The New Zealand Government will consider paying for an LNG import terminal after efforts to encourage the private sector to develop one failed.
A report into the energy sector written by Frontier Economics found NZ’s high reliance on hydro power creates a risk of supply shortages when rainfall is low, particularly during winter when electricity demand is at its highest.
This “dry year risk” pushes up energy prices and creates economic disruptions that have been driving industry out of New Zealand. The risk gets more pronounced as reliance on renewable energy increases and the market has been unable or unwilling to find a solution.
Frontier Economics blamed this on Government intervention in the market, particularly preventing oil and gas exploration.
“We have identified that this is a problem caused by Government policy driven risk that requires solutions by Government — there is no point waiting for a market response to these Government induced risks. Indeed, the market has demonstrated it is not willing to respond,” it said.
In light of this market failure, Frontier recommended the Crown sell its stake in existing energy generators and establish a new entity responsible for securing and selling thermal fuel and all-weather energy capacity.
The Government has rejected this proposal but agreed with the general diagnosis of the problem which it plans to address by reviving the LNG import terminal proposed a year ago.
Originally, the Energy Minister was expecting the industry to come up with a plan and the money to build and operate the terminal — but that has not happened.
Now the Ministry of Business, Innovation and Employment will begin a procurement process for an LNG import facility with the possibility of the Government paying for it.
More to come…
32 Comments
Doesn't take a genius to come to this conclusion. The Greens should accept responsibility, but do you think they will?
I think there's plenty of blame to go around here, and trying to scapegoat a minor party is pretty poor. Not without blame, of course, but they are just a bit-part in the drama.
2018
"Oil and gas in New Zealand today: There are currently 31 active exploration permits in New Zealand, 22 of which are offshore. These permits cover an area of 100,000 sq kms, nearly the size of the North Island. The last of these ends in 2030. However if a new discovery is made, a new mining permit may have a duration of up to 40 years. There are also 27 existing producing fields, some of which could last to 2050. Oil and gas permit holders have a number of existing rights under law which will continue following today’s announcement"
https://www.beehive.govt.nz/sites/default/files/2018-04/Fact_sheet_oil%…
2018. What does that look like now?
All those permits are still live and have been since the 'ban' (and reversal) ....as they were for years prior and the result was no change to the known timeframe of depletion (MBIE have been projecting it for over a decade).
The ban policy had zero impact on our gas supply....it is a BS smokescreen.
Thje question to ask is why , knowing gas was depleting at the rate it is nobody.... govt, business, industry took any action to account for that well signalled fact?
Stupidity writ large that will not be mitigated by anything proposed in this report.
Thje question to ask is why , knowing gas was depleting at the rate it is nobody.... govt, business, industry took any action to account for that well signalled fact?
Easy, virtue-signalling. Funding any part of the fossil fuel supply chain is virtually impossible in NZ. We voted for it and we deserve the consequences. Falling house prices, rising unemployment, families having to leave the country for work and to be able to have some sort of future. If you fly out of Welly to Australia, you fly over some of those carbon forests in the Marlborough/Nelson region.
Those carbon-forests don't even touch the surface of the draw-down problem.
But they will be eyed-up for burning, well before we're through.
Virtue signalling dosnt explain why no government has prepared for the depletion of gas...nor does it explain why business has carried on as if there was provision in place. The explanation for the industry is more obvious (though as a NZ Inc perspective just as stupid)....increased shareholder return.
Murray 86 - bollocks.
Fossil energy is a finite resource - no point in building something reliant on something temporary.
And your take on the burn pollution? Or are you denying your part in CO2?
What's wrong with my initial comment PDK? The conclusion of the report was what many indicated in our past discussions. The greens placed a lot of pressure on governments to do what the last one did, and they did it without a plan on how to compensate for the consumption of available reserves as MFD indicates below.
That they stopped exploration is not a problem in and of itself. That they did so without a plan for alternative sources of energy is the problem. I don't see transported LNG as an acceptable or even affordable alternative or stopgap. It is not a solution that provides any form of long term resilience, and still requires a long term plan for alternatives.
Or do we just wait for it all to run out or a war to dry up our supplies?
There will NEVER be a plan for alternative energy at the scale and convenience of oil.
So accusing anyone of not coming up with one, is a strawman argument.
My pick is that things are happening so fast, it'll never happen and that even if it did, it will soon lie idle.
True energy resilience is local solar capture (local in both senses; NZ and personal). It's what we will end up on, once all the stock draw-down has finished (or we collapse, or war(s). So we should get ahead as much as possible.
PV won't be made ex fossil energy (and attendant supply-lines) but having it now, spreads oil over 25-30 years, even after it fails to arrive. Ther than that, biomass - but it will be a very different world, and cities don't do it on biomass. Nor do high incomes.
Exactly. With local supplies running out, what alternative was there? Duh!
That makes for very sad reading. The plathora of pitiful reasons that we should keep subsidising these parasites is incredible. What an absolute waste of resources . What an abomination of a "market".
I hope future generations can see where the blame lies
The newsroom article clearly shows that our govt, a.k.a we the taxpayer are held to ransom by large conglomerates who either get what they want from the public purse or shut up shop. Yes we may get jobs from it, which helps the local economy and PAYE tax take, but this in comparison to the corporate tax they should be paying instead of profit shifting is a grain of sand on the beach.
It's funny that the oil and gas exploration bans are used as the prime example of Government failure in this area. I think the ban was a mistake in the absence of a properly thought out alternative, but there are a couple of other government failures that lead us here.
Firstly, allowing the brinksmanship for a decade or so with Rio Tinto over Tiwai Point meant that for years the Gentailers (and anyone else) had no incentive to build new power plants at a decent rate. Why build supply when 15% of your market could disappear overnight? Once this was settled, the floodgates opened and Gentailers are now investing heavily, and other generators have entered the market. Too late to avoid this problem.
Secondly, the abandonment of the NZ battery project when the coalition took power meant the closing of a nearly complete project investigating our different options for dealing with this dry year problem. Now, like the ferry project, we've wasted time and are left scrambling.
In the situation we are in, an LNG facility isn't crazy and I expect the Government to have to stump up for it - there is no appetite for business to invest in what is just a stop-gap solution on a fuel which will be increasingly expensive as carbon credits reduce over time.
The first action taken when the electricity sector reforms came in was to change the basis of depreciation from historical cost (that previous generations of NZdrs had funded) to replacement value. This provided an immediate massive tax benefit to the shareholders (including the govt) which should been directed to investment to maintain future supply.
Oh sure, they had the cash flows to invest more. But they had no incentive to do so. Why build a new wind farm when Tiwai Point could close before you finish building it, leaving you with a stranded asset? Governments of all stripes failed to settle that stability question, and failed to provide the right incentives to build.
Now there are incentives, you will see the Gentailers are investing something like 2x their annual profits into new generation (last time I looked - could be out of date, maybe higher this year as profits were lower for a few of them).
I should add to that - for the last decade or so, electricity demand was pretty much flat, again providing no real incentive to build new power plants.
https://en.wikipedia.org/wiki/Electricity_sector_in_New_Zealand#/media/…
The supply issues now are more around fuel mix as thermal has reduced, and perhaps demand has picked up with electric cars and data centres on the rise. Not sure about industrial trends - some are shutting down, others are electrifying.
Dry year risk could fairly easily be mitigated by the initial suggestions of the battery project report.
Basically 2 options, 1 preferred: Turning Huntly into a torrefied pellet plant (already tested in one of their reactors, shown to work), using NI pine forests as the source. Would require setting up a plant to convert the forrest to the fuel, I think a test one is already been setup in Kawarau. So we are almost there already, but requires a strong government push to get over the line.
Option 2 was to create a couple more geothermal plants, with their wells operating at 1/4 capacity. Then when dry year hits, they go full bore.
TBH doing the first one is a complete no-brainer, given its already been shown to work. Instead we get weak governments doing nothing, time and again.
Yes, option 1 is still on the table. I have heard the company involved needs something like $3-400 million to build the full-scale factory, maybe the government could get involved with that. I suspect it's too woke for the current lot though - gas is much more up their alley. Probably a similar up-front cost for the import terminal (I may be out of date on that though, maybe more), and that leaves you exposed to the vagaries and risks of the international LNG market and consumes a stack of our reducing number of carbon credits, meaning harsher emissions cuts for the rest of society.
Option 2, hard to imagine that happening without government support, the business case presumably wouldn't stand unless there are additional payments when the plant isn't running. Perhaps that could be partly through firming options like Genesis are selling for Huntley - other participants pay for the option of generation when needed in a dry year or other time of short supply.
Wood is 4x less dense than coal. Then you've got the energy required to produce pellets. Then transport - most likely 2x stages.
So 4x plus the input required, per output. Essentially you are dividing the existing EROEI x4. Yet society is already starting to disintegrate, at this level.
This is why I hammer on about energy - pellets only make sense if subsidised, subsidy in reducing-energy environment must increasingly be unrepayable debt; it all ends.
Work has been done a generation ago. Sawdust can be directly injected or fed in via coal system. Coal is too cheap even if sawdust is given to Huntly. Just stack up some coal - dry year problem solved without building pellet and/or torrefaction plants
Yeah I think for option 2, any electricity coming out of the plants would have to have a premium associated with them, possibly 1.5-3x the cost. Could easily be called dry year insurance fee or transfer fee. It would also motivate other gentailers to build more capacity so they didn't have to pay for this.
'Frontier Economics blamed this on Government intervention in the market, particularly preventing oil and gas exploration.'
This is straight out of Utopia - the Aussie series; what do you want to hear? We'll give it to you.
And, being economists, no mention of depletion or limits. So monkeys and peanuts; garbage in/garbage out.
And the global stoush for gas will see the supply curtailed before we get a terminal built, is my guess. Nordstream wasn't blown up for no reason.
I expect this falls under the 'more to come' in the article at the time of posting, but the Government has also stated they will participate in cap raises by the part-owned gentailers if they want to raise capital to fund big new generation. Sounds like Meridian are keen:
"This is bold. It's the biggest change to our capital investment settings since we were listed in 2014...this will add even greater momentum to our development pipeline
Mercury sum up the impacts of the Government's actions:
"Mercury does not consider that the Frontier report and the Shareholding Ministers' letter constitute material information for the purposes of the NZX listing rules"
i.e. minimal impact on the bottom line of the business.
Nothing released to the market by Genesis yet - I know they were hoping for the government to take over thermal generation to wash their hands of it, but that won't be happening.
'Frontier recommended the Crown sell its stake in existing energy generators'
Standard free-marketry bull---t from the 80s.
Translated: Privatise everything then we can s--ew you.
Kind of irrelevant, where we're going. No overseas temporary owner can repossess built infrastructure, so nationalisation-by-default is the eventual outcome.
If we are going to end up nationalising it shouildnt we at least invest in something practical....not a white elephant of an LNG terminal thats going to extract even more NZD offshore and leave us even more vulnerable to external whims.
They are running scared. You can sympathise, in a way. The system which they see themselves as 'winners' in, is disintegrating before their very eyes (to use a corny phrase). They will try everything to keep it going - including self-delusion.
More and more of us are preparing for the inevitable, from the ground up.
This kind of thing Our Food Network: Local Food in Ōtepoti Dunedin - Whirika is people just getting on with it. Clearly, the dinosaurs will die themselves out, and at this late stage, aren't worth the effort fighting.
"More and more of us are preparing for the inevitable, from the ground up."
The issue is PDK that most simply cannot afford that at any significant level. sure we can all plant our gardens and we do, but at the level you're advocating takes money and for some things, quite a bit of it. While some stuff like solar panels are relatively cheap now, many still can't afford the total conversion or don't own the property.
If a total collapse occurs you could probably expect a visit from some unwelcome callers who will want what you have. Have your defences ready.
:)
Hunger-games...
Communists! ;)
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