The Path to Think Big

 (III) Natural Gas

Until the McKee wells were drilled in 1980, and the find there is not phenomenal, oil was never discovered in appreciable quantities in or around New Zealand, despite the drilling from 1865 on of over 200 wells.  But there was natural gas and associated condensate discovered on shore in 1959 at Kapuni in Taranaki and offshore Taranaki in the Maui field in 1969.

The latter discovery in particular has been of significant economic importance to New Zealand.  Several major technological projects based on this gas were built after an extensive series of investigations designed to decide what was most in the national interest.  One of these projects is a world technological first of some significance. 

Many factors influenced the final choices and they provide a very interesting example of the complexity of technological decision-making  which has to take into account economics, the state of technology, the availability of resources and markets, national security and environmental considerations.

The OPEC Influence.

In the background to the decision making and acting as an important influence on it, was a changing world hydrocarbon market, usually seen to be under the influence of the group of countries known as OPEC (Organisation of Petroleum Exporting Countries). The Maui discovery was made in March 1969. On 2 July 1973, the Government concluded an agreement to buy the gas for use in power stations and at the same time bought a half share in the venture with the discoverers, Shell-BP-Todd. Oil was priced at only a few dollars a barrel and the value of natural gas was correspondingly low. 

The first of the OPEC price rises occurred almost before the ink was dry on the Maui agreement, and then the price of oil increased by a factor of ten over the subsequent decade.

Electricity Demand Projections

In 1973 the Electricity Department’s forecasts were still showing substantial increases in demand over the next decade in accordance with New Zealand’s expectations of continued population and GDP (Gross Domestic Product) growth. 

The use of natural gas in large power stations appeared to answer the Department’s demand for more energy and at the same time provide a market to justify the large expenditure necessary to get the Maui gas ashore. It would also stay the day when nuclear power would be required. Drawing off the gas from the field would produce the associated condensate and lead to a reduction in the country’s requirement to import crude oil.

It was recognised that using the gas in power stations was inefficient but it had been decided that the small local market for petrochemicals was insufficient to provide a base for a major export-oriented petrochemical industry, and the market for the gas as premium fuel for domestic and industrial use was already served by the Kapuni field.

However the way was left open for some of the Maui gas to be diverted away from power station use should an economic market be found.

A Nitrogenous Fertiliser Facility

The Petrochemicals Project Group

In May 1974 an interdepartmental committee on petrochemicals was established to investigate possible developments using Maui gas as a feedstock.  It found that it had a complicated task on its hands; a range of possibilities existed some of which were technologically complex.

Because of this, a year later a full-time group to service the committee came into being with seconded staff from DSIR, the Department of Trade and Industry, the Ministry of Works and Development and the Ministry of Energy Resources. Dr Basil Walker, who had been a DSIR member of the team negotiating the Maui contract, became the Project Director of this group, known as the Petrochemicals Project Group (PPG).

It is unlikely that it was realised at that time the magnitude or scope of the projects that would result from this beginning. 

After surveying the petrochemical industry, the group selected seven possible developments for more detailed analysis.  Two of these were for the production of fuel and chemical methanol, two were olefin developments based on LPG (liquefied petroleum gas) and the last was the maunfacture of synthetic gasoline via methanol. (The so-called Mobil process.)

Greatest national benefit was found to come from ammonia/urea production for nitrogenous fertilisers and from chemical methanol production. 

While chemical methanol would have to be exported to ensure viability it was considered that "for ammonia/urea a relatively small domestically orientated complex is indicated to be viable".

The manufacture of synthetic gasoline was economically a poor option that could only be justified by a high premium being paid for self-sufficency in liquid fuels.  

From a technological point of view, the ammonia/urea plant at Kapuni is itself of little interest in the context of this site. The technology and most of the plant itself were imported, and the plant is one of some 500 around the world. However, the project is of interest for a number of reasons:

• It was the first of the capital intensive technological developments based on Maui gas. As such, its lengthy course through the obstacles of the planning process provided one of the influences leading to the National Development Act.
•  It raised questions about the proper use of a finite resource, natural gas, and about the industrial use of good agricultural land. 
• The nature of the development was dictated by New Zealand’s geography; (a small local market isolated by transport costs from other markets) and;
• The fact that the development took place at all resulted from the changing value of oil related products.
• Finally, by introducing a significant source of fertiliser nitrogen into the country it raised questions about the traditional phosphate/clover system for nitrogen fixation.

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Proposals Are Invited for the Manufacture of Nitrogen Fertilisers from Maui Gas

 After the interdepartmental committee on petrochemicals had reported to the Government, proposals were invited for the manufacture of nitrogen fertilisers from Maui gas.

A number were received in July 1977 and  analysed by the interdepartmental committee.  None appeared to meet the requirement, which was for a low priced plant with sufficient capacity to supply the existing local market for nitrogen fertilisers and to cater for its expansion.

The study by the petrochemicals committee had suggested that although economies of scale would allow a large ammonia/urea plant to produce much more cheaply than a smaller one, its viability would depend on exports for which the market was uncertain.  Most existing ammonia/urea and other petrochemical plants depended on their local markets to purchase the major part of their production and were thus able to make export sales at low prices. Until hydrocarbon prices started to rise New Zealand was, because of this, able to purchase much of its petrochemical requirements at favourable prices.

A Second-Hand Plant

In early 1978 a London-based petrochemical plant construction firm, Capital Plant International (CPI), approached the Government.  A client of theirs, Fish Engineering Construction of Houston, Texas, had partly completed the manufacture of a medium-sized ammonia plant for a purchaser who was unable to complete the deal, because the changing price of natural gas feedstock had made it uneconomic in the United States. 

The partly constructed plant, together with an as yet unbuilt urea plant and ancillary offsite equipment, was being offered as a package with a capital cost advantage of $10m compared to that of a newly ordered plant.

Since an economic analysis suggested that the plant would be commercially viable, consultants were quickly appointed to advise  on the suitability of the complex for New Zealand.  The outcome of this was that the Government secured an option over the ammonia plant and invited its own oil company, Petrocorp, to construct an ammonia/urea complex based on the CPI/Fish proposal.

This complex would have a cost of about $70 million and an output at full capacity of 470 tonnes of urea per day.  It would use under 4% of the gas quantities the Government had contracted to purchase.

An Unusual Role for the Treasury

The Treasury had played an unusual rate in bringing the proposal to this stage.  Normally it is a department which comments on the economic and financial implications of proposals put forward by others.  In this case it was the principal promoter.  A Treasury official who played an important role in finalising the deal subsequently joined Petrocorp in a senior position. 

An agreement for Petrocorp to purchase the plant was signed in Wellington in March 1979.  The contract provided for the facility to be on stream in mid 1984, provided that access to the site was available by September 1979. But before that could happen planning permission was required.

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