Forum Archive Index - December 2002

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

Snoopy,

It would be interesting to know what kind of coal contract NZ Steel has. One
of the possibilities post a gas shortfall is a change to coal fired
generation (Huntly (1000MW) can run on gas or coal). The problem with this
is there isn't that much coal available in the North Island, nor is there
sufficient infrastructure at present to import it on any reasonable scale
(either from the Sth Is or Australia).  Most of what coal there is goes to
NZ Steel. One theory suggests that coal prices could rise significantly, to
the equivalent cost of importation.

Two possibilities for NZ Steel are:

a) they don't have a secure long term price, in which case they could be
outbid for the coal by Genesis, leading to a shutdown; or

b) they have a secure long term price path but work out that the NPV of
their various energy contracts (2m tonnes(?) coal, 2 PJ of gas, 40% of their
electricity) is higher than the NPV of the steel business, so they sell the
energy back, leading to a shutdown.

At least with option b they come out of it with some money.

If they don't have secure long term energy prices, I think their future must
be very limited.

NZ no longer has any competitive advantage in producing energy intensive
commodity products. Previously we have been able to export energy by
transforming it into products like aluminium, methanol, and steel. In
general that's going to make less and less economic sense. By international
standards our energy intensity (energy use/GDP) is high and has markedly
increased since the development of Maui, which provided a large resource of
cheap energy.

As a country we have been somewhat complacent about our energy resources.
There will inevitably be some rationing by price, and the most energy
intensive industries look the most vulnerable. Obviously higher value
products would be less affected than low value commodities.

Note that Australia doesn't have this problem. They have loads of gas and
coal. PNG also has large gas reserves and no industrial infrastucture to use
 it.

regards


Hans



----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Sunday, December 08, 2002 12:15 PM
Subject: Re: [sharechat] CEN, NGC


> Hi Hans,
> >
> >
> >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?
> >
> >
>
> To partly answer your question:
>
> "Ironsands and coal are the main raw materials used in the
> steelmaking process, both of which are sourced locally.  Coal is
> transported by rail approximately 50km from a mine owned by the New
> Zealand Government.  New Zealand Steel's single largest non labour
> cost is electricity, approximately 60% of which is generated
> onsite through a cogeneration plant plant owned by Duke energy."
>
> source p46 Scheme Booklet, 'Scheme of arrangement and reduction of
> capitalin relation to the demerger of BHP Steel Limited', as
> published by BHP Billiton, May 2002.
>
> In other words coal generates 60% of the NZ Steel plants electricity
> as a by product of the heating process used in production.  So it
> will be significantly insulated from external electricity price
> rises.
>
> SNOOPY
>
>
> ---------------------------------
> Message sent by Snoopy
> e-mail  tennyson@caverock.net.nz
> on Pegasus Mail version 2.55
> ----------------------------------
> "Sometimes to see the wood from the trees,
> you have to cut down all the trees."
>
>
>
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