Prime Minister Christopher Luxon’s announcement about a plan to establish an LNG import facility, and the levy to fund it, has been badly received.
Photo: Marika Khabazi / RNZ
Imported liquified natural gas could be a stopgap insurance policy against dry years – or an expensive, dirty fuel that will hit Kiwis in the pocket
The Government’s proposed plan to import liquefied natural gas detonated a political fight this week – not over energy, but over whether Kiwis are about to be hit with a new “gas tax”.
“If it looks like a tax and it quacks like a tax, it’s a tax,” was the echo throughout parliament, and fiercely debated on talkback radio.
But behind the rhetoric sits a serious problem: New Zealand’s domestic gas supply is shrinking, electricity demand is rising, and officials warn the country risks shortages without backup fuel.
So imported LNG, most likely from Australia, is being pitched as that backup.
The plan would see New Zealand import super-cooled natural gas, shipped in from overseas, stored and regasified for use in electricity generation and industry.
Newsroom senior political reporter Marc Daalder tells The Detail it’s a proposed stopgap – insurance against dry years, dwindling gas reserves, and rising demand.
“Every once in a while, it rains less than you’d like it to, particularly in autumn and winter.
“That means our hydro lakes run low, and we can’t necessarily rely on things like wind, [as] it tends to be less windy when it’s less rainy; or solar in the winter when the sun isn’t shining, the sun’s gone down at the time we have our peak power demand, which is usually around 6 pm in July or August when people get home and turn on the heat and start cooking dinner, and suddenly the country’s power demand spikes.
“So renewables on their own aren’t able to fill that gap. We burn fossil fuels instead in dry years … but the problem is that we don’t have quite enough fossil fuel generation and quite enough supply, particularly of gas, to be able to reliably access it when you need it in a dry year.
“And that’s because of the second problem that’s going on, which is that our gas reserves are dwindling. They have essentially fallen off a cliff in the last few years.”
Not for want of trying, he says, with $1.5 billion spent on drilling 53 different exploration wells.
“A few of them have had small successes, but it’s turned out that the big, big fields that we have relied on for quite a long time have just started coming up empty.”
He says LNG is more expensive than domestic gas – about double the price.
“The theory is, on the government’s part, this is a backstop. The gas is available if we need it in a dry year, yes it’s more expensive, so it won’t be used otherwise.”
Daalder warns that, potentially, LNG could be dirtier than coal.
“There has been some research recently to suggest when you account for the emissions that go into producing the gas, into converting it to LNG, the leakages that occur while it’s being shipped across the ocean, and then it has to be regasified, and then distributed around a country like New Zealand, then actually LNG is potentially as dirty or dirtier than coal when you take that full supply chain into account.”
Questions remain
Martin Gummer, managing director of Optima, which looks at energy management solutions, tells The Detail that he largely supports the move, saying gas remains critical for manufacturing, food processing, and electricity reliability.
“You’ve got heavy industry, major manufacturers, steel, wood processors but also a wide spectrum of intermediate-sized businesses such as food products,” says Gummer. Schools and hospitals are also big gas users.
Gummer wrote an open letter to the prime minister that was published in the NZ Herald last December which was critical of the government’s handling of the energy problem and called for an urgent “bold, decisive” strategy.
As the country fast runs out of natural gas, Gummer says the LNG announcement won’t address all the concerns and there are still questions over the date of opening of a new plant and the price customers pay for the gas.
“While LNG is not a perfect answer, there is no perfect answer, it is probably the next best and most sensible interim step that needs to be taken.”
A missing part of the jigsaw is a funding stream – or subsidy – to assist industry to transition to renewable energy sources.
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