NZ Gas Story and Regulation Update Steve Bielby, CEO Gas Industry Co August 2014

Transcription

1 NZ Gas Story and Regulation Update Steve Bielby, CEO Gas Industry Co August 2014

2 NZ Gas Story and Regulation Update Topics: 1. Gas Industry Company s role 2. Where the NZ Gas Story is up to 3. Where it is headed Gas Industry Co 2

3 Gas Industry Co the co-regulatory model Formed 2004 as a co-regulator of the downstream gas sector under Gas Act 1992 Government/industry compact: healthy domestic gas market underpins Government energy policy and upstream investment industry wanted right-sized regulatory framework for small gas NZ gas industry in return, industry needs to maintain Government confidence that greater intervention not warranted Gas Industry Co 3

4 Gas Industry Co role GIC is the industry body under Part 4A Gas Act; Government Policy Statement on Gas Governance 2008 GIC s principal objective is to develop governance arrangements that: ensure that gas is delivered to existing and new customers in a safe, efficient, and reliable manner As co-regulator, GIC must: consult; consider non-regulatory and regulatory options; and obtain Minister s approval for any proposed regulation Other objectives: barriers to competition in the gas industry are minimised incentives for investment in gas processing facilities, transmission, and distribution are maintained or enhanced delivered gas costs and prices are subject to sustained downward pressure Gas Industry Co 4

5 Gas Industry Co Governance Special purpose company established under Gas Act Governed by Board of Directors Independent Chair and majority of Independent Directors Remaining Directors are industry CEOs Shareholders principal industry participants (Shell, Nova, Methanex, Contact, Genesis etc ) Required to consult on proposed strategy, work programme and funding high levels of industry support in recent years Gas Industry Co 5

6 Where the NZ Gas Story is up to Gas Industry Co 6

7 From 1970, Kapuni and Maui fields opened NZ s North Island to natural gas Whangarei Auckland Hamilton Morrinsville Tauranga Cambridge Whakatane Rotorua Opotiki Taupo New Plymouth Gisborne MAUI Wanganui KAPUNI Hawera Hastings Palmerston North Levin Pahiatua Wellington Lower Hutt

8 In 2014, 15 fields producing Pohokura natural gas Gas Field Oil Field Tui Waitara New Plymouth Kowhai Moturoa Kaimiro/Goldie Ngatoro Oaonui Mangahewa Surrey Sidewinder Kapuni Stratford Cheal Turangi McKee Tariki/ Ahuroa Waihapa/ Ngaere Copper Moki Waitapu Hawera Rimu Maui Kauri Kupe Maari Gas Industry Co 8

9 Gas reserves increased 31% in 2013 to 13 years (P50) Remaining Reserves/Supply Horizon PJ Remaining Reserves (P50) Supply Horizon Source: 2014 Energy in New Zealand Gas Industry Co 9

10 Shell and Todd are the largest gas reserves owners, but smaller players are establishing a foothold Producers Share of Remaining Gas Reserves 1 January 2014 Genesis % NZOG 1.5% Mitsui 0.4% TAG 0.3% OMV 12.1% Origin 5.2% Shell 35.6% Greymouth 11.2% Todd 30.7% GIC calculated : Source: 2014 Energy in New Zealand Gas Industry Co 10

11 Annual production has fluctuated with Maui decline, but is picking up Natural Gas Production by Field (PJ) 300 Peak: 242PJ, Kapuni Maui McKee Mangahewa Ngatoro Turangi Kowhai Pohokura Kupe Other Source: 2014 Energy in New Zealand Gas Industry Co 11

12 Southdown Whangarei Otahuhu Gas supports electricity supply security through thermal generation Huntly Auckland Hamilton Te Rapa Cogen Morrinsville Cambridge Tauranga Rotorua Whakatane Opotiki New Plymouth Taupo McKee Peaker Gisborne MAUI Fonterra Cogen Kapuni Cogen KAPUNI Hawera Hastings Wanganui Taranaki (TCC) Palmerston North Levin Pahiatua Stratford Peaker Wellington Lower Hutt Gas Industry Co 12

13 and gas underpins a substantial petrochemical industry Pohokura Waitara Valley methanol Mangahewa Motunui methanol McKee Ngatoro Sidewinder Stratford Cheal Tariki/ Ahuroa Waihapa/ Ngaere Copper Moki Waitapu Kapuni ammonia/urea Rimu Maui Kauri Gas Industry Co 13

14 80% of NZ gas is used in electricity generation and petrochemicals; 248,000 households use just 3.3% Consumer Gas Use 2013 (174PJ) Electricity 70.6PJ 40.7% Industrial 13.2% Commercial 4.4% Retail = 20.9% Residential 3.3% Petrochemical Process Gas 27.2PJ 15.6% Petrochemical Feedstock 39.7PJ 22.8% Source: 2014 Energy in New Zealand Gas Industry Co 14

15 Distribution connections are growing, but gas volumes are easing , , , , , Connections Gas Transported 20 Gas Industry Co 15

16 Co-regulatory model underpins today s gas market Gas Industry Co 16

17 Governance through a mix of regulatory and non-regulatory arrangements Rules/regulations establish a platform for the downstream industry switching rules downstream reconciliation critical contingency management compliance Case examples: retailer failure (E-Gas) Maui Pipeline outage Gas Industry Co 17

18 Governance through a mix of regulatory and non-regulatory arrangements Non-regulatory arrangements also work well: Gas Retail Contracts Oversight Scheme Gas Distribution Contracts Oversight Scheme Interconnection Guidelines Information Gathering Protocol Gas Industry Co 18

19 The model seems to be working Customer choice/competition 98% of consumers have a choice of at least 6 retailers Churn has tripled to around 17% per annum Switching time down to 7 business days (previously weeks / months) Efficiency Annual unaccounted-for gas (UFG) down to 1.1% (nearly halved) Transparency Customer numbers and volume market shares published Switching gains / losses readily available Market information routinely reported by media Consumer voice Formal complaints process (Electricity & Gas Complaints Commission) Compliance/Standards High level compliance across all rules/regulations Gas Industry Co 19

20 Case Study: gas transmission governance Gas Industry Co 20

21 Case study: gas transmission governance Two open access transmission systems governed by multi-lateral codes (open access/allocation) economic regulation (price/quality regime) technical regulation (to international standards) 2009: contractual congestion concerns for key Auckland market Auckland gas demand increasingly peaky 2011: industry asked GIC to lead a project Gas Industry Co 21

22 Case study: gas transmission governance Developed voluntary Bridge Commitments and GTX bulletin board for capacity trading Panel of Expert Advisers: confirmed need to optimise existing pipelines; not invest in more pipelines recommended industry-led evolutionary convergence of existing transmission codes rather than regulation Proposed key principles/elements Industry working group developing code changes GIC developing regulatory counterfactual if group fails to progress Gas Industry Co 22

23 Where are we heading? Gas Industry Co 23

24 Gas is transforming global energy and environment debate IEA predicts 70% increase in world electricity demand by 2035 underpinned by doubling of gas-fired generation Context of mounting worries about energy security, climate change, nuclear power US leading the way in unconventional gas. Shale gas is driving down prices and coal-fired generation: US natural gas production up 56% by 2040 gas-fired electricity generation will overtake coal by 2035 US already achieved 70% of CO 2 emissions reduction target US to become a net exporter again by 2020 Australia has 15% gas-fired generation, but heavily reliant on coal (75%) Australian gas production has soared CSG contribution up from 2% to 13% in 10 years. Much is for export: $200b new-build LNG capacity nearing completion $65b on three CSG-to-LNG projects Gas Industry Co 24

25 Gas has a voice in the green economy debate Gas is part of the global debate on climate change and the drive for greener economies. Internationally, gas has an important role in environmental sustainability: cleanest burning among fossil fuels for many countries it is a bridge to a greener future by replacing more harmful energy forms (coal, oil) Opportunities for gas substitution in NZ fewer than in other countries (US, Australia) because we already have a high level of renewable energy: 37% of primary energy 75% electricity generation; 90% target by 2025 Direct gas use and efficient technologies can lower energy emissions. Making the most of the country s abundant energy potential for the benefit of all New Zealanders through.. the environmentally responsible development and efficient use of the country s diverse energy resources New Zealand Energy Strategy Gas Industry Co 25

26 Gas holds its own in the highly competitive energy market for homes and businesses Text and image from the report: Consumer Energy Options: An Evaluation of the Different Fuels and Technologies for Providing Water, Space and Process Heat, Concept Consulting, November Gas Industry Co 26

27 Upstream investment is high, supported by Government policy Source: Commercialisation Issues, Opportunities and Challenges in the Event of Substantive Gas-Rich Exploration Success in New Zealand, John Kidd, Woodward Partners May 2014 Gas Industry Co 27

28 Opportunities to grow the NZ gas market? Traditional markets can be further developed: industrial heat electricity generation (South Island) reticulation fertiliser Innovative developments may translate to NZ, depending on cost/scale: micro technology enabling direct LNG consumption developments for gas as a transport fuel A lot depends on the delivered gas cost and scalability! Duel diesel/lng powered train - USA LNG-powered truck Shell LNG refuelling station - Canada Gas Industry Co 28

29 Gas Industry Co Strategy 2015 and beyond Future gas scenarios Future thinking Are we ready for a significant new find? D+1, GTIP, Balancing Possible Transmission regulation Switching & Reconciliation Rules CCM Regs + Market Performance oversight/reporting Important for the market Sound, efficient governance arrangements Gas Industry Co 29

30 Concluding Comments Gas becoming increasingly important to global energy/environment Has made a major 45-year contribution to NZ Significant NZ gas investment and potential Current discussion around future role for NZ gas Co-regulation speaks particularly to how regulators engage industry/investors successfully Co-regulatory model requested by industry, and seems to be working after 10 years Gas Industry Co 30