Energy Resources Aotearoa CEO, John Carnegie, with the two Ministers who may lift the offshore exploration ban, Resources Minister, Shane Jones and Energy Resources Minister, Simeon Brown.

The Ardern Government’s chickens came home to roost yesterday with the news that the country is short of natural gas.

In 2018, Labour banned offshore petroleum exploration, and industry executives say that the attendant loss of confidence by the industry impacted overall investment in onshore gas fields.

Energy Resources Minister Simeon Brown yesterday told Parliament that the gas now being produced was less than forecast.

Already this year, gas production was down 28 per cent compared to the forecasts produced by the Ministry of Business, Innovation and Employment.

Consequently, because we are likely to face a dry winter and thus will need more alternative generation to hydro dams, the Huntly thermal power station will have to import more coal.

Transpower said yesterday that national hydro storage had dropped to 99% of the historical average for this time of year.

Demand was 4.5% higher so there was an increase in hydro and thermal generation to supply increased loads.

“The renewable percentage of the generation mix dropped a further four points to 82% last week,” their report said.

“Hydro generation increased and wind generation decreased (to 58% and 5% of the generation mix respectively, with thermal generation rising to supply the increased demand (to 15% from 11% the week prior).”

Huntly is the country’s major thermal generator and Its operator, Genesis, confirmed in a statement yesterday that sector gas production across the country had been substantially declining, with major field production in April down 33.4% from a year ago.

Advertisment

“The decline has been faster than official forecasts predicted and is expected to continue.,” the statement said.

“Huntly Power Station runs on gas and coal, so less gas creates the need to burn more coal.”

The reason the gas came in below forecast is that the gas fields in the Taranaki are nearing the end of their life and require further investment to extract the dwindling supplies within them.

The CEO of Energy Resources Aotearoa, the petroleum lobby group, John Carnegie, told POLITIK last night that the Labour ban had a massive dampening effect on investment.

“The investment context, in general, was massively impacted,” he said.

“And our risk profile went up, and it became harder to justify investment here.”

But yesterday, Megan Woods, the Minister who implemented the ban without much consultation or extensive briefings from officials, was defending it.

“New Zealand has a finite supply of fossil gas,” she said.

“In fact, the Gas Transition Plan—a plan released under our Government to address the challenges in front of us—noted even with ongoing investment, supply could decrease over time because our major gas-producing fields are in a natural production decline phase in their operational lives.”

To help deal with the current emergency, the major industrial gas user, Methanex, is cutting gas input into its Waitara plant and lowering production and, therefore, exports.

The plant has an annual capacity of 2.2 million tonnes of methanol, which is currently sold on the Asian market at up to $US400 per tonne.

Transpower yesterday released a draft of its Security of Supply Assessment, which assumes that Methanex will continue to be able to reduce production to free up gas for use at Huntly.

“Unless there is sufficient development of the consented and unconsented pipeline to bring more (generation) supply to market, we are dependent on thermal generation (including sufficient fuel for its operation during dry years) to maintain the winter energy margin (NZ-WEM) above the lower security standard over the duration of the assessment horizon,” the report said.

“The required contribution from the supply pipeline reflects an increase in the rate of renewable build compared to recent years.”

But this best-case scenario, which is heavily dependent on a large-scale increase in construction activity, would still be heavily reliant on Methanex reducing its gas consumption.

“The reduced gas availability sensitivities highlight that the NZ-WEM could drop below the standards in the near term (2025) unless there is sufficient gas flex from industrial gas users to support increased gas-fired electricity generation during dry years,” it said.

Genesis Chief Executive Malcolm said increasing levels of intermittent renewable generation from wind and solar farms cause a yo-yo effect on thermal generation, requiring it to swing in and out of operation in an unpredictable way, driven by fluctuating wind and sunshine.

He said Genesis would invest $1.1 billion in new renewable solar and wind generation, grid-scale batteries, and the establishment of a biomass supply chain to gradually move its solid fuel stockpile toward biomass at Huntly Power Station.

“The solid fuel transition toward lower carbon options like biomass will take some years, and during this transitionary period, to ensure energy security and stability, there will be a need to use some coal, with imported options currently being the most efficient for the quantity we need,” said Johns.

Under its new strategy, Genesis has indicated that it intends to maintain an operating stockpile of solid fuel at Huntly Power Station of around 350,000 tonnes, or about 670 GWh of electricity. This will enable it to continue backing up increasing renewable generation from wind and solar farms during the energy transition.

“The solid fuel stockpile will fall below 350,000 tonnes by the end of winter. This will trigger a need to order more solid fuel deliveries to maintain the target operational stockpile ahead of the winters of 2025 and 2026. Imported options have a delivery time of around three months.,” he said.

In 2022, New Zealand imported 726,838 tonnes of coal.

And that is the irony. In 2017, just before Woods implemented the exploration ban, New Zealand imported only 466,000 tonnes of coal, producing twice as much carbon dioxide per tonne as natural gas.

Carnegie is adamant the industry needs more exploration.

“What we need is an investment in new exploration to boost, shift or do two things: shift those contingent gas reserves into proven and probable reserves,” he said.

“And so you’re basically relying on your incumbents to do that.

“Because they’re here, and they can do it.

“And then obviously you’ve got the medium to longer-term hope of new entrant investors coming in for new fields, new permits, new exploration, new discoveries.”

Brown told Parliament yesterday that the government was open to that.

“The coalition Government is committed to returning investment confidence in the natural gas sector so we can continue to produce the energy that powers our industries and keeps the lights on when renewables cannot do it alone,” he said.

“The Minister for Resources, Hon Shane Jones, and I are working on a set of legislative reforms to support the gas sector that we look forward to introducing to the House.

“This includes taking decisions on the removal of the ban on offshore oil and gas exploration.”