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Winter’s chill is approaching, and with it, rising concerns over the stability of New Zealand’s energy supply. Gas shortages, coupled with soaring prices, have sparked warnings from both the Electricity Authority (EA) and the Gas Industry Company (GIC). As the country braces for increased demand, the risk of energy disruptions looms larger.
Industry experts are calling for greater transparency, as key players in the sector scramble to navigate the increasingly volatile landscape.
Declining Gas Supply Sparks Alarm
A report commissioned by the GIC highlights the fast-paced decline in New Zealand’s domestic gas supply, which is now outstripped by demand, creating a concerning supply-demand imbalance. Gas prices have already risen significantly, with a 19% hike in the commercial gas producer price index for the September 2024 quarter, a direct result of last winter’s energy crunch.
While drilling initiatives from Todd Energy and Greymouth Petroleum, along with continued production from OMV, offer some relief, the outlook remains uncertain. GIC CEO Andrew Knight acknowledged the industry’s ongoing efforts but warned that the fundamental issue persists,
“Having said that, we’re still on a decline curve. It’s a natural resource that, as you produce it, you deplete it, and you need to keep investing to keep topping up the deliverability, and that’s the key thing they’re doing.”
Industries Respond to Volatile Market
Major consumers in New Zealand are adjusting their energy strategies as they face uncertainty about future gas supplies. Fonterra, the country’s largest gas user, has moved to reduce its gas consumption by 38% by converting two of its North Island boilers to electricity.
The company, which has historically focused on moving away from coal, has hastened its transition amid growing concerns about long-term gas availability. Ballance Agri-Nutrients, another significant player, is actively seeking a new long-term gas contract.
Electricity generators are not standing still either—Genesis Energy is reinforcing its gas storage capabilities, while Contact Energy has locked in a long-term supply deal with OMV for 2026 to 2032, potentially driving up wholesale electricity prices.
Gas Prices Continue to Climb
The structure of Contact Energy’s new gas deal points to the challenges of securing flexible and reliable gas supplies. The company will initially receive 3.5 petajoules (PJ), with the supply gradually declining over the seven years of the contract.
The price of approximately $15 per gigajoule (GJ) reflects the uncertainty of the current gas market, significantly higher than in past agreements,
“You’ve got a market where there is some reduction in demand, and you saw that with the Fonterra announcement. You’ve got a market still where there’s uncertainty about how much gas, at any point in time in the future, electricity [generators are] going to need,” said GIC CEO Andrew Knight. This rising cost of gas is directly affecting electricity prices, with Forsyth Barr noting a jump in wholesale electricity futures prices, including a 4.6% increase for 2026.
Coal’s Role in Energy Security
Coal remains a vital backup for electricity generation amidst ongoing concerns about gas supply. However, the Electricity Authority (EA) has raised concerns over transparency issues related to coal stockpiles and contractual arrangements. A recent EA discussion paper stressed the urgent need for more timely and detailed information, stating,
“The importance of up-to-date information becomes particularly acute during times of market stress, as were observed in winter 2024.” Genesis Energy, which relies on coal for its Huntly Power Station, has altered its stockpiling strategy. Instead of holding large reserves, the company now maintains only enough coal for immediate needs, shifting the responsibility for securing additional supplies to others.
The EA reported a reduction in Genesis’ coal stockpile between April and July last year, which coincided with dry winter conditions and an uptick in coal usage. To address this, the EA has proposed weekly reporting on coal stockpiles to improve transparency and shed light on how coal availability influences electricity generation.
Push for Greater Transparency in Energy Markets
The Electricity Authority (EA) is advocating for more robust reporting on gas and coal supplies to improve market visibility. The proposal aims to track the minimum and maximum volumes of gas under contract, providing a clearer picture of available supply for industry participants.
GIC CEO Andrew Knight voiced support for the initiative, stressing its role in preventing sudden shocks to the market,
“If there’s a circumstance like we had last year, where we had low wind and lower lake levels, and we saw that impact on the gas market in quite a public way, then we would expect that information would be available much earlier.” The GIC has also endorsed the EA’s push for greater transparency, agreeing that it could mitigate risks and support more informed decision-making.