Gas may run out early
By Richard Harman (author)
Energy Minister Megan Woods yesterday confirmed that the country may run out of gas in seven years.
She made the comment on TVOne’s “Q+A” and later confirmed it to POLITIK.
The revised figures come after the Government announced that it would no longer offer offshore petroleum exploration blocks for tender.
Together the lower level of reserves and the end to offshore exploration dramatically change the outlook for gas supply in New Zealand and could have profound implications for retail electricity prices.
The latest Ministry of Business, Innovation and Employment statistics available are for 2016 and project an 11-year outlook – which would mean that from this year there would be nine years of reserves left.
However, the Ministry is currently revising those figures, and some believe they might even revise the seven-year outlook down though Woods says she is not a pessimist.
A similar outlook for seven years was also forecast last year by the International Energy Association who estimated that there were ten years of reserves.
The change In timeframe is important because it cuts the amount of time that oil explorers with existing permits have to get any new wells up and running if there is to be no gap in supply.
And it puts immense pressure on electricity generators to build new renewable generation plants from wind or geothermal.
If they can't meet the seven-year deadline then it is likely that they will either have to import gas or use coal to run stations when demand peaks.
It will put pressure on electricity prices as the generators try to generate revenue to finance their new plants.
Perhaps mindful of this and despite the Government's commitment to green energy, Woods told “Q+A” that she had no plans to stop coal mining.
She was asked whether she had an update on Taranaki gas reserves from Shell Todd and OMV at the start of this year.
She said seven years was a figure now being talked about.
“I think that’s probably a pessimistic figure”” she said.
Q+A: “That’s the latest data?
Woods: “That’s right. “
Gas is not a major source of New Zealand electricity generation. According to MBIE, it amounted to only 11 per cent of all generation in 2016.
Even so, the transition from gas to renewables is going to be a challenge.
It is the cost of building replacement generation that raises big questions made more complex by Woods’ decision to review retail power prices.
Launching the review last month, Woods said: "New Zealanders deserve to have access to electricity at a fair price, and this review will look into whether the electricity market is delivering that.”
Opposition Energy spokesperson, Jonathan Young, is critical of the uncertainty that the Government’s ban on future off shore exploration block offers has provoked within the industry at the same time as there is a lack of transition planning for the energy industry as a whole.
“So will we find ourselves in a situation where we have to revert to coal?” he said.
“We are saying that is a possibility and the more that there is a lack of real transitional planning, the more it looks like that sort of provision is going to be needed.”
Young said that in his New Plymouth electorate – where most of the oil and gas industry is based – he was already hearing of overseas investors cancelling investment in the region because of the uncertainties.
Wood told “Q+A” that she was optimistic that people would still be drilling for oil and gas in possibly 20250, possibly even 2070.
“We’ve got current exploration permits that run through to 2030.
“And if someone in 2030 decides that they’ve got a find and that they’re going to convert that into a mining permit, go through the process, that goes through to 2070.”
She said that there was roughly 100,000 square kilometres that was currently under exploration permits.
“That’s roughly the size of the North Island, which is 113,000 square kilometres.
“You’d probably look at a 10% to 15% chance is what the industry would say of actually finding something.
“That gives you 10,000 to 15,000 square kilometres that would be available for exploration.
“We currently have about 2600 square kilometres offshore in production.
“We’ve got the potential even if you went with the 10% to 15% chance for a further 10,000 to 15,000 square kilometres. “
The squeeze on gas supply would have happened regardless of who was in Government.
The figures that are being processed which give rise to the seven-year forecast are from data for last year, when National was in Government.
Forecasting gas supply is a tricky business, and it is acknowledged that the figures can be highly variable.
But the implications of an earlier end to gas supplies are enormous and a Government which has just banned offshore petroleum exploration is unlikely to get a good reception.
They need to hope the figures are, as Woods says, pessimistic and that the final forecast gives the electricity companies more breathing room.