How best to use N.Z. gas reserves?

Press, 29 August 1979, Page 20

How best to use N.Z. gas reserves?

New Zealand is well endowed with indigenous resources for the manufacture of liquid fuels — including natural gas, coal, and energy farming. In the medium-term, natural gas is the most attractive resource for fuels production. The costs are generally moderate, the technology simple and clean, and the lead times for implementation short. There is also a large “sunk” investment in the Maui field, gas is available, and the Government is committed to "take-or-pay” arrangements for quantities of gas.

For New Zealand, not only will oil imports continue to have a serious impact on the balance of payments, but it will also become increasingly difficult to procure supplies. While the bulk of our transport fuels continue to be supplied by imported oil, this situation must be of very serious concern.

To assist in exploring the options, the Government established the Liquid Fuels Trust Board in 1978. Broadly, the functions of the board are to investigate and support projects aimed at reducing the use of imported fuels for transport. The board has been asked to report to the Government by August 31. and it is expected that the key decisions will be taken by the Government before the end of 1979. The board has concentrated attention on natural gas as the basis for alternative liquid fuels. There are other fuels available, but these possibilities should not detract from the necessity to take immediate decisions on the use of natural gas. Independently of the

transport fuels dilemma, the search for alternative gas uses has been given added urgency by two factors — the commitment by the Government to “take-or-pay” for substantial quantities of gas for 30 years, and the need to withdraw gas from the Maui field to gain access to condensate as a valuable indigenous refinery feedstock.

Transport fuels represent about 72 per cent of petroleum consumption in New Zealand. Of this, about 85 per cent is imported as crude oil, other refinery feedstocks, and finished products. The major opportunities to substitute for imported oil are in transport. Since there are limited possibilities for the manufacture of the aviation substitute “avtur,” these possibilities relate mainly to automotive gasoline and diesel. Gasoline appears to be the more attractive target of the two, but the search for diesel substitutes is important as demand for diesel is expected to grow faster than gasoline demand. At present, gasoline demand is higher than that for diesel (about 1.6 M tonnes and IM tonnes in 1977, respectively), gasoline is a more expensive product, and less work has been done in New Zealand and overseas on the use of natural gas as a diesel substitute. The board has examined six transport fuel alternatives based on natural gas — methanol-gasoline blends, compressed natural gas (C.N.G.), liquefied natural gas (L.N.G.), liquefied petroleum gas (L.P.G.), methanol as a base fuel, and synthetic gasoline-diesel production. Import substitution has been the main criterion; trading has also been considered. Export of methanol (either as a fuel or as a chemical) and export of L.N.G. have been considered, as well as possible petrochemicals manufacture (as with ammonia-urea). It is rarely possible to define how much alternative fuels will cost. Cost calculations have been done in reverse — given a certain market value for a product, what cost can be borne by the feedstock so the project can break even? The project which yields the best “opportunity value” is the most economic. Interaction of alternative fuels with the Whangarei refinery has also been considered. In all cases economic benefits from introducing alternative fuels were found to be severely reduced by the expansion of the Whangarei refinery — because an expanded refinery would permit the import of cheaper crude oil, rather than the present processed product. It is desirable to integrate refinery and alternative fuels planning.

Based on economic analysis, and using export L.N.G. as the basis for placing a breakeven value on gas, six conclusions have been drawn: 1. C.N.G. is economically favourable under all circumstances for vehicle fleet use, but marginal for many private vehicles. 2. The methanol-gasoline blend option (Ml 5 is very favourable when assessed against imported gasoline, but marginal when assessed against gasoline exports from the refinery. 3. Methanol as a base fuel is favourable when assessd against imported gasoline, but marginal when assessed against gasoline exports. The best benefit is gained from methanol when using new vehicles, designed to give optimum methanol performance, and factory-assembled to give minimum engine cost. 4. L.P.G. is marginally economic, but economies can be improved by the choice of market location and size. Assessed against gasoline exports, L.P.G. seems uneconomic. 5. Synthetic gasoline is shown to be uneconomic, even under favourable conditions. On purely economic grounds it could be more beneficial to export gas as L.N.G. or fuel methanol and use the export receipts to buy gasoline, rather than produce synthetic gasoline. 6. L.N.G. as a vehicle fuel seems to be uneconomic under al) conditions. Economic analysis indicates that C.N.G. and L.P.G. are most suited to fleet use, although there will be some penetration of the private market when, or if, these fuels become widely available. In the case of the C.N.G., market penetration will also be limited to the gas reticulated areas of the North Island. Market penetration of L.P.G. will be limited mainly by physical availability, since L.P.G. components form a small part of the constituents present in natural gas. Methanol blends are suited to general vehicle use, but the degree of substitution possible is limited by blend composition (effectively 12 per cent of gasoline for an Ml 5 blend). Methanol blending is also limited (probably) to premium gasoline, reducing the effective potential substitution in the whole gasoline market to about 10 per cent. Base fuel methanol and synthetic gasoline have the theoretical potential to replace conventional gasoline completely. This is reduced to about 90 per cent for methanol because of the need to incorporate some gasoline components to give acceptable fuel properties. In practice, the substitution potential is limited by the need to process some petroleum for the supply of other fuels — such as diesel or avtur — creating some co-production of gasoline. Hypothetical substitution targets — if these are established as feasible — for each fuel form can be postulated. Such targets can be indicative only. It is not possible to substitute for diesel and avtur as well as for gasoline.

The choices for New Zealand in the development of liquid fuels were discussed recently by the technical director of the Liquid Fuels Trust Board, Mr B. V. Walker, in a paper given at a roading symposium in Wellington. OLIVER RIDDELL, in the first of three articles taken from Mr Walkers’ address, considers the economics of producing liquid fuels in New Zealand.