New Zealand Commission Approves Joint Sales of Pohokura Gas

The New Zealand Commerce Commission has conditionally approved the Pohokura partners' application to jointly market and sell gas from the offshore Taranaki field.

The commission's preliminary view is that while there are benefits associated with the joint venture marketing arrangements, the commission cannot be certain that, in the absence of conditions on the authorization, the benefits will be achieved, said chairman John Belgrave when releasing the commission's draft determination.

Mr. Belgrave said that although the commission's preliminary view was to grant the authorization, the draft determination had identified four conditions to which any authorization would be subject.

These conditions were:

  • Limiting the time period of the authorization to five years;
  • Requiring first gas from the Pohokura field to be available by February 2006 and for the field to be under full production capability by June 2006;
  • Restricting the authorization so it would not apply to any successors of the applicants;
  • Ring-fencing the marketing of the Pohokura field.

"The Commission's preliminary view, subject to the proposed conditions, is that benefits would result from the timely development of the Pohokura field and that these benefits would exceed the potential detriment to future competition in the affected markets," said Mr. Belgrave.

In December, 2002, the Pohokura partners Preussag Energie GmbH, Shell Exploration NZ Ltd and Todd Petroleum Mining Company Ltd applied for authorisation under section 58 of the Commerce Act to enter into arrangements to jointly market and sell gas produced from the Pohokura field off the Taranaki coast.

On May 14 Preussag advised the commission it had completed the sale of its participating interest in the Pohokura joint venture to Austrian-based OMV New Zealand Ltd.

The commission considered joint marketing would: restrict the number of competitors in the market; result in higher prices and enhance the potential for price discrimination; result in a more limited range of terms and conditions being offered to gas purchasers; and slow or inhibit the rate at which a more efficient and competitive market may evolve in the future.

However, the commission accepted there would also be some features which would inhibit competition if joint marketing and selling were prohibited, including the fact that field development and output parameters would be determined jointly by the Pohokura JV parties.

Overall, the commission concluded that any joint arrangements would lessen competition in the gas market. However, it also considered benefits to the public would arise from the early development of the Pohokura field through lower field appraisal and design costs, lower development costs, and lower transaction costs.

The most substantial potential benefit from joint arrangements would arise from the earlier development of the Pohokura field.

A conservative assessment of the effects of the field coming into production one year earlier than 2007 would be public benefits in the order of $NZ22.9 million to $NZ57.0 million.

The commission has called for submissions on its draft determination, which close on June 9. It is also scheduled to hold a conference on the matter in Wellington during July 1-3 and expects to deliver its final decision on August 7.

Chairman of the Pohokura joint venture operating committee, Dennis Washer, said the partners would be making a submission to the commission.