'We have enough gas to support NZ through to a fully renewable system', ministry clarifies

Tuesday, 25 July 2023

The depletion of NZ’s gas reserves may not be such a burning issue, officials comments suggest.

Government officials have clarified a statement that appeared to suggest the country might have less than 10 years’ gas reserves remaining, making clear that was based on an assumption that they believe is not accurate.

The Ministry of Business, Innovation and Employment (MBIE) stated in a report earlier this month that estimated gas reserves had now “dropped below 10 years of remaining use for the first time”.

That was based on an industry estimate that New Zealand had 1635 petajoules of commercially-exploitable reserves, and an assumption that the country would consume an average of 200 petajoules (PJ) of gas over the next 10 years.

The report noted while the country had been using gas at that average rate over the past 10 years, consumption dropped to 145PJ last year, down from 155PJs in 2021 and 183PJs in 2020.

A petajoule is equivalent to about a billion cubic feet of gas.

Energy Resources Aotearoa said the ministry’s report showed New Zealand’s energy security was “in peril”.

Sophie Handford, a founder of School Strike 4 Climate NZ, speaks with Minister for Climate Change James Shaw.

The association, which represents oil and gas producers and explorers and associated service providers, has lobbied for a reversal of the Government ban on new offshore oil and gas exploration permits.

But MBIE gas policy manager Dominic Kebbell confirmed the 200PJ demand estimate was “not an accurate reflection of current gas use” and further clarified the ministry expected demand for fossil gas would “continue to decline as more renewable energy becomes available”.

A report that Concept Consulting produced for the Gas Industry Company in 2021 forecast that gas consumption would not approach 200PJ in any year up to 2059, and would instead tail off slowly, and then rapidly from 2035.

Instead of showing a risk of gas reserves running out within 10 years, “the reserves data shows we have enough fossil gas to support New Zealand through the transition to a fully renewable system,” Kebbell said.

The ministry’s 1635PJ reserves estimates did not include the industry’s best guess that there are an additional 1727PJ of “contingent” gas reserves, which are reserves that are not economic to exploit today, but which may be in future.

Nor did it include any gas that is confirmed at OMV’s potentially significant offshore Toutouwai discovery, which the Austrian company aims to appraise next year.

Industry sources have suggested it has been a good rule of thumb in the past that about two-thirds of contingent reserves end up being recoverable, which would suggest the country’s reserves could last until 2042 even at last year’s consumption rate.

Gas producers downgraded their estimates of proven and probable reserves by 17% last year, mainly due to a reduction in estimated reserves at two depleted oil and fields, Mangahewa and Maui (above).

Kebbell said he could not comment on the likely conversion rate of contingent reserves as that was “highly subjective and dependent on individual economic and technical criteria”.

Despite the reassurances over the absolute volume of gas reserves, MBIE’s report did point to a potential medium term problem that could emerge as a result of annual production potentially falling short of annual demand for a period.

“Gas production is expected to fall below current levels of demand from 2027,” Kebbell said.

But that caution also comes with a caveat.

Kebbell said the risk of a production shortfall was based on average demand remaining at 145PJ, and without any continued conversion of contingent gas reserves into proven and probable reserves.

“New Zealand doesn’t face an immediate shortfall in reserves, but the data shows there would be a production shortfall in the event that gas demand does not decline,” he said.

Genesis Energy has forecast the proportion of electricity generated by burning gas could fall from 10% last year to 2% by 2030, though the Government hopes it could fall to zero by then.

Many of the factors that have led to a decline in the use of gas are long term, and some look set to accelerate.

They include new investment in renewable energy, warmer and wetter weather forecast as a result of climate change and which last year boosted the contribution of hydro generation, and the closure of the Marsden Point oil refinery which has reduced annual gas demand by about 10PJ.

About a third of gas is burnt to generate electricity, but the Government wants to reduce that to zero by 2030.

Genesis Energy, the country’s biggest gas-fired generator, while eschewing that target, suggested in its last annual report that only 2% of electricity need come from burning gas in 2030, down from just under 10% last year.

Concept Consulting noted in its 2021 report that the country’s largest gas consumer, methanol exporter Methanex, was likely to exit the market early if gas production tailed off.

That meant it would “likely play the role of the ‘balancing demand’ to ensure sufficient gas is available to meet higher-value gas users’ long-term needs”, it said.

Paul Goodeve, chief executive of the country’s largest gas distributor Firstgas, did not endorse Energy Resources Aotearoa’s assertion that the country’s energy security was in peril.

“There have been genuine drops in absolute gas reserves, but more analysis of these estimates is required before I would comfortably reach a conclusion on this,” he said.

“We are certainly in a period of increased risk for the New Zealand energy system. At the same time, I remain confident in the ability of gas producers to continue delivering New Zealand’s energy needs for more than a decade,” he said.