NZ Commits to First LNG Import Plant Despite Gas Price Surge

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(Bloomberg) — The New Zealand government will take the next step to build the country’s first liquefied natural gas import facility, sticking with its plan to bolster energy security despite the surge in global gas prices due to the Iran war.

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The South Pacific nation, which relies heavily on hydro-power, leaving it vulnerable to dry years, is working through how to pay for the facility, with Energy Minister Simeon Brown saying it will not be funded via a levy on households’ power bills.

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Brown said New Zealand’s domestic supplies of LNG are running down, meaning the country was an outlier compared to its OECD peers, which either have access to abundant natural gas or to imports.

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“Kiwis need a backup source of power when the wind isn’t blowing, the sun isn’t shining, and the lakes are low,” Brown said in a statement on Tuesday in Wellington. “An LNG import facility is the fastest and most affordable way to cover the dry-year gap, keep the lights on, and protect thousands of Kiwi jobs.”

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In February, the government announced it had shortlisted proposals to build the facility, saying the plant would come online in 2027 or early 2028. But since the announcement the conflict in the Middle East has pushed up the price of gas, casting doubt over the project. In March, Prime Minister Christopher Luxon said if the commercial case didn’t add up, the government wouldn’t pursue it.

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“Despite the conflict, LNG remains the fastest, cheapest, and most flexible dry-year solution that can be put in place this decade,” Brown said Tuesday.

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The government is progressing two providers to a Request for Proposal to deliver the plant, which will be located in the Taranaki region of the North Island. 

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In February, the government had said the facility would be paid for via a levy on electricity, but had struggled to articulate exactly how this would work. 

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Brown, who became energy minister in April, taking over the portfolio from Simon Watts, said officials were now working through how the terminal would be paid for, including talking to the energy companies about a “fair funding model.”

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“Kiwis can be certain of one thing – it will not be funded by a levy on power bills,” he said.

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With an election looming in November and the cost of living being one the main issues, the government is mindful of reducing energy prices for households. Brown said the project could save as much as NZ$800 million ($464 million) a year from reduced dry year risk.

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Brown also said on Tuesday the government will require large electricity buyers to lock in back-up supply well ahead of forecast dry winters – when lower rainfall reduces hydro lake levels and limits electricity generation – “alongside requirements for generators to have firm fuel available if hydro storage runs low before winter.”

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“Dry-year risk sits with the electricity sector, not with taxpayers and not with households. It is only fair that the big power companies and large electricity users are the ones responsible for managing it,” he said.

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