Never waste a good crisis
The last few months have been a “dumpster fire” for natural gas supply in New Zealand, attendees at GasNZ’s recent industry forum ‘Gas Matters’ were candidly told.
Responding to very tight supply over winter, and low hydro lakes, natural gas retailers Contact and Genesis temporarily bought out Methanex’s gas supply of 80-85TJ per day and put it in the market, while Methanex shut up shop until the end of October.
John Kidd, head of research at Enerlytica, said eighty tera joules is approximately four times the average daily retail demand (residential and non-industrial commercial) for natural gas.
And right about then, the rain came, filling the hydro lakes, with the result being a temporary glut of gas in the market.
Kidd told the conference that we didn’t have the ability to place that gas in its entirety into the market – “it’s too big”.
But it was important to “never waste a good crisis”, he said.
“Successfully getting our way through and doing some deep thinking to make sure what happened in the last year didn’t happen again could at least be a positive outcome from the recent crisis.
“In the future Methanex will likely have a more flexible demand response – greater flexibility in terms of significantly responding to energy supply and demand even than Tiwai Point aluminium smelter,” he said.
The crisis brought to the fore the importance of all three dimensions of the energy trilemma – sustainability, affordability and security.
“In recent years there has possibly been too much focus on the first of these dimensions – sustainability – “but I reckon 2024 has been very helpful in refocussing people towards the fact that a triangle needs to have three edges rather than just one,” he said.
“2024 has demonstrated that the three operate together.
“The role gas plays in supporting [energy] affordability and security can never be lost on anyone.”
Six large fields of natural gas around Taranaki are the backbone of the natural gas and LPG sector in New Zealand, operated mostly by “three players of scale”, Kidd said.
The six fields are on average 86 percent deplete.
Over the last five years since 2019, the amount of ‘deliverable’ natural gas has dropped 200 Tj per day, Kidd said.
“That’s a huge amount of energy that we’re now missing from the system.”
It represents 10 times the daily retail load, or comparatively, 110 cargo loads of coal.
The ‘2P’ reserves have seen a very sharp reduction in the last two years. They have had two successive “largest ever” downgrades in their potential capacity in each of the last two years.
“What do you do in this situation – you reinvest.”
“It’s not about exploration - exploration is often a multi-decade proposition, let alone multi-year.
“It's not going to be exploration that get’s us out of this – it’s going to be reinvestment in existing assets.”
The aim is to extend the reserves.
But the field operators face their own constraints – “what they are able to do is always a function of the operating rules they live under”.
“For the last four, five, six years, those operating rules have been deeply unfavourable. Not ideal for new investment.
“It’s tough to bring new production and new spend into the sector.”
Ironically, “we’ve just come out of a very deep period of reinvestment that has gone on in the sector”, Kidd said.
“For the last five years or so we have seen a couple of billion dollars go into the ground here in Taranaki and we haven’t got out of it what we had hoped for.
“That’s the bottom line.”
So while the outlook for future gas supply hasn’t improved, this year’s crisis has at least been responsible for fostering the creation of ‘shock absorbers’ in the market, Kidd said.
These included the new dynamic demand respond capabilities for Methanex to adapt to market conditions and a seasonal response from Tiwai Point operator NZAS, as well as bespoke demand response flexibility for major industrial users, along with an improved backup coal stockpile, development of biogas streams and gas storage options etc.
We can be optimistic that the lurching and flailing of 2024 is unlikely to recur, Kidd said.