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Extended Pohokura gas outage costing Methanex $2M a day

Tuesday 26th June 2018

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A long-running, barely noticed and unscheduled cut in natural gas production from the Pohokura natural gas field is costing its main customer, methanol producer Methanex, around $2 million a day in lost revenue, with total revenue foregone in the last 13 weeks as much as $15 million a week, says analysis from Wellington investment firm Woodward Partners.

"The current situation at Pohokura is one that is materially under-appreciated for its significance," said Woodward's energy industry analyst, John Kidd, in a second note to clients taking issue with government ministers' statements in defence of its decision to stop offering offshore oil and gas exploration licences.

"The simple current reality is that New Zealand's largest gas field, which normally meets 35-to-40 percent of gas market demand, has a suffered a major unscheduled part-outage with no external visibility as to when a return to normal service can be expected."

That made the incident similar in scale to the gas pipeline break in 2011 that saw gas users throughout the upper North Island, including industries, electricity generators, and business and household consumers, on short rations while it was repaired.

"The 'crisis' as it rightly became labelled at that time became very heated in both public and political circles as headlines of widespread milk-dumping by Fonterra ... and cancellation of elective surgeries in Auckland hospitals and even idle crematoriums grabbing headlines," Kidd said.

If it were not for the fact that the reduced output is being fully absorbed by one user - Methanex, with plants on the northern Taranaki coast that use around 40 percent of gas produced in New Zealand annually - such a significant loss of gas supply security "would in other circumstances attract heavy scrutiny", he said.

While Methanex had been undertaking maintenance anyway during part of the unscheduled Pohokura outage, its plant was now capable of producing at full capacity and was likely to be foregoing some $2 million in lost revenue, said Kidd.

"For each week that Pohokura remains constrained (noting it has been around 13 weeks), the foregone revenue impact to Methanex is $10-to-$15 million.

"The government's decision to reduce the incentives to explore for and produce oil and gas in New Zealand will only, in our view, serve to increase the risk to security of forward gas supply and potentially accelerate any future decision by Methanex to withdraw from part or all of its New Zealand operations as a response to gas availability."

Elsewhere, Kidd rubbished a claim by Energy Minister Megan Woods that if Methanex closed its New Zealand plant, the slack wouldn't be taken up by Chinese producers who would emit more of the greenhouse gas, carbon dioxide, by using coal instead of natural gas to produce methanol.

Woods claimed China's cap and trade system for pricing emissions would put a stop to that, but Kidd pointed out that the system applied only to electricity production.

In addition, he said Chinese methanol production already operated as the world's 'swing' supplier, stepping in to shore up supply when demand rose.

Kidd's critique comes after a report by Stuff that ministers were told by the Ministry of Business, Innovation and Employment that there had been growing interest among oil and gas explorers to take new acreage in New Zealand this year after a period of low demand for exploration territory.

Kidd suggested in his analysis that MBIE officials were kept in the dark about the government's decision not to offer more offshore oil and gas exploration licences until about four days before the April 12 announcement, leading to a "burst of four pieces of advice on 10 April, each of which was clearly prepared under urgency", Kidd said.

"The string of advice the minister cites as having informed the decision was prepared on the basis of officials not have any awareness that the decision was even an option. The only piece of policy advice that did address the decision was extremely negative in both its analysis ... and its conclusions,"  said Kidd.


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