Gas shortage proves it’s time for a cross-party energy strategy – New Plymouth mayor

Tuesday, 13 August 2024

Methanex has shut down operations until the end of October and selling its gas to power companies. (File photo)

Neil Holdom is the New Plymouth district mayor.

OPINION: If you are searching for evidence that New Zealand needs our political parties to come together to develop a bipartisan 30-year energy strategy to keep the lights on, just take a look around.

Our energy sector is under severe duress and will not meet the future needs of kiwi households and businesses by fluctuating to the short term rhythm of electoral cycles.

Electricity and gas spot market prices are now the highest in the developed world. Major manufacturer Methanex was operating at 35% capacity and has now announced it will cease production entirely due to a lack of gas, while our aluminium smelter has cut production to avoid widespread blackouts caused by low hydro lake levels. Genesis Energy is building a 350,000-tonne stockpile of coal at Huntley.

Since September 2021, wholesale prices have surged from around $100 per megawatt-hour (MWh) to $700 per MWh last week. Winstone Pulp International has paused work at Tangiwai Sawmill and Karioi Pulpmill in Ruapehu, rethinking its future as energy costs have risen from 15% to over 40% of production costs. Oji Fibre Solutions has warned its Penrose paper recycling plant, employing 75 people, may also close due to high energy costs.

Neil Holdom says it’s time political parties put aside their differences and came up with a 30-year energy strategy. (File photo)

And the pain is spreading to our public sector. The Ministry of Business, Innovation and Employment (MBIE) went to market looking to replace a 1.8-petajoule (PJ) gas contract for our schools and hospitals. Previously, MBIE had been buying gas at around $13 per gigajoule (GJ), or about $24 million a year. To date, nobody has offered to supply the Government.

This will force it to buy gas at around $40 per GJ from the gas equivalent of the spot market from October 2024. The extra $48m in annual energy costs would have paid for around 500 nurses and teachers.

It's an omnishambles.

The previous Labour government’s strategy was focused on achieving 100% renewable energy by 2040, discouraging investment in New Zealand’s oil and gas industry and addressing dry winter risk with the massive Lake Onslow pumped hydro storage project with a rumoured investment of more than $12 billion and a build time of more than a decade.

Labour underestimated the chilling impact its strategy would have on investment across the energy sector and on international investors’ view of sovereign risk.

We urged them to reconsider their 100% renewable electricity goal and partner with the energy sector to replace coal with gas to efficiently reduce national emissions while keeping our economy intact and then focus on growing investment in renewables to ensure we had enough energy to keep the lights on and power our export economy.

Ruapehu's Winstone mills, facing soaring electricity prices, have halted operations, putting 300 jobs at risk. Electricity costs have surged 600% since 2021. The company seeks solutions while local jobs hang in balance.

Their policy was implemented without modification.

Kiwi businesses are now facing energy rationing, the closure of heavy industry and manufacturing, and the erosion of New Zealand’s position as a reliable and efficient export economy.

While the significant decrease in gas available in New Zealand cannot all be attributed to the last government’s energy policy, given many of the drilling projects undertaken in the past few years have failed to yield new supplies, the party’s public comments that they will reverse any policies or deals agreed to by the coalition Government once they return to power have had a chilling impact on investment by making it clear to international investors that New Zealand sovereign risk has increased exponentially.

Faced with an increasingly challenging shortage of energy, our minds are shifting to plan B.

It is likely we will see an LNG import facility built in New Zealand within the next two to three years. In the mean time we will keep importing coal and energy prices for households and businesses will continue to rise.

Energy Minister Simeon Brown and Resources Minister Shane Jones are working hard to salvage the highly stressed system they have inherited. But there is a small glimmer of hope that if the regulatory and sovereign risks can be addressed, we will once again see new oil and gas exploration and an end to energy rationing.

Having witnessed all the downside risk of their policy decisions play out, along with the destruction of jobs in the heavily unionised workforces that support them, the Labour Party has an opportunity to pivot and reach across the debating chamber.

Labour’s exploration bans were based on a theory that restricting future gas supplies would somehow force a move away from gas-use to stabilise our energy system and power our manufacturing sector. Construction of an LNG import facility will be irrefutable evidence that theory was incorrect.

But Labour have an opportunity to pivot as energy prices soar and put the needs of the country before party political aspirations.

If Labour wants to retain its climate credentials, the party might consider qualified support for on and offshore oil and gas exploration through to 2050. It could add the requirement for new production wells permitted under a future Labour government to be carbon capture and sequestration (CCS) compatible. The party might also commit to hypothecating Crown mineral royalties received from oil and gas to decarbonisation and economic development initiatives aimed at supporting communities impacted by the transition, including the rapid development of offshore wind.

There are three key questions Labour leader Chris Hipkins and energy spokesperson Megan Woods need to answer for all New Zealanders right now.

Given the prices our businesses, schools, and hospitals are paying for gas and electricity, will Labour commit to supporting New Zealand gas exploration through to at least 2050 as part of a bipartisan national energy strategy?

Will Labour support development of an LNG import facility to help stabilise our energy system and allow our manufacturing sector to continue operating?

If Labour won’t support locally produced oil and gas or an LNG facility, what solutions are they proposing for the short term as the households, workers and businesses struggle with Aotearoa’s soaring energy prices and market volatility?