To: The Commerce Commission
Pursuant to section 26 of the Commerce Act 1986, I hereby transmit to the Commerce Commission a statement of the economic policy of the Government.
The Government policy statement is set out below.
Government Policy Statement on the Importance of the Pohokura Gas Field for Energy Security
? The Maui re-determination has put economically recoverable reserves at 3,562PJ. This is considerably
less than earlier industry expectations, and raises medium-term security of supply issues.
? Pohokura is the only significant new gas field (over 500PJ) that can be brought into commercial production quickly.
? Gas from Pohokura needs to be available in a timeframe and manner that ensures that national energy security and economic growth interests are met.
Gas policy
The expected end of the life of the Maui gas field signals the need for significant changes in gas supply arrangements in the New Zealand market. Production from an increased number of smaller gas fields will require more sophisticated market arrangements, including improved arrangements for gas balancing and reconciliation than currently exist.
The Government's policy for the development of
New Zealand's gas industry, and its expectations for industry action, is outlined in its Government Policy Statement - Development of New Zealand's Gas Industry.
That policy statement outlines the Government's expectations for better gas wholesale market arrangements and industry governance structures. This includes developing open access arrangements to the Maui pipeline.
This additional policy statement sets out the Government's views on the importance of the development of the Pohokura gas field to help remove uncertainty about
New Zealand's medium term energy security including facilitation of early decisions on new electricity generation investment.
Energy security risks
Gas is an important fuel for electricity generation. Currently New Zealand has 2,134MW of gas powered thermal generation capacity. With over 60 percent of New Zealand's generation based on hydro, thermal capacity is important for base load generation as well as for dry-year reserve.
With steadily increasing demand for electricity, New Zealand needs an additional 150MW of electricity generation per annum to meet demand growth.
New generation capacity is crucial for economic growth. Without the timely construction of new generation, supply will be insufficient (even with significant improvements in energy efficiency and demand management) and electricity prices will rise substantially.
Renewable energy will play an increasingly important role in New Zealand's electricity generation mix. The National