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OMV says gas disclosure expectations may be unrealistic

Wednesday 15th May 2019

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OMV says it supports greater disclosure of outages in the gas sector but is concerned some players may have unrealistic expectations of new rules intended to make that happen.

New Zealand’s biggest gas producer says it is alive to the concerns of users and broader energy consumers about the impact of gas field outages last year, particularly at the Pohokura field it now operates.

But it believes some of the concern about information disclosure – and also the expected benefit of greater disclosure – may be “overstated”.

It says some parties, even within the gas industry, appear not to have understood how gas supplies have contracted in recent years, particularly from the ageing Maui field. Nor do they appreciate the increased reliance on key supply facilities, the greater risk from any outage of those facilities, and the potential impact on other sectors, such as the electricity market.

“The major impacts from the Pohokura outages related to shortage of gas itself, rather than any information disparity,” the company said in a submission to the Gas Industry Company, the sector regulator currently testing options for a new disclosure regime.

“Any information disclosure regime will not address the underlying supply position in the market.

“We are concerned that the expectations of the effectiveness of information disclosure of outage information may be unrealistic. The nature of the outages in the sector – especially unplanned outages – is such that there are limits to the certainty and reliability of information.

“In the case of the Pohokura outages, uncertainties as to the duration of the outage mean it is questionable whether the release of consistent information would have allowed for a materially different response by affected parties.”

Gas meets about 22 percent of the country’s primary energy needs, is a major fuel for industry and power generation, and provides heat and hot water for about 286,000 homes and businesses.

But more than 82 percent of that gas came from just four fields in 2018, including the offshore Pohokura, Maui and Kupe fields. The government last year banned new offshore exploration.

Energy and Resources Minister Megan Woods asked the Gas Industry Company – also known as the GIC - to review disclosure regulation in the sector after the first prolonged Pohokura maintenance shutdown in early 2018.

The second outage, in late September, coincided with low hydro lake levels and then with planned generation maintenance. That combination saw wholesale power prices soar in October and November, with Dunedin-based power retailer Payless Energy ceasing trading as a result.

The Ministry of Business, Innovation and Employment has included possible regulations for a new disclosure regime in a discussion paper on changes to the 1992 Gas Act. Other elements of that review look at the potential role of hydrogen and biogases in the industry and whether penalties for non-compliance in the existing regime are tough enough.

MBIE notes that it shares stakeholder concern about the need for timely disclosure of gas information that may be material for the wider energy sector.

While the GIC is required to first consider a non-regulatory response, MBIE says an appropriate regulation-empowering provision should be added to the legislation “even if the GIC determines that a non-regulatory intervention is more suitable.”

The GIC canvassed a range of voluntary and mandatory arrangements for information disclosure in a discussion paper in March. Twenty organisations, including major power companies and gas producers and users submitted.

Many supported greater disclosure – particularly of planned and unplanned outages - but also urged work to make better use of the market data that is already available and being used by some market participants.

New Zealand Steel, operator of the Glenbrook mill and a major user of coal, gas and electricity, said the Pohokura shutdown late last year and the spike in power costs resulted in “several million dollars” of extra cost and a negative impact on steel supplies for the local construction industry.

It said the maintenance shutdown at Pohokura in February this year was another “prime example of the vagueness of information as to dates for the work.”

While the need to move dates for weather and technical issues was understood, the information provided was “minimal and not timely,” the company said in its submission to the GIC.

“Enquiries made directly to the operator of the field confirmed they were not prepared to share information on the planned timetable. Participants must reasonably expect the market to be kept fully and transparently informed for planning and so no party can be considered to be taking advantage of informant asymmetry.

“The irony in this is that NZ Steel was endeavouring to have the timing of another planned maintenance shut - which would substantially reduce our gas requirement - align with timing of the Pohokura work, thereby assisting NZ Steel and the wider users in the gas market.”

Power retailer Trustpower urged the GIC to focus on changes that will deliver the biggest benefits – information on planned and unplanned outages from producers and major gas users.

“These improvements should not be delayed while more controversial elements are debated by industry, such as the public release of information relating to average wholesale gas prices.

“We caution the GIC over enabling industry too long to attempt to derive a voluntary solution to this challenging, but important issue and consider that regardless of any voluntary agreements a regulated solution will ultimately be required.”

Methanex is the world’s largest methanol producer and uses close to half of New Zealand’s gas.

It says it wants to help resolve “valid and reasonable” concerns about disclosure in the industry.

But it challenged a suggestion that pricing and volumes of major users’ bilateral contracts should be disclosed. Term contracts take gas out of the market and can’t have a bearing on volumes and prices in the spot market, it says.

Nor does it believe it should have to give its international competitors an advantage by disclosing in advance planned maintenance shuts at its plants at Motunui and Waitara Valley.

“Nowhere in the globe is Methanex required to disclose its business operations in the detail proposed,” it says.

"Methanex would face adverse consequences if such information were to be widely disclosed, given the prospect that its competitors in global methanol markets would be able to use that information to gain a competitive advantage where they are not required to disclose such information themselves."

Submissions on MBIE’s Gas Act review close on June 12.


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