Source: Energy News – Adelia Hallett
There are fresh warnings of the gas crisis leading to de-industrialisation, with a new survey out today suggesting that half of industrial users have already cut production, laid off staff or put their prices up. “If we do nothing, a major de-industrialisation crisis could escalate in the next two years, having serious and devastating consequences for suppliers and customers of gas-using businesses,” BusinessNZ Energy Council executive director Tina Schirr says. The survey, by BEC and Optima Energy Solutions, was part of a gas users’ forum held in Auckland on Friday. It shows that of the 66 mainly small and medium-sized industrial users that responded, 31 have already been affected by rising gas prices, with others saying they expect to make changes in the next year.
Views
“Reduced direct and indirect staff. Shut plant for prolonged times, eight weeks max last year, three shuts this year total of 10 to 12 weeks shut this year,” one said. “Reduced gas usage. This has lowered production. We have no ability to pass on costs – we are price-takers. This all goes straight off our bottom line. This also discourages expansion,” another said. The horticultural sector is also reporting issues: “With last winter’s high prices we lowered temperatures and lost 10 per cent production and 15 per cent income,” said one. Another said it had changed growing patterns, changed to more heat-tolerant varieties, cut all gas burned during the summer, stopped growing energy-hungry varieties and significantly raised prices.
More coming
Other firms say they are likely to take action in the next year. “Shut down all older sites, severely scale back operations. Early retire existing facilities. Heavy redundancies of workforce. Big increases in price to remain profitable. Very unlikely that we will reinvest without affordable and readily available natural gas,” said one when asked about their plans. “Have to raise prices for some customers, but unable to raise prices with other customers due to international competition,” said another. “Reduced operations by 30 per cent, prices are being raised from 1 August, staff numbers have been and are being cut,” a third said. Another said it was “cutting production, slashing workforce, significantly raising prices and mothballing large areas of production.”
Fuel change
Some companies say they plan to move away from gas, but it is expensive and difficult to implement. “Partial to full electrification, but expecting increased energy costs and debt servicing costs to require about a 10 to 15 per cent increase in prices charged to customers,” one said. More than half the businesses are in Northland, Auckland, Waikato or Bay of Plenty and most have fewer than 500 employees. The majority use gas for hot water or steam, and a fifth are spending more than $4 million a year on gas.
Contracts
Only two had 10-year gas contracts in place and several are buying on the spot market because they have been unable to secure contracts at affordable prices. Most have seen price rises during the past year. While most rises have been between 20 per cent and 100 per cent, some have been higher than 300 per cent. Asked whether it is commercially viable for their firms to transition to alternative fuels, most said no or that they were not sure. Issues raised included capital cost, a lack of capacity on local electricity networks, difficulties obtaining biomass feedstock and technical issues with processes. If they were required to move to alternatives, just 23 per cent said they could do it within five years. Schirr says the survey shows how important it is to get a national energy strategy in place. “This could be a major tool for both parties to actually get in a room and agree on the more controversial topics,” she said. “They both support more electrification, more renewables. They both support biofuels. They both probably think that power-purchase agreements and government plays a role.” Schirr says the idea of giving priority to industrial users, floated by Resources and Regional Development Minister Shane Jones last week, could help in an emergency but is not a long-term solution. A better strategy would be to take the pressure off the system by supporting businesses that can make a relatively simple switch to other fuels to do so. Optima managing director Martin Gummer says the survey shows how important natural gas is for everything from coffee roasting to producing food and brewing beer.