Gas sector predicted to remain stable until 2025
First published in Energy and Environment on August 15 2019.
A gas supply and demand study forecasts gas supply, demand and price are likely to stay at similar levels until the
middle of the next decade, but the future of Methanex and policy variables will have a major impact on this.
Commissioned by the Gas Industry Company from Concept Consulting the 2019 Gas Supply and Demand study outlines a number
of scenarios. These are driven by some of the largest gas fields coming to end of life in the next 10 to 15 years, and
the economic factors and policy settings driving possible development of new fields.
These in turn will be driven by climate change policies including; altered oil & gas exploration policy settings, carbon pricing, emissions reductions and renewable electricity generations goals.
Working around these variables the study looks at the cost of gas supply, changes in demand and the impact of
alternative fuels including at what point the importing of LNG becomes cost effective.
Across most scenarios the major driver of the cost and availability of gas are the decisions of the petrochemical sector
(mainly Methanex) and the price it is willing to pay. These issues and the future of Methanex are looked at in another
article in E and E this week.
In the mid-range scenario petrochemical production continues at current levels until the middle of the next decade, at
which point the sector progressively exits NZ over the course of the following fifteen years due to the remaining
offshore gas fields reaching the end of their life (Pohokura, Maui and Kupe) and price rationing to postpone the time
when higher-cost LNG imports would be required.
Baseload gas-fired power generation exits within the next five years due to displacement by new, cheaper renewable power
generation. Some peaking generation which performs seasonal/dry-year balancing is also progressively displaced over the
subsequent 15 years. However, “Peaking generation is much less sensitive to carbon price, with a rump of gas-fired
peaking generation that is used infrequently during dry winters being the highest value use of gas in NZ. Even in the
high carbon price scenario, our modelling indicates it would not be economic to go above 98% renewable generation by
2050,” says Concept.
Industrial process heat and residential & commercial heating demand exhibits some slight decline due to some carbon-price-driven fuel-switching.
Demand for Industrial process heat and space & water heating for residential & commercial consumers is sensitive to carbon prices above $80-$100/tCO2. If carbon prices are below these levels,
industrial process heat gas demand is likely to remain flat, while residential & commercial demand is likely to grow. In the high carbon price scenario, gas demand for these segments drops to less
than 10% of current levels by 2050.
In terms of wholesale gas pricing, as long as petrochemical production continues to operate, medium to long-term
wholesale gas prices are likely to be similar to those experienced up until early 2018 – i.e. driven by Methanex’s
willingness-to-pay.
Concept considers recent high gas prices are strongly driven by a short-term issue of electricity generation capacity
and gas deliverability shortfalls, rather than any structural change in the gas market. It believes these issues are
likely to be substantially addressed over the next couple of years by investment in both renewable generation capacity
and upstream deliverability.
After petrochemical plant has exited from NZ, wholesale gas prices will be driven by the willingness-to-pay of the
marginal (in a long-run economic sense) of industrial process heat demand
The greatest long-term price uncertainty facing the likes of industrial gas consumers relates to carbon price, not gas
price. If carbon price remains at current levels it would not be cost-effective to switch to low-carbon alternatives.
However, the whole-of-economy modelling indicates this would mean NZ would not meet its net-zero-by-2050 target.
Further, non-price factors are significantly greater drivers of mass-market consumer decisions. It is likely that a
future with greater climate-change sensitivity will see many consumers increasingly basing their fuel choices on
environmental factors as well as economic factors.
First published in Energy and Environment on August 15 2019.