Exploration ban a risk
The government’s proposed ban on new offshore exploration will create uncertainty over long-term gas supplies and risks delaying the shift away from coal in electricity generation, Genesis Energy says.
The company, which aims to stop using coal at its Huntly site by 2030, said it has been able to halve its emissions and its coal use by 80 percent during the past decade because it has had access to gas.
The industry can play a key role in meeting the country’s emissions targets - through the wider electrification of the economy – but an increasing reliance on wind and hydro generation will still require thermal backup for “multi-month” dry periods and when the wind doesn’t blow.
“Based on currently available technologies, without thermal generation capacity and the development of gas storage capability, security of supply in New Zealand will be dependent on coal or be compromised,” the company says in its submission on the Crown Minerals (Petroleum) Amendment Bill.
“Whilst a number of emerging technologies exist - for example hydrogen - these are in their infancy and are not yet sufficiently proven to be anywhere near as cost-effective from an electricity perspective and, depending on the fuel source, carry their own emissions. Emerging technologies require significant capital for further research and development and offer no guarantee to be viable as an alternative fuel source for electricity generation between now and the impact of the bill.”
In April the government shocked industry by declaring an end to new offshore exploration permits as part of what it said was a long-term transition plan away from fossil fuels. Rights under existing offshore permits would continue, as would onshore block offers in Taranaki. Onshore exploration outside Taranaki was to be banned.
The legislation required to enact the changes is being pushed through Parliament in a truncated submission and select committee process.
Ironically, submissions will be heard as a gas shortage and falling hydro storage has pushed wholesale electricity prices to a 13-month high. The Rankine units Genesis operates at Huntly – which can run on coal or gas – delivered an average 337 MW on Tuesday, the most since January.
Genesis owns 46 percent of the Kupe gas field and will, under the government’s plan, be able to continue to explore and develop new discoveries within that acreage.
But the company said it has a responsibility to point out the impacts the planned ban will have on security of power supply, consumer prices and wider efforts to decarbonise the economy.
It said those efforts must focus on initiatives that will deliver the greatest emissions reductions, what is technically and commercially feasible, and can be scaled and delivered at least cost to consumers.
And that will require strong consultation and evidence-based decision-making if the risk of unintended consequences to the economy are to be minimised.
Genesis said the exploration bill cuts across work on emissions reduction already begun by the Productivity Commission and underway for the establishment of the Climate Change Commission and the review of the country’s emissions trading scheme.
It warned against departments operating in “regulatory silos” and recommended the government delay considering the bill until the Climate Change Commission has laid out the “most effective path” to get the country to net zero emissions by 2050.
Genesis said that, while the electricity sector can play a critical role in reducing emissions from sectors like transport, doing so while also reducing its own emissions and without reducing security of supply will be “challenging.”
Without new gas discoveries, New Zealand has about 10 years’ supply at current consumption.
Uncertainty over the source of gas in the 2030’s will make it more difficult to remove coal from the generation system and harder to justify the capital investment in the additional gas storage that will be required.
Genesis said that diminishing domestic gas supplies will require imports of LNG – currently two to three times the cost of local supplies.
That has “clear consumer price implications” for households and will reduce the country’s competitiveness as a place to do business.
Those impacts would also be felt sooner than expected and before 2030 as domestic gas prices would trend towards parity with imported product, Genesis said.