Gas no longer a ‘transition fuel’, coal cheaper, says Genesis

Thursday, 17 April 2025

Genesis Energy is building up the coal stockpile at Huntly as power firms struggle to complete the transition to renewables.

As gas production declines, and with no large-scale biomass alternative on hand, coal remains king for Genesis Energy as a relatively cheap and reliable energy source.

Genesis has made clear it sees a declining role for gas in electricity generation, despite the Government’s attempt to rekindle interest in offshore oil and gas exploration.

Appearing in front of Parliament’s Transport and Infrastructure select committee, chief executive Malcolm Johns said Genesis was the country’s second-largest gas user after methanol manufacturer Methanex.

But he said Genesis no longer saw gas as a “transition fuel” for the electricity sector, with thermal generation likely to rely more on coal before a switch down the track to making use of wood waste.

Genesis currently supplies about 2 terawatt-hours of gas-fired generation to other power firms each year to plug gaps in their renewable generation.

That equates to about 4% of the country’s total annual electricity demand.

But Johns said he saw that halving by 2028 and fizzling out completely by 2030, based on Genesis’ current forecasts.

Gas production was dropping faster than expected and Genesis’ view was that the industry was in “managed decline”, he told MPs.

“We're not in a ‘gas as a transition fuel’ scenario any more” and Genesis would not be putting any more money into gas exploration after the failure of its $80 million Kupe infill drilling campaign in August, he said.

“We don't have any information at the moment that would suggest — with or without Methanex staying or going in the country — that gas is a fuel that we can rely on for electricity generation into the medium to long term.

“The challenge is we're moving into a period now where there is a substantial gap between new exploration coming on stream and your existing gas supply not being available in meaningful quantities.”

Johns says coal is the only option for backing up wind and hydro, for now.

Even accounting for the need to buy more carbon credits, coal was also the cheaper option, he said.

Johns said Genesis had fuelled its Huntly power station “to within an inch of its life”, with 500,000 tonnes of coal stockpiled at the power station and another 770,000 tonnes on order over the next five to six months.

“Until we can replace it with biomass. Coal is the only option for backing up wind and hydro.”

Genesis has successfully trialled burning torrefied biomass at Huntly, a product similar to charcoal, produced from waste wood that comes in the form of black pellets.

Although it has a carbon content similar to coal, it is commonly treated as carbon neutral.

That is because the carbon in the pellets is derived from the atmospheric carbon cycle, when the trees used to produce them remove carbon from the air through photosynthesis.

Johns said New Zealand produced enough wood waste, but the black pellet industry was still in its infancy and sourcing sufficient volumes was still impossible.

Importing LNG appears to have moved to the back-burner after power firms opted to sit on the sidelines.

“In Finland last week they opened the largest black pellet production facility in the world, producing abound 60,000 to 70,000 tons a year.

“We need 300,000 to 500,000 tonnes a year to convert Huntly. No-one else in the world has converted a coal plant that size to torrefied black pellet biomass, so we are working on a ‘world first’.”

Meridian Energy energy chief executive Neal Barclay said the risk to electricity supply this winter hadn’t changed much from last winter, when a supply crunch saw wholesale prices soar and factories cut back production and close.

“The gas situation, if anything, is getting worse and I don't think that's going to reverse any time soon,” he said.

“In the next few years, there's going to be a lot of new renewables coming on stream and by 2050 all the analysis suggests we need to invest about $30 billion in new generation.”

But the shortage of gas meant the market would probably “remain stressed for two or three years”, he said.

“We’ve now had to turn very quickly and find alternate ways of keeping the lights on and that's going to be tough.”

Former Energy Minister Simeon Brown and Resources Minister Shane Jones said last year that the Cabinet had agreed to facilitate the importation of liquefied natural gas (LNG) to mitigate gas supply shortages.

They had expected to go back to Cabinet by Christmas last year with details, and Brown had believed an import terminal would be in place by the winter of 2026.

But electricity generators are understood to have sat on the sidelines because of the cost of LNG and an expectation they could source gas at a lower price by buying up supplies that usually went to industrial users, including Methanex.

Industry sources suggested LNG was still likely to be imported at some stage, but perhaps not until a couple of years after Methanex exited New Zealand and gave up its gas, potentially around 2030.