Forum Archive Index - December 2002

[" Hans van der Voorn" <vandervoorn@xtra.co.nz>]

Hi Snoopy,

I guess the fact that you're a share investor automatically makes you a bit
of an optimist (aren't we all).

Bear in mind that Project Aqua is

a) far from a reality,
b) at least 10 years from completion, and
c) in the wrong island.

We may see a number of gas discoveries in the next 2-3 years, but most of
them will be tiny in comparision to Maui. Pretty risky to assume a big field
will be found tomorrow. A strategic investor would at least take this issue
into account, acknowledging the outcome is uncertain at best.

The value issue for NCH is that they have been buying gas significantly
cheaper than their competitors, through having paid the Crown a capital sum
for the privilege. When that situation ends, they will have to pay the same
as their competitors. The market will set the selling price and that will be
higher, but NCH will have lost a significant competitive advantage, and
margins and volumes will reduce. The effect on CEN seems less certain, but
is potentially negative.

Your point about the trees is valid, but I guess FFS investors would hope
the trees are worth more than firewood. I could also refer you to the recent
CAH announcement about the wood waste plant at Kinleith (it doen't work
properly). Everything is possible, but always at a cost.  With higher energy
costs, you would expect timber processing in NZ to be less competitive,
likewise for steel, methanol, maybe building products (FBU?). Most primary
processing uses energy so costs will increase.

Will there be flow on effects to inflation, balance of payments, interest
rates. I'm not an economist, perhaps someone could comment on that.

If Methanex at Motonui closes down, as it surely will, what does that do to
the Taranaki economy? Likewise NZ Steel at Glenbrook. If it was marginal
with cheap energy, what will it be like with higher costs amid a worldwide
glut of steel production capability?

I don't know the answers to all these questions, but I think they're worth
asking..

regards


Hans


----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Saturday, December 07, 2002 9:09 AM
Subject: Re: [sharechat] CEN, NGC


> 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
>
>
>
> ---------------------------------
> Message sent by Snoopy
> e-mail  tennyson@caverock.net.nz
> on Pegasus Mail version 2.55
> ----------------------------------
> "You can tell me I'm wrong twice,
> but that still only makes me wrong once."
>
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