NZ industrial gas crisis: Rising costs force businesses to cut operations

New Zealand’s industrial gas market is in crisis, with big users already curtailing operations due to rising costs, the BusinessNZ Energy Council and energy management firm Optima say.

Last week, fertiliser manufacturer Ballance Agri-Nutrients said it may have to temporarily shut its Kapuni plant in Taranaki if an affordable gas supply cannot be secured.

Optima managing director Martin Gummer said almost half of the gas consumers (31 of 66) in a survey of businesses have already reduced operations, increased prices or cut staff due to rising gas costs or unreliable supply.

The average level of concern regarding future gas availability and pricing is four out of 10, with uncertainty about the availability in the future, Gummer said.

BusinessNZ Energy Council (BEC) executive director Tina Schirr said there were significant cost pressures for users.

“On average, prices have surged more than 100% in the past five years, with a quarter of businesses surveyed now paying $25 or more per gigajoule,” Schirr said.

Most businesses surveyed (80%) have contracts expiring by 2027, creating a narrow window for necessary transitions to alternative energy sources, she said.

“If we do nothing, a major de-industrialisation crisis could escalate in the next two years, having serious and devastating consequences for suppliers and customers of gas-using businesses.”

Schirr said only some businesses can transition to alternatives.

“More than 40% of businesses surveyed say transitioning to alternative fuels is not commercially viable within the next five years, with a further 20% uncertain,” she said.

“Even with a phase-out period of 15 years, only 75% of all respondents were confident of being able to transition.

“The remainder say that switching may be possible if barriers are removed – including the prohibitive cost of conversion, lack of proven alternative technologies, uncertainty about commercial viability and the high cost or difficulty of upgrading on-site supply infrastructure.“

The BEC and Optima believe that for industries able to transition, a joint industry and government plan for a managed reduction and transition away from industrial gas supply is needed, aiding industries in adopting alternative technologies.

Schirr urged the Government to “use all the levers at its disposal” to help free up gas supplies and get more gas out of the ground.

Increased investment in developing gas fields short-term was desperately needed to reduce the shortfall in supply, she said.

“For investors to feel confident, there needs to be bipartisan agreement, providing important stability and certainty.”

The Government is in the throes of reversing the previous Labour Government’s 2018 ban on oil and gas exploration in and has set aside a $200 million contingency fund to aid exploration.

The last significant offshore gas discovery was Pohokura, off the Taranaki coast, in 2000.

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