companies are the only companies entitled to product from the refinery.
Ports and Pipelines
New Zealand is a sparsely populated country. Its sinuous landmass is actually larger than that of the
United Kingdom, but there are only just over four million inhabitants. As such, the country has specific
logistical challenges for delivering oil products around the country at an acceptable cost to customers.
New Zealand does not hold public stocks domestically, nor does it impose an obligation on industry to
hold stocks. As such, all storage capacity is commercially-built and -used. Because of the country’s
geography, ports and storage are closely intertwined, as products are primarily transported around the
country by ships.
The NZRC owns the Refinery to Auckland Pipeline (RAP), which transports refined products to bulk
storage facilities in the greater Auckland area, New Zealand’s major petroleum market. The pipeline has
a capacity of some 53 kb/d (2.6 Mt/yr); as of early 2010 about 90% of this capacity is utilised. About half
of the refinery’s production is distributed via the RAP pipeline; the balance is transported by coastal
tankers and road to the rest of New Zealand.
Oil Infrastructure Map
1
As of May, 2010.
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NEW ZEALAND
Storage capacity
Coastal distribution delivers refined product from the NZRC to a number of locations around New
Zealand, at which industry receives finished products (from the NZRC via coastal distribution as well as
imports). New Zealand has 13 terminal locations (including the refinery), of which 11 are seaboard
terminals. The Marsden Point truck-loading facility serves the Northland and North Auckland region,
while the Wiri (South Auckland) terminal supplies Auckland (and parts of Waikato), and receives product
from the NZRC via the RAP. The three major import terminals are Mount Maunganui, Wellington and
Lytelton.
The oil majors employ a system that enables each company to draw product from any location subject
to having access arrangements with a specific storage provider. This system is designed to offer a great
deal of flexibility and efficiency to the domestic supply chain. The system works on an accounting system
in which stock volumes are credited to companies based on a combination of refinery production as it
accrues to the individual company processing at NZRC and as supplemented by periodic imports. A
company’s ability to draw stock from the system is subject to having a positive stock balance.
2.3 Decision-making Structure for Oil Emergencies
The Ministry of Economic Development (MED) is responsible for issues related to oil supply security and
in an international disruption would chair the National Emergency Strategy Organisation (NESO) and
take the lead in developing a plan of action. However, the Ministry of Civil Defence and Emergency
Management (MCDEM) is responsible for civil contingency planning for domestic events at the local and
regional level; MCDEM’s mandate covers aspects such as pandemics and natural disasters
(e.g. earthquakes), and is leading work to improve domestic contingency planning within the petroleum
sector. MED is working with MCDEM to ensure coordination between operational responsibilities.
New Zealand’s NESO is comprised of staff from the Ministry of Economic Development, as well as
representatives from oil companies and from the NZRC. In an oil supply emergency, the NESO would
invite additional non-members to participate in consultations, including representatives of large user
groups such as the Road Transport Forum and the Automobile Association.
There are two main legal instruments available to authorities during an oil supply disruption: the
International Energy Agreement Act of 1976 (IEA Act) and the Petroleum Demand Restraint (PDR) Act of
1981. The IEA Act is designed to enable New Zealand to carry out its obligations as a member of the IEA.
This includes ensuring compliance with international obligations in terms of petroleum supplies; the PDR
Act is intended to deal with demand and distribution issues in a supply crisis.
2.4 Stocks
Stockholding Structure
New Zealand does not have domestic public stocks, and the government does not place a minimum
stockholding obligation on industry. As such, all stocks in New Zealand are held on a strictly voluntary
and commercial basis.
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Until the recent acquisition of government-owned ticket reservations, New Zealand relied on the
industry's normal stockholding practices to meet the country’s overall minimum 90-day net import
obligation as a member of the IEA.
From 1 January 2007, the New Zealand government acquired ticket reservations for stocks held in other
IEA member countries, representing around 3.7 mb of public stocks in 2007 (461 kt), 2.1 mb in 2008
(285 kt), and around 0.8 mb in 2009 (107 kt) and 2010 (100 kt). Because of its growing domestic
production in recent years, New Zealand’s net imports have dropped, thereby reducing its IEA
stockholding obligation. All tickets are held directly by the New Zealand government, rather than
through an agency on the government's behalf.
In a press statement on 2 January 2010, following the acquisition of tickets to cover New Zealand’s 2010
requirements, the Minister for Energy and Resources, The Honourable Gerry Brownlee, indicated that
“the lower stockholding required with higher domestic production results in a significantly reduced cost
to New Zealand – down from over NZD 11 million in 2007 to an expected cost of under NZD 2 million in
2010.”
Crude or Products
Total New Zealand Oil Stocks by Type
End February 2010
As of October 2009, total stocks held by
industry in New Zealand stood at 8.03 million
barrels, of which roughly one-third was
comprised of crude and unrefined oils, and
two-thirds were finished products.
There are no government-held or strategic
stocks in New Zealand itself.
Location and Availability
Residual
Fuel Oil
8%
Other
products
4%
Crude Oil
38%
Middle
Distillates
26%
NGL &
Feedstocks
1%
Motor
The New Zealand Government has entered
Gasoline
into government-to-government agreements
23%
with Australia and the United Kingdom and has
concluded
formal
treaties
with
the
Netherlands and Japan to enable stocks held in those countries to count towards New Zealand's IEA
obligations. In an IEA coordinated emergency action, these stocks held outside of the country may be
released onto the global market. If needed domestically, the stocks can be purchased and transported
directly or swapped with stock held closer to New Zealand in order to reduce transport costs and
delivery time.
The ticketed public stocks held in other countries are normally a mix of crude oil and gasoline. In 2009,
two-thirds of New Zealand’s ticketed stocks held abroad were crude oil stocks. The gasoline stocks that
are ticketed have high fuel specifications in order to be importable into New Zealand in the event of a
crisis
Monitoring and Non-compliance
As New Zealand has no compulsory stockholding requirements, there is no monitoring of individual
company compliance. The government relies on accurate data from the oil companies in order to assess
whether or not the total level of stocks in the country are sufficient to meet the IEA stockholding
obligation. New Zealand authorities assure the accuracy of the company reporting by undertaking audits
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NEW ZEALAND
of the information supplied. The IEA Act allows the Minister of Economic Development to direct any
petroleum-supplying company to keep books, accounts, and records, and to furnish returns and
information as requested. Any company which fails to comply with these directions commits an offence
against the Act and is liable, on summary conviction, to a fine.
Stock Drawdown and Timeframe
All oil stocks held in the territory of New Zealand are company stocks held for operational and
commercial purposes. The legal powers for the drawdown of oil stocks are contained within the wide
powers of the PDR Act.
The procedure for the release of emergency stocks in New Zealand is decided by the Minister of Energy
in consultation with colleagues, and is expected to take 4 to 10 days. However, depending on where the
stock is required, it is estimated to take 15 to 45 days for physical delivery of stocks to the market, after
the stockdraw decision has been made.
Oil companies that are affected by an emergency have initial responsibility for responding to an oil
supply disruption. The oil emergency response strategy of drawing on industry stocks would be
activated only 1) if required to fulfil New Zealand’s obligations to the IEA, or 2) if petroleum supplies to
New Zealand are materially disrupted and government involvement is necessary to rectify the situation
and/or minimise the impact.
Financing and Fees
All industry stockholding costs are recouped by oil companies through their normal operations. The
public stock ticket reservations are financed through the government’s general budget.
3. Other Measures
3.1 Demand Restraint
The transport sector makes up the vast majority of oil consumption in New Zealand, representing 83% in
2007, the latest year for which demand by sector is available. Most of the remaining portion is
attributed to industry (11%). Thus, the likely most effective demand restraint measures would be
targeted at the use of transport fuels.
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Oil Consumption by Sector2
share of total oil consumption
100%
Transformation/Energy
90%
Residential
80%
70%
Commercial/Agriculture/Other
60%
Industry
50%
40%
Transport
30%
6% 1%
13%
20%
10%
0%
80%
2008
Source: Oil Information, IEA
In a supply disruption, New Zealand would conduct a comprehensive public information campaign
encouraging consumers to take a series of voluntary measures to conserve oil. These would include
telecommuting, using public transport, car-pooling and staggering start times to relieve highway
congestion. The New Zealand authorities estimate that these measures could reduce the number of
trips by approximately 10%, producing a 3.5% (5 kb/d) overall reduction in oil products consumption.
The country’s demand restraint campaign would also include a detailed promotion of eco-driving,
encouraging drivers to use their vehicles as efficiently as possible. This includes voluntary speed
reductions, avoiding rush hour traffic, using the vehicle’s vents or opening windows for ventilation
instead of using air-conditioning, not carrying excess weight and avoiding cold starts by combining
several errands into one trip. It would also involve checking the tuning of the car’s engine, the condition
of its air filters and the inflation of its tires. Authorities estimate that these measures would reduce oil
consumption by approximately 3% for cars and freight vehicles, resulting in an overall reduction of 2%
(3 kb/d).
The public information campaign would also target industrial and agricultural users of oil, encouraging
them to conserve in different ways. It is estimated that these sectors could achieve a savings of 5% of
their consumption, equating to an overall oil savings of 0.5% (0.8 kb/d).
For such “light-handed” measures, no legal powers are required. Legal powers made available through
the PDR Act also make it possible to impose more restrictive and “heavy-handed” demand restraint
measures, should these be considered necessary. Rationing is the most complex and substantive
response mechanism available to government, and there are two types of rationing schemes: Quantity
Rationing and Allocation Rationing.
3.2 Fuel Switching
New Zealand uses very little oil to generate power or heat, and as a result is not very susceptible to oil
shortages in this regard. In 2007 no electricity was generated with oil. Most of New Zealand’s thermal
power and heat generation relies on coal and gas.
There is only one oil-fired power station in New Zealand (Whirinaki), and this is kept in reserve in case of
security of supply concerns. It is worth noting that a 2009 review of the electricity market in New
2
Total Consumption (including refinery consumption), does not include international marine bunkers.
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NEW ZEALAND
Zealand has proposed, inter alia, that Whirinaki be relocated or even removed to place more risk and
hence responsibility on electricity generators. A dual HFO/gas fired power plant in New Plymouth is no
longer in operation.
The scope for petroleum savings from fuel switching is thus very limited (very few cars or other fuelusing assets are able to switch to alternative fuels).
3.3 Surge Oil Production
In an oil supply disruption in New Zealand, fuel surging would be considered as an option, but would not
be able to be brought on line within 30 days. Surging would only produce an estimated extra 1-2% of
usual oil production, while causing the usual damage to oil wells, and would take several months to be
introduced (in addition to the time it would take for Government to undertake the required
consultations). Moreover, there are legislative barriers that would need to be overcome in order to
introduce surge production at such short notice. Because of these costs and barriers, it is therefore not
considered that there is much capacity for surge production to take place in New Zealand.
Nevertheless, it would be considered as an option at the time of an oil supply disruption, in consultation
with the oil production industry, including the New Zealand Refining Company (NZRC).
As of early 2010, the potential for surging production in New Zealand is minimal, but the measure could
become more valuable if a large (Maui-sized) oil field were discovered. It is difficult to determine the
extent to which production could be increased in advance, as it will depend on the geology of the field
and the amount of spare capacity maintained.
3.4 Relaxing Fuel Specifications
Specification relaxation refers to the Crown’s ability to alter current fuel specifications requirements
through passing emergency regulations under the Energy (Fuels, Levies and References) Act 1989.
Relaxing fuel specifications has the potential to assist in responding to an oil supply disruption by:
• increasing the likelihood of refined products from offshore being acceptable for sale in New Zealand;
• providing greater scope for the New Zealand Refining Company (“NZRC”) to process alternative crude
oils (perhaps domestically-sourced) into refined products;
• enabling NZRC to increase output (by a small margin) by relaxing specifications that constrain the use
of some refinery components;
• enabling fuel that meets the specifications in one region of New Zealand to be supplied into another
region where it would normally be non-compliant.
As the specifications that would be relevant and the extent to which they might have to be relaxed
would vary greatly across different scenarios, it is not possible to determine in advance what
specifications should be relaxed in an emergency. Furthermore, the specifications (and vehicles/engines)
are likely to continue to evolve over time and so flexibility of response is desirable.
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4. Natural Gas
4.1 Market Features and Key Issues
Gas production and reserves
There are 14 natural gas fields and wells in the Taranaki region, with production dominated by the
Pohokura field (40.6%) and the Maui field (29.8%). New gas supplies that have been brought to the
market or are nearing production are Pohokura, Turangi, further Maui gas and, in December 2009, the
Kupe Gas Project. Of note, all gas production at the Tui oil field is flared offshore.
The development of the “Coal Bed Methane” (CBM)3 industry in New Zealand fits the government’s
objectives of promoting the development of petroleum and mineral resources to achieve economic
growth, and promotes benefits such as an improvement in the security of supply through a diversified
energy source. The CBM industry in New Zealand is in its infancy, and production is negligible. However,
as of early 2010, there are 17 permits granted which include the exploration of CBM, and one permit
granted solely for commercial mining of CBM.
New Zealand also has large reserves of gas hydrates located off the east coast of the North Island and
situated relatively close to the shore. Preliminary studies are extremely promising, with estimated
volumes standing in the trillions of cubic feet. However, economically viable technology is not yet
available for the exploitation of these reserves.
Gas demand
Gas demand has declined by some 33% since its peak in 2001, and stood at nearly 4 bcm in 2008, down
from 4.3 bcm in 2007. Demand is dominated by energy transformation (57% of total gas demand).
Industrial demand accounts for a third of total demand. As part of industrial demand, petrochemical
demand is strong, although it has declined from its peak of 2.5 bcm in 2000 (where it exceeded total gas
demand for energy transformation), to account for 731 mcm in 2008; the petrochemical industry has
proved to be quite flexible in the face of decreases in domestic production, in effect acting as a pricetaker.
Gas demand in the residential and commercial sectors has steadily declined in recent years. Annual
residential gas demand has declined 41% between 2001 and 2008, from 183 mcm to 109 mcm, while
commercial gas demand has declined 75% over the same period, from 341 mcm to 85 mcm. In the case
of commercial gas demand, there may be some reclassification between customer classes, as industrial
gas demand has risen 43%, or 293 mcm, over the same period. In the case of residential demand,
however, there does appear to be a continuing trend of diminishing demand.
Gas demand peaks in the winter months, which can extend from May through September, and troughs
in summer from November through February. Peak demand on the Maui pipeline is a good proxy for
peak demand, as over 85% of gas flows along the Maui pipeline. Four fields have an interconnection
into the Maui pipeline (i.e. Maui, Pohokura, McKee/Mangahewa and Turangi fields). On the Maui
pipeline, the peak daily gas demand in 2007 was 9.9 mcm on 27 June, while in 2008 it was 11.1 mcm on
12 August 2008. The minimum daily gas demand on the Maui pipeline in 2007 was 4.6 mcm on 11
February and in 2008 it was 7.1 mcm on 10 February. In 2007, monthly demand peaked on the Maui
3
This is known as “Coal Seam Gas” in New Zealand.
15
NEW ZEALAND
pipeline at 291 mcm in May, while in 2008 it peaked at 338 mcm in August. Monthly demand reached a
low of 149 mcm in February 2007 and 219 mcm in February 2008.
The large Maui field has historically been very flexible in terms of production flows, and could thus be
modulated in order to meet fluctuating demand. However, with the decline in production rates, the
Maui field is progressively losing its flexibility. This has made the New Zealand gas market tighter at
moments of peak demand, and has created an urgent need for the construction of gas storage capacity
in New Zealand.
Natural Gas Consumption by Sector
7,000
million cubic metres
6,000
Transformation
5,000
Energy
4,000
Dist. losses
3,000
Residential
2,000
Commercial/other
1,000
Industry
-
Transport
Source: Natural Gas Information, IEA
Gas import dependency
All gas supply in New Zealand is domestically produced in the Taranaki region. New Zealand does not
have an LNG import terminal or pipeline connections to other countries, and is therefore entirely reliant
on domestic production for its gas needs.
An LNG import terminal has been considered at Port Taranaki, to import around half of New Zealand’s
total annual gas requirements (around 2 bcm). However, new gas supplies have been brought to the
market or are nearing production, and the project has been postponed indefinitely.
In the long term, there will be a growing disparity between supply and demand (tentatively reaching
over 3 bcm in 2030), which highlights the urgent need for greater diversity of supply – possibly
additional gas fields to be found and developed – or for a LNG terminal to be built.
Gas company operations
The main upstream producers are Shell, Todd Energy, Origin Energy, Greymouth Petroleum, OMV New
Zealand, and TAG Oil New Zealand Limited.
Vector runs the Kapuni Gas Treatment Plant, but it receives the raw gas from Shell and Todd.
The biggest distribution and retail companies are Contact Energy, Genesis, Vector, Mighty River Power,
Novagas, Powerco and Gasnet.
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NEW ZEALAND
4.2 Natural Gas Supply Infrastructure
Ports and Pipelines
As stated above, New Zealand does not have an LNG import terminal, and so is entirely reliant on
domestic production for its gas needs. The potential for imported LNG gained impetus with the
formation of Gasbridge, a 50/50 joint venture between Contact Energy and Genesis Energy, in 2003.
Conceptual design, environmental assessments and technical studies for an LNG terminal have been
undertaken. Since the inception of Gasbridge, new gas supplies have been brought to the market or are
nearing production: namely, Pohokura, Turangi, further Maui gas and, in 4Q 2009/1Q 2010, the Kupe
Gas Project. In July of 2009, the joint venture partners of Gasbridge decided not to progress the Port
Taranaki LNG facility at this time. However, this option remains available and can be revisited, if and
when gas supply and demand indicates the need for a backstop LNG option.
Gas Infrastructure Map
New Zealand’s North Island has a network of over 3 400 km of high-pressure gas transmission pipelines
(including Maui Development Ltd’s pipeline). Connected to these are more than 11 600 km of
intermediate-, medium-, and low-pressure gas distribution pipeline networks connected to the highpressure system.
17
NEW ZEALAND
As of early 2010, all gas enters the transmission system in the Taranaki region from both offshore and
onshore production. The Maui and Pohokura fields are the largest producers and are connected to the
Maui pipeline. Other producers are connected to the Maui or Vector pipelines at various locations
around Taranaki. The Maui and Vector systems are interconnected within Taranaki at the Frankley Road
interchange.
The Maui pipeline runs from Oaonui and dominates capacity north as far as Rotowaro (near the Huntly
power plant), although the smaller Vector pipeline runs in parallel. The transmission pipelines north of
Rotowaro (through Auckland and up to the refinery), east into the Bay of Plenty and Gisborne, and
south of Taranaki (to Wellington and east to Hastings) are all part of the Vector system and are small
pipelines relative to the Maui pipeline, typically in the 100 to 300 mm diameter range.
Due to its significantly larger size, balancing across the system is conducted on the Maui pipeline. The
Maui pipeline is owned by Maui Development Limited, which is, in turn, owned by Shell (83.75%), OMV
(10%) and Todd 6.25%). MDL is a bare nominee company which holds the Maui assets on behalf of the
Maui Mining Companies (who have the same shareholding structure as shown for MDL).
As of 2010, there is no gas production or pipelines on the South Island, and no pipeline linking the two
islands.
Storage
As of early 2010, New Zealand does not have any underground gas storage. There is one gas storage
facility that is in the process of being developed at the depleted onshore Tariki/Ahuroa gas field. The
storage facility will be owned by Contact Energy but managed by Origin Energy, which has a 51%
shareholding in Contact Energy. Gas started to be injected in December 2008 and Contact Energy plans
to have the gas storage facility operational by mid-2010. Exact quantities of gas that will need to be
injected and future flow rates are uncertain. At a minimum, the Ahuroa storage facility will require 142
mcm of gas injected and it will have a daily deliverability of 2.5 mcm from three wells. At its maximum,
the storage facility could have 420 mcm of gas injected, with a daily deliverability of 7.7 mcm from five
wells.
4.3 Emergency Policy for Natural Gas
As a result of the decline of the large, highly flexible Maui field, increasing quantities of gas are being
sourced from new, smaller and less flexible fields. This fundamental change required the introduction of
new arrangements across the gas sector value chain. Given the litigious nature of the industry and the
risk of hold-outs, in 2003, gas industry participants asked the government for industry self-regulation,
backed up by the force of law. The establishment (in December, 2004) of a regulatory body called Gas
Industry Company (GIC) sought to combine the benefits of industry self-governance with Ministerial
oversight to ensure delivery of public policy objectives. GIC (as a private industry body) was provided
access to the Government’s coercive legal powers in exchange for a level of accountability and control.
The government believed that it was efficient to let the industry get on with the necessary regulation
without the government having to put the resource into (or to take the risk of) designing gas governance
regulations and rules itself. As such, both government and industry are intended to be like-minded
partners working for the development of a competitive, well functioning gas market.
18
NEW ZEALAND
The Gas (Critical Contingency Management) Regulations 2008 set the framework within which New
Zealand gas emergencies are managed. The Administration has entrusted the implementation of the
country’s emergency policy to a private company, Vector, under terms specified in the Regulations. In
line with its responsibilities for decision-making in a crisis, Vector has developed a robust set of
protocols and guidelines (approved by the GIC) by which industry must abide in an emergency. Vector
runs training sessions for industry participants and tests communication exercises to ensure that the
appropriate people are informed and contactable in an emergency.
The Administration retains control at a policy level for emergencies, in that it sets the prescribed limits
within which Vector can operate as the Critical Contingency Operator. The Minister can accept or reject
recommendations from GIC on a wide range of issues, which notably include emergency policy relating
to gas transmission and distribution. The Minister has never rejected a GIC recommendation on the
basis of policy grounds.
There are no government-mandated requirements on grid owners, system operators or industry
participants to hold minimum reserves of natural gas. However, these participants, particularly the
system operators, are required to maintain operating pressure in the reticulated network and therefore
grid owners, system operators or industry participants will hold a certain amount of 'reserve gas' as line
pack in this respect.
In the event of a critical contingency, a key component of the Critical Contingency Management
regulations is to begin load curtailment. Load is curtailed according to curtailment bands set out in the
Gas Governance (Critical Contingency Management) Regulations 2008.
In recent years, the largest consumer of gas in New Zealand has been the electricity sector (57% in
2008). Electricity retailers will be one of the first users to have their gas curtailed in an emergency. It is
therefore important that the electricity sector is able to cope with any disruption of gas.
Strategic Gas Stocks and Drawdown
New Zealand does not possess strategic gas stocks. There are no government-imposed requirements for
any market participant to hold any minimum level of stocks.
As of early 2010, there is no gas storage in New Zealand, and there is no means of importing gas supplies
from abroad. As such, in a gas supply crisis, all emergency measures will seek to control supplies and
reduce demand for gas.
Interruptible customers
There are three customers with interruptible load that would be affected prior to a critical contingency
being called. These are the New Zealand Refining Company, the Tariki/Ahuroa gas storage facility under
construction, and a portion of demand at the Southdown OCGT. Collectively, these facilities consumed
10 170 mcm in 2008, although only 2 350 mcm was interruptible in 2008, and the Tariki/Ahuroa gas
storage facility only began injecting quantities in December 2008.
The Administration indicated that in the event of a serious natural gas crisis, the first customers that
would be cut off would be the Huntly power plant (which has fuel-switching abilities to coal) and the
Methanex industrial plant (a swing producer of methanol for the Asia-Pacific region).
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NEW ZEALAND
Fuel Switching
The most significant fuel switching in recent years has occurred at the New Plymouth and Huntly power
plants. However, New Plymouth was decommissioned in January 2009, while the four old units at Huntly
have moved progressively from gas to coal. Collectively, the two plants took 174 mcm of gas in 2008,
down from 980 mcm in 2002.
New Zealand’s largest electricity generator, the 1000 MW Huntly power station, is duel fuel – i.e. it can
run on both coal and natural gas. In a situation where a gas disruption occurred, Huntly power station
could be run solely on coal. The Huntly power station has a stockpile of coal on site which it can draw
from, if needed. This stockpiled coal – as well as domestic coal and imports from Indonesia – could
technically supply this plant in the short-, medium- and long-term. Although there are no environmental
regulations that would prevent this action occurring, there might be a financial implication when the
Emissions Trading Scheme (ETS) is formally implemented in 2010 – as coal emits twice as much CO2 as
gas does. This could result in making it uneconomical to run the Huntly power station on coal.
If a shortage of gas were to threaten electricity supply, then the fast start, 165 MW peaking plant
Whirinaki, which runs on gasoil, could be used. This plant does not operate in normal times. Of note, it
is the only plant that has a government obligation to hold stocks (of gasoil).
20
INTERNATIONAL ENERGY AGENCY
The International Energy Agency (IEA), an autonomous agency, was established in
November 1974. Its mandate is two-fold: to promote energy security amongst its member
countries through collective response to physical disruptions in oil supply and to advise member
countries on sound energy policy.
The IEA carries out a comprehensive programme of energy co-operation among 28 advanced
economies, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports.
The Agency aims to:
n Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular,
through maintaining effective emergency response capabilities in case of oil supply disruptions.
n Promote sustainable energy policies that spur economic growth and environmental protection
in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute
to climate change.
n Improve transparency of international markets through collection and analysis of
energy data.
n Support global collaboration on energy technology to secure future energy supplies
and mitigate their environmental impact, including through improved energy
efficiency and development and deployment of low-carbon technologies.
n Find solutions to global energy challenges through engagement
and dialogue with non-member countries, industry,
international organisations and other stakeholders.
© OECD/IEA, 2010
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