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Genesis sees another year of volatile gas supply; confident longer term

Thursday 29th August 2019

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Genesis Energy is expecting gas supplies to return to normal within two to three years but warns volatility will remain next year.

The country’s biggest gas and electricity retailer has been running its coal-fired generation hard the past year due to restricted gas supplies and periods of low hydro storage.

Chief executive Marc England says the coming year will remain volatile, given a month-long shutdown in November of the Kupe field it part-owns and a two-week shutdown of the Pohokura gas field in March. 

Kupe’s output is also declining and it won’t be back to maximum daily production of 77 terajoules until upgrade work is completed in mid-2021.

“I think we’re going to see some volatility in the next year, year-and-a-half,” England said on a conference call with analysts.

“I’m reasonably confident about the medium- to long-term gas position.

“As we get into the early 2020s I’m pretty confident. Everyone I talk to says there’s plenty of gas there. And there’s been some more drilling recently.”

Electricity prices soared late last year and have remained high after a series of shutdowns at Pohokura, the country’s biggest gas field, reduced supplies. Electricity futures remain elevated on concern gas supplies will remain constrained pending further development work at the Maui and Pohokura offshore fields and the Mangahewa and Kapuni onshore fields.

England said that nine months ago, everyone other than Genesis, Contact Energy and Todd Energy – the main thermal generation operators – took gas supplies for granted.

“Many of our competitors didn’t even think about it and now it’s become the flavour of the year.”

Gas still accounts for about 15 percent of the country’s electricity generation. It provides additional power supplies in winter, or when hydro lakes are low, or on cold, still days when there is little wind generation.

Genesis can also run its dual-fuel Rankine plants at Huntly on coal during prolonged dry-spells, gas shortages, or other system emergencies.

While next year will remain challenging, England says he expects a return to normal gas supplies. That will be followed by a longer-term decline due to the government’s ban on new offshore exploration.

Genesis wants to phase out its coal use and run its gas-fired plants less in order to reduce emissions. It has agreed to buy the output from the $270 million Waipipi wind farm Tilt Renewables plans to build near Waverley as part of that plan.

Genesis doubled its coal-use at Huntly in the 12 months to June and its sales of back-up supplies to other generators – known as a swaption agreement – were 29 percent higher at 342 gigawatt-hours.

Genesis is in talks to renew the existing swaption agreements, which end in 2022. It is expecting a higher level of calls on the agreements this year, given the planned gas field shutdowns and three months of restricted power flows from the South Island early next year when Transpower carries out maintenance on the high-voltage inter-island link.

England said the firm has been talking to competitors and other market participants on new swaption arrangements and expects to go back to them with prices in the next couple of months.

“We’re reasonably optimistic that there’s a reasonable amount of demand for swaptions beyond 2022.”

Most of the company’s term gas contracts expire from 2021-24 and it is expecting to get better prices in future.

Genesis owns 46 percent of the Beach Energy-operated Kupe field. The partners this week approved a $60 million project to add compression at the 10-year-old field and restore it to full capacity.

As part of that deal, Genesis acquired another 10 petajoules of Kupe gas over five years. Chief financial officer Chris Jewell said it is paying “well-below” current gas prices for the supply and less than existing base-load contract prices.

England said the company is “quite optimistic” about the outlook for gas prices medium-term.

With two new wind farms planned, and potentially some new geothermal capacity coming online in the next two to three years, that may take pressure off power and gas prices.

“We’re not bullish on wholesale prices in the medium-term.”

(BusinessDesk)



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