31 May 2021

Long-term solution needed for natural gas supply - lobby group

5:30 pm on 31 May 2021

A deal struck between Genesis Energy and Methanex to support the security of the energy sector is seen as only a short-term fix.

Genesis Energy's Huntly Power Station.

File photo. Photo: Genesis Energy

Oil and gas industry lobby group Energy Resources Aotearoa (ERA) said the deal between the big power company and the biggest user of natural gas was a good outcome in a tricky situation but it did not address the longer-term issue of supply.

"It's pleasing we have natural gas available to keep the lights on and businesses operating," ERA chief executive John Carnegie said.

Genesis, which owns the fossil coal and gas-fired Huntly Power Station, said the electricity market was under stress because of low hydro levels and tight gas supply.

The power system relies on Huntly to provide the base power supply which renewable sources cannot cover, and natural gas has about half the emissions of coal.

Carnegie said a longer-term solution was still needed.

"This is the clear impact of low levels in our hydro lakes and tightened supply of natural gas."

He said the government needed to demonstrate a commitment to the natural gas industry to ensure there was ongoing development for supply.

"An energy accord between government and industry would be a good step towards tackling this challenge."

The government has commissioned the Gas Industry Company to prepare a report for consultation, with submissions closing on 24 June.

"The tight supply conditions being experienced this year appear likely to continue into 2022 and this is expected to contribute to high wholesale gas prices," the report said.

"There is a possibility that this will be avoided if remedial work at the Pohokura field can be undertaken over the coming summer. However, the timing of this work is uncertain and there is no guarantee it will be successful."

It said adequate supply also depended on planned work programmes at Kapuni, Kupe, Mangahewa, Māui, and Tūrangi gas fields, as well as additional renewable electricity projects coming onstream.

"If the Tiwai smelter closes at the end of 2024, that will further reduce demand for gas to generate electricity," it said.

While there was sufficient gas in the ground to meet demand until 2035, it would require a commitment of support from the government for the level of investment required, which would cost billions of dollars.

"Without further investment, the worst-case scenario could see gas becoming unavailable to support electricity security of supply as early as 2026," the report said.

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