Energy critics 'fanning panic’

Press, 26 February 1983, Page 1

Energy critics 'fanning panic’

PA Wellington Critics were using the threat of a world price “war” to fan panicky thinking about New Zealand’s energy projects and distorting the facts about those projects, said the Minister of Energy, Mr Birch, yesterday. “It is too soon to draw any conclusion about the medium or long-term impact of present movements on the world oil market on New Zealand’s energy based projects. These can only be drawn as medium and long-term trends emerge." he said. Mr Birch said that some of New Zealand's big energy projects, particularly the refinery expansion and synthetic petrol and chemical methanol ventures/ ‘ would yield benefits regardless of oil price movements. "The expansion of the Marsden Point refinery, for example, is being done so

that New Zealand can save huge amounts of foreign exchange by refining crude oil into products such as diesel, jet fuel, and kerosene, rather than importing these expensive refined products. “Fluctuating world oil price levels will not stop us saving foreign exchange, by making our own products. “The economics' of the refinery expansion depend on the price difference between making our own products and importing them. These are called differentials. “Exhaustive studies of the expansion's economics have shown that the project will be a good investment, whether the oil prices are $3 a barrel, $l2 a barrel, or $3O a barrel." Mr Birch said that, as far as the methanol and ammonia'urea 'plant's were concerned. their futures depended more on the general

slate of the world economy than on movements in oil prices. “Indeed, it is the current world recession, not the recent oil price drop, which has depressed the market for all petro-chemical products and compromised the likely immediate returns from these two projects. “It would take a substantial collapse in the price of oil-based feedstocks, such as naphtha, to take away their international competitiveness in feedstock costs and technology.

“It should be borne in mind that naphtha from the Arabian Gulf costs SUSS.6O a gigajoule, whereas New Zealand Maui gas costs SUSI a GJ and our other natural gas costs SUSI.4O a GJ. Naphtha costs at least four times as much as New Zealand natural gas and naphtha plants overseas are closing. "This situation is unlikely

to be materially affected by a 10 or 15 per cent decrease in the price of oil (and therefore naphtha)." Mr Birch said a fall in world oil prices could help stimulate a resurgence of world economic activity. This could only help New Zealand Steel, farming, forestry industries, and the recently formed joint venture which is exploring the possibilities of developing the West Coast’s, coal reserve. He said that none of the conjecture from commentators about the world oil price falling suggested that cheaper oil prices would be here for ever.. Prices would rise again if the oil-pro-ducing countries exercised careful supply management or if they even decided "to inflict another ’oil shock’ on us. like they did in 1973 and 1979." "The forecasting of oil price movements more than a few months ahead is a complex exercise, and one in which allowance has to be made for fairly wide bounds of (uncertainty. It is not to be undertaken in response to every fluctuation in the market-. “In New Zealand, although movements in the market and their likely consequences are constantly monitored, the normal forecasts are published annually in the Energy Plan, which is , tabled in Parliament in August. “This forecast represents an aggregation and interpretation of data obtained from various agencies around the world. It correspondingly represents what might be regarded' as the conventional wisdom of Oil prices at the time. Mr Birch said forecasts varied from year to year because they reflected the experience of the most recent 12 months.