Preparing for our energy future

Insight

*Fiat Lux

Australian Prime Minister Malcolm Turnbull is fighting for political survival. This time last year he was facing a crisis of a different kind – Australia’s domestic gas supply.

A domestic gas shortage had triggered a significant hike in energy costs forcing the Turnbull government to introduce its third measure to guarantee affordable domestic supply for Australian households and businesses – temporary LNG export restrictions.

After New Zealand’s energy sector gathered in Auckland this week for the annual industry awards, Cognito is reflecting on whether we could face a similar situation given our dwindling domestic gas supply and a political decision not to issue any new offshore exploration permits.

And if we do, will rationing be driven by market forces or will it require government intervention, as we’ve seen across the Tasman?

New Zealand doesn’t export natural gas in its raw state, but around a third is converted to methanol for export by Methanex, New Zealand’s largest gas user.

Last month Methanex signed a gas supply contract through to 2029, which the Government held up as a sign of a healthy energy sector.

Ironically, the Government may find itself needing to step in and ring-fence this portion of our gas supply – sacrificing the methanol exports to secure affordable gas to New Zealand households and more strategically important businesses such as Fonterra.

And if the market doesn’t self-ration as the gas supplies lower, government intervention could be required to ensure security of supply to essential infrastructure like hospitals.

Of course, it may not come to this. Companies like OMV don’t buy assets without knowing they can get more out of them and there are a number of existing exploration permits unaffected by the Government’s decision that may yet make a gas discovery.

A new hydro asset would also ease pressure on some aspects of energy supply, but that would be very expensive and politically controversial given recent experiences.

The Government will need to take stock of and weigh up the full range of measures available to manage New Zealand’s energy future.

*Let there be light