Gas New Zealand Industry Forum

  • Phil Heatley
Energy and Resources

Good morning everyone, I’m very pleased to have this opportunity to talk to you.

First, I would like to thank the leaders of your three groups for the opportunity to open this year’s gas industry forum:

  • Terry Barstead of the LPG Association
  • Craig Muirhead of the Gas Association
  • Nick Foster of the New Zealand Institute of Gas Engineers.

Thank you for getting us all together here in Rotorua. This second jointly hosted forum is shaping up as a useful look at the current state of play for the industry.

Review of the Maui outage

Almost a year ago now, just a few days after the inaugural joint gas industry forum in 2011, the Maui gas transmission pipeline ruptured and the pipeline was shut down for just over five days while the leak was repaired. At the height of the outage, all non-residential gas users in the top half of the North Island were directed to stop using gas.

The event was a reminder that gas is of considerable importance to the New Zealand economy. The gross economic cost of the event has been estimated at $200 million.

It is critical that the lessons learned from the outage are captured and acted on, so that gas consumers can be confident in our gas system.

The Government’s report on its review of the outage has now been released on the Ministry of Business, Innovation, and Employment’s website.

The report brings together technical information on the outage completed for the pipeline owner, Maui Development Limited, findings of a review into the performance of the contingency system for managing such outages, and information collected on the effects of the event.

Those of you who have followed this review will already know that Vector Gas, who operate the pipeline, assessed that the leak was caused by a landslide.

I am confident that the assessments of why the outage occurred are sound and that the actions taken to strengthen the system are appropriate, and will assist with ensuring a resilient gas system.

I also welcome the steps being taken by MDL to increase its management of risk to the pipeline and its new measures for the ongoing assessment of the pipeline.

As an additional step, we would like MDL to present its plans for managing landslide and erosion risks to gas users. Given the interest in the issue, this will provide the public with additional confidence that risks are being managed appropriately.

An MBIE inspector will also review the pipeline’s safety management study to provide additional assurance that the pipeline owner is adhering to the standards required by the Health and Safety in Employment (Pipelines) Regulations.

Many of you will also be aware of the work the Gas Industry Company is doing in its review of the Gas Governance (Critical Contingency Management) Regulations.

I’m told that the GIC is well advanced with this work, which includes a fresh look at the curtailment bands and the designation of essential service providers. I’m looking forward to seeing the results

Government priorities for gas

I’d like to talk about the Government’s priorities for gas.

Strategic goals

The New Zealand Energy Strategy prioritises secure and affordable energy.

I'm sure you've heard it many times before, but it bears repeating: the Government is determined to ensure a competitive gas market that delivers for New Zealand.

Gas has been a major energy source in New Zealand for more than 30 years.

It is an important direct source of energy in industry and homes, an important fuel for electricity generation, and an important feedstock for non-energy uses such as petrochemical production.

The role of gas in New Zealand’s energy mix enhances electricity security of supply even as we move toward increased renewable electricity generation. It also provides customer choice and contributes to our economic well-being.

I want to see that continue.

Policy and regulatory settings

Part of my role as Minister of Energy and Resources is to create the right policy and regulatory settings to support the continued growth of the gas industry. This can be done in a way that delivers greater prosperity, security, and opportunities for all New Zealanders.

Oil and gas has been successful for Taranaki, sustaining a thriving community by providing thousands of jobs and contributing billions to the New Zealand economy. With continued exploration and new discoveries, there is real potential to grow the oil and gas industry in other regions, such as the east coast of the North Island.

Through the Business Growth Agenda, the Government wants to support New Zealand businesses to grow, to create jobs and improve New Zealanders’ standard of living.

We will make the most of our abundant energy and minerals potential through environmentally responsible development and efficient use of the country’s diverse energy resources.

I am taking action to advance these goals.

Last month, I addressed the Petroleum Summit in Wellington. And despite some unexpected interruptions, I had a chance to discuss the regulatory and fiscal frameworks for petroleum exploration, and the work the Government has under way to encourage responsible development.

Since then, I have tabled a Bill in Parliament reforming the Crown Minerals Act.

This will encourage the responsible development of Crown-owned minerals so that they contribute even more to New Zealand’s economic development. The Bill will be critical to the future responsible development of New Zealand’s gas resources and will ensure their contribution to the New Zealand economy in the years to come.

To demonstrate the Government’s commitment to growing the sector, the Bill includes a purpose statement. The purpose of the Act will be “to promote prospecting for, exploration for, and mining of Crown-owned minerals for the benefit of New Zealand, by providing for:

  • the efficient allocation of rights to prospect for, explore for, and mine Crown-owned minerals
  • the effective management and regulation of the exercise of those rights; and
  • a fair financial return to the Crown for its minerals”.

The draft Minerals Programme for Petroleum was released for public consultation on 4 October. This sets out how the Crown Minerals Act will apply in relation to petroleum.

We have also built capacity and capability for managing and growing the oil and gas industry, and are well placed for the increased promotion of New Zealand as a destination for oil and gas exploration.

In a world where demand for both oil and gas continues to grow, increasing production presents an excellent economic opportunity for New Zealand.

Methanol production

Increased methanol production by Methanex is an excellent example of capitalising on the opportunities created by natural gas supplies.

The 10-year gas supply arrangement between Todd and Methanex and re-start of the second production unit at Motunui is the type of initiative New Zealand needs.

In doing so, Methanex has made a commitment to production in New Zealand, and the substantial investment by Methanex and Todd creates jobs and adds to economic growth regionally and nationally.

Further development of the Mangahewa gas field is an encouraging sign for the whole of the industry.

Secure and resilient infrastructure

Encouraging resource development is one thing, but to invest in New Zealand, businesses also need to be able to rely on the security of infrastructure.

As the gas and LPG markets continue to develop, it is important to ensure secure and reliable infrastructure alongside competitive markets.

Large-scale infrastructure tends to take many years to plan, build, commission and bring into service.

The quality of infrastructure shapes business investment decisions. It is an important factor in determining the location of economic activity and the type of business that can develop.

Infrastructure should also be resilient and co-ordinated. Resilient infrastructure is able to deal with significant disruption and changing circumstances.

There is an increased effort by central and local government to understand the key drivers that determine our future infrastructure needs and the level of resilience of New Zealand’s infrastructure. This includes the infrastructure that delivers gas to customers.

North pipeline

Underpinning all of this, of course, is a strong transmission and distribution network to get Taranaki’s gas to customers securely and efficiently.

Concerns about the availability of gas transmission capacity for the greater Auckland area and Northland are being addressed by the Gas Industry Company and its Panel of Expert Advisors. Many of you will be involved in that, or following it closely.

The PEA’s principles of promoting efficiency, enhancing competition, improving transparency, and promoting certainty are a good match with Government policy.

The PEA has identified issues with the existing pipeline governance arrangements as they apply to capacity allocation and investment.

Its straw man proposal for addressing these problems is a good start and has generated healthy discussion.

Further development and consultation will no doubt help to refine both the problem definition and the proposed solutions.

I will follow the next steps of the process with interest and very much hope that a solution is reached that ensures gas is delivered to customers in a way that is efficient and supports New Zealand’s economic growth.

LPG

Now I’d like to talk about the contribution of LPG to New Zealand.

As you know, LPG is a versatile fuel which has a wide range of uses.

While automotive LPG has been in decline for many years, I understand it is still a favoured fuel in high-mileage users such as taxis and we have seen a demand increase in the market for 45kg cylinders. The 45kg market also appears to be very competitive.

Increased LPG production from the Kupe and McKee plants has added to domestic supply and put downward pressure on prices.

The direct use of gas continues to play a valuable role in the energy system.

The LPG sector is deregulated and seems to run pretty well. A key government role in the LPG sector relates to safety.

The Government takes its responsibility to ensure the safe supply of LPG to New Zealanders seriously.

Recently we improved the gas certification regime to raise standards while doing away with unnecessary compliance costs, and leading to safer outcomes for consumers. The changes mean all gas installation work will now require certification. For example, installation work on gas cylinders at or below 15kg will now require certification.

Ultimately, with continued engagement between industry and government, the future of the LPG industry in New Zealand looks bright.

In conclusion

Developing gas resources in a responsible manner will enable New Zealand to deal with the challenges of a secure and affordable energy supply.

For the foreseeable future, gas will continue to be an important part of the energy mix, both here and internationally. We have been fortunate to be blessed with ample natural gas resources and we have opportunities to ensure this continues.

Developing resources and markets is a long-term undertaking and I look forward to an enduring partnership with the wider industry to make this happen.