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.