Gas supply woes threaten temporary shutdown of Ballance’s Kapuni plant

Kelvin Wickham, chief executive of Ballance Agri-Nutrients. Photo / Supplied

Fertiliser manufacturer Ballance Agri-Nutrients says it may have to temporarily shut its Kapuni plant in Taranaki if an affordable gas supply cannot be secured.

The farmer-owned co-operative said it was working on getting enough gas to retain nitrogen urea manufacturing at Kapuni.

Chief executive Kelvin Wickham said the business was planning for a range of eventualities and was working to keep its options open should it not secure gas before its current contract ends on September 30.

“While New Zealand’s gas market is dynamic, the increasing pace of declining gas supply and the impact of this on price will continue to pose challenges for the energy sector and for New Zealand,” he said.

“Although we remain optimistic about securing short-term supply, we’re also pragmatic and planning for other outcomes,” he said.

“Right now, it’s prudent to plan for a short-term shutdown.”

Industrial users are facing 15-30% increases in gas prices, he said.

Wickham said Ballance recognised the significant impact even a short-term shutdown would have on the company’s employees, shareholders, the wider agricultural sector and the Taranaki economy.

Like many businesses, Ballance was affected by dwindling New Zealand gas supplies.

“We’ve been working hard to secure a reliable gas supply agreement at a price that is affordable for the business and our shareholders as New Zealand farmers and growers,” he said.

“Our current gas supply agreement expires at the end of September, and without a reliable and affordable supply, we are unable to keep the plant operational.”

Contingency planning had been a focus for Ballance to ensure a smooth run in spring for New Zealand farmers and growers.

“We’ve secured contingency supplies of nitrogen for farmers and growers for spring, and our industrial customers have sourced alternative supplies for their GoClear [a diesel fuel additive] customers, keeping New Zealand’s trucking fleet on the road.”

Much of New Zealand’s economic prosperity depends on fertilisers and Wickham said around 41% of the country’s agricultural exports are “enabled” by Ballance fertiliser.

“While this situation is disappointing, we’re fortunate our business is in a strong underlying position and we’ve factored various scenarios into our forward planning,” he said.

The Kapuni urea plant, operational since 1982 and employing around 120 people, makes about one-third or 260,000 tonnes of New Zealand’s urea annually, specifically for use as a nitrogen-rich fertiliser.

Ballance is one of two fertiliser companies in New Zealand, the other being Ravensdown.

Wickham said Ballance would meet demand using a combination of its own stockpile, supplemented with imports, if Kapuni had to shut.

“We’re hoping we can get some short-term gas to postpone any shutdown, but we’ve obviously had to prepare a contingency,” he said.

Gas prices have risen sharply because of constrained supply, which arises from New Zealand’s offshore gas reserves being smaller than estimated.

The problem came to a head last year when wholesale power prices spiked to over $800 a megawatt hour as power generators scrambled for gas for thermal plants to cover a power shortfall caused by an unusually dry and calm winter.

While gas prices have risen sharply, the challenge was more about supply because in winter prices were a lot higher due to demand from the electricity generators using gas to drive thermal capacity, Wickham said.

“The challenge is that demand has peaks and troughs, so how do we balance that out?”

Wickham said if costs kept going up, New Zealand could become fully dependent on fertiliser imports.

He said farmers would be covered if Kapuni shuts down temporarily.

“The bigger issue here is how does New Zealand have reliable, cost-effective energy to support our manufacturing and export industries?”

Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.