Our Country: Our Choice

Energy

Wayne Makeig*

The use of energy underpins society as we know it today. The more developed societies are, the more intensive their consumption of energy. Without access to an energy supply, or the ability to afford it, societies remain undeveloped.

It is frequently said the world is divided into the 'haves' and the 'have nots.' Those same sectors could well be relabelled the 'energy rich' and the 'energy poor.'

The term 'energy' generally invokes images of coal, oil, gas, hydro dams, nuclear plants etc etc. In fact 'energy' should bring to mind cooking, heating, lighting, transportation, earthmoving, agriculture, factories, recreational resorts and activities.

Interestingly, there is growing opposition to the former definition (ban fossil fuel burning, nuclear plants and any further hydro development) but growing public demand for the latter - more heating, lighting, transport and recreation.

In a modern society, the provision of energy is not optional. Without an adequate supply of energy, we would be unable to house our growing populations, to feed, warm, cool and cleanse them; to move freely about; to work and play in the manner we have come to expect.

Background

New Zealand has generally been well blessed with plentiful, inexpensive energy supply. When coal was the worldwide fuel for cooking, heating and driving our machines, New Zealand had all the coal it needed. And we still do.

With the birth of the electric light bulb and the subsequent all-electric kitchen, New Zealand had more than ample opportunities for hydro development. Indeed, about 75% of our electricity supply is still relatively inexpensive hydro.

The rapid development of the motor car and air travel, and conversion of coal-fired locomotives and plant to oil brought a different story.

New Zealand's production of oil, although first commenced in 1865, has always been modest. However, imported supply for our needs, at affordable prices, was maintained successfully - even through two world wars. The continuing search for oil in New Zealand, whilst largely unsuccessful in finding commercial oil deposits, produced significant gas finds. Firstly the onshore Kapuni field, then the offshore Maui field, large by world standards.

But with the oil shocks of the 1970s we perceived ourselves to be very vulnerable, down here at the bottom of the world with little indigenous supply to fall back on. This predicament sparked off a programme to become 50% self-sufficient in transport fuels by 1985. In fact we achieved about 60% through the conversion of natural gas from Kapuni and Maui into petrol at the synthetic fuels plant at Motunui, and the processing of condensates from the gas fields at the Marsden Point refinery.

The consequences of this energy history are that in New Zealand we have a lifestyle and economy based on a plentiful supply of relatively cheap energy. We export energy in a number of forms; notably aluminium from electricity and methanol and fertilisers from natural gas. Most of our major industries are energy intensive, and we are compulsive motorists, with car ownership per capita behind only the United States and Canada, and third equal with Australia.

The Present

The present energy scene in New Zealand is one of considerable change:

· Coal has had a considerable resurgence in production, but virtually all of that increased output is being exported; · The oil industry has been transformed, from probably the most regulated industry in New Zealand to total deregulation; · Gas production has peaked and output from the giant Maui field will decline significantly in the next decade; · In electricity, the retail sector has been deregulated and is experiencing corporatisation and extensive pressures for mergers and takeovers. Generation is no longer the sole province and responsibility of the Government, but has also been deregulated and split into competing units, with further competition coming from the private sector and the newly deregulated and corporatised retail supply companies.

There are also growing environmental pressures - from the need to maintain or decrease CO2 levels arising from the burning of fossil fuels, resistance to any further large-scale hydro developments and rejection of the nuclear energy option. Despite growing resistance to energy production, demands for energy outputs continue to grow. How will these demands be met through to 2020, and what choices do we have?

Towards 2020

A significant characteristic of the energy industry is the very long lead times involved in making changes. This results not only from the huge volumes of energy produced and consumed daily, which would take an equally huge and time-consuming effort to replace, but also from the infrastructure and equipment required for consumption. Factory plant, trucks, buses, aircraft, trains, ships and even our buildings are all still being manufactured and built based on current energy forms. All of this equipment has a useful life of 20 years or more. Thus it is difficult to envisage any major changes in energy form over the next couple of decades.

What may well emerge by 2020 is some indication of what the next generation of energy might be. At present there is much speculation; fuel cell? hydrogen? fusion? biogas? but no certainty.

Fortunately the world has sufficient resources of fossil fuel, hydro and nuclear power to maintain us for some decades yet.

While New Zealand is no different to the rest of the world and will continue to support its lifestyles by the consumption of fossil fuels and electricity, changes in the source and mix of those fuels is inevitable.

There has been some criticism that New Zealand's 'energy intensity' (the ratio of energy consumption to GDP) has continued to rise over the last decade, whilst the rest of the developed world's has declined - the criticism implying that we are inefficient and perhaps even profligate in energy use. In fact this is rather a superficial view. As stated earlier, New Zealand has many energy-intensive industries based on the ready availability of relatively inexpensive energy. High intensity does not necessarily imply inefficiency, but rather reflects the nature of the activity. It is interesting to note that, if we exclude the highest energy-using sectors in New Zealand (forestry, aluminium, steel and methanol) the energy intensity of the remainder of the economy (albeit with some fluctuations) has been generally declining since 1970, in line with the rest of the developed world. There has also been concern expressed that with the recent considerable increase in economic activity in New Zealand, after a decade of growth averaging only some 1% per annum, there would be a commensurate increase in energy demand which would lead to shortages, particularly in electricity. Interestingly, this has not occurred and electricity consumption has continued to rise by only 2% per annum, much as it was before. This may be attributed in part to declining intensity due to continuing efficiency improvements.

However there has been some quite significant growth in demand for diesel fuel with the greatly increased activity in forestry, and in jet fuels with similar increases in air travel. Such increase in fossil fuel consumption, together with any increases in thermal firing of power stations, is very much in conflict with our aims to moderate CO2 levels, arising from New Zealand's participation in the Framework Convention on Climate Change (FCCC) along with other developed countries. Notwithstanding these international commitments, it is clear that many signatories to the FCCC will not come close to meeting their undertakings, and the degree of ongoing international commitment is far from clear. Whether New Zealand opts for unilateral action to meet our commitment, at some cost to our economy, or decides to act in parallel action programmes with other nations having difficulty in meeting targets, is a choice we have yet to make. Despite the reducing energy intensity in New Zealand, demand will continue to rise at about 1.5% per annum through to 2020; ie there will be about 30% more energy consumed in 2020 than in 1996. To identify some of the options we may have in the energy mix of that 30% increase, it is necessary to review the possibilities by energy sector.

Natural Gas

Production of natural gas has peaked in New Zealand. Unless a significant replacement field is found, the exhaustion of Maui with the consequent cessation of methanol, synthetic gasoline and fertiliser production, together with greatly reduced availability of gas for electricity generation, will occur towards the end of the first decade of the next century. Nevertheless, other supplies of gas from smaller onshore fields will ensure continued availability of gas for domestic reticulation well beyond 2020.

Oil

Oil will continue to be imported, but in increasing quantities, not only to meet increasing demand but in some instances to replace gas following the exhaustion of Maui. Oil will continue to be available worldwide for importation for some decades yet, well beyond 2020, but short-term supply and price will continue to experience the vagaries of international trading and the politics of the Middle East. It would appear unlikely that oil will be supplanted as the principal fuel for internal combustion engines. Despite intensive development effort, electric cars remain stubbornly expensive with performance falling short of public requirements. Similarly, the battery design breakthrough that may overcome these difficulties also remains elusive. Present indications are that 'hybrid' cars (using a combination of energy sources) are more likely to emerge as a potential small car for shopping and commuting.

Electricity

Fears of a looming shortfall in electricity supply in the next few years have receded since the deregulation of the industry. Not only have the forecasts of greatly increased demand associated with higher economic activity not materialised, but with deregulation of generation has come a considerable list of certain, probable and possible additional generation projects. Significant additions to capacity already announced include ECNZ's upgrade of Manapouri (170MW) the Southdown gas-fired plant (120MW) and the Taranaki Combined Cycle project (350MW). Many other geothermal, co-generation plants and small hydro are in advanced stages of planning. A number of wind farms are also reaching the construction stage with one, South Wairarapa, in operation. It would be optimistic to believe wind could significantly replace other less environmentally acceptable forms of energy generation. Lack of storage ability dictates the need for backup generation systems during those periods when the wind is unfavourable. There are a number of consequences arising from this multitude of relatively small generation proposals. One would now expect supply and demand to be kept in a better balance with small projects coming onstream as demand justified their need. As a result, the need for major projects, adding blocks of 500-1,000 MW as in the past, has now receded; based on current indications, perhaps to beyond 2010. A less favourable consequence may well be that electricity from this plethora of small plants is more expensive than a similar output from one large hydro or thermal development. Thus, if an investor was bold enough to establish a large-scale plant, many of the small projects could become seriously uneconomic and even superfluous. The real outcome as we head toward 2020 is that would-be investors do now have choices as opposed to our pretty rigid history of state dominance. One other area of electricity supply where choice has not yet been a feature of the deregulated environment is for domestic and small business customers. They are still seen to be tied to their monopolistic local supplier. It is only a matter of time before advances in technology and increasing competition rectify this, and that is likely to be sooner rather than later - perhaps only a couple of years.

Coal

Coal has been something of a Cinderella as regards energy supply within New Zealand for the last few decades, firstly out-priced by low-cost fuel oil in the 1960s and 1970s, then by low-cost gas from Maui and, more recently, suppressed by environmental pressures.

It is ironic that our most prodigious indigenous energy source has lately undergone a resurgence, with production now over three million tonnes per annum, but that the vast majority of this production is being exported. Coal is a major and rapidly expanding source of energy for our Asian neighbours, Indonesia, Malaysia, Japan and China. In Australia, all electricity production in New South Wales and Victoria is from coal-fired thermal stations.

The run-down of Maui gas in New Zealand may well mean coal being required here as a replacement - particularly in our largest power station, Huntly. Considerable improvements in burning efficiencies and handling techniques have greatly improved the performance and image of coal as a fuel. There remains though the perceived problem of CO2 emissions from coal firing, and here we may well be faced with difficult choices in reducing CO2 and maintaining an adequate energy supply, particularly in electricity generation, to support the level of lifestyle we have come to expect.

Geothermal

A number of small- to medium-sized geothermal plants are being planned for development over the next few years, and these will make a very welcome contribution to New Zealand's electricity supply. Geothermal is well suited to co-generation, but with this energy source confined to the central North Island plateau, opportunities are limited.

Solar Power

Solar energy has been around for a long time now without making a significant impact on total energy supply. Nevertheless, useful contributions can be made, with direct water heating, particularly in West Australia, but New Zealand's climate has not encouraged the same penetration here. Despite considerably reduced costs over the last couple of decades, photo-voltaic conversion to electricity remains too expensive for general use; though it is considered by many to be one of the possibilities for a major supply of energy in the future, given appropriate breakthroughs in technology and cost.

Nuclear Power

As things stand it would appear that New Zealanders will not need to contemplate the introduction of nuclear power in the next 25 years, even though for a variety of reasons it may become more widely used elsewhere in the world.

2020

As we approach the year 2020, while our primary energy sources will almost certainly still be fossil fuel-based products and electricity, our use of those products will be considerably more efficient and frugal. Perhaps 50% less consumption for similar utility. Households will have wide choices for their selection of suppliers. Long distance travel will still be in the familiar form of aircraft, trains and buses, but also considerably more efficient.

Individuals may well have better choices in public transport, but a major choice will remain individual private transport. However, there will be a choice between small fuelefficient commuter-type vehicles (hybrids?) and the more familiar family-type vehicle to accommodate numbers of people and distance.

There may well be the emergence of a new generation of fuels, clearly seen as possible or even probable successors to our traditional sources.

*Wayne Makeig

Wayne Makeig has been involved with the energy industry for many years, most recently as Chairman of Capital Power Limited. He has been Deputy Chairman of Mobil Oil New Zealand Limited and a Director of the New Zealand Synthetic Fuels Corporation. Wayne Makeig is Chairman of the Energy Foundation of New Zealand Inc., and in addition to these energy interests, served for four years as Executive Director of the Ronald McDonald House Trust in Wellington.