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Imported coal needed to keep the lights on in NZ

Thursday 18th October 2018

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Genesis Energy is buying coal and gas in the wholesale market to supplement fuel supplies, while it awaits the first deliveries of imported coal in early December.

The company is running its two dual-fuel Rankine units at Huntly fully on coal to help maintain national electricity supplies, amid dwindling South Island hydro storage and low gas production. The firm’s gas-fired 400 MW E3P plant is running at about half capacity.

Chief executive Marc England said it is the combination of low storage and reduced gas supplies from the Pohokura field that has put pressure on the sector.

“We would probably have been fine if we just had low lake levels but it’s the combination of the two,” he told BusinessDesk. “In other dry periods we’ve been able to rely on the spot gas market.”

Wholesale electricity prices have jumped in recent weeks as national hydro storage has drifted lower, instead of rising, as it would normally do at this time of year. Production from Pohokura, the country’s largest gas field, has also been roughly halved since operator Shell found a faulty valve on the offshore production platform last month. That is not expected to be restored before the end of November

Electricity cost an average $340/MWh in Auckland yesterday, according to Electricity Authority data, having reached $544 on Saturday. It averaged $60.61 last October.

New Zealand relies on the flexibility Genesis has to run the aging Rankine units when required and to fuel them with gas or coal, depending on what is available and cheapest at the time. Most of their output is contracted by major users and other retailers, with Genesis using only about 12 percent of their production in the year ended June 30.

Genesis, which has a domestic coal contract with West Coast coalminer BT Mining for 150,000 tonnes a year, started October with about 312,000 tonnes in its stockpile.

Local deliveries are continuing and the company has been buying coal and gas from other users to try and maximise its supply.

Nevertheless, it is rapidly drawing down its domestic coal stockpiles and has now ordered 120,000 tonnes of Indonesian coal. Four shipments are expected from early December through to mid-January.

England said initiating coal imports was not without risk, given the typical lead time of two or three months before delivery. Nor was it simple, with about 15 bilateral agreements needed from the mine gate in Indonesia, through to ports, shipping companies, KiwiRail, councils and trucking firms.

Earlier today, England told Parliament’s environment select committee that the firm’s recent daily coal use at Huntly this week was equivalent to 1.5 times the daily energy output from the Kupe gas field. At that rate it would get through its stockpile by early December, he said.

England said the current gas shortage was only short-term. But he said it demonstrated the volatility of the New Zealand electricity market and the country’s reliance on a range of fuel sources for generation when renewable supplies are not available.

He said the firm’s current coal use is “significant.”

“It’s not just around the edges. And it’s filling a gap, without which we wouldn’t be able to keep the lights on and keep running industry in New Zealand.”

The committee is considering legislation to effect a ban on new offshore exploration for oil and gas. Earlier this week it heard that a lack of new finds means the country faces a near-term gas supply gap, with deliveries expected to fall away from 2021.

Genesis this week announced a partnership with Tilt Renewables to develop a 100 MW windfarm at Waverley. It has also committed to stop burning coal at Huntly by 2030 as part of its efforts to help reduce emissions from the generation sector.

(BusinessDesk)

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