25 May 2019

Fonterra fears oil, gas exploration ban will limit its emissions reduction

10:59 pm on 25 May 2019

The government's ban on oil and gas exploration might disrupt Fonterra's plans to switch from coal to gas at its dairy factories to improve its environmental impact, the dairy giant says.

 Fonterra plant in Takanini, South Auckland.

Fonterra plant in Takanini, South Auckland. Photo: RNZ / Diego Opatowski

Dairy cooperative Fonterra, New Zealand's largest company, has pledged to cut its greenhouse gas emissions by 30 percent by 2030.

A core tactic of its plan involved moving to relatively clean natural gas at dairy factories, which currently use coal for heating milk to evaporate it or turn it into other products.

However, in a submission to a review on industrial heat management by the Ministry for Business Innovation and Employment (MBIE), the company expressed worries about how secure the supply of gas is, and how volatile its prices are.

It said the government's ban on new permits for offshore oil and gas exploration meant the company might have to review its emissions reduction plan.

The government announced the move last April and passed its bill in November.

The submission said while it was actively working towards electrification of manufacturing sites, "electricity has not been able to provide the required heat load to run our plants efficiently and cost effectively".

"In the current market, without including externalities, electricity is significantly more expensive than coal and natural gas fuels."

It said the company, which is required to process all milk supplied to them, has relied on coal for plants in the South Island because there was no natural gas available there as well as several North Island sites.

"We had started planning to transition these sites from coal to using natural gas or other low carbon alternatives to coal."

It noted that the government's coal and gas exploration ban was not mentioned in MBIE's discussion paper, and pointed to the difficulty the company then faced

"There are currently no natural gas fields in the South Island, but if gas were to become available, and we are still using coal, we would investigate using gas to help transition away from coal.

"Opposition parties have suggested that they would repeal this decision [the ban] if elected to government. A lack of cross party agreement creates a level of future uncertainty that will impact decision making for capital investment."

Other parts of Fonterra's emissions reduction plan included small-scale moves to electricity and biofuel for its tankers, despite problems with cost and practicality.

"Fonterra is committed to our sustainability goals, and as part of this, we have already begun our transition away from coal. In 2018, our Brightwater site near Nelson switched to co-firing biomass, helping reduce CO2 emissions by 25 percent, or about the same as taking 530 cars off the road," it said in November.

"We are also progressing our 'electric milk' program, with electrification of our Stirling site in Otago. By moving to electricity, coal use will be reduced by about 10,000 tonnes per year. These trials are a step towards roll out of similar technology to other sites across Fonterra. Underlining our commitments to having net zero emissions by 2050, we surrendered our mining permit at Mangatangi in the Waikato and divested nearly 50 percent of the land acquired there for coal mining (296ha)."

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