GNE - Genesis Energy

[Snoopy]

Genesis have a gas contract with Kupe but not all Kupe gas goes to Genesis, much just goes into the market.

The above statement is superficially not consistent with the reference below Mac.

http://www.hydrocarbons-technology.com/projects/kupe/

"Genesis Energy is a major electricity supplier and receives all the produced gas because it needs long-term supplies for its new e3p power-generation project (now named Unit 5) in New Zealand."

PT (post 925) even claims that Genesis is contracted to buy more gas over and above the full output of Kupe. But since neither of you gave references, my personal jury is still out on who is right.

Of course it is possible that both PT and you Mac are right if you are are both referring to different time periods? Can you clarify Mac and/or PT?

If Genesis retain perfect availability and run Unit 5 at full load for a month they would be short gas, also there is Unit 6 to consider, and gas over burn on the older units if or when required to run in overload conditions during the winter.

Yes I have previously calculated that Unit 5 could consume the entire natural gas output of Kupe on its own. As well as Unit 6 and the older Huntly based Rankine Units to be operated as boosters there is also the consumer natural gas market that Genesis supplies. This would point to the need for Genesis to have a contracted gas stream over and above the total Kupe output.

SNOOPY

[Snow Leopard]

The above statement is superficially not consistent with the reference below Mac.

http://www.hydrocarbons-technology.com/projects/kupe/

"Genesis Energy is a major electricity supplier and receives all the produced gas because it needs long-term supplies for its new e3p power-generation project (now named Unit 5) in New Zealand."

PT (post 925) even claims that Genesis is contracted to buy more gas over and above the full output of Kupe. But since neither of you gave references, my personal jury is still out on who is right.

Of course it is possible that both PT and you Mac are right if you are are both referring to different time periods? Can you clarify Mac and/or PT?



Yes I have previously calculated that Unit 5 could consume the entire natural gas output of Kupe on its own. As well as Unit 6 and the older Huntly based Rankine Units to be operated as boosters there is also the consumer natural gas market that Genesis supplies. This would point to the need for Genesis to have a contracted gas stream over and above the total Kupe output.

SNOOPY

The best starting point for you Snoopy would be the prospectus, which you have. In there they discuss their gas position and have a nice little table from which I have quoted some figures.

Best Wishes
Paper Tiger

*except when I am not.

[Harvey Specter]

Thanks for this Mac. It does not surprise me that Genesis needs to operate Unit 5 above certain temperatures to ensure all of those NOx and SOx by products of combustion are propertly burnt. It does surprise me this detail wasn't mentioned in the prospectus though, even if there was a more general disclaimer on page 88:

Why? THe restriction doesn't stop them running the plant at full capacity and maximum efficiency, only running it at an inefficient level. And as they can control the amount of power they provide from other assets, they will never be forced to dump that electricity on the market.

[Snoopy]

The best starting point for you Snoopy would be the prospectus, which you have.

Yes, I have a digital copy of the GNE prospectus that I can't copy and paste from, and I can't write notes on. It is hardly satisfactory. Asked my broker after the float if I could have a hard copy of the prospectus, but was told they were never even sent one as a broker!

In there they discuss their gas position and have a nice little table from which I have quoted some figures.

My search for that table continues. In the meantime, under gas and LPG customers from p29:

"natural gas volumes have increased from 9.5PJ in 2010 to 17.6PJ in 2013."

From p30
"Genesis Energy sells natural gas to its retail customers in the North Island and uses it for electricity generation at the Huntly Power Station. The company also sells surplus natural gas on the wholesale natural gas market."

From p33
"Genesis has a portfolio of natural gas supply contracts under which it has commited to purchase various volumes of natural gas for differing periods of time, from a number of different suppliers and from different gas fields in the Taranaki region. This diverse portfolio means that Genesis Energy is not reliant on one supplier and or one field for its natural gas supplies and that the gas supply arrangements do not all terminate on the same date. "

"The company has sufficient contracted natural gas to meet the fuel requirements of of its existing Thermal Generation and customers until the end of the decade."

"A feature of Genesis Energy's gas supply contracts is that the company is able to nominate daily and weekly quantities and to adjust the volumes of gas it takes for planned plant outages within minimum and maximum take restrictions. This enables some flexibility for Genesis to manage seasonal , operational and electricity market driven fluctuations of natural gas requirements. In addition it provides Genesis Energy with the flexibility to increase its energy generation levels in times of increased demand and high wholesale prices and to supply other natural gas users through short or long term gas contracts."

<snip>

"Genesis Energy entered into the majority of these arrangements to secure long term gas supply in a period when the company anticipated a scarcity of long term gas supply, growth in electricity demand and the construction by Genesis Energy of new Thermal Generation plant. These outcomes have not occurred to the extent expected and therefore the company has contracted to purchase more natural gas than it requires for the operation of its existing Thermal Generation plant and its retail customers usage (this is called having a 'Long Gas Position' or being 'Long on Gas'."

"Genesis Energy applies a range of measures to manage its Long gas position including:

-electing to burn natural gas instead of coal in its Thermal generation plant
-onselling natural gas to industrial and commercial customers
-offering more Thermal Generation into the wholesale electricity market than it would have done otherwise. and
-continuing to focus on growing retal gas sales volumes"

<snip>

"The financial impact on Genesis Energy of having a long gas position from 1 July 2015 is unknown as it will depend on a range of factors including teh extent of its Long gas position and market conditions at the time."

"Genesis Energy expects that the extent of its Long gas position will reduce between 2015 and 2020 and be eliminated by 2012."

----

Translation:
"We as managers stuffed up our forecast big time. That means in the interests of shareholders we are now wasting NZs natural gas resource, although we live in hope that demand will increase in the future to get us out of our pickle."

I think the above puts to bed any idea that Genesis will ever be short on gas!

SNOOPY

[Snoopy]

Why? The restriction doesn't stop them running the plant at full capacity and maximum efficiency, only running it at an inefficient level. And as they can control the amount of power they provide from other assets, they will never be forced to dump that electricity on the market.

Note my embolding of what you said Harvey. You are making an assumption there that I am not sure is true. Genesis can't store the gas they have contracted to buy from Kupe. Why not just dump gas generated electricity on the market from Huntly? It would be an almost zero incremental cost for them to do that. And if their Tongariro hydro assets are starved of water, they may not have the choice of balancing their production sources that you seem to think they have.

Alternatively if the northern hydro lakes are full they may have to spill them despite have a large volume of take or pay gas that they cannot put into a grid already near capacity. That latter scenario, while it looks unlikely today, coudl be a nasty dark cloud on the electricity production plan at some time in the future.

SNOOPY

[Snoopy]

From Prospectus p33

"The company has sufficient contracted natural gas to meet the fuel requirements of of its existing Thermal Generation and customers until the end of the decade."

"A feature of Genesis Energy's gas supply contracts is that the company is able to nominate daily and weekly quantities and to adjust the volumes of gas it takes for planned plant outages within minimum and maximum take restrictions. This enables some flexibility for Genesis to manage seasonal , operational and electricity market driven fluctuations of natural gas requirements. In addition it provides Genesis Energy with the flexibility to increase its energy generation levels in times of increased demand and high wholesale prices and to supply other natural gas users through short or long term gas contracts."

<snip>

"Genesis Energy expects that the extent of its Long gas position will reduce between 2015 and 2020 and be eliminated by 2012."

A bit more from prospectus page 85 on the pricing of contracted gas.

"Adverse changes in respect of Kupe revenue: Revenue derived by Genesis Energy for the sale of oil gas and LPG produced from the Kupe gas field is linked to external market prices. Changes to these prices, as well as in the international price of oil and methanol and movements in foreign exchange rates could effect Genesis Energy's revenue and profit margin."

My translation:

Genesis has agreed to buy natural gas at a minimum price that ensures the viability of recovering the gas from the ground. Natural gas as such isn't easy to transport, but methane is readily convertible to methanol which is easier to ship about. Thus if the worldwide price of methanol rises above a predetermined level, Genesis will have to pay more for their natural gas to avoid it being sold to a third party for a higher price and an alternative use. As with all global commodities, methanol is priced globally in USD, hence the exchange rate risk clause.

SNOOPY

[Snoopy]

And as they can control the amount of power they provide from other assets, they will never be forced to dump that electricity on the market.

From the prospectus, page 87

"Medium Term Wholesale Electricity market Risks: <snip>. An example would include a sustained period of higher than average water inflows, combined with higher than average temperatures (such as amy occur during the late winter and spring). Conditions in take or pay gas contracts may result in the company burning gas in its Rankine Units from time to time when it would not otherwise choose to do so."

SNOOPY

[Snoopy]

"A feature of Genesis Energy's gas supply contracts is that the company is able to nominate daily and weekly quantities and to adjust the volumes of gas it takes for planned plant outages within minimum and maximum take restrictions. This enables some flexibility for Genesis to manage seasonal , operational and electricity market driven fluctuations of natural gas requirements. In addition it provides Genesis Energy with the flexibility to increase its energy generation levels in times of increased demand and high wholesale prices and to supply other natural gas users through short or long term gas contracts."

More info on production flexibility from prospectus page 102

"Kupe oil,gasand LPG production is driven by long term gas contracts, which provides for fixed annual production levels, although volumes can vary by 10-15% due to a range of factors including natural decline in reserves, actual production rates and shipping schedules."

<snip>

"Genesis on sells some of the natural gas (except for the gas used in the generation of electricity). <snip> The revenue derived by Genesis from the sale of natural gas <snip> is linked to international prices (including in the case of gas, the international price of methanol and the PPI (Producer's Price Index))

SNOOPY

[Snow Leopard]

A bit more from prospectus page 85 on the pricing of contracted gas.

"Adverse changes in respect of Kupe revenue: Revenue derived by Genesis Energy for the sale of oil gas and LPG produced from the Kupe gas field is linked to external market prices. Changes to these prices, as well as in the international price of oil and methanol and movements in foreign exchange rates could effect Genesis Energy's revenue and profit margin."

My translation:

Genesis has agreed to buy natural gas at a minimum price that ensures the viability of recovering the gas from the ground. Natural gas as such isn't easy to transport, but methane is readily convertible to methanol which is easier to ship about. Thus if the worldwide price of methanol rises above a predetermined level, Genesis will have to pay more for their natural gas to avoid it being sold to a third party for a higher price and an alternative use. As with all global commodities, methanol is priced globally in USD, hence the exchange rate risk clause.

SNOOPY

When I suggested that you should start with the prospectus a short while ago I did not intend that you post the entire thing paragraph by paragraph !

Now your "translation" - What?
Consider a different scenario - that if the price of methanol falls then GNE can only on-sell (some of) their long gas at a lower price or not at all.


To be honest I remain baffled by what you are actually trying to achieve here.

Best Wishes
Paper Tiger

"Saya hanya berbicara bahasa Indonesia sedikit" translates as "I only speak a little Indonesian".

[horus1]

good on snoopy. The major risk to all of these generation cos is declining domestic demand because that is where most of the profits are. The demand has been declining for 3 or 4 years now and will continue as a result you have major investments in Transmission and Generation which are uneconomic. e.g. the 400 kv line to Auckland ,$900m , which is not needed but customers still have to pay for