File photo. The Methanex plant in Waitara Valley. Photo: Google maps
- Methanex, NZ's biggest gas user shuts plant until end of October.
- Agrees to sell the gas to power companies Contact and Genesis.
- Power companies will be able to fire up gas fuelled standby generators.
- Electricity supplies and prices squeezed by low hydro lake levels and shortage of gas.
The country's biggest gas user Methanex is temporarily shutting its New Zealand methanol plants and selling the gas to power companies.
It said the business would shut its Taranaki plant until the end of October after agreeing to sell the gas to Contact Energy and Genesis Energy.
Methanex chief executive Rich Sumner said the deal would help ensure electricity supplies during the current period of low gas reserves and hydro lakes.
"We have been working closely with energy providers, other gas users and the government of New Zealand on how we can be part of the solution. We believe these agreements will play an important role to support the energy sector."
Contact Energy chief executive Mike Fuge said current conditions made the gas deal necessary.
"With national hydro storage levels at just 46 percent of the average for this time of year, and an ongoing decline in domestic gas production, we have taken this step to support security of electricity supply to New Zealanders."
Genesis said the extra gas supply would allow it to run the biggest unit at the Huntly station at full capacity and see it through the rest of winter and into spring.
Gas accounts for about 10 percent of electricity generation, but supplies have been limited because of lower than expected reserves and technical problems with some fields.
Meanwhile, Genesis said it was also increasing coal imports for the Huntly station and reviewing its future needs.
Methanex would sell gas to the power companies over the next three months and expected to earn more from the arrangement than the methanol income lost.
It said the company would get an earnings boost from shutting down production and selling the gas.
"These commercial arrangements are expected to positively impact Methanex's Q3 and Q4 2024 earnings with after-tax proceeds expected to meaningfully exceed the margin lost on New Zealand methanol production delivered to customers," it said in a statement to the Toronto stock exchange.
Methanex temporarily shutting plants and diverting gas to power companies
Major Electricity Users Group chairperson John Harbord told Midday Report big industry has been struggling with a huge spike in wholesale power prices - and this deal could bring them down in the short term.
But it was not a long term solution, he said.
"Obviously Methanex can't be out of operations indefinitely, so this is a very welcome short-term fix, but there are still some longer term issues that we need to address."
That included boosting gas and coal supply so it could be relied on in times of low generation from wind, hydro and solar sources, Harbord said.
While it carried more emissions, it was necessary as a back-up, he said.
Another "crucial issue" was that major energy users had very low levels of confidence in the electricity market, Harbord said.
"We need a really good look at the electricity market settings if we're going to restore that confidence so businesses feel they can invest in New Zealand, and conduct their business here, and employ New Zealanders."
Methanex is a major exporter of methanol produced from natural gas.