Fact check: How much cover could LNG provide for a ‘dry year’?

Wednesday, 15 October 2025

Port of Taranaki is the very hot favourite to host an LNG import facility if anyone is prepared to come up with the funding.

ANALYSIS: Energy Minister Simon Watts says imported LNG could keep the wider energy system up and running through “dry years” that sometimes constrain the amount of hydro electricity the country can generate.

The major gentailers have drawn up a plan for a relatively small import terminal that would be based at Port of Taranaki and could import between seven and 10 petajoules of gas each year.

But they didn’t reach an agreement on who might pay the capital cost, estimated at between $140 million and $295m.

That’s no doubt in part because they can buy natural gas at a cheaper price than LNG by outbidding industrial users for the supplies that remain.

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The Government has now stepped in, in a bid to get things moving, and is seeking proposals for an import terminal capable of offloading 12 petajoules of gas over three months.

That would significantly reduce dry year risks, Watts says.

During dry years, hydro storage lakes are low and the price of hydro generation becomes more expensive.

Significantly? Peta-what?

Okay. In theory, 12 petajoules (PJ) is equivalent to 3.3 terawatt hours (TWh) of electricity.

But in reality, burning gas for electricity is pretty inefficient, with about half of the calorific value of LNG lost in the conversion process.

It is understood that if burnt at Genesis’ Huntly Power Station and other gas-fired “peaker” plants in New Zealand, the energy loss would be about 55%.

Energy Minister Simon Watts believes NZ could be importing LNG by 2027.

So 12PJ would really generate about 1.5TWh of electricity.

Is that a lot — enough to cover a dry year?

New Zealand’s total electricity generation was 43TWh last year, so it would amount to a couple of weeks’ of total supply.

But even in the worst dry year, the country has some hydro and, of course, other generation.

The Ministry of Business, Innovation and Employment assumed when it was looking into building a pumped hydro scheme at Lake Onslow that might need to store up to 5TWh of power to cover any dry-year shortfall.

So 12PJs of LNG would mitigate about a third of the entire risk.

But during last year’s partial dry year, which contributed to a winter energy crunch, there was “only” a 1.7 TWh drop in hydro generation.

So a dry year is not always or even often the absolutely worst case scenario.

Bottom line?

It would seem fair to say imported LNG, on the scale the Government is considering, would significantly reduce dry-year risk, even if it would not remove the risk completely.

Watts’ assessment passes the fact check – unlike, for example, some of the comments ministers have made on Lake Onslow.

So dry-year problem at least one-third solved?

That might be jumping the gun.

The Government is seeking information from suppliers on what it would take and how much it might cost to build an LNG import terminal.

But, as yet, it hasn’t actually agreed to pay for one.

Sources suggest it could be tricky for it to do that, given the country’s international obligations not to subsidise fossil fuels.

It might also be hard to sell to the public, given that the big four power companies could stump up $295m for an import terminal themselves by foregoing just six weeks’ of their operating profits.

The Government could twist the arms of power companies, or gas users more widely, to foot the bill.

Watts signalled earlier this month that the Government would develop a “regulatory framework to create lasting incentives to build firm generation in consultation with industry” to cover the dry-year risk.

The most likely scenario may be that the Government would fund the construction of an import terminal and then recoup that investment through some form of industry levy.

But perhaps don’t bet on anything yet.

What would it mean for my power bill?

Hard to predict.

It is understood 12PJ of LNG would currently cost about $250m, which equates to about 17c/kWh of electricity, but prices do jump around on international markets.

Burning one tonne of LNG generates about 2.8 tonnes of carbon dioxide, so that adds about another 2.5c/kWh.

Then there are distribution costs, profit margins, generation costs and GST and it is easy to imagine power from LNG could cost 25c to 30c/kWh after also factoring in the capital cost — although that might be paid for separately through a levy.

That would be much more expensive than coal-fired or renewable generation, but probably cheaper than firing-up diesel generators as a last resort.

More important might be the impact a more abundant supply of gas-fired generation would have on other generation offered into the market, and on the price industrial users had to pay for natural gas.

The Government’s theory seems to be that hydro generators would be less conservative about conserving lake levels going to winter if they knew burning LNG was an option, so that would bring down the price of power even in years when it wasn’t used.

On the other hand, if gentailers were able to use the price of LNG-generated power as the benchmark for the price they could charge for hydro power every time a lake level looked a little low, the outcome could be quite different.