Banking gas

Two new and connected projects in Taranaki will help determine the shape of New Zealand’s future electricity and gas industries, writes Neil Ritchie.

The country’s first fast-start, gas-fired peaking power plant, to be built at the site of the old Stratford power station, and the country’s first natural gas underground storage facility at nearby Ahuroa, are being developed in tandem and at a cost of about $400 million.

Both projects are being developed by Contact Energy. While the gas storage project would likely have gone ahead anyway, given the increasingly tight gas supply contracts that offer users very little opportunity to ‘bank’ gas for later use, the $150 million gas peaker project would not be proceeding without the development of Ahuroa.

Becoming more reliant on weather-dependent renewable energy sources means we also need fast-start, gas-fired peaking plants to operate when intermittent capacity is not available, both to ensure security of supply and to manage market volatility. Gas storage, combined with gas peaking plants, will firm hydro and wind generation, and support a renewables future, by “filling in the gaps when the rain doesn’t fall or when the wind doesn’t blow”, says Contact Energy chief executive David Baldwin.

Using the nearly depleted Ahuroa field (part of the Swift inventory Origin and Contact bought this year) for gas storage will maximize the availability of gas during winter demand peaks. The project is due to be finished before the winter of 2010 and will mean Contact’s excess gas supply delivered during summer months is stored several kilometres underground, enabling sufficient supplies to be available to meet the peak winter demands.

Underground gas storage in old hydrocarbon reservoirs is not new. The world’s first facility was developed during 1915 in Canada using a depleted gas well, and by the 1930s there were close to 10 such facilities in the United States.  Current US gas storage capacity is close to 2800 billion cubic feet, with about 80 percent using depleted reservoirs. For comparison, the once giant offshore Taranaki Maui field used to contain about 3000 bcf of recoverable gas, while the more northern near-shore Pohokura field contained about 1000 bcf. There are also gas storage facilities in Australia and Europe.

Baldwin says Ahuroa has all the key attributes necessary for a gas storage project, with the central Taranaki field having very similar geology to a number of overseas facilities. It is already connected to the gas market via existing processing facilities and transmission pipelines.

Ahuroa is also situated just a few kilometres from the town of Stratford where Contact’s existing 400MW Taranaki Combined Cycle (TCC) gas plant is located and where the new 200MW peaker plant is being built.

Initial work demolishing the old former single cycle Stratford power station, which had not generated for years, and preparing the site for construction of the new peaker plant has already started.

Earlier this year Contact signed contracts with General Electric to buy two 100MW gas-fired peaking units, and with United Group New Zealand to project manage, engineer, and install the peaking units, as well as procure and install the balance of plant required to complete the $250 million project. Baldwin says the fast-start LMS100 gas turbine peaking units will enable the power station to go from cold to full output in less than 10 minutes.

The Ahuroa gas storage project will involve a combination of additional gas, compression and new wells to repressure the near-depleted reservoir so it can store gas, says Baldwin. Ahuroa is a well-defined reservoir enclosure with low risk of loss, and a homogenous reservoir with good porosity and permeability so that gas can flow at high rates, he adds. It is also capable of receiving large quantities of injected gas with minimal compression, and is of a size sufficient for market requirements  – about 10-15 petajoules per year, with initial injectibility rates of around 170 terajoules per day.

Contact’s majority owner, Australian Origin Energy, will project manage the project implementation and will operate the facility for Contact, but Contact will direct all design and construction decisions. Origin owns and operates the Tariki, Ahuroa, Waihapa and Ngaere (Tawn) fields.

The storage project is being developed in two phases. The trial phase, covering the next year or so, will involve the suspension of production from Ahuroa and the reinjection of gas from the nearby Tariki field. Reservoir re-pressurisation is due to start late this year. The implementation phase will require the design of the storage facilities, the determination of the location for the plant, compressors and pipelines, with resource consents obtained to enable commercial operation during 2010.

Baldwin believes the need for an underground gas storage facility has been hastened by the changing dynamics of the New Zealand gas industry, principally the move away from flexible supply arrangements to almost rigid “take or pay” provisions. Maui was a key source of fuel flexibility for gas-fired power stations for decades, with field production able to be ramped up or down according to demand from electricity generators. However, Contact estimates it will use its entire allocation of so-called legacy 367 gas – cheap Maui gas priced under the original Maui contract – before next June. That is being replaced with more expensive Maui right of first refusal (ROFR) gas, as well as with other gas, notably Pohokura where suppliers are requiring tight take-or-pay constraints, meaning there is little flexibility to “bank”, or store, gas.

Baldwin says the Pohokura take-or-pay provisions are believed to be the tightest yet written in the country, offering very little scope for deferring taking fixed quantities of gas, or even decreasing the amounts taken.

As Contact’s total annual gas cost exceeds $400 million, it is critical to extract appropriate margins from each gigajoule of gas used, he adds. As well, the country’s fledgling spot gas market is evolving and pipeline industry requirements, including common carrier provisions and daily balancing demands, are also resulting in operational inflexibilities.

Without the Ahuroa gas storage and new peaker plant, the ‘must take’ gas contracts would mean Contact’s other gas-fired power plants, TCC and Auckland’s Otahuhu B, would have to run at high capacity factors regardless of market needs.

Ahuroa will also provide another important function in enabling Contact and fellow major gas user Genesis Energy to effectively bypass the need to construct an expensive regasification facility for any liquefied natural gas (LNG) they may decide to import through Port Taranaki. Contact and Genesis are still investigating the possible importation of LNG because of continued uncertainties regarding long-term domestic gas supplies and some form of gas storage would be required with any gas importation – as LNG or even compressed natural gas (CNG).

The Ahuroa gas storage facility could enable occasional purchases on world LNG spot markets, with visiting vessels to Port Taranaki having their own ship-based regasification facilities aboard, thus avoiding the expense of building a regasification plant at the New Plymouth port.

It could also avoid locking Contact into expensive, rigid long-term LNG supply contracts, which would almost certainly be as high as $10 per gigajoule, perhaps even $20/GJ, compared with the current $6.00 – 6.50/GJ for domestic gas.