Gas shortage has energy industry and exporters in ‘distress’ - analyst

The energy industry is in distress and desperate need of a solution to the current gas shortage, which is forcing industrial users to curtail production by up to 70%, an analyst is warning.

“What happens from here is deeply uncertain because the investment that’s required to stabilise, let alone to increase, gas supply, is anything but firm or confirmed,” Enerlytica head of research John Kidd told Markets with Madison.

According to his independent research, gas supply and reserves domestically were at record lows, and wholesale gas prices hit a record this month.

“I’ve not seen it that bad ... We’re in a state of some distress.”

New Zealand did not import any gas, it was all produced domestically from the country’s own oil and gas fields, with some stored at Contact Energy’s Ahuroa facility.

The country was forecast to produce about 215 petajoules annually, but this year would only have about 120 petajoules, according to Kidd. That’s 44% less than expected.

The Ministry of Business, Innovation and Employment has warned demand for gas would continue to outstrip production for the next three years.

As a result, Genesis Energy was paying to import coal to fuel its Huntly Power Station as the electricity system back up, and major energy users Tiwai Point and methanol producer Methanex were being forced to cut production heavily.

“Both of those operations are billion-dollar exporters and Methanex is running at less than 30% capacity now, because they just don’t have the gas available to them.

“It’s almost the worst possible scenario for them at the moment.”

The problem was caused by New Zealand’s six major existing oil and gas fields all coming up dry - despite billions of dollars being invested into drilling them - including the Taranaki Kupe field, which Genesis owned a 46% stake in.

The gas shortage has been caused by New Zealand’s six major existing oil and gas fields all coming up dry, including Taranaki's Kupe field.

Forsyth Barr downgraded Genesis from outperform to neutral last week.

Additionally, the country’s hydro lakes were low due to drier weather conditions.

Kidd was calling for the industry to consider a LNG import terminal, where gas tankers temporarily docked at ports.

“There’s quite a bit that’s attractive about it, given the extent of distress we’re now in.”

But, who would foot the bill for that?

“That’s an open conversation.”

Watch John Kidd explain why we’re running out of gas, and what we can do about it, in today’s episode of Markets with Madison above.

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Madison Reidy is host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.