Methanex, New Zealand's biggest gas user, fears for long-term output

Methanex said the banning of new offshore gas exploration will have "significant implications for long-term gas supply". Photo / 123RF

Banning new offshore gas exploration "has significant implications for long-term gas supply" says Methanex New Zealand, which uses around 40 per cent of all natural gas produced in this country to manufacture methanol, mainly for export.

The Canadian-owned company operates plants built in the early 1980s 'Think Big' era of government-led petro-chemical industrial development, at Waitara and Motonui, using gas piped ashore from offshore Taranaki gas fields.

Those fields will continue to produce for as long as they are commercially viable, but official estimates of remaining reserves suggest New Zealand has only another 10-to-11 years of known gas reserves, although exploration and mining permits already issued and unaffected by this week's announcements run through, in some cases, to the mid-2040s.

Methanex echoed other major gas users, saying it was "disappointed over the government's decision to end offshore block offers and the lack of consultation with industry that has gone into making this decision".

"While the announcement does not affect production at our Taranaki sites in the short term, it has significant implications for long-term gas supply and electricity supply security in New Zealand," the Methanex statement said.

The company wound back production in the mid-2000s when a shortage of natural gas was being foreshadowed, but with new supplies becoming available and reduced demand for gas from the electricity industry, it has more recently ramped production up again.

In a note to clients, Woodward Partners energy analyst John Kidd said there was ïncreasing speculation of a significant pending downgrade to existing Taranaki Basin gas reserves.

If that occurred, that could "materially impact the forward investment decision-making of gas market super-heavyweight Methanex".

"Central to that decision-making is forward gas availability and its take on development and exploration pipelines.

"While we don't expect the announcement to materially impact Methanex's decision-making over its pending Waitara Valley turnaround, scheduled for late 2018, the next cycle of investment decisions in 2021-22 now likely face a higher hurdle."

In a separate statement, the Major Gas Users Group said: "Our members rely upon a secure and competitively priced supply of significant quantities of natural gas to meet their energy and feedstock requirements. The announcement has cast uncertainty over the prospects for gas as the government seeks to transition the economy to address climate change."

MGUG represents fertiliser manufacturer Ballance Agri-Nutrients, pulp and paper maker Oji Fibre Solutions, dairy cooperative Fonterra Cooperative Group, New Zealand Steel, and New Zealand Refining, which operates the Marsden Point oil refinery.

The group would be seeking ministerial meetings to detail the significance of the decision for major gas users "so that the importance of gas, including within regional and the wider national economy is clearly understood," said the group spokesman, Richard Hale, from oil and gas consultancy Hale and Twomey.

"For example, uncertainty around supply in the context of long-term capital investments made (and pending) in gas plant, could see the need to import gas, something which has been proposed in the past."

Methanex's operations represent around a quarter of total production by the company, which is the world's largest methanol producer. The company says it contributes some $84 million annually to the New Zealand economy, and employs some 270 people directly and a wide range of Taranaki-based engineering and other services.

"We strongly believe that natural gas has a global role to play in reducing emissions and a transition to a lower carbon economy, and that the continued production of methanol in New Zealand plays a positive role in this transition," the company statement said.

The Council of Trade Unions, meanwhile, issued a statement calling on the oil and gas industry to "face the facts" and support a "just transition" that would give people employed in a sunset industry the opportunity to move into other sectors.

"We know change is coming, it's inevitable, and we are going to create high-paying sustainable jobs that match people's skills," said CTU president Richard Wagstaff.

"You would almost think from the reaction from the oil and gas industry that the rug was being pulled out from under working people overnight. The government and the union movement have been very clear that a transition plan, particularly for affected regions is the right way to go."

The communications spokesman for New Zealand Oil & Gas, John Pagani, tweeted in response that "not a single worker in the industry supports the statement of the NZCTU today, supposedly on behalf of workers in the industry".