Genesis Energy has struck a deal with Methanex to support the security of its electricity system.
Genesis Energy's Tekapo B Power Station. Photo: Genesis Energy
The power company, which owned the fossil fuel-fired Huntly Power Station, said the electricity market was under stress due to low hydro levels and tight gas supply.
The power system relied on Huntly to fill the void left by renewable sources, with the capacity to produce energy equivalent to 84 percent of the storage capacity of Lake Taupō.
Genesis said the deal with Methanex to provide natural gas would also mean lower carbon emissions for the country, with gas emitting approximately half the emissions of coal on an energy equivalent basis.
It said Methanex had shown flexibility in respect of its own business to make the gas available.
Methanex will temporarily idle one of its Motunui facilities for close to three months and release gas to support the New Zealand electricity sector.
"This will help support electricity generation through winter and ensure electricity and gas supply to our customers and other market participants," Genesis chief executive Marc England said, adding the company was best placed to broker deals at the intersection of the electricity and gas markets.
Genesis will buy between 3.4 petajoules (PJ) and 4.4PJ over this winter, at an undisclosed price.
Genesis also agreed to a longer-term arrangement where it will supply gas to Methanex in the 2022-2023 summer in exchange for Methanex supplying gas to Genesis in the winter of 2023.
"We've worked hard over the last few months to support the market, starting in February when we made a third Rankine available followed by a short-term agreement for gas from an industrial user and we will continue to play a role throughout winter," England said.
Methanex managing director Dean Richardson said global demand for methanol was strong as economies around the world were rebuilding and natural gas-based methanol was increasingly regarded as a key part of a low emissions world and as a clean-burning fuel.
Global demand for natural gas as a lower-carbon energy source would continue to grow in coming decades, according to the International Energy Agency.