Contact pays 28% more for gas in latest half year

David Baldwin, chief executive of Contact, says that average gas purchase and transmission price was $4.77 per gigajoule

(GJ) in the December 2006 half year, up 28% from $3.72 per GJ for the corresponding period in 2005.

This rate of increase occurred for both gas used for internal use in Contact's thermal electricity generation plants, and for supply to wholesale and retail customers.

But Contact says this transition to higher price gas was mitigated to some extent in the latest half year by a delay in full production from the Pohokura gas field. Under interim arrangements, pending full production, Contact took lower volumes of Pohokura gas than anticipated, and compensated for this by greater use of alternative, lower-cost gas. Full production from the Pohokura field is expected in 2007.

During the period, Contact secured a most significant commerical agrement with the rights to an additional 170 PJ of Maui gas under the right of first refusal (RoFR) arrangements with the Maui field operators. This gas is expected to be delivered over the period from April 2007 until December 2014.

While Contact intends to focus on executing new renewable generation options as a priority, its existing thermal power stations have a critical role to play in ensuring New Zealand has a secure energy supply and that its renewable base is well supported.

“A secure fuel supply for these plants remains very important, and Contact will continue to focus this year on negotiating additional supplies of domestically - sourced natural gas for its existing plant,” Mr Baldwin says in the report.

The company will continue to address the challenges associated with higher-priced gas and reduced fuel supply flexibility.

The country's existing thermal plant will continue to play a critical role in supporting increasing levels of fluctuating renewables.

However, the challenge will be to ensure the country's thermal fleet is as clean and modern as possible, and is able to respond to the increased volatility resulting from additional wind generation with fast-start firming capacity, Mr Baldwin says.

Contact holds resource consents for Otahuhu C – a 400 MW high-efficiency combined-cycle gas-fired power station, at its existing Auckland site and is well positioned to quickly develop this option.

“Our belief is that Otahuhu C will in time be developed, given its capacity to displace old, inefficient coal-fired plants, which produce much higher levels of carbon dioxide emissions.”

“A high-efficiency gas-fired plant at Otahuhu could reduce carbon dioxide emissions by up to 60% per unit of energy produced, relative to existing older thermal plant.”

Contact's gas revenue from wholesale customers decreased 57% in the six months to 31 December 2006, compared with the six months ended 31 December 2005. This was primarily due to the expiry in June 2006 of a 12 month contract with a significant wholesale gas customer.

Retail gas revenue decreased from $64.7m in the December

2005 half to $53.2m in the latest December 2006 half.

Retail gas customer numbers at 31 December 2006 were 76,000, down from 79,000 as at 30 June 2006, primarily as a result of continuing strong competition in the retail gas market.

Source: Contact Energy.