Economic report warns against long-term reliance on Taranaki LNG terminal

Saturday, 9 May 2026

A report by a leading international economic organisation has warned a proposed liquefied natural gas terminal should only be a short-term measure.

In the latest Economic Survey of New Zealand, the Organisation for Economic Co-operation and Development (OECD) said dwindling domestic gas reserves and underinvestment in electricity “firming” capacity had pushed up wholesale prices and threatened energy security.

“LNG will help restore security of supply but risks locking in fossil fuel dependence and should be treated as a transition fuel only,” the report said.

The findings of the report, released on Thursday, came as New Zealand explored options for a $1 billion LNG import terminal, with Taranaki the location because of its existing gas infrastructure.

When the Government announced plans for the terminal in February, it described the facility as a “reliable backup fuel source” that would only import gas when needed to help reduce electricity price volatility and supply risk.

Opponents argued it risked locking New Zealand into fossil fuels, while Prime Minister Christopher Luxon said no final decision had been made as it depended on a commercial business case.

The OECD said New Zealand’s electricity system faced “mounting challenges” that threatened affordability, security and competitiveness, despite the country already having a highlight renewable electricity mix.

It said gas shortages had driven up electricity prices and created prolonged price spikes during dry years, at times forcing industrial shutdowns, including Canadian-owned Methanex, which operates a plant at Motunui.

Rather than relying on imported LNG long-term, the OECD recommended greater investment in non-gas electricity storage and flexibility systems to break the link between gas and electricity prices.

“A dedicated mandatory firming and flexibility market would improve access to firming services, lower barriers for independent generators, and reduce reliance on opaque bilateral deals,” it said.

The report also warned New Zealand’s energy system was vulnerable to global fuel shocks because of its reliance on imported refined fuels and limited supplier diversity.

Any further decline in domestic gas production could increase dependence on imported supplies, it said.

The OECD said accelerating the transition away from gas-fired electricity generation would improve long-term energy security and affordability.

Since its announcement, the terminal had the backing of a number of industry and business leaders.

Port Taranaki chief executive Simon Craddock said the project would provide a confidence boost for the region and support jobs and economic activity.

He said the port was ready to support LNG imports by using its existing infrastructure and marine services.

In April, Taranaki Chamber of Commerce chief executive Arun Chaudhari urged the Government to “proceed decisively” with the terminal and said it was critical to stabilising energy supply.

“LNG does not undermine the energy transition, it enables an orderly transition by providing stability while renewable generation, storage and demand-side solutions are built at scale,” he said.

New Plymouth MP David MacLeod also backed the move and said in February it was needed to provide back-up electricity generation during dry years and gas shortages and would keep power prices down.

However, New Plymouth Labour candidate Amanda Clinton-Gohdes said the country could create long-term jobs and energy security through renewables without importing gas.

She questioned if an LNG terminal was the best solution for dry-year shortages, which she said occurred about once every seven years on average.