Methanex slashes production 60pc

By CHRIS DANIELS, energy writer

Methanol-maker Methanex, stung by an expert assessment that confirmed its worst fears of the depleting Maui gas field, will cut production 60 per cent this year.

The Canada-based company exports methanol worth about $800 million a year from its Taranaki plant, which employs 220 people.

Managing director Bruce Aitken said the company hoped to remain in New Zealand for as long as it could, but this depended on the availability of gas.

He had not given up hope of new fields being discovered and brought into production.

The importance of Maui gas was brought into sharp focus this week when equipment failure cut supply from the field, sending wholesale electricity prices soaring on the spot market and threatening blackouts.

So-called "load shedding" - power-hungry industrial users cutting production - meant there was no need for power cuts to be imposed on North Island users.

Methanex uses more than 40 per cent of all natural gas. Aitken said the plant - built as a Think Big project in the early 1980s - was an important part of the gas discovery-and-supply chain.

Without a customer such as Methanex to buy gas, it was less likely that anyone would look for new fields or spend the money necessary to bring them into production.

Alasdair Thompson, chief executive of the Employers and Manufacturers Association (Northern), said businesses should brace for a volatile year in energy prices, and time was running out if the country was to avoid power "brown-outs" in 2006-2007.

He said the association was concerned that the Government might seek to re-regulate the electricity industry.

Maui produces about 85 per cent of New Zealand's natural gas, 40 per cent of which is used to fire power stations such as Otahuhu B and Huntly.

After Methanex takes its 40 per cent, the remainder is used in industry and a small amount in households.

Contact and NGC are the other buyers of Maui gas, after Methanex.

The expert assessment delivered yesterday was part of a "re-determination" process included in gas contracts signed with the Crown 20 years ago. Now that the size of the reserve has been agreed, the volume of gas each customer can take from Maui will be reduced.

Contact chief executive Steve Barrett said the company was still studying the report in detail, but it was "broadly consistent" with expectations.

The reduction in Contact's entitlement would be "offset by reductions in on-sale obligations".

Energy Minister Pete Hodgson said the Maui rundown meant that some thermal power stations might have to switch to oil or coal as a fuel.

"We have enjoyed over 20 years of cheap, bountiful Maui gas, and that era is now drawing to a close."