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.