Kupe gas field costs skyrocket - todays dominion
Kupe gas field costs skyrocket
By JAMES WEIR - The Dominion Post | Wednesday, 12 September 2007
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ROBERT KITCHIN/Dominion Post
FULL STEAM AHEAD: The oil and gas market is overheated with lots of projects, and suppliers are spoilt for choice, Kupe project director Peter Ashford says.
The giant Kupe gas project in Taranaki will cost 10 per cent more than the original estimate of $980 million, as world prices for equipment and hire of drilling rigs rocket up in an overheated market.
Weather delays could also add to rising costs in the next six months, as the project moves into its big offshore campaign, with a well drilling rig due to arrive next month.
The Kupe gas field is about 30 kilometres off the south Taranaki coast, and the project also involves a big processing plant onshore, near Hawera.
The world oil industry was still catching up with hurricane damage done to equipment in the Gulf of Mexico two years ago, and cost increases since then had been huge, Kupe project director Peter Ashford said yesterday.
"The oil and gas market is very overheated with a lot of projects, and suppliers are spoilt for choice. Suppliers name their price and their schedule."
There were few projects on schedule or budget and Kupe was suffering in a "challenging environment", with prices rising by the day, Mr Ashford said.
In 2005, Kupe was expected to cost $800 million, but a year earlier the cost was put at $400 million.
Australian company Origin Energy is operator of the project and a 50 per cent shareholder in Kupe, with state-owned power company Genesis holding 31 per cent.
Origin also owns 51 per cent of Contact Energy. Origin is presently trying to raise $200 million from New Zealand investors through the issue of preference shares.
Gas from the Kupe field is expected to flow from the middle of 2009. Reserves are estimated at 250 petajoules. Kupe will be big enough to supply about 15 per cent of New Zealand's present total gas demand.
However, Kupe is just a fraction of the size of the massive Maui gas field and its estimated 3562PJ.
While Kupe will not comment on the price for its gas, Pohokura gas was said by industry experts to cost about $6.50 a gigajoule - about 2.5 times more than the original cheap Maui gas. A petajoule is one million gigajoules, indicating 170PJ could be worth about $1 billion.
Kupe locked in the cost of the well drilling rig at the end of 2005, and some other equipment in the middle of last year, when the final decision to go ahead with the project was made, but other costs have risen.
When the partners moved to putting in final orders, prices had risen by as much as 25 per cent. In other cases, some installation equipment had been locked in for half the present day cost, Mr Ashford said.
The project cost could go even higher, if the weather slowed down planned offshore work.