OPERATIONS

Maui redetermination report: supply shock for Methanex

Methanex New Zealand is "down but not yet out", after the final Maui redetermination report today confirmed the methanol manufacturer has now lost virtually all its entitlements to Maui gas.

Texas-based Netherland Sewell and Associates International today released copies of its final, and binding, report on the remaining recoverable Maui reverses.

Industry players, including Methanex, had largely anticipated the final recommendations as a draft report, released in late December, was in broad agreement with field owner Maui Development Ltd studies, which showed the field ever only contained about 3800PJ, and not the 4085PJ on which Maui gas sales contracts were based.

Energy Minister Pete Hodgson said NSAI had concluded that total recoverable reserves were only ever 3562PJ. Taking into account total usage to date, this meant that from January 1, 2003, only approximately 370PJ of Maui gas would be economically recoverable at the current Maui contract price.

This news means New Zealand's largest energy resource is certain to run out earlier than the contracted 2009 and will force Methanex to cut its methanol production and progressively close its Motunui and Waitara Valley facilities.

"This final report is confirmation of the bad news we received just before Christmas and our New Zealand production will this year be significantly down on previous years," Methanex Asia-Pacific vice-president Bruce Aitken told EnergyReview.Net,

He was hopeful the Motunui and Waitara Valley plants could produce about one million tones of methanol in 2003, compared with the usual annual 2.0-2.4 million tonnes. Methanex had sufficient contracted gas entitlements from all sources to produce a total of 800,000 tonnes and Methanex was continuing to pursue acquisitions of additional gas to boost total production to approximately one million tonnes.

"This report is very extensive and we will go to our corners and study this outcome; we are down but certainly not out for the count."

"We very much want to secure more gas to keep our plants running and are heartened by the high level of exploration going on at present."

Once the dust had settled, Methanex would be talking with all the parties concerned to work out a rational approach to the allocation of remaining reserves."

Methanex could keep the small valley plant running on its present non-Maui supply - almost 20PJ a year gas from the McKee, Mangahewa and Kapuni fields - and produce up to 520,000 tonnes per annum of methanol for the next few years, Aitken added.

The parties to the Maui contracts - the government, MDL and major users Methanex, Contact Energy and NGC - have agreed to abide by the report's recommendations. The redetermination will lead to an adjustment of the Crown's contract with MDL and its contracts with the three major users regarding reduced allocations and requirements.

NGC is largely "insulated" from any Maui reduction, thanks to the Gas Bank II contract which it invoked last year, causing Shell NZ to gift the company almost 80PJ of Maui gas.

Contact chief executive Steve Barrett said the NSAI draft and final reports were broadly consistent with its own expectations.

The announcements cleared the way to resolve how the remaining gas would be allocated to the various parties, both on a daily and year-to-year basis. "That process will begin in the near future and we are hopeful that agreement can be reached quickly among the parties," said Barrett.

He said this was a particularly important issue because the rate at which gas would be delivered over the next few years would have major implications for short term flexibility and security of supply for both the gas and electricity markets.

Reductions in Contact's entitlement under existing contracts will be broadly offset by reductions in its on-sale obligations under downstream supply contracts. "The exact implications of these changes will take some time to become clear," he added.

He moved to reassure small commercial and domestic gas users, saying: "The Maui redetermination process is not expected to significantly affect the availability of gas to residential and smaller commercial customers, as their total demand is relatively small compared to total current use".

TOPICS:

A growing series of reports, each focused on a key discussion point for the energy sector, brought to you by the Energy News Bulletin Intelligence team.

A growing series of reports, each focused on a key discussion point for the energy sector, brought to you by the Energy News Bulletin Intelligence team.

editions

ENB CCS Report 2024

ENB’s CCS Report 2024 finds that CCS could be the much-needed magic bullet for Australia’s decarbonisation drive

editions

ENB Cost Report 2023

ENB’s latest Cost Report findings provide optimism as investments in oil and gas, as well as new energy rise.

editions

ENB Future of Energy Report 2023

ENB’s inaugural Future of Energy Report details the industry outlook on the medium-to-long-term future for the sector in the Asia Pacific region.

editions

ENB Cost Report 2021

This industry-wide report aims to understand current cost levels across the energy industry