LNG plan needs a closer look

Opinion: The Māui gas field, New Zealand's largest until 2008, was discovered in 1969 off the Taranaki coast. This discovery presented New Zealand with an opportunity for economic growth.

The challenge facing developers and the government was how best to use the resource. The government entered into a take-or-pay agreement and invested in a number of “Think Big” projects to use the gas.

I recall a Treasury study that showed only one of those projects delivered a net gain to the economy. Nevertheless, the regional economy of Taranaki benefited in terms of employment and income.

Fast forward to 2026, and the government is contracting to build a liquefied natural gas (LNG) import facility, which it says is “a critical step to strengthen New Zealand’s energy security and support economic growth”. The facility will store and then “regasify” natural gas for distribution and the Government is hoping it will be a solution to our dry year problem.

It will mean, according to energy minister Simon Watts, that Kiwis won’t “need to suffer through an endless series of winter bill shocks”.

Given the current state of our gas reserves, this is an alternative to importing coal to run Huntly’s power station.

Let’s unpack the LNG proposal.

First, gas supply. The gas fields supplying LNG are overseas (potentially in northern Australia). The gas must be compressed there, shipped to New Zealand, and then regasified for distribution. Investment in gas field development can easily run into the tens of billions. We are told that an LNG terminal will likely cost upwards of NZ$1 billion.

International supply of liquefied natural gas is typically secured using long-term contracts, often spanning 25-30 years. New Zealand will compete in the international market for supply – a market dominated by large economies, such as Japan. We will pay the international price.

I suspect suppliers will not be interested in a variable supply contract. And New Zealand would, most likely, be locked into an agreement to supply a minimum quantity of gas. Why? Because the supplier typically has financial commitments to cover an asset-specific investment. Dedicated ships will deliver LNG to the proposed terminal.

At our end, the LNG developer will also incur asset-specific investment costs. Litigating long-term contracts is fraught. Disputes over these kinds of terms are difficult and costly to litigate, compounding the risk.

The distribution of risk must be carefully considered when designing the contracts to deliver LNG to New Zealand.

Integrating gas as a fuel for thermal power plants warrants attention. Will the business be a government-regulated monopoly supplier? Or will existing generators have a stake in the investment and have a say when gas is used to generate electricity? Further concentration of market power will not bode well for households.

Now consider gas demand.

To be sure, a secure gas supply to meet peak demand during dry weather is valuable. But what is the frequency of demand? Who will use the gas that’s not used in power generation? Remember, we are now in a contractual relationship situation. The overseas gas supplier will not offer a tap that can be turned on/off in response to New Zealand’s dry-year threat. And storage comes at a cost.

Over time, situations change – new use possibilities arise, technology develops cheaper alternatives, and experience reveals the challenges of litigating long-term contracts. In the meantime, who will finance the project? A tax on electricity users? Taxpayers at large?

It seems consumers will begin paying on the expectation that the new terminal, expected to be ready at the earliest next year or later in 2028, will save New Zealanders around $265 million a year by reducing price spikes and lowering risk premiums. Really? Let’s see the numbers.

I support efforts to improve electricity reliability, but past experience makes me wary of direct government involvement in commercial enterprise.

There are alternatives that can help shore up our system in case of a dry year.

For example, onshore and offshore wind can free up demand on lake storage. Of course, wind is intermittent, but we are far from fully developing the potential of our wind resource.

Further development of our geothermal resources, providing base load electricity, can also provide relief. I would also like to see further decentralised solar.

These alternatives must be carefully included in an analysis.

Let’s learn from our experience with Māui and think more strategically and more courageously about our future. Our energy policy decisions now will define our economic and environmental legacy.

Let’s commit to pursuing the smartest solutions, grounded in evidence, robust analysis and innovation.