A report out for submissions says gas will still be needed for electricity generation even though it will be phased out over time for environmental reasons

 A report written for the Government is reluctantly conceding there is a role for gas to be burnt to generate electricity.

But it sticks to the goal of phasing out gas over time.

This transition could come at a cost, with small gas users like households or restaurants which cook with gas having to pay higher prices.

And large users like the Taranaki branch of Methanex might even have to shut down.

This information comes in a new document, an issues paper for the draft Gas Transition Plan, which has been unveiled along with a raft of other energy papers which were dumped en masse.

The paper comes against a background of electricity insecurity, which was highlighted by Transpower in May and again a month later. 

In addition, the Ministry of Business, Innovation and Employment has warned of gas reserves slipping below the 10-year mark.

Despite this, the paper says the gas that is available needs to have a role in ensuring electricity keeps flowing down the wire on cold, still, dry evenings in winter.

An earlier document forecast 200 megawatts of gas-fired peaking plants being built by 2035, which would be available for transition to biofuel part way through their life expectancy.

These would be able to start up more quickly than the existing thermal plants at Huntly, which can take hours to become productive and so are unsuitable as back up when the wind can stop blowing in a few minutes, leaving turbine blades motionless.

In making the case for some continued use of gas, the paper concedes New Zealand’s gas fields are in the “decline phase of their operational lives.”

Despite this, “fossil gas generation plays a critical role in ensuring security of electricity supply,” the paper says.

“The need for flexible fast-start peaking capacity will become even more important as the system incorporates more wind and solar variability.

“With its fast-start capability and stable cost profile, fossil gas may still be needed to play a small but important role in security of supply and price stability in the electricity market as it approaches 100 per cent renewable.”

The paper has bad news for Methanex and the fertiliser industry.

Methanex uses about 40% of New Zealand’s gas production, down from a higher level after idling a plant in the Waitara Valley.

Methanex uses natural gas to make the liquid fuel Methanol, but would “either exit (the industry) or switch to low-emissions alternatives.”

This matches statements by Methanex itself.  Its most recent annual report said it had gas secured up til 2029.   

"We cannot provide assurance that our contracted suppliers will be able to meet their commitments or that exploration and development activities in New Zealand will be successful to enable us to operate at capacity or at all," the report said.

"We cannot provide assurance that we will be able to secure additional natural gas on commercially acceptable terms. These factors could have an adverse impact on our results of operations and financial condition."     

A similar fate is could be in store for Ballance Agri-nutrients, which uses natural gas to make fertiliser, but might have to stop. 

The paper also highlights an additional problem from this. It says commercial and residential users of gas use low volumes but are by far the most numerous consumers of the product.

Any fast move away from large-scale gas users like power stations could lumber them with a huge share of the cost of maintaining the network of pipes.

"Many household consumers also face high switching costs that could be difficult for them to meet, and they may need to be (financially) supported," the paper says.

The paper also says costs will make existing offshore gas fields uneconomic and the fossil gas market may need to rely on gas fields on land.

"As we take action to reduce emissions from the fossil gas sector, we also need to ensure security of supply is maintained," it says.

"It is likely that the needs of fossil gas consumers, particularly the thermal electricity generators, will become increasingly variable, which will mean the gas system will need to become more flexible than it is today.

"As our fields age, we may also see declining supply-side flexibility."

The paper says over time, there might need to be more investment in gas storage to meet this need.

And there should be more development of biogas, even though it could be more expensive than fossil gas.

It adds there could be potential for green hydrogen to add to the energy mix.

Finally, the paper hints at the rehabilitation of carbon capture, utilisation and storage (CCUS).

This involves keeping CO2 out of the atmosphere by pumping it into large underground reservoirs, such as deleted gas fields.

This has gone way out of fashion as a climate change solution in New Zealand, but the Gas Transition Plan raises it as a possibility, even though "we need to understand the risk.

"There is an opportunity for upstream producers to capture their emissions and reinject them into gas reservoirs," it says.

"Emissions capture technology is technically and economically viable for upstream fossil gas production, so it does not require any government subsidy. It may also be possible to capture combustion emissions from major gas users."

The risks of CCUS in New Zealand have been discussed often in the past and they include this county's seismic intensity.

The Gas Transition Plan is open to submissions.

In the meantime, the Government says it is sticking to its aspirational goal of having the electricity system 100% renewable by 2030 and all energy 50% renewable by 2035.