Source: Radio New Zealand
For a government facing blackouts and business closures in an election year, importing gas is an attractive choice. For others, it’s the worst possible option.
When the government unveiled its long-awaited energy package earlier this year, the centrepiece was a promise to fast-track the import of overseas natural gas. Ministers said it would keep the lights on and protect industry as local gas reserves run dry.
But the response from almost every corner – other than the gas industry itself – was a collective groan. Liquified Natural Gas, or LNG, is an answer of sorts to the country’s energy security crisis, but not one most were hoping for.
Not only is imported gas expensive, it is also bad for the climate, and leaves us dependent on volatile global markets.
“LNG is not a good option for New Zealand. It’s a duress position, a band-aid,” says energy commentator Larry Blair.
Even the government’s own independent review warned LNG should only ever be a last resort. Frontier Economics, which led the official Electricity Market Review, warned that importing LNG would expose New Zealand to international price shocks and make local exporters less competitive.
At best, it will buy the country a bit of time while it seeks a replacement for its dwindling domestic gas supply, Blair says. “It’s like jamming a finger in the dike to hold back the flood.”
For a government staring down the barrel of blackouts and business closures, however, LNG is an attractive short-term response. A terminal can be built relatively quickly, and it is a reliable fuel source that will slot easily into our current energy and electricity systems.
Port Taranaki, which already has significant oil and gas infrastructure, is one of the proposed locations for an LNG terminal. RNZ / Robin Martin
But critics – from consumer advocates to business groups to environmental lobbyists – say taking a short-term fix will only create another long-term problem, by locking New Zealand into its costly LNG investment even after the immediate need to shore up the gas supply is over.
It will also do little to fix our energy market’s deeper structural problems and much to delay the inevitable transition to cheaper, greener, renewable energy, they say.
“Putting in LNG is counter-intuitive, because there are other options,” says Consumer’s Powerswitch manager Paul Fuge. “It doesn’t make logical sense that you would buy expensive fuel when you have free fuel here – geothermal, wind and solar.”
As ministers decide whether to proceed with an LNG terminal next month, they are also making a much larger choice: whether New Zealand doubles down on fossil fuels in the name of “security,” or throws its weight behind a home-grown energy system.
“We’re at a crossroads here. We could have this low-cost renewables future but we’re snatching defeat from the jaws of victory,” says Fuge.
“New Zealand has always had an advantage because we had access to cheap, renewable power. Expensive electricity isn’t good for consumers, and it isn’t good for New Zealand Inc.”
Fuel security or fossil security?
The idea of importing LNG barely featured in energy debates until 2024, when Prime Minister Christopher Luxon declared an “energy security crisis”. Low hydro inflows and soaring electricity prices forced some factories to close, while families struggled to pay their bills.
The crisis worsened the following year due to gas shortages, highlighting New Zealand’s inter-connected energy problems: “dry-year risk” due to a lack of rain filling the hydro dams, and plummeting natural gas production – meaning gas could no longer be relied on to fill the dry-year gap, let alone its more frequent role in producing electricity during peak demand.
Winstone pulp mill near Ruapehu closed in 2024, citing high energy prices. More than 200 workers lost their jobs. RNZ / REECE BAKER
In response, ministers promised to “fix the fundamentals” – chiefly by restoring investor confidence in fossil fuels. Since then, the coalition has lifted the ban on offshore oil and gas exploration, announced a $200m co-investment for gas, and launched the LNG procurement process. The government argues these are pragmatic moves to stabilise supply while it works toward its stated goal of doubling renewables.
Critics see something else: a retreat to “fossil security”. Instead of prioritising the next phase of wind, solar, geothermal and storage – technologies that already supply more than 80 percent of New Zealand’s electricity – policy now orbits around extending the life of gas.
“To me, importing gas is like giving an addict just enough of their drug to keep them hooked,” says 350 Aotearoa co-director Alva Feldmeier. “You keep the country and the network dependent for a bit longer-making it harder to quit-rather than supporting the transition we need to make now.”
The dismantling of alternatives
The coalition insists the country’s energy problems stem from the last government’s policies, particularly its 2018 oil and gas offshore exploration ban, and a target to achieve 100 percent renewable electricity by 2030.
At the announcement of its energy policy in October, Energy Minister Simon Watts said decisions by the last Labour government had “scared off investment and left us dangerously short of reliable backup generation”, while Luxon previously accused Labour of “screwing the scrum” by banning offshore oil and gas exploration.
Its response, prior to the October announcement, was to dismantle or delay nearly every major Labour-led initiative designed to develop a cleaner, cheaper and more reliable power system.
Among the casualties were the NZ Battery Project, which was exploring both pumped hydro at Lake Onslow and an alternative “portfolio approach”, such as flexible geothermal, demand response, grid scale batteries and hydrogen biomass.
That was scrapped in late 2023. Soon afterwards, the Gas Transition Plan, designed to manage declining reserves and ensure supply during the shift away from fossil fuels, was shelved. Plans for offshore-wind farms first stalled in Parliament, and then again because of competing mining proposals. And the GIDI Fund – which co-funded industrial electrification – was cancelled, leaving many firms without support to electrify or switch to other, cleaner fuels.
NZ Steel’s plant at Glenbrook halved its coal use after receiving GIDI funding to electrify some of its production. RNZ / Rebekah Parsons-King
Each move narrowed New Zealand’s energy options. And when the crisis hit, ministers had to respond quickly, with few alternatives left available.
“The coalition made a series of decisions early on in its political term that laid the ground for the position it now finds itself in,” says Greenpeace Aotearoa executive director Russel Norman. “They closed doors to the solutions to the problem – largely because they really believed the oil and gas ban was the cause of the problem, and therefore that reinstating exploration would be a magical fix.”
Yet documents from MBIE show the Gas Transition Plan – developed alongside industry – was not driven by the ban, but an attempt to manage risk as local fields depleted. Its stated aim was to maintain secure, affordable supply while planning for gradual decline. Scrapping it left the sector without a clear framework for how to replace that supply – or how to avoid over-reliance on high-priced imports.
Both the cancellation of the gas plan, and the shelving of the other policies, are consistent with a preference for a more hands-off approach in the energy space.
Ministers have repeatedly said they want the market – not the state – to drive investment. They argue large government projects such as Onslow distort markets and deter private capital. As former energy minister Simeon Brown put it when announcing Onslow’s cancellation: “We believe that will give the sector the tools to be able to make that investment, rather than the government getting involved, which has a chilling effect on the electricity market.”
Relying on the market would be fine, says Consumer’s Paul Fuge, if the market was working as it should. But electricity prices are at least 40 percent higher than when the market model was introduced. And most of the country’s generation capacity was built decades ago, before the current system began.
“The bottom line is we haven’t invested in enough new generation at the rate required because the incentives aren’t there,” Fuge says. “The system is flawed. But you don’t need to throw the baby out with the bathwater – just change the system.”
Because energy assets are generational, there needs to be a cross-party plan, Fuge says.
“Ideally, we would have a long-term energy strategy that doesn’t lurch from cycle to cycle.”
Since the election, the coalition has leaned into its market-led approach while promising to “double renewables”. But there is no current plan for how that doubling will happen – outside speeding up consents – or how we might store the energy created from the sun or wind at scale.
It has reversed the offshore oil and gas ban, but exploration is yet to get underway (possibly because the ban was not the reason for the lack of exploration in the first place). The government also recently released a draft strategy for geothermal energy, and announced statements on biomass and biogas, but it still has no overarching energy strategy, despite earlier promises one was imminent.
Energy Minister Simon Watts told RNZ this is because the government is prioritising “action and implementation” over strategy, by focussing on investing in security of supply and building better markets to improve affordability.
Simon Watts, the energy minister, says the government is prioritising security of supply. RNZ / Nick Monro
Frustration over the perceived lack of direction is widespread, coming from both energy suppliers and consumers.
Karen Boyes, from the Major Electricity Users’ Group (MEUG), says she agrees with some commentators that the previous government’s policies may have had considerable unintended consequences on the electricity market.
“Generators have told us that the offshore gas exploration ban and Lake Onslow project created uncertainty which put the brakes on much needed investment in new generation,” Boyes says.
“But on the positive side there was work well underway under the previous government on developing an energy strategy for the country, even if some stakeholders might not have agreed with all elements of it.”
The supply problem
Since the government first began investigating LNG, gas supply woes have only become more acute. Gas production from Taranaki fields is now at a 40-year low and dropping faster than anyone predicted.
Industries from dairy to food processing rely on that supply; hospitals and schools are still plumbed for gas heating. One independent estimate said gas dependent sectors alone contribute around 20 percent of national GDP both directly and indirectly, along with over 500,000 jobs.
As shortages hit last winter, several North Island manufacturers were unable to renew gas contracts. Some temporarily closed, or shut down parts of their business. For them, LNG is a secure option, in case new domestic gas supply is not forthcoming or biogas cannot be produced at scale.
The problem with LNG – other than its hefty emissions footprint – is cost. The Frontier report warned that developing an LNG terminal – estimated to cost between $140m-$295m for even a small-scale option – “would make no economic sense” if the gas was used only as a backup.
Ballance Agri-Nutrients struggled to get gas supply for its urea plant at Kapuni earlier this year, after it was outbid by Contact Energy. Google Maps
The gas itself would be far more expensive than both domestic gas and new renewables. The electricity it produces will cost an estimated $200-$400 per megawatt-hour compared with about $135 for wind or solar, according to recent Electricity Authority estimates.
There is no guarantee that businesses would not fail at that price, industry experts say.
Because of that, the spectre of an LNG import terminal also creates uncertainty, the MEUG’s Boyes says.
“We need to understand what the delivered cost will be for direct users of gas, and how the use of LNG for electricity generation will affect the spot price of electricity.”
Jeffrey Clarke, the chief executive of industry body GasNZ, acknowledges the costs for an LNG terminal seem high.
“But in the context of the overall size of the economy and the benefits you get from not suddenly running out of gas, it’s not that huge.”
Clarke says New Zealanders should see LNG as an insurance policy – an interim measure that will buy us time – but that the decision should not be made in isolation.
“We should do it together with a clear, long-term strategy for energy in New Zealand. We need to be asking, how do we get from where we are now to where we are going in the future and might LNG be part of the solution to get us there?”
Currently, the economy relies on gas and a transition away from it will not be easy or immediate, Clarke says.
“The economy is not like a caterpillar that can cocoon itself and suddenly turn into a butterfly.”
The alternatives
Energy advocates spoken to by RNZ have widely differing views on the best solutions to New Zealand’s energy problem. But they had one view in common: technically, there are multiple alternatives that don’t involve importing gas.
“The energy system and the energy market is failing New Zealanders,” says Rewiring NZ chief executive Mike Casey. “The goal has to be finding the lowest cost alternative. And therefore the answer is not LNG – it’s a way more expensive outcome.”
Most experts agree that in the short term, New Zealand needs some kind of fossil fuel as back up. But that could be diesel-fired power plants, or the coal stockpile at Huntly, which recently gained approval by the Commerce Commission as an emergency reserve.
Longer term, the country needs to accelerate its build of lower-cost renewable options, including wind and solar, which are now the cheapest new generation in the country. Ideally, offshore wind will be added back into the mix, many argue.
Plans for offshore wind stalled after a mining company applied to excavate the seabed off Taranaki – which wind companies said was incompatible with the stability needed for huge turbines. 123RF
Geothermal could provide constant baseload, while grid-scale batteries could handle daily peaks and replace the need for gas plants.
Long-duration storage is a more difficult proposition – but it could come from pumped-hydro schemes like Onslow – or pumped hydro may not be needed at all, with the right package of other measures, some experts say.
Beyond electricity, biomethane could substitute for gas in industry and transport, and biomass could replace coal for process heat. Currently, however, New Zealand does not produce enough of either to fill the gap, and each would need significant investment to expand.
Most agree smarter demand-response programmes – paying users to reduce consumption at peak times – could cut costs and ease pressure on the grid. Some commentators say even simple rationing or prioritising existing gas use would deliver more security than importing LNG.
Casey believes using what energy we have in a more deliberate way is vital.
“Look at hydro. It’s basically a giant battery, and we need to use it more strategically. And that’s because the market incentives for those who operate large storage lakes are aligned for profit, not the strategic use of our hydro assets,” he says. “The technology we need already exists. What’s missing is a plan to join it up.”
There are also ample opportunities to electrify. EECA’s Regional Energy Transition Accelerator work shows around a third of North Island industrial fossil-fuel emissions could be eliminated through projects that save money and free up gas for critical users.
A recent New Zealand Green Building Council report found that accelerating heat pump adoption is a major opportunity to save gas – it estimated the country could save up to 40 percent of New Zealand’s current gas production. It’d also save households up to $1.5 billion a year on energy bills.
But Energy Minister Simon Watts says the country needs a reliable power source that can be accessed quickly, and on demand.
“LNG can bolster domestic gas supplies, which helps manage the impacts of dry years and keeps the wider energy system up and running,” Watts says. “This will place downward pressure on prices and support New Zealand’s energy security.”
Cabinet will decide in December whether to proceed with LNG procurement.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
