Genesis gas downgrade may be next setback for beleaguered power sector

Thursday, 22 August 2024

The size of the hit to Kupe is likely to be confirmed on Thursday.

Genesis Energy is expected to confirm a big downgrade in the amount of gas it can recover from the Kupe gas field when it releases its annual result on Thursday.

That would deal another blow to the beleaguered power sector which is under the gun for high profits and rising prices that are continuing to trigger factory closures and job losses.

In the latest developments, Winstone Pulp began consultations on the closure of its Karioi Pulpmill and Tangiwai Sawmill on Tuesday and the Tiwai Point aluminium smelter announced a further production cut.

Associate Energy Minister Shane Jones told The Post he was “horrified by the stupendous profits that were being reported by the gentailers” and he wanted to explore options for restructuring power companies.

A bid by Genesis to increase production from the Kupe field by drilling an extra well failed in May and the company later signalled it might need to downgrade reserves by an amount equivalent to more than half of the country’s annual gas demand.

The Ministry of Business, Innovation and Employment reported last month that the country’s “proven plus probable gas reserves” fell 20% last year, to the equivalent of less than nine years demand.

Shane Jones has followed former senior National Party minister Steven Joyce in suggesting the break-up of Telecom could provide some sort of blueprint for the industry.

There is speculation Kupe — one of the country’s six large gas fields — might need to shut down much sooner than previously expected due to a drop in gas pressure.

Genesis is expected to buck the trend of rising power-company earnings and report a decline in its annual profit and dividend, after Contact Energy and Mercury Energy announced big rises in their net profits and raised their dividends earlier this week.

As the company that plays the biggest role balancing supply and demand through thermal generation, its fortunes can often move in a different direction to the rest of the sector.

Analyst Forsyth Barr has forecast it will report an annual profit of about $175 million, down from $259m last year, and will cut its total annual dividend to about 14 cents a share, down from 17.6c per shares.

Its results will be impacted by a protracted outage, since resolved, of the largest turbine at its Huntly Power Station.

But Jones’ comments suggest its weaker profit may not be enough to silence calls for a reform of the power industry.

“Telecom was split in half and I'm going to bring forward various proposals as the Regional Development Minister that we have some type of virtual or [other] options for separating these gentailers,” Jones said.

“I have the sense that they are not offering to the market options that are commensurate with how they look after their own customer bases.”

Former National Party minister Steven Joyce has also suggested telco sector reforms could provide some sort of blueprint for an overhaul of the industry.

Energy Minister Simeon Brown reiterated in Parliament on Wednesday that the Government was “considering a range of options” to intervene in the power market, including facilitating the importation of liquefied natural gas (LNG).

He indicated he was concerned about power industry profits. But he said extreme prices were due to an energy shortage.