November 21st, 2024
The New Zealand government on Wednesday expressed concerns over a sharp decline in gas production, which could jeopardise energy security and affect major consumers, according to a government press release. This comes against a backdrop of rising gas consumption in the early months of 2024, as detailed in the latest quarterly report from the Gas Industry Co.
The big picture: Recent figures from the Gas Industry Co. indicate a 12.5% reduction in gas production in 2023 and a further 27.8% drop in the first quarter of 2024, exacerbating the challenges faced by large gas consumers in securing contracts. Despite this production downturn, gas consumption has seen a significant increase, with March 2024 recording 3,682 million cubic feet, up from 3,604 million cubic feet in March 2023.
Zoom in:
Government's stance: Energy Minister Simeon Brown criticised the previous government's policies, stating they "stifled investment confidence" in the natural gas sector, leading to "significant supply constraints and higher prices for consumers."
Impact on services: The All-of-Government contract for reticulated natural gas, critical for schools, tertiary institutions, and hospitals, is up for renegotiation and faces potential price hikes and shorter contract terms due to low production.
Sectoral effects: Reduced gas supply has forced companies like Methanex to cut production, and there is a looming need to substitute gas with coal to maintain energy supply.
Details: Resources Minister Shane Jones described the situation as a "hangover" from the previous administration's inadequate investment in gas production, which has seen a dramatic reduction in exploration and maintenance drilling activities. He emphasised that the Coalition Government is committed to reversing these trends by introducing changes to the Crown Minerals Act to revitalise the sector and increase production.
What’s next: The government plans to restore investment confidence in the sector. Additionally, Ministry of Business, Innovation and Employment has established a Gas Security Response Group to coordinate efforts among producers, major users, and government agencies to ensure gas availability for critical uses.
The bottom line: The decline in gas production poses a threat to New Zealand's energy security and economic stability, particularly affecting regional economies and employment. The government's measures aim to mitigate these impacts and secure a stable energy future, even as consumption rates climb, underscoring the urgent need for increased production capacity.