How the govt’s ban on oil and gas exploration has tightened supplies – and resulted in NZ importing 2m tonnes of coal

New Zealand  has   been   facing some of the most challenging energy market conditions in over a decade, with simultaneous shortages in natural gas and hydro-electric generation. The  consequence  has  been  sustained  high  wholesale electricity  prices,   creating issues for  electricity retailers without their  own  generating  capacity, to the point  where Electric  Kiwi – for  example – says it  is turning to  focus on  the Australian market.

Some  market-watchers  contend the  problems  trace  back  to  the  decision  of  the  Ardern  government to  ban  any  further  offshore exploration for oil  and gas.  That  drove  away   not  only  oil exploration companies   but also  the offshore  rigs   needed   to  complete  planned drilling  programmes.

Whether  that  is the  case  or  not, some  of  the  big generators  like  Contact  Energy  and  Genesis  are  said by  critics to  be  creaming  it – but  from  their  point of  view,  they  are   doing  their  utmost  to meet  the  high  demand  for  electricity.  Their  shareholders certainly  should be  happy   with the  healthy  margins  they are  reporting  while  wholesale  prices remain very  high.

The  irony    is  that as  natural  gas   supplies have  tightened,  more  coal  has had  to  be  imported – 2 million  tonnes,  in  fact, from  Indonesia to  meet  demand.

Nor  is  it   surprising  that  Genesis , which  had  been conducting  a  strategic  review  of  its  46%  holding   in  the  Kupe  gasfield  which  some  say  was  triggered   by  the  government’s  target  of  100%  renewable  electricity  by 2030,  has  decided  to  retain   its  stake.

Genesis,  51% owned by the government, announced early this year it was weighing up its ownership in the field, as well as opportunities for further development, including drilling and further exploration.  It says Kupe remains a high-quality gas asset and will continue to play a key role in New Zealand’s transition to a lower carbon future.

The review considered a number of areas, including the returns and risks of a potential drilling programme, the optimal capital structure for Genesis and whether there are better capital investment opportunities.

Genesis in May made a deal with NZ’s biggest consumer of natural gas, Methanex, to divert some of its supply to power the gas-fired generating units at Huntly.

The tight gas supply conditions being experienced this year appear likely to continue into 2022.

Genesis this  week  reported  to  the   market that NZ’s low hydro inflows, compounded by gas production declines, has required an exceptional amount of energy generation from Huntly Power Station to ensure energy security for all.

“Hydro conditions have since improved and so recent high emissions are expected to temper over the next few months. We remain on track to reduce overall emissions by 1.2m/t in line with our commitment to a Science Based Target for 2025.”

 Genesis has updated FY21 EBITDAF guidance to between $405m and $410m.

The Huntly Power Station provided significant short term back-up generation to the market.

Genesis has provided several industrial customers additional gas in the highly constrained market. It  says  it continues to make progress on delivering a lower carbon future, with several large power purchase agreements attached to new renewable projects under negotiation.

Meanwhile  Contact  Energy,  which  earlier this  year reported  a strong financial performance despite uncertainty of gas availability,   has  indicated  it  has  secured an  increased  supply  of   Maui  gas  from 7.45PJ  to  10PJ.

It  is  also  going  ahead  with a $580m  investment  to develop a new 152MW geothermal power station at Tauhara, near Taupō.  It  is  undertaking  a strategic review of thermal assets  over the next few months.

In  the  first  half  of  the  trading  year Contact reported a  profit of $78m, up 32% on the corresponding half the previous year.

Contact CEO Mike Fuge  reported he was pleased with result “despite challenging headwinds in the form of ongoing uncertainty around gas availability”.

 “There is no room for complacency as there is an ongoing challenge around the deliverability of gas from declining gas fields”.

Point  of  Order  suspects   that  sharp  comment  might  have  been  directed   at the  offices  of  those  ministers  who were  so  smug  in   announcing  the  ban on  oil   exploration.

One thought on “How the govt’s ban on oil and gas exploration has tightened supplies – and resulted in NZ importing 2m tonnes of coal

  1. Who cares? The oil and gas ban was important for enhancing Jacinda’s international brand. And Kiwis must love it because they returned her in a landslide. They are clearly happy to pay higher electricity prices for Jacinda’s sake.

    Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.