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Fonterra: lack of gas may put coal conversion plans on hold

Fonterra says lack of gas may put its coal conversion plans on hold

First published in Energy and Environment on May 9, 2019.

Fonterra says uncertainty about gas supply may mean it has to rethink plans to switch some of its plants from coal to gas.

Fonterra’s submission to the Ministry of Business, Innovation and Employment’s technical paper on industrial heat processes and emissions, contains many themes which are echoed by other major energy users.

These show concern about dwindling gas reserves and its impact on both current operations and plans to move industrial heating processes from coal to gas. Auckland Council goes as far to say the Government should consider prioritising gas supplies where they could achieve the most benefit.

Fonterra said the Government’s “halt on oil and gas exploration” means it may have to rethink its plans to switch from coal to gas at some its North Island plants.

Roughly one third of Fonterra’s NZ manufacturing sites rely on coal as a primary source of energy.

It uses coal at several of North Island sites and had started planning to transition these from coal to using natural gas or other low carbon alternatives to coal.

“The paper does not mention the April 2018 decision by Government to cease new oil and gas exploration permits. Opposition parties have suggested that they would repeal this decision if elected to government. A lack of cross party agreement creates a level of future uncertainty that will impact decision making for capital investment,” Fonterra said in its submission on MBIE’s paper.

Ballance Agri-Nutrients said “Gas availability faces an uncertain future in NZ… This adds a complex dimension for energy intensive businesses considering refurbishing, replacing or investing in greenfield energy efficiency projects. There is significant uncertainty for investment where the risk to gas supply is now greatly elevated.”

The urea manufacturer said the Government decisions made on gas exploration “affect investment decisions to switch from coal to cleaner burning natural gas. In the long term this will lead to increased reliance on coal”.

Balance and other said moving from gas to electricity was not practical, affordable and not reliable enough and 53% of its gas use was for the raw material in the manufacture of ammonia and urea, which could not be replaced.

Methanex NZ said its use of gas was essential as stock feed for methanol, but also around 30% of the gas supplied to Methanex (equivalent to 13.5% of NZ’s total gas production) is consumed for process heat in its plants.

“If our operations were converted to an electrical process, not only would major capital investment be necessary, but we would require an uninterrupted annual renewable electricity supply of 5,800 gigawatts, or 15% equivalent of NZ’s current electricity provision.”

The Major Electricity Users’ Group also echoed many submissions in taking issue with MBIE’s paper saying the existing level of the free industrial allocation of NZUs is a “market failure”. They and others said the free allocation was an incentive that worked as it meant every tonne of emissions reduced meant the unit could be sold and not surrendered.

“It’s disheartening to read in an MBIE paper a preconceived view that the status quo is perceived as a market failure and current holders are being sheltered. This undermines confidence the work on considering the future of allocations is starting with an unbiased view.”

Several submissions were positive about the potential for hydrogen, but said it some years away from being practical or affordable. Submissions on the paper are covered in more detail on page
First published in Energy and Environment on May 9, 2019.

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