Government to pave way for LNG imports

Monday, 26 August 2024

The Government will legislate to clear hurdles for the import of LNG.

The Government will pave the way for imports of liquefied natural gas (LNG) as one of several steps to address an energy crunch that has seen several factories stop or dial down production.

Energy Minister Simeon Brown and Resources Minister Shane Jones said Cabinet had agreed to legislate consents for an LNG terminal, which Brown believed would be in place by the winter of 2026 by the latest.

The country’s largest gas user, Methanex, has suspended all manufacturing until the end of October to free up gas for electricity generation and other gas users.

Imported LNG would support “flexible generation of electricity”, but was unlikely to replace the energy needed from a stable, year round, domestic supply of gas they said.

Officials have estimated imported LNG would cost between $17 and $24 a gigajoule, which the ministers noted was less than half the record $55/GJ price at which domestic gas has recently been trading on the spot market.

Cabinet will also “act with urgency” to reverse the ban on offshore oil and gas exploration, with legislation passed by the end of the year, and ease restrictions on electricity lines companies owning power generation.

“New Zealand currently has an energy shortage. The lakes are low, the sun hasn’t been shining, the wind hasn’t been blowing, and we have an inadequate supply of natural gas to meet demand,” Brown said.

“That has led to New Zealand currently having the highest wholesale electricity prices of any of the countries we normally compare ourselves to.

“It is devastating for our manufacturing and export sectors, and is sadly leading to firms reducing production or closing entirely.”

The ministers will report back to Cabinet in October with options for “mitigating sovereign risk in an LNG facility and domestic gas production”.

Luxon said the ban, under the previous Government, had signaled to investors NZ was not open for business.

Brown said there was strong interest from the industry in importing LNG and the Government would not be providing “subsidies”.

The Gas Industry Company, a quasi regulatory body, would play a coordinating role, he said.

It is understood LNG is most likely to be imported to either Taranaki or Marsden Point, with the cheapest option being to lease a regasification vessel that would be moored at Port Taranaki and which would provide the bulk of the required infrastructure.

Prime Minister Christopher Luxon said it was “incredibly and frustrating and sad” businesses were closing because they could not get energy and whether it was produced locally or imported, the country needed a consistent supply of gas.

Energy Minister Simeon Brown says high energy prices are devastating for manufacturers and exporters.

Major Gas Users Group spokesperson Josh Adams said shortly before the Government's announcement that LNG imports would be welcomed by some big industrial gas users.

But he said they might not be enough to prevent others from moving their manufacturing overseas.

Adams said that in a perfect world, imported LNG would just be a “stop-gap measure” while the country developed more of its own gas supplies.

“It may not work for some businesses. There could be some large users for whom the true cost of LNG might just be unaffordable, but they are all different.”

Adams said some businesses were concerned the price of imported LNG could set a floor price for all new gas contracts.

It was also not clear whether the ability to import LNG would encourage or undermine any business cases for local oil and gas exploration, he said.

“Who really knows? There is a lot of uncertainty.”

John Carnegie, chief executive of Energy Resources Aotearoa, most of whose members are involved in the oil and gas industry, said its view was that bringing domestic gas reserves to market remained the lowest-cost way to meet the country's energy needs.

“Our preference is for any investment in natural gas to be in New Zealand’s infrastructure, skills and capability, not in foreign imported gas,” he said.

Carnegie said it was difficult to estimate what impact importing LNG would have on the appetite for domestic gas exploration.

Luxon said New Zealand should never have experienced the energy crunch.

He criticised the former government for what he described as a “reckless and counterproductive” ban on new offshore oil and gas exploration permits.

Speaking at a Labour Party seminar on climate change, Labour leader Chris Hipkins said the party was interested in working with the Government “if they are willing to work with us, on shared approaches to things like energy storage and ‘dry years’”.

But he said Labour had “bottom lines”.

“Restarting oil and gas exploration will take us backwards as a country — that's not something that we'd agreed to,” he said.

“We need to place sustainability at the core of all that we do. We have one planet and one chance.”