Syn. petrol plant costs may fall

Press, 20 April 1982, Page 22

Syn. petrol plant costs may fall

PA Auckland The Taranaki synthetic petrol plant might yet cost less to get going than the $1945 million budgeted by the Synthetic Fuels Corporation. According to the chairman of the corporation, Dr Colin Maiden, tender prices for many of the components needed for the project are coming in lower than expected. Inflation rates overseas, from where about 60 per cent of the components will cope, are in general running well below the 14.5 per cent level which the corporation allowed for in its estimates. “I think our estimate was on the high side,” Dr Maiden said. “I believe there is a good chance our total costs will be less than we thought.”

The corporation is the company formed to build and own the plant, its existing shareholders being the Government, with 75 per cent of the shares, and Mobil, which is providing the technology, with 25 per cent. By 1986, the plant should be producing a third of the country’s petrol needs by converting Maui gas to methanol and then to synthetic petrol by a patented Mobil process. Work began on the plant’s site at Motunui, north-east of New Plymouth, last month, after planning approvals were obtained under the

“fast track” National Development Act. Dr Maiden, who is also vice-chancellor of Auckland University and chairman of the Liquid Fuels Trust Board, gave a breakdown of the costings in SUS for the ' project: Capital Cost $767M Inflation $322M Interest charges $267M Working capital SII9M Total $1475M Converted to New Zealand dollars, the cost estimate is equivalent to SNZI94S million.

The figure for “capital cost” is the oft-quoted estimate “in March, 1980,” of the cost to build the plant at that time.

The inflation allowance was to cover excess over capital costs during the course of construction, and assumed an annual inflation rate of 14.5 per cent. The provision for interest charges covers only that payable on loans during the construction period. Once the plant is working, remaining interest charges will be paid from revenue.

“Working capital” covers items needed to get the plant producing, such as administrative fees and the cost of buying the Mobil catalyst. Dr Maiden said the capital cost figure included a contingency allowance of SUSBS million which might not be needed. The inflation allowance

was probably far too high, at least for the overseas components, which totalled 60 per cent of the cost. He believed the reason tender prices were lower than expected was the depressed world economy, which was leading to more competitive bids by firms needing work.

Dr Maiden also said the corporation had been assessing economics of the plant if the price of crude oil did not rise, but fell. The Government go-ahead was based on the plant’s producing an annual foreign exchange saving of SUSISO million if. the price of crude oil remained constant in real terms, with much bigger benefits if oil prices rose, which was universally expected before the present oil “glut.”

Calculations based on oil prices falling to three-quar-ters of their 1980 level showed that the annual foreign exchange saving would fall to SUSIOS million.

“We are now doing sums to see what happens if oil prices fall even further than that, in- order to find out the break-even point of the project,” Dr Maiden said.

He was “comfortable” about the foreign exchange savings of the plant, because it was most unlikely that oil, a diminishing resource, would not continue to rise in price in the long term.