Case for cheaper gas in South Island

Press, 9 April 1977, Page 14

Case for cheaper gas in South Island

DR N. J. PEET, senior lecturer in chemical engineering at the University of Canterbury, concludes his discussion of the case for the gas industry in New Zealand. The first part of Dr Peet’s article appeared on Thursday.

By analysing the economics of satisfying new gas and electricity demands, by a method which treats each on a common basis, we have been able to show that the cost, in economic terms, of

supplying gas to consumers in new housing areas in Christchurch, even when it is produced from expensive naphtha, is comparable with the cost of supplying the same effective energy from new electrical installations.

The case for supplying new household demands from natural gas (at the lower North Island prices) is definitely favourable, in economic, terms. The main reason why this is the case is the high and rapidly increasing cost of new electricity generation and distribution capacity. The cost will be very much higher yet. particularly if New Zealand moves towards reliance on nuclear power. As indicated in Thursday’s article, the retail electricity tariffs do not reflect the national economic costs, and the price messages to the consumer do not make clear the very large cost of further increases in electrical capacity. Gas tariffs in Christchurch, on the other hand, reflect real economic effects fairly accurately (if they did not, the Gas Company would soon be out of business), but this is no consolation to the consumer in a gas-dependent house, who will have to pay about 50 per cent more for the same amount of useful energy, even under the latest electricity tariffs.

The whole question of the future of the South Island gas industry, and indeed of those North Island undertakings remote from the main pipeline, hinges on two factors — the ready availability of funds for capital investment, and the price of

feedstock, as delivered to the city gate. The availability of capital requires the placing of the gas industry on a financial footing which is the same as that of the electricity industry. This can be best achieved by giving the Natural Gas Corporation the same countrywide powers for generation and transmission of gas as has the N.Z.E.D. for electricity. Where there is no gas pipeline between centres, the N.G.C. would have responsibility for organising the transfer of feedstocks to local gas undertakings. With the N.G.C. having authority over the whole country, the bulk price of gas (or its equivalent in feedstock) coud be made uniform, as is the case with electricity. If electricity and gas were priced at their equivalent energy values, the direct user of gas could afford to pay twice as much for his gas as could the electricity industry; the national economic benefit would be obviously higher. The problem of the cost of L.P.G. to individual South Island and off-pipeline North Island gas undertakings would therefore be academic, since the supply of gas or feedstock would be at the same price per unit of energy, at all places in the country.

As mentioned above, L.P.G. left in the pipeline has the same value as fuel gas. The cost of extraction is not high, and since under present market conditions the selling price of the product is much higher than the cost, the operation is well worth while. This argument has been used against the

proposed use of L.P.G. in gasmaking, by claiming that the price offered by the premium markets is sufficiently high for it not to be worth while releasing L.P.G. to the lower-price gasmaking market.

If. however, the verv much larger amounts of L.P.G. that vould be extracted from the expected Maui gas flows were made available, the price would fall considerably. Estimates by Government departments of the price of L.P.G.. particularly to the South Island, must therefore be tempered by the knowledge that they apply, at the present time, to a limited range of market conditions; these conditions would be very different, if the decision were made to place major reliance on the use of L.P.G. as a fuel for gasmaking in population centres away from the trunk main.

Costs of bulk transport of L.P.G., particularly by sea, have been claimed to be high, yet it is difficult to square this with the knowledge that vast quantities of L.P.G. are carried by sea elsewhere in the world, at prices which are obviously highly economical. For an accurate analysis, however, the over-all cost of extraction and transportation must be compared with the over-all cost of generation and distribution of electricity. To consider transportation on its own, and conclude that it is not economic to ship L.P.G., is equivalent to examining the cost of transmission of electreity to a remote village, and concluding that it is only by charging tariffs double those in nearby

major centres, that such a project could be justified. In fact, there are very few' localities in New Zealand, however remote, which are without electricity, and the whole nation shares the cost of supplying these districts. What this article is suggesting for gas is simply that major centres be supplied, not every farm or settlement, and that the whole nation shares the cost of this policy. In the local context, there is surely no reason for expecting cheaper electricity prices in the South Island, since such a course of action would undoubtedly sound the death-knell of the South Island gas industry . . . perhaps as a quid pro

What is needed is a national energy policy that recognises the importance of not putting all one’s energetic eggs in one electrified basket: we must insist that the maximum number of options remain open, because if this does not happen, and the gas undertakings die. it will be impossible to resuscitate them. We will then be thoroughly hooked on expensive electricity, with little or no chance of escape. The aim must be to meet growth in the energy sector by the direct use of fuel wherever possible, thereby reducing the extremely high costs and fuel wastage associated with further largescale electrification.

Granted, the Maui Agreement ties us to “take or pay" for a minimum quantity of gas, but since we can get approximately twice the energy benefit out of a given quantity of Maui gas, burned directly where it is needed, than is obtained by converting it to electricity, it would seem sensible to pay for what we are contracted to pay for, and leave what we do not need in the sea-bed off Taranaki, in

trust for our children, and maybe even for their children.

New’ Zealand is indeed “at the turning point," particularly in the area of energy planning. We must hope that the much heralded Energy Policy will accept the need to move towards much more efficient use of our gas re-

sources than pouring some two-thirds down the drain in thermal power stations. Let us atm to optimise the future use of our energy resources. and not 'Continue trying to justify past policies. made in an economic climate which was greatly different from that which now faces us.