NZ natural gas production falls to lowest level for nearly 30 years

Economy / news

Drop in natural gas production sees increased use of coal for electricity generation

[updated]

15th Jun 24, 9:10am by Eric Frykberg

New Zealand's natural gas production has dropped to its lowest level for almost 30 years, according to the Ministry of Business Innovation and Employment (MBIE).

At the same time, the use of coal has soared.

MBIE says net gas production for the March quarter was 31.89 petajoules (PJ).

This was a 12% decrease on the same quarter last year, and was the lowest such figure since March 1985.

There has been steady slippage in gas production for several years, which was highlighted in a report last year and another one in May.

A planned outage at the Pohokura gas field for maintenance in March added to this process.

“The trend is expected to continue into Quarter Two, with Kapuni gas field going offline for planned maintenance in April,” MBIE Markets Manager Mike Hayward says.

In contrast, Genesis Energy’s Combined Cycle gas plant at Huntly came back from maintenance four months early, which helped overall thermal capacity. However, because of the gas shortage, Genesis burned a lot of coal, and MBIE says total coal use for electricity generation rose 99% compared with the same quarter a year ago.

This process was pushed further by dry weather in summer.

“As the share of renewable electricity generation decreased, greenhouse gas emissions from electricity generation increased to 861 kilotonnes of CO2 equivalent, which was a 21.5% rise on the March quarter in 2023," says Hayward.

There was a slight offset to this trend, with new solar and wind generation helping to compensate for a 3.2% drop in hydro generation.

Overall, renewable electricity was 85.7% of total electricity, down from an earlier peak but still historically high (see graph).

A time series chart showing electricity generation from renewable sources, from 2015 until the first quarter of 2024. Electricity generation from renewable sources has trended upwards from about 80% in 2015 to about 87% in 2024, but with significant fluctuations, especially around 2021-2022 with fluctuations of more than 10%.

The trends revealed by MBIE are alarming to the industry lobby group, Energy Resources Aotearoa.

Its chief executive blames politics.

"It is now also clear that the previous government’s policies have resulted in the sector burning more high-emitting imported coal than before," says John Carnegie.

“If we don’t close the widening gap in our domestic energy supply, New Zealand will be left with only high-emission coal to support intermittent renewables during winter. This, or importing LNG, will be likely to become our reality on our current path."

The current government halted investigations by MBIE's NZ Battery Project into a pumped hydro scheme at Lake Onslow late last year. The NZ Battery Project has been looking at potential solutions to the dry year problem, when hydro-power catchments don’t receive enough rainfall or snowmelt and the level of the storage lakes runs low, other than fossil fuel generation. It continues a wider electricity security work programme including considering the question of security of supply and the need for long-duration energy storage.

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51 Comments

by nigelh | 15th Jun 24, 9:23am 1718400181

I wonder whether the economics of Onslow stack up as conventional hydro scheme and not as pumped storage (ie "battery" for dry years). Someone posted a year or two ago that there is still the potential for reasonably sized hydro in the NI. I'm not referring to small power hydro but > 100MW (Huntly gas/coal 250MW per generator for comparison)

by solardb | 15th Jun 24, 9:40am 1718401232

I think Onslow itself is a good site that could lend itself to a mini onslow scheme . It already has a hydro scheme on the river, with piped sections and ponds. A smaller dam could also be constructed on the lake , creating a high and low lake to pump/ generate between .

In the north island , I would say several small schemes close to solar farms , or wind farms , could store excess energy for them. or close to large users. but environmentally , the dam would probably have to be off river these days .

Waikato river hydro is predominantly run of the river, apart from the obvious storage that is Lake Taupo , but I think storage could be made above Taupo , or to a more limited extent by wetlands attached to existing lakes . some pretty expensive real estate below Taupo .

by morepork | 15th Jun 24, 10:02am 1718402540

There was talk of a smaller pumped hydro scheme around Lake Moawhango near Waiouru, which could then benefit from all the downstream dams on the Waikato river. Of course the current gov has cancelled all those investigations and don't seem to have a plan to solve the dry year issue.

by solardb | 15th Jun 24, 4:30pm 1718425822

Just having another look over Lake Onslow , and the Teviot river. You could raise the current lake level , from the current 684 metres to 700 metres, with a relatively small dam, probably twice the size of the current one. that would give you almost twice the area of storage , (not volume). you'd have to move the fishing huts 50 metres or so .Been in a relatively dry area, this in itself would not achieve as much as a pumped scheme.

So , next i looked at getting water up to the lake . Starting from the Clutha , you could take water from the Roxburgh dam at 131 metres, and canal it to the Teviot river at approx 100 metres, the base of the Teviot bridge /elis power stations . using their pipes , gets you up to 300 metres , another pipeline takes you up to the marslin dam at approx 400 metres. Next is quite a long stretch up to the horseshoe bend dam at 600 metres. I would think an intermediate dam or pond would be ideal . From the top of the horseshoe bend lake , its not far to the bottom of the onslow dam .

this would at least create a multiple stage peaking battery system , wether its enough capacity to make a difference in a dry year is another matter. .

by kiwi_overseas | 15th Jun 24, 2:42pm 1718419347

It's absolutely absurd that we dont build Onslow. (National want to leave power generation to the private sector so it can extract excess profits for its owners.)

Here we all are paying the full marginal cost of electricity to the last and highest price provider (i.e. coal when we are short of power) and being totally screwed over.

In a fully competitive market in any other no business gets to recover its full marginal cost, or the full marginal cost of the highest price producer. Its simply absurd.

So NZer pay much higher power prices than we should massively reducing our productivity - there is a 1:1 correlation between energy and GDP (so a very high benefit/cost ratio of providing as cheap as possible power).

The govt milks the excessive tax take and excessive dividends because it doesnt have the guts to implement capital gains+gift tax+inheritance tax & spends the money on its latest pet project, e.g. $3bn subsidy for landlords.

Building Onslow would drive power prices through the floor and bring the marginal price down much much closer the average price. NZers wouldnt have dry years and wouldnt pay the excessive power prices we do now, & we would have to worry about gas and coal.

The country is run by lunatics. We would have been better off with the NZ Electricity Board as a non-profit SOE (but retains all profit to maintain and upgrade the system) which could have run a system optimal power generation system and kept prices close to the average price.

by Brendon | 15th Jun 24, 11:50am 1718409010

There is something weird about the $16bn estimated cost to build Onslow which consisted of a high plateu dam and a 23km long tunnel. In the late 1990s NZ was able to build a second 10km long tailrace for Manapouri just to make it more efficient. It only cost $200m.

by profile | 15th Jun 24, 12:23pm 1718411007

The project is a dog. Rolled out to take attention away from the natural gas economic vandalism of Captain Cindy.

"The Teviot Valley dam would be 1.5 km long making it the second [longest] hydro dam in the world after the Three Gorges dam in China."

Summary

• The scale of the original Lake Onslow scheme is 10 times larger than is needed to address the so-called “dry-year” problem.

• The scope of the project has changed: -

o Level reduced from 800 m to 760 m.

o Tunnel increased from 15 km to 24 km

o Soil removal from 27 km2 added

• The Teviot Valley dam would be 1.5 km long making it the second [longest] hydro dam in the world after the Three Gorges dam in China.

• The increased water losses due to seepage and evaporation would require permanent pumping to maintain the Lake Onslow level.

• The round-trip efficiency would be <60%

• The cost of electricity to fill Lake Onslow would exceed the revenue from electricity sales in a low-hydro year. So, there is no economic rationale to proceed.

• Filling Lake Onslow would create an electricity shortage in New Zealand of greater magnitude than the “dry-year” problem.

• The NZ Battery Project should abandon the Lake Onslow concept forthwith without the need to proceed with re-estimating the capital cost of the ~$4 billion project.

https://www.energywatch.org.nz/issues/EW84_6-2021.pdf

https://www.energywatch.org.nz/issues/EW85_7-2022.pdf

https://www.energywatch.org.nz/recent.html#85

by JimboJones | 15th Jun 24, 12:53pm 1718412830

Some of that sounds like rubbish to me. If the hydro lakes are full doesn't it become free to fill Onslow? AT the moment that energy is just spilled

by kiwi_overseas | 15th Jun 24, 1:15pm 1718414132

I don't disagree that there would be many technical/economic challenges to overcome with pumped storage, and perhaps Onslow may not be the optimal location and why full feasibility studies should be undertaken.

However, my premise is correct.

In EW84_6_2021 you have only used quarterly pricing to dismiss Onslow. ($45 to $200 per MWh from 2016 to 2020) and noted a price differential of 1.7 to 1 needed for Onslow to be profitable.

The merit of Onslow (or similar) is that it would be running on hourly pricing like a battery.

Wholesale prices in NZ have ranged from almost $0 to about $500 per MWh in the lower South Island over the 2012 to 2024 period.

The ability to buy power at $1 per MWh and sell it at $500 per MWh is a maximum 500:1 differential with many opportunities to buy/sell (& fill the lake) at > 1.7:1

by Erant | 15th Jun 24, 2:18pm 1718417933

Even if correct this analysis ignores the effect the project itself would have on the spread in prices. With such a high demand when pumping the water up the storage acquisition prices would be much higher, and with such a high output the sales prices when exporting power would be significantly lowered. The project cannot commercially capture the value of its contribution.

by kiwi_overseas | 15th Jun 24, 2:34pm 1718418874

Yes, the power prices would narrow, but they would need to narrow to less than 1.7:1 for it to become uneconomic when the existing range is 500:1. 1:7 is quite a small range. (e.g. 10:17, 50:85, 100:170, 200:340, 294:500). But yes, as part of the feasibility study the likely prices would need to be modelled.

by profile | 15th Jun 24, 2:55pm 1718420104

Perhaps have a read of the links above? The project had a pitiful rate of return when the budget was $4 billion - now it is $15 billion!

by kiwi_overseas | 15th Jun 24, 3:37pm 1718422626

Yes, $15bn would make it more challenging.

If it's built by Government, the Government can issue 30-year infrastructure bonds. It's an intergenerational project and should be funded as such.

The rate of return only needs to cover the bond rate which would be the US rate of 4.35% + the NZ premium.

Carbon prices are expected to get to NZD$250 real by 2050 (or higher - National seems to only want to use the ETS to reduce NZ's emissions - too bad its stopped hypothecating the revenue). We wont be running coal and gas at anywhere near that price.

There would be real economic and productivity gains as well as power prices would be a lot lower (GDP:energy consumption 1:1 correlation) - most of the profit currently goes to govt as the main shareholder and tax recipient - we dont even know benefit/cost ratio of most government spending and much will be well below that of having cheaper power.

In terms of socioeconomic benefits we'd also have some 300,000 households out of energy poverty and a significant reduction in real health costs.

Or we can get a PPP or private sector to build it - oh they only want a 15+% return & would want it regulated so they can extract monopoly profits on top of that. No thanks.

As I noted a full feasibility study is required for Lake Onslow or any pumped storage alternative. (Opps the government canned it).

by Colonial Viper | 15th Jun 24, 12:25pm 1718411121

You must have missed the reports showing that government and ACC are just as keen to extract maximum dividends out of their corporate shareholdings for themselves.

by blobbles | 16th Jun 24, 12:11am 1718453515

No its not absurd. The final report coming out about our various options had two obvious ones that nobody wants to talk about, but would have been something like a quarter the cost for similar or better results. First one was creating a geothermal station with 4 turbines that normally runs on one, then turns on all 4 during dry years. Second one is turning Huntly into a wood pellet fed system, needing to create pellets for it too and do a conversion of the turbines (which was already successfully tested). Both of those options should happen first IMO, they pretty much cover us completely for dry years and both have almost all the expertise needed to build and operate them already in place. We know geothermal, we know how to operate Huntly with torrefied wood pellets, we would just need to create a plant to make the pellets and an area to store a bunch of logs around Tokoroa somewhere likely and train the pellets up to Huntly. And they would be a hell of a lot cheaper and less prone to cost blowouts than Onslow.

I used to like the Onslow option too, but it has real potential to go bad quickly.

by Peter M | 16th Jun 24, 9:27pm 1718530075

Torrefied pellets production is on its way only not in Tokoroa but in Kawerau. https://foresta.nz/bay-of-plenty-project-2

by Colin Cameron | 15th Jun 24, 3:29pm 1718422169

Nigel geo thermal has way more potential in the north island and the taupo/rotorua fields are literally untouched and less invasive disruptive to the environment than hydro. In the states they are drilling down and pumping water into the wells and creating geo if you go deep enough anywhere in nz would suffice

by Peter M | 16th Jun 24, 9:29pm 1718530185

I agree. Most Geothermal Fields are under utilized.

by Foxglove. | 15th Jun 24, 9:32am 1718400765

Maybe early on, the sixth Labour government was being mindful of this looming drop off when they announced limitations on gas appliances even, some thought, gas bbqs. Then all that noise, all of a sudden went very quiet and got forgotten about.

by morepork | 15th Jun 24, 9:59am 1718402353

The current shortage isn't really the fault of the previous ban. Any wells from new exploration permits issued in 2018 or later wouldn't come online to maybe 2028 or later.

The current shortage is due to the earlier exploration permits not coming up with anything economic.

by Baywatch | 15th Jun 24, 12:56pm 1718412969

The won't fit the narrative for a lot here...we want more gas even if it's not there. Edit..check profiles comment

by Retired-Poppy | 15th Jun 24, 10:08am 1718402921

Perhaps gas from certain members on this platform could be harnessed?🤔

by Jack Lumber | 15th Jun 24, 10:18am 1718403518

A friend from Taranaki explained to me there’s gas there but mainly in small fields which makes it uneconomic to develop. They need a large field to make it stack up. Might be we don’t have any economic size gas fields?

by profile | 15th Jun 24, 12:29pm 1718411358

When gas field exploration left town specialised gas field maintenance went with it. Why would you hang around for a dwindling supply of work. It was very cunning move by Captain Call Cindy.

by the Joneses | 15th Jun 24, 1:53pm 1718416411

NZ gas production has declined 40% from 2001, and the 2018 ban has had zero effect on the current output of gas, due to the decade long timeline between exploration and production.

In 2019 the taxpayer had to pay $300 million to close and clean up the Tui wells, as the company Tamarind Taranaki went broke and walked away. Don't worry though, the parent company Tamarind Resources is still running profitably in Malaysia. NZ government only ever got 600 million in royalties from the operation.

by solardb | 15th Jun 24, 2:15pm 1718417758

That , and insurance costs play a very big role.

by kiwi_overseas | 15th Jun 24, 10:55am 1718405701

ABSURD.

Meanwhile power users massively subsidise Tiwai Point.

We wouldn't need coal and probably not much gas if Tiwai was shut down, and the power prices for everyone would be lower.

by Larry76 | 15th Jun 24, 12:09pm 1718410170

So we are now at the point of shutting down industry and our few value-added exports so residential areas can more cheaply use their heat pumps?

We are a truly upside down society - daft utes and heavy trucks are subsidised on our roads, landlords are favoured for their speculation, poor folks are gleefully incarcerated, migrants are preferred over existing citizens, and the natural environment takes second place for the next quarter’s profit announcement.

by JimboJones | 15th Jun 24, 12:46pm 1718412389

Tiwai always claims it is uneconomic and wants big subsidies. Ideally we put the electricity to its best use by making it available to the free market. However I believe we are missing the required transmission lines.

by profile | 15th Jun 24, 1:04pm 1718413484

Tiwai subsidies Transpower to the tune of $70 million a year. In a free market Tiwai would buy Manapouri and the transmission lines.

by redcows1 | 15th Jun 24, 1:21pm 1718414463

In a free market they would have built their own power station not bludged of the tax payer.

by profile | 15th Jun 24, 2:09pm 1718417381

So not a free market then, not a free market now.

You don't mind Transpower bludging $70 million/annum off Tiwai now? Nor successive governments reneging on the original power supply agreement?

by Baywatch | 16th Jun 24, 10:28am 1718490524

70 million less 30 Million HK handed them back .

by solardb | 15th Jun 24, 2:17pm 1718417827

that was the original plan , back when Manapouri was built.

by kiwi_overseas | 15th Jun 24, 1:18pm 1718414327

Except for startup R&D spending in which the NZ government needs to play a much greater part (our R&D spend is well below the OECD average) business should stand on their own two feet.

NZ power prices would be a lot lower without Tiwai & make other industries more profitable and new industries potentially profitable.

by Erant | 15th Jun 24, 11:38am 1718408336

New Zealand will be left with only high-emission coal to support intermittent renewables.

Importing LNG is not viable. NZ is too small. There are no available sites close to infrastructure and it will take years to install. Moreover it has enormous capital cost and low capacity utilization, not to mention the high cost of LNG and its transport to NZ.

by The Person | 17th Jun 24, 9:06pm 1718615213

"high cost of LNG" what's the cost compared to coal? Germany just built a couple import terminals in about 7 months. I'd like to see more detail on why we couldn't do it here. There's a ton of LNG available just over the tasman so the transport distances aren't huge.

by solardb | 18th Jun 24, 8:44am 1718657044

The way the price of oil is going, it might come back into contention. It would allow smaller, more quick start generators to allow smoothing close to major users. Also resislence in case of major weather / earthquake events.

by Roger the dodger | 15th Jun 24, 1:00pm 1718413237

Why not install floating solar arrays on Benmore? Infrastructure is already in place.

Best place for solar is on top of an existing battery. Onslow is just a big battery, but so are all of the existing hydro lakes.

And if they do build onslow then cover/surround it with solar panels.

by profile | 15th Jun 24, 2:17pm 1718417835

https://uk.news.yahoo.com/worlds-largest-floating-solar-plant-220000440…

World's largest floating solar plant damaged by severe storm in India

by Roger the dodger | 16th Jun 24, 10:54am 1718492058

Yeah I was aware of that.

But there is floating solar plant in use here already - which has not failed as far as I know.

So one balls up in India is not definitive proof it does not work IMHO.

by solardb | 18th Jun 24, 8:38am 1718656697

There is one on the sewage ponds at Albany.

One problem with having them on the southern lakes is the angle of the sun, you'd want the panels on a 45 degree angle to the sun to be efficient. Possibly male them more susceptible to wind etc.

by solardb | 15th Jun 24, 2:20pm 1718418009

We also have lots of methane , that we need to deal with . Wonder how much power could be generated if every landfill and sewage plant captured theiir methane . Or smaller units were mass produced so every milking shed had one?

by Colin Cameron | 15th Jun 24, 3:36pm 1718422569

Solardb bang on

by profile | 16th Jun 24, 9:44am 1718487861

US style free stall barns work really well with digesters - produce enough heat and electricity to process, package and still have enough left to export to grid.

NZ dairy sheds don't produce enough clean manure to be economic.

by solardb | 16th Jun 24, 10:00am 1718488807

Maybe not outright economic, but worthwhile if they are looking at their methane "budget". A few % gets them where they will need to be.

Then there's piggeries, and chicken farms, and composting plants.

Went to one place, and she made us a cup of tea, with the gas off a small Israeli bag unit.

by profile | 16th Jun 24, 11:08am 1718492909

Agree on the piggeries and chicken farms. Makes a lot more sense than intermittent windmills and solar farms. Those Israeli units are pretty neat.

by Jack Lumber | 15th Jun 24, 4:03pm 1718424195

With the Tiwai contract it will be build baby build for new generation. It's not perfect and will involve winners and losers. The real issue with wind and solar is storing surplus when produced. This is either batteries or more EVs connected to chargers in morning and evening to draw down then and smooth out peaks. A lot of the new generation is about peak demand so if we used EVs we could avoid a lot of new build.

No one's going to explore for gas when you know the other mob, back in 2 or 3 electoral terms, will cut you off.

The Government's happy as it will make more money via its shares in the big generators. Got to get the revenue somehow.

by solardb | 16th Jun 24, 10:04am 1718489061

I think we've pretty well established no exploration was economic, ban or no ban. It was a largely symbolic gesture, that got us good press overseas.

Yes, Evs can be more of the solution than the problem, the issue is its not in the industries interest to make that worthwhile to the consumer at the moment. But it will come.

by Peter M | 16th Jun 24, 9:16pm 1718529413

And it only get worse: https://www.transpower.co.nz/system-operator/notices-and-reporting/mark…. The level in the main hydro storages are well below historical average levels and currently all the rain falls on the wrong places.

by The Person | 17th Jun 24, 3:54pm 1718596483

Things could get worse. They could also get better.

Note that the Current Storage Positions risk gauge has us in "Normal"

We have only just dropped below the 10th percentile and are ages away from 1% risk level. I wouldn't worry, if you worried everytime we dropped below 10th percentile you'd be forever worried. None of the Simulated Storage Trajectories have us hitting 1% risk. Wait till the risk guage tells you to worry.

https://www.transpower.co.nz/system-operator/notices-and-reporting/week…