Energy crisis: major exporter Methanex suspends all manufacturing

Tuesday, 13 August 2024

One of New Zealand’s largest exporters will stop production until the end of October as a result of the country’s deepening energy crisis.

Canadian-owned methanol manufacturer Methanex — normally the country’s largest gas user — announced on Tuesday that it would idle its facilities for 2½ months, starting immediately.

The gas that it would otherwise use to manufacture methanol will be released to power generators Contact Energy and Genesis Energy, so they can use it to generate electricity, which like gas is currently in short supply.

The move is positive in terms of reducing the risk of power cuts and was welcomed by Energy Minister Simeon Brown who said it would help “keep the lights on”.

But it comes at a cost to the economy, and Brown told The Post it underlined the importance of bolstering New Zealand’s energy security.

Methanex employs about 300 staff and contractors at its facilities in Taranaki and produced $623 million of methanol last year, the vast bulk of which was exported. It had been operating at only about half of its capacity since March.

Another of the country’s largest industrial exporters, the Tiwai Point aluminium smelter, is currently in the process of ramping down its production by a third to release electricity for other power users.

A number of other factories are suspending operations or considering closing altogether as a result of the gas shortage and high electricity prices.

First Union general secretary Dennis Maga said an urgent response was needed from the Government, arguing the problems were not related the former Government’s ban on new offshore oil and gas exploration permits.

“Without a strategy and a method to moderate power companies’ price-gouging, our entire manufacturing sector is at risk of being washed away by a tide of redundancies and growing unemployment,” Maga said.

Brown is considering a move to facilitate the importation of LNG from overseas to help plug the gap in local gas supply.

It is understood the first imported LNG could be piped into the gas network by early next year, if the move is approved.

John Harbord, chief executive of the Major Electricity Users Group, is expecting the Government to announce more major interventions in the energy market.

He understood that could include a broad-based review of the sector, a new directive for the Electricity Authority and possible support for a new thermal power station to help meet peak electricity demand.

Brown would not comment on whether the Government was weighing up those specific steps, saying only that it was “considering a range of options on how to address New Zealand’s energy security”.

Methanex said it expected to increase its profit by temporarily stopping production and instead offering its gas to electricity generators.

“These commercial arrangements are expected to positively impact Methanex’s second and third quarter earnings with after-tax proceeds expected to meaningfully exceed the margin lost on New Zealand methanol production delivered to customers,” it said in a statement.

“The commercial arrangements are structured to provide Methanex with a base price for each unit of gas delivered with further incremental value shared between the parties depending on electricity pricing over the period.”

Contact Energy said the 3.5 petajoules of gas it would receive from Methanex would allow it to run its Taranaki Combined Cycle gas-fired power station through the remainder of the year “if required by the market”.

“With national hydro storage levels at just 46% of the average for this time of year, and an ongoing decline in domestic gas production, we have taken this step to support security of electricity supply to New Zealanders,” chief executive Mike Fuge said.

Genesis Energy said it would get up to 3.2 PJ of gas, allowing the Unit 5 turbine at its Huntly Power Station — the power station’s largest turbine — to return to full capacity “for the first time this winter”.