A shortage of available gas supply is forcing price hikes and tough decisions across multiple industries, says the EMA following the latest Industrial and Consumers Gas Survey.
The Employers and Manufacturers Association (EMA) says many members are struggling to secure supply beyond the end of this year, with some facing cost increases of 20, 30 or even 40%.
EMA head of advocacy Alan McDonald says: “We’ve got several members struggling to source supply beyond September or the back end of this year, then they are facing increases of 20%, 30%, 40%, or even more – if they can even source a supply contract.”
The survey found that supply issues are already leading to higher prices, reduced production and workforce cuts across a range of sectors. Attendees at the recent Gas Users Forum raised concerns that limited energy options and the high cost of transitioning to alternative sources such as electricity are compounding the challenge. Greenhouse vegetable growers, milk powder and baby formula producers face particularly steep costs to adapt their energy use. One forum participant, for example, noted they already truck gas to site and would face the cost of building 50 kilometres of lines and poles to the nearest substation capable of meeting demand.
McDonald says the irony that, while the long-term shift to renewables remains essential, current constraints are pushing many businesses back to coal or diesel. “The long-term shift to mainly renewables is the right pathway and a laudable goal,” he says. “But it’s laughable when we’re facing importing more coal than ever and forcing more businesses to switch to either coal or diesel or potentially shut down because of their higher energy prices.”
Short-term measures, such as asking major users like Methanex to reduce production in order to free up more gas for the market, were also highlighted as unsustainable. The EMA argues that while changes to the Resource Management Act and new fast-track legislation may encourage investment in wind and solar, these will still need thermal generation to provide reliable backup. New hydro dams would take a decade or more to build, and geothermal development remains a long-term prospect.
The survey also indicates many businesses cannot afford the transition to renewables in the short term, with most requiring 15 to 20 years before such changes could be economically viable. Despite the Government’s recent $200 million co-investment fund for exploration, most gas users surveyed expressed scepticism about the long-term future of gas in New Zealand.
At the Forum, the sense of uncertainty was traced back to the previous government’s ban on oil and gas exploration, combined with opposition rhetoric signalling a potential return to the ban in future. McDonald says: “Elsewhere around the world, economies have recognised that gas is the optimal, viable transition fuel while renewables are scaled up.” He added: “Labour’s MPs continue to say there is no gas there to find. Well, there won’t be if you’re not looking. In the meantime, it’s likely we’ll see further de-industrialisation of the economy, more factory closures and more job losses.”