Gas industry body warns shortages could become 'acute' by 2030s

Thursday, 28 November 2024

The industry’s quasi-regulator says consumers will “always have access to gas”.

Gas shortages may become acute in the 2030s if new fields don’t come on-stream and they would be made worse if Methanex – normally the country’s largest gas user – shut up shop, the industry’s quasi regulator, the Gas Industry Company, says.

A report it commissioned from consultant Ernst & Young suggested a significant number of industrial and commercial gas customers would need to close from 2030 because of a lack of gas or its high price under all four scenarios EY modelled.

Two of those scenarios included Methanex shutting down before then, and another assumed imported LNG would be available early in 2026.

“In all scenarios, the story sees total demand for natural gas declining over the horizon to 2050 due to increasing pressure to reduce emissions.

“This results in a combination of fuel-switching and industrial closures,” EY said.

The report said shortages could arise next year when only 115 petajoules of gas would be produced in New Zealand, down 25% on the 2023 forecast of 155PJ.

“Demand for natural gas has not changed materially, meaning supply may be unable to meet demand over this period,” it said.

But it suggested that could be managed in the short term by some gas users, such as Methanex, temporarily reducing their demand.

The report comes in the wake of a winter gas and electricity crunch that saw some factories close or dial down production, with the loss of hundreds of jobs.

The Gas Industry Company, which works closely with the Ministry of Business, Innovation and Employment, said the forecast shortages wouldn’t threaten gas supplies to residential consumers.

They would “always have access to gas”, even if some needed to be biogas produced from organic waste, it said.

But it said that in the absence of a “significant gas discovery” or imported LNG, supply would be insufficient to meet demand from other customers.

How the Government plans to deal the electricity supply crisis.

“Even with new supply entering the market, industrial closures could occur in response to fuel availability and prices,” it said.

EY concluded that a gas market crunch would worsen if Methanex unexpectedly exited the country at the end of next year or when its current gas-supply contract ended in 2028.

That appears highly counter-intuitive, given the Canadian-owned company has historically been the country’s largest gas user.

Methanex has in the past consumed about 45% of the country’s domestic gas supply, which it buys cheaply and turns into methanol for export overseas.

Its gas usage has roughly halved since it indefinitely closed one of its two remaining plants earlier this year.

“If Methanex were to exit immediately, demand would reduce materially,” EY said.

But it assessed the resulting increase in supplies available to other gas users would later be more than offset by “a considerable reduction in investment” in the gas industry that would impact supply.

Imported LNG could be ‘ring-fenced’ for use by power companies to avoid it setting a new benchmark price for all gas, EY has suggested.

It didn’t detail the exact chain of events that it believed would lead to that outcome.

John Carnegie, chief executive of Energy Resources Aotearoa, which represents businesses with an interest in the oil and gas sector and aspires to a broader advocacy role, said the data showed “what Kiwis already know”.

“New Zealand faces a natural gas shortage that risks blackouts and threatens the competitiveness of our exporters.

“Large energy users continue to announce plans to partially shutter production in the face of sustained losses triggered by high input costs, including energy. Sadly, there may be more to come,” he said.

“De-industrialisation is not the pathway to a vibrant, prosperous economy that benefits all Kiwis,” he said.

But Jeffrey Clarke, chief executive of GasNZ, which represents gas distribution businesses, said “household natural gas users” could take heart from report.

“With regard to biogas alone, the report says that across a range of possible scenarios, production can be assumed to increase over time, with around 0.3PJ of biogas supplied to the pipeline from all sources in 2030, increasing to between 5PJ and 15PJ in 2050.

“Currently, the approximately 290,000 homes connected to natural gas in the North Island use just 6.8PJ annually,” he said.

The Government announced in August that it intended to help pave the way for LNG imports.

But is not yet clear how that might come about and in particular what the incentives for a commercial arrangement might be.

“Without Methanex, the country may still require imported LNG to support demand in the medium to long term,” EY said.

Imported LNG would be more expensive than locally-produced gas has normally been, meaning it would still come with the risk of other factory closures, it said.

EY said the impact LNG would have on the gas market would depend on the commercial arrangements, setting out a couple of different scenarios.

A dependence on imported LNG might see even domestically-produced gas increase in price to match LNG imports, implying large additional costs for gas users and big profits for gas producers.

But it suggested that outcome could be avoided if imported LNG was “ring-fenced” for use only by power companies during times when they needed to rely on burning gas for electricity.