Energy duo paying price for securing gas supply
NZX-listed companies Contact Energy and Genesis Energy could pay about $100 million to secure gas supply for their thermal generation. Still, both listed firms refuse to provide any details on the deal.
After weeks of talks, the two firms said on Tuesday that they had secured large amounts of gas — 3.5 petajoules (PJ) and 3.2PJ, respectively — to keep their gas-fired electricity units operating until October.
Methanex’s global president and chief executive, Rich Sumner, said the temporary idling of methanol production in New Zealand until the end of October would not hurt his company’s bottom line.
“These commercial arrangements are expected to positively impact Methanex’s Q3 and Q4 2024 earnings with after-tax proceeds expected to meaningfully exceed the margin lost on New Zealand methanol production delivered to customers.
“The commercial arrangements are structured to provide Methanex with a base price for each unit of gas delivered with further incremental value shared between the parties depending on electricity pricing.”
It is possible to work out a ballpark figure based on Methanex’s statement. In its last reporting quarter, the company reported its NZ operation produced 178,000 tonnes of methanol, and its global average price was US$352 ($583.89) a tonne, indicating earnings of about US$62.65m.
Methanex’s margin would come after some major costs, most notably the cost of shipping large quantities of methanol to other countries.
Whatever the cost to Contact and Genesis, they will recoup that through the sale of the electricity generated, from which Methanex will get a cut.
Wholesale electricity prices are at never-experienced sustained levels of about $800 a megawatt hour. This has forced businesses exposed to the wholesale price to mothball operations or consider closure.
Methanex’s full idling of operations is a first for it. The largest gas user has quietly given up some of its supply for years to cover shortfalls.
Sumner said New Zealand’s energy balances were “very strained” due to seasonally high demand combined with low hydro levels and relatively lower gas supply than previous years.
“We have natural gas contracted in New Zealand through 2029 and are committed to working with all parties to improve the structural energy balances in the country.”
The deal will allow Genesis and Contact to run their thermal units hard. Transpower is also urgently working on a rule change to give hydro operators more water access in their dams. The question is whether all these moves will affect spot wholesale electricity prices and the prices being asked to secure longterm supply deals. On Tuesday, the Electricity Authority said it had temporarily changed market-making requirements to maintain liquidity in the forward market.