How New Zealand could import LNG

Wednesday, 21 August 2024

Port Taranaki, Marsden Point, or via an old offshore gas field? The industry is spinning the wheel on how best to import LNG.

A feasibility study is underway to assess whether and how New Zealand could import liquified natural gas.

Production from our own natural gas fields is declining at a faster rate than had been predicted.

Energy Minister Simeon Brown believes importing gas is an option the country will need to consider to keep the lights on and industry working.

So what would be involved?

It’s not a new idea

Back in 2003, Contact Energy and Genesis Energy were expecting production from the Maui gas field would start to decline from 2009 and were worried about how the gap might be filled.

At the time, they estimated it would cost between $550 million and $600m to establish an import facility capable of importing enough liquified natural gas (LNG) to meet about half of the country’s gas demand.

They believed it would take about three years to construct an import terminal once resource consents had been received.

But times have changed

Importing LNG has become quicker and cheaper.

Leasing a re-gasification ship could save hundreds of millions in avoided infrastructure costs.

In the past, an LNG import facility would normally comprise a jetty that ships carrying LNG could berth at, equipped with rigid pipes that could transfer the gas in its liquid form to a land-based “re-gasification” facility.

It is here that cooled LNG is warmed up and allowed to expand back into a gaseous state, before then being piped into the gas network.

That is the sort of investment Genesis and Contact were contemplating 20 years ago.

But LNG has become much more heavily-traded since then and technology has moved apace, accelerated by advances made since Russia’s invasion of Ukraine.

Many European countries found themselves having to transition away from Russian gas in a hurry in 2022, to imports shipped from further afield.

So, now?

Any LNG shipped to New Zealand would most likely be received by a re-gasification ship or semi-submersible platform that would be moored at either Port Taranaki or Marsden Point.

LNG could be transferred from the ship transporting it to New Zealand to the re-gasification vessel via flexible hoses, and the gas then transferred from that vessel to the gas network also via flexible hoses.

The set-up saves on construction costs.

It also has the advantage that a re-gasification vessel could be leased — and possibly just for each winter season — rather than bought outright, further reducing both the up-front cost and the length of the financial commitment.

Bottom-line?

An LNG importation facility is likely to cost in the region of $100 million to $200m and take perhaps a year to set up, according to The Post’s sources — assuming the Government came to the party by fast-tracking the consenting process.

That is not a huge sum in the context of the electricity and gas markets, which together turn over about $9 billion annually.

Contact Energy chief executive Mike Fuge suggests an infrastructure fund such as the New Zealand Superannuation Fund could provide the capital.

LNG itself is a global commodity could be imported from Australia or further afield.

Its pricing is set by global demand and supply. But Fuge says New Zealand may be advantaged by needing it most during what is the northern hemisphere’s summer.

Where would it be shipped to?

Marsden Point could be an option, especially if the thinking was gas could be imported straight to a new gas peaker.

The obvious site would be Port Taranaki where almost all the infrastructure exists to pump it into the piped gas network.

It is understood some upgrades would be needed to the network if LNG was instead imported to Marsden Point.

But Marsden Point might still be an option if power firms chose to establish a new gas “peaker” power plant as part of an LNG importation project.

Imported LNG could then be converted to electricity on site at Marsden, close to the power-hungry Auckland market.

It has been suggested a gas peaker could cost about $250m to build.

Any other options?

LNG could be imported in cylinders and simply trucked to customers at about 50% extra cost.

That would be the fastest way of topping up the country’s gas supply, and potentially the only way to get LNG here in time to combat the risk of an energy crunch next winter.

That could be an option with or without an investment in a re-gasification facility of some kind down the track.

As an alternative to leasing a re-gasification vessel, it might be possible to save costs by importing LNG and piping it directly into an end-of-life gas field, such as Maui, which would then effectively serve as the storage facility.

That could have the advantage for the field owner of delaying the costs incurred in de-commissioning the field.

But it is understood to be the ‘least-quick’ option.

So what next?

The above issues are being threshed out behind closed doors by those with an interest in the outcome.

Fuge says importing LNG should be “relatively straightforward”.

“What's important now is that industry starts to work together to narrow down those options, to come up with a solution which is best for the country.”

Germany’s achievements in quickly shipping-in imported LNG in the wake of Russia’s war on Ukraine set the benchmark for “just what is possible when people suddenly have a crisis to deal with and they set aside all the bureaucratic constraints”, he says.