Transmission separation mooted for NGC

By Phil Boeyen, ShareChat Business News Editor

Tuesday 6th November 2001

The possibility of Natural Gas Corporation (NZSE: NCH) separating its transmission pipelines from its other businesses has been raised in a discussion paper on the state of the New Zealand gas sector.

Energy Minister, Pete Hodgson, released the discussion paper on Tuesday, including a report by ACIL Consulting which examines whether the sector is meeting the government's objective that "natural gas be delivered to users in an efficient, fair, reliable and sustainable manner".

The report says that natural gas supplies 29% of New Zealand's total primary energy of which 77% is from the Maui field. The main uses are manufacture of synthetic fuels and methanol (44%), electricity generation (36%) and industrial and commercial use (14%). Residential consumption accounts for only 2.5%.

Mr Hodgson says the consultancy found that the gas wholesale market, although adequate for the present, will be less suitable in the future as the Maui gas field declines.

"It also concluded that there may be monopoly pricing in gas transmission and distribution," says Mr Hodgson.

The report says there are two main transmission pipeline systems in New Zealand - the Maui pipeline from Oaonui to Huntly, transmitting only gas produced under the Maui gas contracts, and the NGC transmission network of over 2,300 kilometres, covering much of the North Island.

"Several submissions raised efficiency concerns - the lack of access to the Maui pipeline and aspects of access arrangements to the NGC pipelines," the report says.

"Several were concerned about vertical integration in NGC transmission/distribution/retail and saw NGC's current pricing arrangements as an impediment to the efficient development of the gas sector."

The report advises the government to encourage vertically integrated gas businesses to strengthen the ring fencing of the natural monopoly elements of their natural gas businesses.

"Because of the strategic importance of NGC's transmission pipelines, the government could explore with NGC the possibility of separating out the transmission activity into a separate corporate entity.

"An example of a possible arrangement is that undertaken by AGL in Australia. NGC should have time to consider how best to achieve the result while minimising any costs. If after say, two years, NGC did not wish to proceed with separation, the government could consider introducing more specific regulatory responses."

Mr Hodgson says the government had not formed any views on ACIL's findings and the paper is intended to provoke informed comment from New Zealanders on issues concerning the gas industry, to help the government consider what action it might take.

Submissions on the gas review are due by the end of January next year.

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