Fonterra says gas scarcity may prolong its use of coal beyond Climate Change Commission agenda

Proposed 2037 end of industrial coal use ambitious and hard to meet, says Fonterra. Photo / 123RF

Dairy manufacturer Fonterra has signalled it may not be able end its use of coal by 2037 in line with a Climate Change Commission proposal, because of current and forecast gas scarcity.

In a 28-page submission on the commission's draft advice to Government, New Zealand's largest company and exporter said the proposed pathway to ending coal use for industrial heat by 2037 is "ambitious and will be challenging to meet".

"While we are working to transition our manufacturing operations onto renewable energy sources and off coal by 2037, the current and forecast gas scarcity issues in the North Island pose a significant material risk to completing this transition within this timeframe."

Fonterra said over the past 18 months there had been significant disruptions in the gas market.

"With a disruption with the Kupe gas field, the decline in the Pohokura gas field and no new significant gas fields planned, there is a significant risk of gas supply interruptions at our gas-fuelled sites.

"If there isn't certainty of gas supply, we may need to start transitioning our 76 gas boilers and air heaters to renewable alternatives sooner than the Commission's pathway of 2037 onwards, which would almost certainly impact the speed at which we transition off coal."

Fonterra has 27 manufacturing sites across New Zealand. Nine rely on coal as a primary energy source, including one that also fires wood biomass. Seven of the sites are in the South Island where reticulated natural gas is not available.

The submission said while noting the gas scarcity issue, Fonterra accepted the commission's proposed pathway for decarbonisation of industrial process heat, including an end to industrial coal use by 2037. It strongly supported an immediate ban on the installation of all new coal boilers, regardless of the heat they produced.

It supported development of a Government and industry plan for the bioeconomy, alongside a national energy strategy to scale up the provision of low emissions energy sources.

The submission was broadly supportive of the commission's ambitions but warned significant investment in research and development was required from the Government and the dairy industry to find practical steps farmers can take to meet their 2030 and 2050 methane reduction responsibilities.

Owned by 10,000 dairy farmers, Fonterra said it recognised it produces 20 per cent of the country's greenhouse gas emissions - 90 per cent from farmers' businesses, 9 per cent from manufacturing operations, and 1 per cent transporting products to world markets.

It was committed to achieving a 30 per cent reduction in its absolute emissions from manufacturing sites by 2030, based on 2018 levels, and to being net zero by 2050.
Those commitments aligned with the commission's recommended pathway for decarbonisation of industrial process heat, and Fonterra had made significant progress on them - but substantial challenges remained.

It had achieved its first target of a 20 per cent reduction in energy intensity. The energy saving to this point was enough to power all households in New Zealand for 1.5 years. The emissions reduction was equal to taking 1.28 million cars off the country's roads.

It 2019 it committed to not installing any new coal boilers.

The company was about 20 per cent of the way to achieving its 2030 emission reduction target through energy efficiency measures and two wood biomass projects at its Brightwater, South Island, and Te Awamutu sites.

Fonterra has 27 manufacturing sites across New Zealand - nine of which rely on coal as a primary energy source. Photo / File

Noting it was obliged to process all its farmers' milk so could not have too many sites undergoing large infrastructure changes at the same time and that the seasonal window of opportunity for changes was very small, Fonterra said it supported a managed transition to bring alternative heat sources online and "into commercial reality".

"The timing of this transition must align with the availability of alternative energy sources; the ability to physically and financially meet these changes; and ensure that the benefits that co-firing coal boilers and heat recovery systems offer are accounted for as mechanisms for reducing emissions."

By using wood biomass and wood pellets at two sites along with energy efficiency improvements, the company had reduced absolute manufacturing emissions by about 109,000 tonnes of carbon a year since FY 2018.

Based on current information, Fonterra concluded the best lowest carbon abatement cost decarbonisation route for its coal fired sites was through energy efficiency initiatives combined with fuel switching to wood biomass.

But the solution for a specific site was dependent on wood biomass volume supply, along with appropriate phasing of infrastructure changes and capital cost across multiple sites to manage the risk of change affecting milk processing ability.

"We are looking at what we need to do at our sites to enable them to switch to use wood biomass, either by converting our coal boilers or installing new boilers."

A key consideration for the company when changing fuel source was whether it would remain economically viable in a globally competitive market.

On average, Fonterra's 27 sites used 17 per cent electrical energy and 83 per cent thermal energy.

"Across our manufacturing sites, there is a lot of infrastructure investment that still has many decades of working asset life left. We have 21 coal boilers and air heaters and 76 gas boilers and heaters installed throughout New Zealand, with an average age of 28 years, ranging in size from 1MW to 56MW."

Fonterra's submission, one of 10,000 on the commission's draft advice to Government, comprehensively addresses, and comments on, affected activities from behind the farmgate to transport, electricity use, agriculture, productivity, R&D and forestry.