Richard Gardiner, Founder & Chairman of the Board at Total Utilities, shares his insights on the unfolding energy crisis in New Zealand. With years of industry experience, Richard delves into the causes, consequences, and future implications of this pressing issue.

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Until six years ago NZ, was in the happy position of being self-sufficient for its electricity, natural gas, and LPG requirements.

Our electricity supply was already 80% to 85% renewable, based on a combination of hydroelectric, geothermal, solar, and wind power-based generation. An enviable position in an increasingly volatile world!

We were self-sufficient for our natural gas requirements too.

Overall, we were also self-sufficient when it came to LPG supplies – a net exporter for +/- six months of the year and a net importer for the rest of the year.

Seven years ago, the incoming Labour/Green Government banned all new offshore oil and gas exploration.

The background to this initiative is that political parties ranging from the Greens to ACT, all recognise that NZ is facing an ‘energy trilemma’. This trilemma centres on:

• Sustainability considerations – decarbonisation in a climate change impacted world
• Price and affordability considerations 
• Security of supply considerations

While the political parties disagree regarding the importance attached to specific components of the energy trilemma, they all agree that all three are vital to the wellbeing of our country.

Well-intentioned though the gas exploration ban may have been, its practical impact backfired badly on all three elements of the trilemma:

• Sustainability negatively impacted – gas supplies already reduced by over a third with the resultant need that additional coal had to be imported for electricity generation at Huntly. Coal emits nearly twice as much carbon as natural gas on a kWh-for-kWh of energy delivered basis.
• Electricity and natural gas wholesale and retail prices have rocketed, especially for time of use (TOU) business users.
• While the four wholesale divisions of the big generator/retailers (gentailers) are making excellent profits, their retail divisions are not. Neither are the retail businesses of their smaller competitors like Electric Kiwi.
• Security of supply considerations – the Winstone Pulp International example during the past week says it all as do the recent occasions when electricity supplies were very tight nationally. This should not happen in a First World country.

Compounding the above problems is the fact that:

• Competition has largely collapsed in the current natural gas market. Amongst other things, previous major suppliers like Contact and Ongas have exited the market. Because of this, the option of importing liquified natural gas (LNG) is now being considered.
• With LPG, an announcement during the past month confirmed that one of the major LPG suppliers is selling its LPG division to a competitor. Furthermore, as we are no longer self-sufficient for LPG supplies, NZ customers will be more exposed to international LPG price hikes, based on changes in the Saudi Aramco index and fluctuations in the NZD:USD exchange rate.

The implications of the above include:

• Electricity and gas procurement is no longer a one-off exercise every two or three years. It is an ongoing process.
• The contract review process needs to start much earlier, in terms of existing contract expiry dates, than used to be the case.
• Merely signing a new three-year Supply Agreement is not necessarily the best thing to do now.
• Opportunities may exist for a short-term supply arrangement to ‘buy time’ for signing up to a longer-term Supply Agreement, as and when a suitable opportunity occurs in the market.
• With hydro-electricity accounting for 60% plus of total national electricity generation and our hydro-electric dams only having six or seven weeks storage capacity cover, there is always going to be a degree of volatility in our electricity supply. But this volatility has been significantly compounded since 2017 by our reduced fossil fuel-based generation and inadequate replacement renewable-based generation to ‘plug the gap’.

The bottom-line for electricity and natural gas/LPG business customers is that they need to adapt to the reality of drastically increased prices, tight supply and generally adverse market conditions.

• Please contact us if you have any questions on the above.