Forum Archive Index - December 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Hans,
 
> 
>The one thing to keep in mind with these two stocks (and a few
>others) is the imminent decline of the Maui gas field. CEN gets
>nearly all of its gas from the Maui field and NCH gets the majority
>of its gas from there as well.
> 
>The situation is still evolving but a number of things are clear:
> 
>The output from the Maui field will decline rapidly over the next
>few years.
> 
>Gas in NZ has been cheap in recent decades because of the large
>volumes available from Maui and the way the gas was originally sold
>to the Crown (take or pay contract). This has underpinned a lot of
>industrial development.
> 
>This will no longer be the case, gas will be in short supply,
>driving up the price and also driving up the price of electricity.
>
>

I don't think a run down in the supply of gas is a given.  I'd be 
surprised to see another field the size of Maui found.  But really 
with Maui there so close to the shore, there hasn't been much of a 
need to seek out alternative gas field resources -until now!

I'm picking we will see a number of new gas field discoveries in the 
next 2 to 3 years.  Gas will be sold on a take or pay basis from 
these new fields too.  The high capital cost of developing a new 
field means that no other pricing mechanism is feasible as I see it.

Yes the cost of gas so extracted will be higher.  Significantly 
higher!  Whether this is a good or a bad thing for NCH and CEN, 
 depends on how this new price compares with the marginal cost of 
developing alternative power sources.  We have Meridian Energy's 
'Project Aqua' which will possibly be the last significantly sized 
hydro scheme to come on stream in this country.  There is the 
possibility of more wind energy farms around our wind ravaged exposed 
hilltops and we still have good reserves of coal.  So long as the 
cost of extracting new gas doesn't get too close to the cost of 
energy from a new wind farm, there is every chance that CEN and NCH 
will be able to raise their gas prices significantly and get those 
price hikes to stick!  This will be good for shareholders.


>
>CEN will be affected to the extent it is unhedged on its electricity
>purchases. It has a net generation capability 
>

This used to be the case, but due to the number of new customers CEN 
have signed, is it still so?

>
>but has recently made an announcement that short term 
> profits will be affected by high wholesale
> electricity prices. 
>

The mere fact that they are a net buyer of energy on the wholesale 
market indicates to me that they may not have a surplus of 
generation any more.

> 
>Members might also want to consider the effects of higher energy
>prices on major energy users, eg CAH, FFS,
> 
> 


Well if things got really desperate they could stoke some of those 
wood processing boilers by burning their own trees! ;-)

SNOOPY



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