New Zealand Gas Crisis: LNG Imports Face Significant Cost as Reserves Decline

New Zealand Eyes LNG as Gas Security Measure Amidst Supply Concerns

Auckland, NZ – New zealand is actively exploring Liquefied Natural Gas (LNG) imports as a crucial strategy to bolster its future gas supply, according to a recent report. The move comes as the country grapples with existing gas seller commitments for relatively small volumes and the need to ensure adequate storage for incoming LNG.

The report highlights six potential import locations across the North Island. However, none currently possess the ideal combination of sufficient water depth, favorable weather and ocean conditions, and existing gas pipeline capacity to meet projected demand. Consequently, significant financial investment will be required to upgrade infrastructure at any chosen site.

The timeline for LNG imports is estimated to be at least four years, unless the current permitting and consenting processes are expedited. LNG is viewed as an essential “insurance policy” to guarantee future gas availability. Over a 15-year period, the annualized cost of the necessary infrastructure is estimated at $170-$210 million, excluding the cost of the LNG itself.

While LNG offers a critical safety net, demand remains uncertain, with the possibility of zero demand in some years. In such instances, fixed infrastructure costs will still need to be recovered. The cost of LNG, based on the average price over the past 12 months, stands at $83 million per cargo. Recent years have seen significant volatility in LNG prices. The report anticipates annual demand for LNG cargoes to range from zero to three up to 2030,potentially increasing to seven cargoes per year thereafter.

This strategic push for LNG follows a period of gas shortages last year. In response, thermal generators, including Contact and Genesis Energy, have secured additional gas supplies from Methanex, a methanol producer and exporter. Contact has also recently announced a seven-year gas supply agreement with Greymouth Gas new Zealand, effective from October 1, 2025, with an option for a three-year extension. Under this agreement, up to 7PJ of gas per annum will be supplied, supporting Contact’s gas peaking units in Stratford, which are expected to generate 200GWh to 300GWh of electricity in a normal hydrology year.

How might the declining output of the Pohokura gas field specifically impact New Zealand’s industrial sector, especially those reliant on natural gas for processing and manufacturing?

New Zealand Gas Crisis: LNG Imports Face Notable Cost as Reserves Decline

Declining Gas Reserves & Rising Demand

New Zealand’s natural gas supply is facing a critical juncture. Domestic gas reserves, particularly the Pohokura field – historically a major contributor – are dwindling faster than anticipated.This decline coincides with increasing demand, driven by both residential heating and industrial processes, creating a perfect storm for a potential energy crisis. The situation is forcing New Zealand to increasingly rely on Liquefied Natural Gas (LNG) imports, but at a significantly higher cost. This reliance on LNG imports is impacting energy prices across the nation,affecting businesses and households alike.

The Impact of Pohokura’s Decline

the Pohokura gas field, located in Taranaki, has been the backbone of New Zealand’s gas supply for years. however, production has been steadily decreasing.

Reduced Output: Production rates have fallen from peak levels, impacting overall national supply.

Increased Reliance on Other Fields: Fields like Maui and Aotearoa are being tapped more heavily, but their long-term viability is also under scrutiny.

Investment Challenges: Attracting new investment in domestic gas exploration is proving tough due to regulatory hurdles and a global shift towards renewable energy sources. This impacts New Zealand energy security.

The Rising Cost of LNG

As domestic supply shrinks, new Zealand is turning to LNG imports to meet demand.However, the global LNG market is volatile, and prices have surged in recent years, particularly following geopolitical events and increased competition from Europe and Asia.

Global Market Fluctuations: LNG prices are heavily influenced by global events, making budgeting and long-term planning difficult.

Shipping Costs: Transporting LNG to New Zealand adds significant costs, including shipping fees and regasification expenses.

Infrastructure Limitations: New Zealand has limited LNG import infrastructure, currently relying on the Marsden Point import terminal. Expanding this infrastructure requires substantial investment. The cost of LNG is a major concern for consumers.

Factors Driving Increased Gas Demand

Several factors are contributing to the growing demand for natural gas in new Zealand:

1. Electricity Generation: Natural gas remains a significant fuel source for electricity generation, particularly during peak demand periods.
2. Industrial Processes: Many industries,including dairy processing and manufacturing,rely on natural gas for heat and power.
3. residential heating: While electrification is increasing, many homes still use natural gas for heating, especially in colder regions.
4. Economic Growth: Overall economic growth contributes to increased energy consumption across all sectors.

Government Response & Policy Changes

The New Zealand government is actively addressing the gas crisis through a combination of policy changes and investment initiatives.

Renewable Energy Transition: A strong focus on transitioning to renewable energy sources, such as wind, solar, and hydro, is central to the long-term strategy.

Energy Efficiency Measures: Promoting energy efficiency in homes and businesses to reduce overall demand.

Exploration Block Offers: Periodic offers of exploration blocks to encourage investment in domestic gas exploration, albeit with stricter environmental regulations.

Infrastructure Advancement: Considering investments in expanding LNG import infrastructure and gas storage facilities. The New Zealand gas policy is evolving rapidly.

Case Study: The 2021-2022 Winter Gas Shortage

The winter of 2021-2022 saw a significant gas shortage in new Zealand, triggered by a combination of factors including lower-than-expected production from the Pohokura field and unusually cold weather. this led to:

Price Spikes: Wholesale gas prices soared, impacting electricity prices and household bills.

Demand Response: Calls for consumers and businesses to reduce gas consumption.

Increased LNG Imports: A surge in LNG imports to cover the shortfall.

Heightened Awareness: Increased public and political awareness of the vulnerability of new Zealand’s gas supply.

The Role of Energy Storage

Developing robust energy storage solutions is crucial for mitigating the impact of gas supply fluctuations.

battery Storage: Large-scale battery storage can definitely help to smooth out the intermittency of renewable energy sources and reduce reliance on gas-fired power plants.

Pumped Hydro Storage: Utilizing New Zealand’s mountainous terrain for pumped hydro storage offers a long-duration energy storage solution.

Hydrogen Production: Exploring the potential of hydrogen production using renewable energy as a long-term alternative to natural gas. Energy storage solutions are vital for future stability.

Practical Tips for Consumers & Businesses

Here are some steps consumers and businesses can take to reduce their gas consumption and mitigate the impact of rising prices:

Improve Insulation: Properly insulate homes and buildings to reduce heating needs.

Energy-Efficient Appliances: invest in energy-efficient appliances and heating systems.

Reduce Gas usage: Implement measures to reduce gas usage, such as lowering thermostat settings and using gas appliances efficiently.

Explore Renewable Alternatives: Consider switching to renewable energy sources, such as solar power.

Energy Audits: Conduct energy audits to identify areas for betterment.

Future Outlook: Balancing Security and Sustainability

The future of New Zealand’s gas supply hinges on striking a balance between energy security and sustainability. While transitioning to a fully renewable energy system is the long-term goal, natural gas will likely continue to play a role in the energy mix for the foreseeable future. Careful planning, strategic investment, and proactive policy changes are essential to navigate the challenges ahead and