Latest report on gas supply and demand

Both demand for gas and gas reserves are decreasing, according to the latest report on supply and demand from business consultants Ernst & Young, commissioned by the Gas Industry Company.

The report says the closure of several large industrial users in recent years has materially reduced demand.

But residential and business users can be reassured - the same study in 2022 noted that “there is sufficient gas to meet higher-value gas users’ demands [residential, commercial and power generation] for the very long term” with the models running all the way out to 2059.

However, the 2023 report says that large industrial users such as Methanex underwrite development on the supply side which benefits smaller consumers.

“If demand from these large users is the first to disappear, remaining users may not be able to underwrite the necessary supply development.”

More positively, the report notes the renewable gas supply options being developed, while acknowledging these will require some time to develop.

The report refers to studies commissioned for the Gas Transition Plan Issues Paper which estimate that 7 PJ/year (roughly the energy consumed by residential consumers annually) of biogas is commercially viable at today’s prices and 24 PJ/year is potentially available.

“The benefits of a vibrant biogas sector in New Zealand would be significant from an environmental, economic, and strategic perspective.

“Biogas can provide options for hard to abate sectors where electrification is challenging, reduce the requirement for imported fuels, and divert organic waste from landfill.”

There has been a dramatic reduction in upstream exploration activity in recent years, the report says.

Drilling activity since 2015 has averaged 9.5 wells per year compared to 34 wells per year during the period 2002 to 2014.

The current supply and demand factors are creating “a challenging environment for any investment in new natural gas supply which will likely require support from both government and industry to overcome”.

The report projects residential demand remaining at 4.1-6.2 PJs per year by 2035 depending on four different scenarios it modelled.

The report also notes the potential opportunities to reduce emissions that can be actioned now.

“The potential for CCUS (carbon capture, utilisation and storage) to reduce emissions provides an opportunity for New Zealand to accelerate its emissions reduction, take advantage of its remaining natural gas reserves without compromising the emissions budget, and maintain a competitive advantage for trade exposed, emissions intensive industries.”

The simplest opportunity sits within the upstream emissions where there is a maximum of between 6.2 and 9.3 million tonnes of CO₂ emissions that could be avoided between now and 2035 if CCUS were implemented, the report says.

The report also considered the implications for future supply and demand across four distinct future gas market scenarios:

1. An industry focus where the industrial/petrochemical sector remained the dominant consumer of gas;

2. A scenario where the largest industrial user, Methanex, exits the market early;

3. An elevated electricity focus, where the electricity sector is more heavily reliant on gas for its own security of supply for longer; and

4. Where current supply is constrained and future supply is not able to be developed.

It considered the variable implications for regulatory policy, infrastructure, energy security, emissions reduction and price against these four scenarios.