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NEW ZEALAND GAZETTE

Introduction

1. The Government is committed to a sustainable and efficient energy future. Natural gas will play a significant part in achieving that commitment.

2. The expected end of the life of the Maui gas field signals the need for significant changes in gas supply arrangements. Production from an increased number of smaller gas fields will require more sophisticated pro-competitive market arrangements, including improved arrangements for gas balancing and reconciliation.

3. The Government welcomes investment in exploration and development of new gas fields. The Crown Minerals Act 1991 and the Minerals Programme for Petroleum set out clear policies and procedures to facilitate exploration and development including an internationally competitive and attractive royalty regime.

4. The Government’s policy for gas is consistent with the overall outcomes it seeks from its Energy Policy Framework, released in October 2000. These overall energy policy objectives are:

(a) environmental sustainability, including continuing improvement in energy efficiency and a progressive transition to renewable sources of energy;

(b) reliable and secure supply of essential energy services;

(c) costs and prices to consumers which are as low as possible while ensuring that prices reflect the full cost of supply including environmental costs;

(d) fairness in pricing, so that the least advantaged in the community have access to energy services at reasonable prices; and

(e) continued public ownership of publicly owned assets.

Evolution of gas industry arrangements

5. The Government wishes to see further development of gas market arrangements, and has established the following policy objective, outcomes and guiding principles for the evolution of gas industry arrangements.

Policy objective, outcomes and guiding principles for the gas industry

The Government’s overall policy objective for gas is:

“To ensure that gas is delivered to existing and new customers in a safe, efficient, fair, reliable, and environmentally sustainable manner.”

Industry arrangements should promote the satisfaction of consumers’ gas requirements in a manner that is least-cost to the economy as a whole and is consistent with sustainable development.

Consistent with this overall objective, the Government is seeking the following specific outcomes:

(a) gas resources are used efficiently;

(b) market barriers to gas exploration and field development are minimised;

(c) the costs of producing and transporting gas are signalled so that investors and consumers can make decisions consistent with obtaining the most value from gas;

(d) delivered gas costs and prices are subject to sustained downward pressure;

(e) the quality of gas services, and in particular trade-offs between quality and price, should as far as possible reflect customers’ preferences;

(f) risks relating to security of supply, including transport arrangements, are properly and efficiently managed by all parties;

(g) gas safety is promoted; and

(h) greenhouse gas emissions are minimised.

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To meet this policy objective and outcomes, gas industry participants, in conjunction with consumers, should ensure that arrangements are developed to meet the requirements of this Government policy statement. The arrangements should be consistent with the following guiding principles. In particular, the arrangements should:

(a) enjoy wide support from supply-side gas market participants and consumers;

(b) promote enhanced competition, including inter-fuel competition, wherever possible and, where it is not, seek outcomes that mirror as far as possible those that would apply in competitive markets;

(c) be stable over time so that investment is encouraged;

(d) ensure there are mechanisms to reduce demand when gas is scarce;

(e) be consistent with government policies on climate change and energy efficiency; and

(f) be consistent with the Commerce Act 1986 and all other relevant laws.

Industry-led solutions

6. To meet its objective and outcomes for the gas sector, the Government favours industry-led solutions where possible, but is prepared to use regulatory solutions where necessary.

7. The Government invites the gas industry to establish:

● a governance structure and decision-making process to manage the further development of gas market arrangements in the areas that are set out below; and

● a work programme that enables the development of efficient gas market arrangements in a timely and effective manner.

8. Principles guiding the development of governance structures. The governing entity must:

● be representative of all stakeholders, including consumers;

● have an independent chair;

● have a majority of independent persons (any director, employee or significant shareholder of the supply side of the industry does not meet the test of independence);

● have the independent members appointed after consultation with the Minister of Energy;

● not operate in the interests of individual participants; and

● have the power to develop and enforce arrangements consistent with the Government policy statement.

9. The Government expects the industry, including consumer representatives, to develop arrangements with respect to:

Production and wholesale markets

● The development of protocols, standards and conventions applying to wholesale gas trading, including quality standards, balancing and reconciliation.

● The development of a secondary market for the trading of excess and shortfall quantities of gas.

● The development of capacity trading arrangements.

Transmission and distribution networks

● The establishment of an open access regime across all high-pressure transmission pipelines so that gas market participants can access transmission pipelines on reasonable terms and conditions.

● The establishment of consistent standards and protocols across all distribution pipelines so that gas market participants can access distribution pipelines on reasonable terms and conditions.

● The establishment of gas flow measurement arrangements to enable effective control and management of gas.

Retail markets

● The standardisation and upgrading of protocols relating to customer switching, so that barriers to customer switching are minimised.