NZ should reallocate gas from Methanex to keep our manufacturing base alive

Tuesday, 2 September 2025

Julien Leys is chief executive of the Building Industry Federation of New Zealand.

OPINION: New Zealand is heading into an energy crisis that could deal a knock-out blow to our manufacturing base, especially those that produce building and construction supplies. Over the next 18 months, soaring natural gas prices threaten to push more companies to the wall. If nothing is done, we risk seeing furnaces go cold, plants close, and critical supply chains collapse.

Let’s be clear this is not an abstract problem but an actual crisis being played out in slow motion. Natural gas is the lifeblood of manufacturing in New Zealand. Among other things it fuels cement kilns, glass furnaces, steel production and plasterboard plants. These operations cannot simply flick a switch and move to another energy source. Without reliable and affordable gas, factories will shut and jobs will be lost.

New Zealand’s current gas fields have been declining for years, and exploration was curtailed at the very time we should have been encouraging further investment to discover new sources of energy. Not surprisingly, gas prices are climbing fast for everyone from manufacturers to home owners. On top of that, our hydroelectric ‘safety net’ is under strain from the weather disruptions caused by climate change. New Zealand’s southern hydro lakes are projected to reach their lowest levels since the 1990s. To compensate, Genesis Energy is stockpiling extra coal beyond the million tonnes it normally holds in reserve.

That’s the stark reality: less gas, less hydro, more coal. The combination will drive up electricity costs at the very moment New Zealand’s industry can least afford it not to mention our overall emissions.

Another unintended consequence of this energy squeeze is that the escalating cost of natural gas will push up the price of every product that relies on energy-intensive manufacturing. Critical building materials such as cement, steel and glass will become much more expensive, and so will a wide range of other manufactured goods including essential food. These higher costs will inevitably be passed on to builders, home owners and consumers, driving inflation and further deepening the cost-of-living crisis that New Zealand households have been struggling with for the last two years.

One option on the table is confronting an uncomfortable fact: nearly half of New Zealand’s gas supply - around 45% - is consumed by Methanex to produce methanol, most of which is exported overseas, according to the Energy Authority.

The question is simple: should New Zealand’s dwindling gas supply continue fuelling exports, or should some of it be diverted to safeguard the manufacturers who keep our domestic economy running?

Re-allocating gas away from Methanex is controversial but ultimately necessary. The company supports hundreds of jobs and has been part of the country’s industrial landscape for decades, but its low-value exports are nothing compared to the billions of dollars of goods generated by New Zealand’s manufacturing base. So, the choice becomes watching energy-intensive manufacturers here at home including those producing the very materials needed for housing and infrastructure shut down under the weight of crippling energy bills or the Government making the right decision to close Methanex and reallocate its natural gas supply.

This scenario is not uncharted territory. In 2021 and 2022 Europe lived through a similar nightmare when soaring gas prices forced fertiliser plants across the UK and Europe to close, sending shockwaves through agriculture and food supply. Germany’s giant chemical and metals industries such as BASF warned of permanent closures.

Governments didn’t procrastinate and just stand by. They stepped in with subsidies, rationing schemes and reallocation of gas to strategic industries. It wasn’t ideal, but it kept the lights on and saved critical capacity from vanishing from key industries.

New Zealand must learn from that experience and apply the same rationale. Once a manufacturing plant closes, restarting it is often prohibitively expensive or technically impossible. The loss can quickly become permanent as we have seen from business closures in recent years including timber mills.

Some argue that the solution is to fast-track renewable alternatives like biomass furnaces or electrification. In the long run we must accelerate the transition to sustainable energy, but we need to be realistic that will take years and not months. The legacy that former Labour Prime Minister Ardern has left New Zealand with when she rushed to ban all oil and gas exploration for the whim of pleasing her ‘green’ socialist ideology is a poisoned chalice that will cost us all dearly.

For example, converting a furnace from gas to biomass is a massive capital project, often requiring an entire plant redesign. Smaller manufacturers simply cannot afford it. Electrification faces the same barriers – a grid already under strain and huge infrastructure costs. These are decade-long transitions, not quick fixes.

The irony is that without urgent short-term solutions, many of the companies we expect to lead the transition to sustainable energy may not even be around to make it.

The harshest truth is this: New Zealand has no clear plan to deal with this looming shortage. Industry has no roadmap. Government has no strategy. We are walking blind into a crisis that will determine whether our manufacturing base survives or withers away.

Hoping it will sort itself out is not a strategy. Waiting for market forces to “rebalance” ignores the fact that once manufacturing capacity is lost, it rarely comes back.

Time for pragmatism

The Government needs to act, and quickly. Reallocating part of Methanex’s supply to domestic manufacturers would be a tough call, but it may be the only way to prevent catastrophic job losses and permanent damage to our industrial base.

This is not about picking winners. It is about recognising that New Zealand’s housing, infrastructure, and wider economy depend on manufacturers that need affordable energy to survive.

Extraordinary times demand pragmatic, short-term measures. Without them, New Zealand will face a wave of factory closures, higher costs for building materials, and yet another blow to our already fragile residential housing pipeline.

The reality is clear: if we don’t make hard choices now, the cost of inaction will be paid in closed businesses, lost jobs, and a weakened economy.

The time to act is now – before the lights go out in our manufacturing plants for good.