Gas reserves drop below 10 years of existing use for first time

NZ's gas reserves are declining, but so is gas use. Photo / Rob Tucker

New Zealand’s expected oil and gas reserves have dropped below 10 years of existing use for the first time.

Confirmation of declining reserves comes as gas use has also been dropping, and the energy sector debates the future of the fuel in the system and whether there will be an energy shortfall.

The Ministry of Business, Innovation and Employment’s (MBIE) data supplied by both onshore and offshore permit holders shows a 17 per cent decrease in proven plus probable (2P) reserves with 1635 petajoules (PJ) of 2P Gas reserves reported as at January 2023, down from 1967 PJ a year earlier.

Proven reserves are likely to be recovered, whereas probable reserves are less likely to be recovered but are still able to be extracted.

The fall below 10 years of reserves in this category is notable as it has hovered around this level for some time, even after the ban on new offshore oil and gas exploration permits.

This is because field operators have eked new reserves from fields that are coming to the end of their commercial life.

MBIE’s estimate of 10 years of reserves is based on the average gas use of 200PJ over the past 10 years.

However, in recent years, gas use has been falling. In 2022, NZ used 145PJ of gas, compared to 155PJs in 2021 and 183PJs in 2020.

Declining use

This decline was driven by a reduction in industrial use due to the mothballing of Methanex’s Waitara Valley plant, the closure of the Marsden Point oil refinery, and a decline in gas use for electricity generation. 2022 was the wettest and warmest winter on record, which led to more electricity being supplied from renewable hydro generation, and increasing wind and geothermal generation. In previous years, gas use has been balanced by increases in 2P reserves.

However, in 2022 there was an overall net decrease of 332PJ in gas reserves from a combination of both gas use and revisions of the remaining 2P gas reserves.

The most significant decreases in 2P reserves came from the Mangahewa and Maui fields, which decreased 48 per cent and 34 per cent, respectively. Government policy is currently to phase out gas and other fossil fuels use. It has an aspirational policy of 100 per cent renewable electricity by 2030.

However, the largest gas use in NZ is for petrochemicals, using them as a feedstock for methanol and urea. They are also widely used in businesses and households for a variety of uses, such as heating and cooking.

Energy shortfall fears

The government has been working on a gas transition plan and a wider energy strategy. However, the expected release of papers on these issues was recently delayed.

There was speculation over the reasons for this, including balancing the various policy priorities. On one hand, the government wants to reduce greenhouse gas emissions as quickly as possible.

However, most forecasts show that gas will be needed in the electricity system for at least a decade. Also, in other uses, there are either no alternatives to gas or they are very expensive.

Many in the sector argue that to maintain the necessary supply, millions of dollars of investment will be needed to eke out what reserves are still available. The reserves release includes updated estimates of future gas production.

This shows production is expected to drop below 2022 gas use of 145PJs in 2027 without continued conversion of 2C contingent reserves into 2P reserves.

This will take money to develop.

There was also a 41 per cent decrease in 2C contingent reserves in 2022. 2C contingent reserves are potential resources that may be able to be converted into 2P reserves in the future.

A wild card in all this debate is that National has pledged to reverse the ban on new offshore exploration permits. However, the reversal of the ban is no guarantee anyone will be keen to spend money on exploration.

Mike Hayward, manager of markets in MBIE’s digital, data & insights group, said: “Oil and gas are a finite resource and gas continues to play an important role in the energy system. We hope that by sharing this information, we can support informed gas supply and investment decisions to be made across the sector.”

Energy Resources Aotearoa chief executive John Carnegie said the data showed the “shocking effect of damaged investment signals”.

Carnegie said that greater investment confidence is needed immediately, as NZ now faces an energy shortfall.

“What affordable alternative renewable energy source at scale can possibly fill the gap now forecast to emerge in less than eight years’ time? Alarm bells should be ringing.”