Shell (Shell Exploration NZ, Shell (Petroleum Mining) Company, Shell Investments NZ), Todd (Todd Petroleum Mining Company, Todd Taranaki)
Southern Petroleum (Southern Petroleum (NZ) Exploration, Southern Petroleum (Ohanga)) Swift Energy NZ, Ngatoro Energy, Greymouth Petroleum Acquisition Company,
Australia and New Zealand Petroleum, Bligh Oil and Minerals NZ
Owners and Operators of Gas Transmission Pipelines in New Zealand
Natural Gas Corporation of New Zealand (NGC),
Shell (Petroleum Mining) Company, Todd Petroleum Mining Company
Owners and Operators of Gas Distribution Pipelines in New Zealand
Powerco, UnitedNetworks, NGC, Nova Gas, Wanganui Gas
Retail Gas Marketers in New Zealand
Genesis Energy, Auckland Gas, Contact Energy, NGC, Nova Gas, Wanganui Gas
GAS MA R K E T RE F O R M GAS MARKET SKETCHES: NEW ZEAL A N D
MARKET MODEL AND COM P E T I T I O N
The New Zealand gas market does not fit any of the market models very neatly. In some areas, there is a degree of wholesale and retail competition, with customers able to choose among gas producers and suppliers. The gas industry was deregulated in 1993, along with the electricity industry. Since then, there have been no wholesale gas price controls and no monopoly franchise areas for gas supply. Retail price controls on gas had been allowed to lapse even earlier. More recently, in September 2002, the largest owner of transmission and distribution pipelines, NGC, divested to Genesis Energy its function of retail marketing to small “mass market” customers. So the economy appears in principle to have adopted a retail competition model for its gas market.
Yet the market remains in some respects like a vertically integrated monopoly since production of gas is highly concentrated. The Maui field, which produced 75.3 percent of the economy’s gas in 2002, is owned by a partnership between Shell (with a 93.75 percent share) and Todd Energy (with 6.25 percent). The Kapuni field, which accounted for 11.8 percent of production, is also owned by Shell and Todd (each with a 50 percent share). The McKee and Mangahewa fields, with 2.7 percent and 4.4 percent of production respectively, were owned entirely by Todd.133 All of these fields,
which together produced 94 percent of the economy’s gas, are operated by Shell Todd Oil Services. Thus, the two largest ostensible competitors jointly produce nearly all of the economy’s gas. Moreover, NGC’s Maui pipeline transmits gas only from the Maui field and not from competing sources, so retailers and customers may often be unable to choose among different producers.
Looking forward, however, the government clearly intends to establish an unambiguous retail competition regime by the end of 2004. “The expected end of the life of the Maui gas field,” with “production from an increased number of smaller gas fields,” the government finds, “signals the need for … more sophisticated pro-competitive market arrangements.” Thus, the gas industry has been asked to provide recommendations on how to implement a more competitive marketplace. This would include “establishment of an open access regime across all high-pressure transmission pipelines so that gas market participants can access transmission pipelines on reasonable terms and conditions” as well as “consistent standards and protocols … so that gas market participants can access distribution pipelines on reasonable terms and conditions.” The government stresses that “open access arrangements need to provide non-discriminatory access to all potential users” and notes that it “will consider regulatory solutions” if industry does not make adequate progress towards designing and implementing a more competitive gas market regime.134
A related issue is vertical integration between gas transmission and power markets in New Zealand. NGC, which controls gas transmission pipelines, also had effective controlling interests in five electric power plants until quite recently.135 In purchasing gas for these power plants, NGC
may well have favoured the gas that it transported by itself over gas that was transported by others, even if its own gas was more costly, in areas where the power plants did not face effective competition from other electricity generators. However, NGC ended its involvement in the retail electricity market in August 2001 and divested all of its power plants during 2002. Nonetheless, insofar as power producers continue to rely on the dominant consortium for their gas supplies, the scope for competition among them will be mainly limited to capital and non-fuel operating costs.
PRICE TRENDS
Following the deregulation of wholesale gas transactions and elimination of gas distribution franchises in 1993, gas prices in New Zealand increased dramatically but then subsided. Between 1993 and 1997, real gas prices in 2000 US$ increased by about three-fifths for households (from
133 Ibid.
134 Ministry of Economic Development (2002a).
135 Ministry of Economic Development (2002b), pages 81, 108-9. NGC had sole ownership of the 365 MW Taranaki combined cycle plant in Stratford and the 32 MW Cobb hydro station in Takaka, owned half of the 118 MW Southdown cogeneration plant in Auckland and the 25 MW Kapuni cogeneration plant in Kapuni, and owned 46.5 percent of the small Silverstream landfill plant in Upper Hutt.
$289 to $459 per tonne of oil equivalent), and one-fourth for industry (from $186 to $233 per toe). This may well reflect the lack of effective competition with respect to the four-fifths of the economy’s gas that comes from the Maui field. But prices then began to decline, so that real prices in 2001 were hardly changed for households ($290 vs $289 per toe) and 15 percent lower for industry ($159 vs $186 per toe) than they had been at the time of deregulation. This could reflect growing competition among gas producers and retail gas suppliers over time.136
Figure 54 Natural Gas Prices in New Zealand, 1985-2001
0 50 100 150 200 250 300 350 400 450 500 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Price in 2000 USD per toe
Household Industry
Sources: International Energy Agency, US Department of Commerce
GAS MARKET REGULATIO N AND INFRASTRUCTURE POLICY GAS TRANSPORTATION INFRASTRUCTURE
New Zealand has just one main natural gas transmission facility, the 308 km Maui pipeline. The Pohokura pipeline is expected to bring additional gas from offshore Taranaki by around 2006. There is a well-developed gas distribution network on the North Island, with some 2,600 km of distribution pipelines serving major towns and cities.137
INFRASTRUCTURE INVESTMENT INCENTIVES
New Zealand’s incentives for investment in gas transmission and distribution infrastructure appear to be adequate, in view of the infrastructure that has been put in place. Since deregulation of the gas industry in 1993, there have been no guaranteed returns on such infrastructure. Hence, decisions about extending the pipeline network are entirely based on a market assessment of whether there will be adequate additional sales of gas to justify the required investment.
136 International Energy Agency (1997) pages II.19-21, IEA (2002a) pages III.30-32. Real prices calculated by dividing prices in current US$ from IEA by implicit GDP deflators from US Department of Commerce.
GAS MA R K E T RE F O R M GAS MARKET SKETCHES: PAPUA NEW GU I N E A
P A P U A N E W G U I N E A
GAS MARKET SETTING138
Papua New Guinea produces a small amount of natural gas, which allows the economy to be self-sufficient in domestic gas supply. A major increase in production is anticipated between 2005 and 2010, which would be associated with completion of pipelines for gas exports to Australia.
n Primary supply of gas to the domestic economy is projected to increase from 0.16
Mtoe in 2000 to 0.28 Mtoe in 2020, with demand growth averaging 2.0 percent per year from 2000 to 2010 and 3.9 percent per year from 2010 to 2020.
Figure 55 Evolution of Natural Gas Use in Papua New Guinea, 1990-2020
0 . 2 0 . 3 0 . 2 0 . 1 0.0 0.1 0.2 0.3 1980 1990 2000 2010 2020
Million Tons Oil Equivalent
Electric
Practically all of Papua New Guinea’s limited natural gas use is devoted to electric power production, and this situation is expected to persist indefinitely.
n Use of gas for electricity generation is projected to grow by roughly half from 0.2
Mtoe in 2000 to 0.3 Mtoe in 2020, its share of gas demand remaining near 100 percent.
138 Data from APERC (2002a) and more detailed internal energy balance tables. Historical data for 1980 and 1990 were compiled by the International Energy Agency (IEA). Projections for 2000, 2010 and 2020 were made by APERC.
G A S M A R K E T S T R U C T U R E AND OPERATION GAS MARKET PLAYERS
Several different private companies are involved in the production of gas in Papua New Guinea. However, they are organised into three consortia, each of which has sole rights to produce oil and gas from a particular field. At present, gas is produced for sale only at the Hides field, amounting in 2001 to 5.2 Bcf in total or 0.4 Mcm per day, for use in electric power plants owned by the Papua New Guinea Electricity Commission (Elcom). Gas at the other fields, lacking a downstream market, is reinjected for later use, enhancing current oil output.
Transmission and distribution of gas from the Hides field is performed by the same consortium that produces gas from the field. The PNG Gas Project, which may link all three gas fields with downstream markets in Australia as early as 2005, is also owned by a consortium which has many of the same owners as the gas fields.139
UNBUNDLING AND THIRD PARTY ACCESS
The gas market functions in Papua New Guinea are not effectively unbundled. While the consortia for gas production are distinct from the consortia for gas transmission and distribution, they have many of the same participants. There are no legal requirements for information firewalls between them, so their apparent functional separation appears unlikely to be effective.
There is also no legal requirement to give competitors access to the transportation and distribution pipelines that are in place. In any event, there is only one consortium selling gas at present, and if additional consortia start selling gas, they would seem more likely to cooperate than to compete in view of the similar compositions. Consequently, there is currently no competitor at all, and prospectively no real competitor, to whom transportation services might be granted.
MARKET MODEL AND COM P E T I T I O N
Papua New Guinea’s gas market conforms closely to the vertically integrated monopoly model. At present, a single consortium undertakes the production, transmission and distribution of gas. While additional production and transport consortia seem likely to enter the gas market in coming years, these consortia are also likely to have controlling shares held mainly by the same companies.
139 IEEJ (2002a), pages 387-8. PNG Gas (2002). Dow Jones Business News (2002).
PRINCIPAL PLAYERS IN PAPUA NEW GUINEA’S GAS MARKET