By Jenée Tibshraeny
The Energy and Resources Minister Megan Woods admits she can’t be sure there will be enough affordable clean energy available to fill the gap left when New Zealand’s natural gas reserves run out as soon as within the next 10 years.
Around 14% of New Zealand’s energy demands are currently met by gas. We produce all the gas we use and export some of our gas largely by turning it into methanol first. Setting up the infrastructure to import gas would be very costly, likely in the billions.
Speaking to interest.co.nz in a Double Shot Interview, the Minister makes the point that our supply of natural gas was going to be depleted this decade regardless of her recently announced ban of new offshore oil and gas exploration.
Yet she notes there is still 100,000 square kilometres of acreage that can be explored, with the conditions of permits currently held by oil and gas companies remaining the same.
The Minister doesn't accept the view that the ban will reduce companies’ confidence in investing in new production projects.
“If there is going to be a resource there that can be exploited, there will be people that want to take advantage of that. People have spent a lot of money getting to this point already, with some likelihood. So, we have no reason to expect they won’t be exploited,” she says.
Woods recognises the fact that even if a producer makes a find, the chance of it being at a level high enough for it to be economic to exploit, is only around 10% to 15%.
Furthermore, the Petroleum Exploration and Production Association of New Zealand (PEPANZ) notes that under existing permits, explorers only have until 2022 to decide whether or not they want to drill.
Potential for wind energy to increase its share of NZ’s energy production beyond 1.2%
Pressed further to provide evidence of forecasts and studies that have been done around the capacity of New Zealand’s renewable energy sector, the Minister points to a draft report published by the Productivity Commission last week, Low-emissions economy.
She notes the report says renewables can’t currently provide the security of supply at affordable rates.
Yet it points to the potential of wind energy, which according to Woods, New Zealand can produce at an increasingly low cost.
She says there is a lot of capacity that has already been consented, but hasn’t been built.
Asked to provide figures around the role wind energy currently plays in New Zealand, and how this is expected to increase in the future, the Minister says, “I don’t have that number right in front of me, but we can get that through to you.”
Wind constitutes 1.2% of all New Zealand’s energy production.
Interest.co.nz cannot find data to show what portion of the country’s energy needs wind meets. It can however confirm that 10.7% of the country’s energy needs are met by renewables, including wind, hydro, geothermal, solar, liquid biofuels, biogas and wood.
Geothermal energy could be used in aluminium and methanol production
Woods says New Zealand has a strategic advantage when it comes to the production of geothermal energy.
Geothermal energy makes up 28.1% of our energy production. Putting aside the geothermal energy converted to other forms of energy like electricity, it makes up 1.3% of the energy we consume.
“We see other countries that are blessed with this resources that are making huge gains from doing it,” she says.
“We see that Iceland’s built a whole economic development strategy around things like producing aluminium from its geothermal reserves; that it’s also doing a lot of research and started some production around making methanol from its geothermal feedstock.
“We have consented capacity that we are yet to realise in the central North Island, which is also where we know a lot of the capacity has to go."
Providing on-call electricity generation to remain a challenge
Looking at electricity, 85% of this is generated from renewable energy.
The Productivity Commission in its report says, “In the longer term, new technology should enable even more electricity to be generated at reasonable cost from low-emissions sources even as electrification of transport and industrial heat push up demand.
“Yet providing on-call generation to meet peaks in demand, and most importantly to provide energy in dry years, will remain a challenge…
“The Government should be cautious about setting stringent targets for electricity sector emissions before technology becomes available to further reduce emissions at reasonable cost.”
Woods admits: “One of the problems we have with our energy system in New Zealand is that we generate a whole lot of our electricity in the South Island and we consume it in the North Island."
Yet she says: “What renewables gives us is the option to actually put some of that capacity closer to where it’s going to be used and where our centres and population are.
“New Zealand’s competitive advantage in the 21st century is about the mix of renewables that we can bring. Other countries are having to rely on single sources to really provide the heft to it.”
She also credits bioenergy as playing a small but important role, and notes that the commitment the Government has made to forestry and planting more trees could potentially provide a waste stream that could be used by this sector.
Govt has been having conversations about clean energy capacity “for a long time”
However, like PEPANZ and the Solar Association of New Zealand, the Bioenergy Association says that despite its efforts to engage more with the Government, it wasn’t consulted with before the decision was made to ban new offshore oil and gas exploration.
Its CEO Brian Cox says there are a number of ways bioenergy could be used now to replace dirtier forms of energy, but the Government hasn’t expressed interest in having a conversation about these.
Woods however notes she did launch a report commissioned by the Association, which found bioenergy can replace 60% of the energy currently produced by coal. Coal meets 5% of New Zealand’s energy needs.
“These are conversations that we’ve been having for a long time around what capacity there is in New Zealand,” she says.
“I think there’s quite a misunderstanding around what transitions planning is… [It’s not] turning up on the day with a glossy document, slapping it on the table, and saying, here’s the future.
“Transitions planning is about governments putting in place the resource so that we can work beside the people on the ground who this is going to affect.”
Woods has instructed the Ministry of Business, Innovation and Employment to start setting up a “transitions unit” to work on energy. She can’t confirm how many people are going to be in the unit.
Woods can’t specify impact replacing gas use will have on emissions
The Minister says there are too many unknowns to put a figure on the extent to which carbon emissions will be reduced under different scenarios of gas being replaced by cleaner energy.
Woods is aware that 39% of New Zealand’s emissions come from the energy sector as a whole, so says a breakdown of what portion is attributed to gas could be made from there.
“That is exactly what the independent Climate Commission will be doing with its carbon budgets,” she says.
Asked what she makes of the fact the Productivity Commission didn’t mention banning oil and gas exploration in its 500-page report on transitioning to a low-carbon economy, Woods points out a problem it identifies is the limitations of replacing coal with gas.
The report says only industrial heat users in the North Island can convert coal-based heat production to gas, as there isn't any reticulated gas available in the South Island.
What Woods fails to reference is the sentence before the one explaining this limitation, which says replacing coal with natural gas in North Island industrial process heat plants is estimated (by First Gas) to reduce carbon emissions by 41%.
Woods shares Mark Carney’s concerns around stranded assets
Looking at the bigger picture, Woods is pleased the report “sounds a very strong warning” around the extent to which the world needs to reduce its use of oil, gas and coal.
“Globally, between 60% and 80% of the coal, oil and gas reserves of publicly listed companies cannot be used to have an 80% chance of limiting peak warming to 2°C [above pre-industrial levels],” the report says, referencing comments made by Bank of England Governor Mark Carney.
Woods also recognises the risk raised by Carney around a rapid transition to cleaner energy leaving coal, oil and gas producers with “stranded assets” they can’t use.
Reserve Bank of New Zealand Governor Adrian Orr likewise acknowledges this risk, and the potential impact it could have on New Zealand’s financial stability.
The Minister maintains it’s imperative strong signals are sent to investors about the transition that's being made.
Govt to focus on buying EVs
Turning now to oil, it meets 46% of New Zealand’s energy needs and is mostly used for transport. Transport is responsible for 18% of the country’s gross carbon emissions.
We import all the oil we use and export the oil we produce.
Asked about the Productivity Commission’s recommendations around the Government playing a part in increasing the uptake of electric vehicles, the Minister makes a general comment that New Zealand needs to address how we feed our second-hand car market.
“New Zealanders buy their cars second-hand, and I think one of the most important things we can turn our attention to is procurement and fleet purchasing in terms of making sure we have affordable electric vehicles available for people to buy,” she says.
The Minister clarifies that introducing a “feebate” scheme, through which importers would either pay a fee or receive a rebate, depending on the emissions intensity or fuel efficiency of the imported vehicle, is the Productivity Commission’s idea, not government policy.
The Commission also suggest imports of new and used fossil-fuel vehicles should be required to meet rigorous emissions standards.
It is seeking feedback on whether we should go further and phase out the import of all fossil-fuel vehicles by a specified date.