Both Contact and Genesis said the additional gas fired generation is needed to make up a shortfall in electricity production due to the low water levels in lakes used for hydroelectric power (the result of low rainfall) and the poor performance of wind farms (due to recent extended periods of light wind).
New Zealand’s electricity production is heavily reliant on renewable energy. However, it still depends on gas and coal to make up the shortfall between demand and supply, especially at peak demand times.
Current high demand for electricity and faltering supply has led to huge spikes in the wholesale spot price (the price for immediate delivery).
Genesis chief wholesale officer Tracey Hickman said that gas is crucial for a “stable energy transition” away from fossil fuel use: “Its importance is more evident now than ever before with wind and water for renewable generation at historic lows and a lack of gas to provide back up.”
Genesis will use the extra gas at its Huntly Power Station, and it has also secured additional shipments of coal.
McCall said the company chose closure “to alleviate New Zealand’s energy shortage”; the decision to sell, rather than use, the firm’s gas supply will also bolster profits through the second half of the financial year. The circumstances, however, sound an alarm bell for New Zealand more generally.
Industrial users are being squeezed, and soaring prices, for both gas and electricity, are a considerable threat to New Zealand’s industrial and manufacturing base, some of which is now moving offshore.
Pan Pac Forest Products’ Hawke’s Bay pulp mill is temporarily shut because of the very high price of wholesale electricity. It employs more than 400 people.
And Oji Fibre Solutions is consulting on the permanent closure of its Penrose paper recycling plant. It employs about 75 staff.
Oji cited “dramatically rising energy costs” as one of several reasons that it’s considering closing the mill.
Methanex, New Zealand’s single largest gas consumer, owns methanol production facilities in Motunui and the Waitara Valley.
It closed its Waitara plant in 2021, citing insufficient gas supply, and in recent times its Motunui plant has been reduced to just one of two methanol production trains.
Methanex has direct long-term “off-take” contracts with gas producers, and is in a stronger position than most other gas users.
The company is currently able to make more money from selling its contracted gas to other supply-hungry buyers than by using it itself and producing methanol.
The multinational company has other production facilities, including in North and South America, and it said it will use these to meet its methanol supply obligations.
“These commercial arrangements [the sale of contracted gas] are expected to positively impact Methanex’s Q3 and Q4 2024 earnings with after-tax proceeds expected to meaningfully exceed the margin lost on New Zealand methanol production delivered to customers,” the company said in a press release.
“The commercial arrangements are structured to provide Methanex with a base price for each unit of gas delivered with further incremental value shared between the parties depending on electricity pricing over the period.”
New Zealand has no ability to import natural gas – which travels by sea as a super-cooled liquid, known as liquified natural gas or LNG, and its import requires regassification infrastructure.
New Zealand’s large gas users are considering investing in an import facility, but the plans are still in the early stages.
Production from domestic gas fields, relied upon by industry to date, is declining more steeply than modelled, and supply has been further hampered by a 2017 Government ban on most oil and gas exploration, which chilled investment.
The coalition Government says it will lift the ban by the year’s end, but renewed exploration and associated investment is uncertain because of the enduring political risk that a change of government could result in either a renewed ban or other punitive policy.
In recent months, the Government has also been pinched by the constrained gas market.
The Ministry of Business, Innovation and Employment (MBIE) has struggled to renew an all-of-government contract for gas piped to public institutions, including schools, hospitals and prisons, that expires at the end of September.
A spokesperson for the department said it has now “provisionally secured a temporary solution”, and will provide further details in “the coming weeks” once a new 12-month contract is firmed up.
