Government tipped to buy back gas for at least four times its cost

Wednesday, 11 September 2024

Methanex’ factories in Taranaki are currently sitting idle, but the company is making more money by selling the gas they would otherwise be using.

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The Government will pay between $24 and $30 a gigajoule to buy back natural gas that Methanex has bought for less than $6 a gigajoule, according to industry sources.

A spokesperson for Economic Development Minister Melissa Lee, who has responsibility for such procurement contracts, said she couldn’t comment until an agreement was finalised.

But an industry insider defended the proposed arrangement, likening it to someone renting a tuxedo for $200 rather than buying one outright for $600.

The Ministry of Business, Innovation and Employment (MBIE) is understood to have found itself over a barrel re-negotiating an “all-of-government contract” to source gas for schools, hospitals, prisons, universities and other public sector bodies this year.

Its current agreement under which it buys gas from Genesis Energy terminates at the end of this month, and the ministry found itself having to negotiate new supplies at a time when gas was in short supply and wholesale prices were spiralling.

The energy crunch put MBIE’s negotiating skills to the test.

It is understood MBIE is close to striking a deal to buy gas voluntarily freed-up by Methanex, the country’s largest gas user, via Genesis Energy, for a price of at least $24 a gigajoule.

A spokesperson for MBIE declined to comment on the price, but said it had “provisionally secured a temporary solution” to extend the all-of-government gas contract for 12 months from the start of October.

“We anticipate fulfilling the contract in the next few weeks. More information will be able to be shared shortly once the details of the contract have been confirmed,” she said.

The price that Methanex pays for gas is confidential, but an analysis of its gas consumption, and the raw material costs published in its annual accounts over recent years, indicate it is paying no more than $6/GJ for its supplies.

Methanex declined to comment on that calculation or its apparently huge profit margin releasing gas back to the Government via Genesis, saying it “didn’t comment on any commercial arrangements”.

According to the Gas Industry Company, wholesale customers paid an average of about $9/GJ for gas last year while most industrial users paid about $10/GJ.

Methanex has historically consumed about 45% of the country’s natural gas, which it turns into methanol for export, but in August it agreed to suspended all production until the end of October and release its gas for other customers.

The company said it expected that to boost rather than reduce its earnings.

The spot market price of gas spiked above $55/GJ in August but has plummeted to hover around $7/GJ since Methanex suspended its production and in the wake of heavy rain that has rapidly refilled the country’s hydro lakes.

Energy company websites indicate consumers pay upwards of $35/GJ for piped natural gas in addition to a fixed daily charge.

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