Importing LNG to New Zealand will come at a cost, an Australian analyst says. Photo / Getty Images
New Zealand may well go ahead and import liquefied natural gas, but it will require deep pockets, an Australian energy analyst says.
In releasing its long-awaited review of the electricity market, the Government last week said it would run a competitive procurement process for an LNG (liquefied natural gas) import facility to act as “firm” fuel to get New Zealand’s hydro-dominated power electricity system through the dry years.
The Government said it would engage with the sector to test market interest, including the possibility of delivering LNG quickly.
Last winter’s sharp price spike, driven by dwindling local gas supplies and drier and calmer weather, has put possible LNG imports into the equation as gas plays an important backup role, being responsible for about 8% of total power generation.
The process has already opened and the next set of decisions is expected to be taken by the Government in December, the Government said.
Josh Runciman, lead analyst - Australian gas - at the Institute for Energy Economics and Financial Analysis (IEEFA), said the first big ticket item for the importation of LNG was a floating storage and regasification unit (FSRU).
FSRUs - special purpose ships that tie up at the wharf and convert LNG back into gas - go for about A$250 million ($283m).
“Then there are the onshore parts - the berth, the pipes, and then you need to connect to the transmission network.
“The other thing to think about is where does the LNG come from and what is the price point.”
If Squadron Energy’s Port Kembla LNG experience in New South Wales is anything to go by, import terminals take about three years to build.
Much would depend on how the LNG was purchased, Runciman said, but long-term contracts were generally linked to oil prices.
All up, New Zealand would not get much change from about A$300-A$400m for a terminal.
“There are a whole bunch of variables, but look, it’s not cheap.”
LNG supply is unlikely to be an issue.
The International Energy Agency says there will be significant oversupply in LNG before 2030, lasting until 2040.
Between 2025 and 2030, about 300 billion cubic metres (BCM) of natural gas is expected to come online from projects that have already reached the final investment decision (FID) stage or are under construction, marking the largest wave of capacity additions to date.
The trajectory of this LNG wave will have significant implications for the global gas market balance, the IEA said in a report.
The United States has been the dominant driver of LNG liquefaction project FIDs, accounting for more than half of the total since 2019.
Qatar is a distant second with less than 20% of total FIDs, the IEA said.
A report in the Financial Times (FT) said the US was expanding its capacity to export LNG at such a rapid pace that it risked flooding the market and driving down prices.
Three US terminals were given the green light last month alone, with five more set to follow by year-end, as America pushed ahead with plans to more than double exports by the end of Donald Trump’s second term as US President, the FT said.
Runciman said if LNG markets were in a supply glut it would be “pretty fortuitous timing”.
LNG import terminals also had an environmental impact, he said.
To regasify LNG, FSRUs draw in seawater, run it through a heat exchanger, and then pump out much colder seawater.
Runciman said the overseas experience showed LNG for electricity generation was more expensive than either renewables or coal.
Gas use for power generation in Australia had fallen sharply over the last decade, driven by growth in solar power, he said.
After Russia’s invasion of Ukraine, Europe “absolutely” went to LNG imports.
But he said LNG imports into Europe would soon peak and start to fall.
“The key thing in LNG markets is that we’re about to see this new supply wave. That really is unprecedented,” Runciman said.
“So if New Zealand is going to go to LNG, now is not necessarily the worst time to do that in terms from a price point.
“I still think that even with low LNG prices, it’s still cheaper to do things like rely on renewables and household electrification (from gas),” he said.
LNG import terminals are commonplace around the world.
“I think, from New Zealand’s perspective, the key bit is: is it hard if you’ve got deep pockets? No.
“But the real question is: how deep do your pockets need to be, and is it actually worth it?”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.