Genesis and Contact secure more gas from Methanex amid low hydro inflows

Methanex has struck another gas supply deal with Contact and Genesis.

Genesis Energy and Contact Energy have made arrangements to take more gas from methanol exporter Methanex.

Contact said yesterday it had struck a deal with Methanex to buy 2.8 petajoules (PJ) of gas to be supplied over an eight-week period, starting immediately.

Genesis followed suit today.

“In light of the lowest first-quarter national hydro inflows on record, and continued dwindling upstream gas supplies, this step reflects our ongoing commitment to support security of electricity supply to New Zealanders,” chief executive Mike Fuge said.

The structure included a combination of buy and swap arrangements, with buy pricing referenced to the electricity market.

The purchase has been partially underwritten by sales to third-party wholesale electricity market participants.

The additional fuel supply, operating in tandem with the Ahuroa Gas Storage Facility, would support Contact’s intention to run its Taranaki Combined Cycle gas-fired power station alongside the gas peaking units at Stratford through winter 2025.

Contact has said it expects to close the ageing Taranaki Combined Cycle plant at the end of this winter.

Contact and Genesis Energy’s thermal assets are designed to back up the hydro-dominated electricity system when conditions dictate.

Genesis said it had entered an arrangement with Methanex to support the shutdown of its plant from May to July.

“While Genesis has strengthened its winter preparedness with a fully replenished coal stockpile at Huntly Power Station with additional shipments ordered, we have also reached a flexible gas supply agreement to ensure security of supply for the market,” the company said.

Under the agreement, Genesis could receive up to 1.26PJ of gas not required by other contracted users.

Any gas used for generation would displace coal, thereby lowering carbon emissions.

Genesis chief executive Malcolm Johns said the situation underlined the flexibility of Huntly Power Station, which runs on coal and gas.

Last winter, wholesale power prices spiked to $820 per megawatt hour (MWh) as a result of high electricity demand, low wind generation, low hydro storage and constrained gas supply.

Prices lately have been around the $300 to $400MWh mark – still well up on the 2018 and 2023 winter average of around $180/MWh.

Energy Resources Aotearoa, which represents the fossil fuel industry, said it welcomed the Contact deal, which mirrors a similar one struck last year.

Chief executive John Carnegie said industry players once again brokering a solution to security of supply issues was “like a Band-Aid on a gaping wound”.

“Methanex is again propping up our electricity system and forgoing production and export earnings to do so, harming New Zealand’s GDP and terms of trade,” he said in a statement.

Vancouver-based Methanex is the world’s largest producer and supplier of methanol.

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