The cost of gas is soaring as supplies run out. Instead of helping homes and businesses transition, the government is betting on a lucky strike.
Hamilton retiree Jacqui Jones is wondering what to do about her gas heating. “Over the past four years, the usage charge has doubled,” she says.
“The fixed charge has increased each year to the extent that it’s nearly $350 just to have it still connected for the seven months of the year I don’t use it. I can absorb that, but there might be some who can’t,” says Jones (not her real name). She is considering a heat pump instead, but the costs of switching are off-putting. Her electricity bill has gone up, too, but not as much.
Her gas price increases (she’s with Mercury) are similar to those other residential customers are experiencing. Contact Energy will increase prices by 17% on average for about 40,000 households from next month.
It’s hardly surprising, because New Zealand’s gas production is withering and there’s ongoing demand. The resulting shortage also increases electricity prices, as some electricity comes from gas.
Gas prices have roughly doubled for commercial and industrial customers, too. Many businesses are trembling at the cost and some have already closed. All employ people and pay tax. Their products ripple through our lives: food, drink, recycling, wood products and more. Even magazines are entangled.
So why are new houses and subdivisions still hooking up to gas? What options do gas-reliant industries have? And will the Listener survive?
Switching residential and commercial buildings to electric heat pumps for space and water heating will free up significant gas. Photo / Ken Downie
New Zealand’s gas fields began declining about 2015, and it’s getting worse: fields are diminishing even faster than petroleum companies estimated. Taranaki’s gas fields produced 27% less this year than last, and production in 2040 is expected to be a quarter of this year’s. It’s been called a collapse.
Last year, a $180 million drilling venture failed to pull more gas from the Kupe field. John Kidd, director of energy consultancy Enerlytica says since 2018, there have been “something in the order of 55 wells drilled and probably $2 billion spent. That’s been extremely unsuccessful at bringing gas to market.” Today’s gas market was expected to be twice the size, he says.
Investors are unlikely to keep trying. Kidd says most were scared off by the Labour-led government’s 2018 offshore oil and gas exploration ban, driven by our 2016 Paris Agreement on climate change commitments to reduce burning fossil fuels.
The coalition government has reversed that ban, but exploration is complicated, expensive and very high risk, says Kidd, and long-term political risk adds to that. New offshore exploration might strike a commercially viable field, but it would take 10 years or longer to supply gas.
Home fires burning
For now, enough gas is flowing because the country’s biggest user, Methanex, paused operations to instead sell gas to Contact and Genesis at a profit. The Vancouver-headquartered multinational uses gas to make methanol, exporting 95% of it.
Each year, Methanex uses 14 times more gas than all residential users combined. There’s speculation it could shut down permanently because in 2028 it needs an upgrade costing about $100m, says Kidd. So does the ageing Maui field that supplies Methanex. Maui, the country’s largest gas field, and Methanex need each other.
“The only reason you would invest that sort of capital [in Maui] would be with the surety that Methanex will still be around for some considerable period of time to essentially act in the market as an underwriter for that capital spend,” says Kidd. A “Methanexit” would boost gas supply for a while, he says, but it would also cut investment to keep existing fields flowing.
Where does this leave household gas users? People still see gas as a plus, says Ray White Remuera’s Matt Gibson. “They can have a long shower and it frees up space having no hot water cylinder. People are still pretty keen on it for cooking.”
Andrew Eagles, chief executive of the Green Building Council, thinks about 5000 homes a year connect to the network. Then there are new users of bottled gas, which is the only option for South Islanders.
He thinks both are a bad idea. The council has a Homestar standard which seeks to make houses warmer, drier, healthier and cheaper to run than houses built to the New Zealand Building Code. Homestar houses must be all-electric to achieve a top rating.
Victoria will ban natural gas connections to all new homes from 2027 to lower energy bills and conserve gas supplies. Photo / Getty Images
The council focused on easing the country’s gas constraints in a recently released report, supported by organisations including the Major Electricity Users’ Group and the Wood Processors and Manufacturers Association. It shows switching residential and commercial buildings to electric heat pumps for space and water heating will free up significant gas.
“Gas is well placed to serve wood processors and people growing cucumbers and tomatoes,” says Eagles. “It will be a while before they transition. But that doesn’t mean we need it in our homes and our buildings.
“Currently, 15% of all gas used is in our homes and buildings. If we weren’t using it, more gas would be available for them.”
On the present trajectory, residential and commercial buildings will use a quarter of the country’s gas by 2030, and half by 2035.
The success of a switch to electricity relies on heat pumps – not just standard electric heaters or hot water cylinders – because they use less energy for the same heating. Hot water heat pumps use about a quarter of the energy required by standard electric cylinders.
A mass switch from gas would increase electricity demand, but demand would be halved if standard electric heaters and cylinders were also swapped for heat pump versions. Full heat pump adoption would save households up to $1.5 billion a year on energy bills at today’s prices, says Eagles.
He feels sorry for people whose bills will keep growing. “What about Mrs Smith, who’s 75 and moving into her granny flat, who has people come along and say, ‘Look, Mrs Smith, yes, connect up to gas.’ Two things are going on. One is, they’re listening to the gas industry which is saying there’s always going to be gas, but actually we don’t know that. And secondly, we’ve just seen almost a 20% uplift in price, and that’s likely to continue. Mrs Smith doesn’t know any of this.”
Threat to business
The council’s report mentions Glucina Alloys in Auckland, which recycles pure aluminium from waste using much less energy than making new aluminium. The nine-employee company faces a new gas contract at twice its existing price, or $800,000 to swap to an electric furnace. Unlike the gas furnace, if it breaks down there are few engineers with the skills to repair it. Or the company may move to waste oil or LPG.
“If just 1000 homes weren’t on gas, that would free up the gas equivalent of what they need,” said Eagles. “How irresponsible is it to put gas into people’s homes when businesses are going out of business because they can’t access it? Families are losing their livelihoods.”
From left: From top, Vector CEO Simon Mackenzie; EECA’s Marcos Pelenur; GasNZ’s Jeffrey Clarke. Photos / Supplied
According to energy transition non-profit Rewiring Aotearoa, most homes and many businesses can save money by switching, even if they have to borrow to do so. It’s cheaper to pay for electricity and loan repayments than to keep paying gas bills and fixed daily charges. Some banks offer very low interest rates for mortgage top-ups to fund such things.
Eagles suggests going further: subsidies for heat pumps, which are common overseas. Things could shift fast, he says, if there was also a gas connection phase-out.
The Climate Change Commission suggested one in 2021 but abandoned it. But it’s happening in Victoria, Australia. From 2027, new homes and commercial buildings must be all-electric, and broken gas water heaters must be replaced with heat pumps. The state funds training for gasfitters to install heat pumps.
A similar phase-out here would leave gas network operators in a pickle. Genesis has already stopped supplying gas to new-builds and subdivisions. New gas connections to Vector’s network dropped from about 4000 in 2021 to 1300 last year, says chief executive Simon Mackenzie, probably due to several factors. “I think there’s this general concern around gas availability and the future of gas that is putting people off.”
He predicts more disconnections than new connections within two years. That means fewer people paying for the network, and Vector can increase its charges only in line with inflation.
“In the older parts of the network, if you have fewer customers, and there’s no growth, and a major upgrade is required that costs tens of millions of dollars, it gets to a point where it’s potentially uneconomic,” says Mackenzie. Vector could decide to stop operating that network part, forcing some customers to swap to electricity.
The gas industry, however, reassures its future customers. Auckland Heating and Gas’s website says, “You can be sure that natural gas and LPG will keep flowing as NZ makes the shift to future low- or zero-carbon gases.”
Biomethane promise
Industry body GasNZ called the Climate Change Commission’s suggested phase-out an “existential threat”, created an advertising and social media campaign and lobbied the government. Later, it presented to the World LPG Association outlining how it successfully had the ban dropped.
Unlike the gas furnace, if an electric furnace breaks down there are few engineers with the skills to repair it. Photo / Ken Downie
The industry’s campaign relies on the promise of biomethane, which it calls renewable gas. Biomethane has started flowing into gas mains at Reporoa, near Taupō, but only as a fraction of what is still mostly fossil gas. It’s made from Auckland’s food scraps at the Ecogas Reporoa Organics Processing Facility. The fermenting scraps produce biogas for electricity, plus heat for a nearby tomato greenhouse.
Last year, the site began refining biogas into biomethane – enough to fuel 7200 homes. Biomethane is chemically identical to natural gas and has much lower, but not zero, greenhouse gas emissions. Refining it also produces carbon dioxide, which boosts tomato yield by 20%.
In the short term, enough biomethane could be refined to cover 1% of the country’s gas needs. Much more is possible, but refining is expensive. That means biomethane’s estimated price would be $20-$36 per gigajoule or more, whereas wholesale natural gas is currently about $12.
Still, GasNZ chief executive Jeffrey Clarke would welcome government support for it. “As far as we’re aware, there hasn’t been an economy in the world where the industry hasn’t started by having some kind of support. Here, they’d be risk-mitigation methods rather than necessarily subsidies.”
Clarke says the price will change depending on multiple factors: the scale, any incentives or tariffs, and market factors – not least liquefied natural gas importation, which is being pursued and is likely to cost $20 a gigajoule to get here, plus receipt, storage and transport costs.
Co-funding for industry to transition, rather than for the fossil fuel industry, would be far more constructive.
Anonymous
But some industries really want bio-methane, he says. “There are people willing to sign contracts today.”
For many users with smaller balance sheets, getting off gas is impossible or prohibitively expensive. A recent BusinessNZ survey showed most of the survey’s 66 respondents were already paying between $100,000 and more than $4m a year for gas, and their gas contract prices had increased by 20-150% in five years. Such users often need high-temperature process heat, which is energy-hungry.
Certainty needed
Many must soon renew their contract at much higher prices, if they can get one. There were chilling descriptions of the potential for higher food prices, hundreds more job losses and more reliance on imported goods.
Asked whether it was viable to transition to alternative fuels, responses were split. Those who said it wasn’t saw cost, uncertainty or unproven technologies as barriers. Many had investigated converting to electricity, and several said their local grid couldn’t deliver the extra load.
Glucina Alloys in Auckland recycles pure aluminium from waste using much less energy than making new aluminium. Photo / Ken Downie
One anonymous comment said, “Transitions are possible but it is difficult to plan for and justify these when the market and future is volatile. If the government stuck to the inevitable decarbonisation path with a steadily declining gas supply and a higher price then we can plan for this. Where there is a possibility of ongoing extraction with potential remaining for larger finds to suppress prices, then it’s harder to provide certainty for a business case. Equally, if the government provided co-funding for industry to transition, rather than for the fossil fuel industry, that would be far more constructive.”
That co-funding has gone. In 2020, the Government Investment in Decarbonising Industry (GIDI) Fund was launched, paid for from the Emissions Trading Scheme. Among many conversions, it helped a large grower switch to heating its greenhouses for tomatoes, capsicums and eggplants with biomass. The fund was called “corporate welfare” and discarded by the coalition government.
GIDI was administered by the Energy Efficiency and Conservation Authority (EECA). Its chief executive, Marcos Pelenur, thinks there’s still plenty to be achieved. EECA has always advised on energy efficiency and process optimisation, and it still does audits and feasibility studies with businesses so they can make gains. “Efficiency in those types of measures can help businesses save 10-30% of energy costs off the bat,” says Pelenur.
When the Ukraine War collapsed gas supplies into Europe and the price soared, it was a parallel to what is happening in New Zealand, he says. “Europe leaned very hard into energy efficiency, and it was able to reduce its primary energy use between 2021 and 2023 by 6%, which is absolutely massive, through efficiency.”
Part of that is shifting electricity demand away from peak times by incentivising customers and using smart grids, he says. “Anything you can do to shift means you’re using your network more efficiently.”
The cost of upgrading networks is in the billions, he adds. Plus, meeting demand during higher peaks often means burning gas, diesel or coal.
Shifting demand leaves more gas for industries and sectors that don’t have an economic transition path away from gas, Pelenur says.
The EECA is also exploring novel finance offerings to help energy users access clean fuels and technologies without expensive upfront costs. “We could back the technology, because we’ve got the data to know the performance of biomass and heat pumps in different settings.”
There’s no real debate, everybody wants to to electrify. But switching to a standard heater or hot water cylinders is not enough. Photo / Getty Images
One option being considered is energy or heat as a service, where businesses contract a third party to install energy upgrades and equipment, and pay for it with a regular fee.
Gas and magazines
And what of the Listener? Printing it involves freshly printed paper going through gas-powered ovens to set the ink. That’s done by magazine and catalogue printer Webstar. Its general manager, Robin Bowkett, says the print industry has searched fruitlessly for an electric alternative that provides the same speed and intensity of heat.
Webstar’s three-year gas contract ends mid next year. After several refusals from suppliers, an energy broker recently found it a deal. It already spends some $500,000 annually on gas, and the new price is nearly three times more.
“I’m lucky I’ve got a supply agreement,” said Bowkett. “It would have had terminal ramifications for the weekly magazine market in New Zealand.” He’s yet to negotiate future printing costs.
Where will this end up? Consultant John Kidd says everybody wants to electrify. “There’s no real debate; that’s sort of past. The end game is to replace molecules with electrons. You want to replace petrol, diesel, gas, LPG with electrons, which we can produce domestically.
“But transition is a word people really get wrong a lot of the time. Transition is exactly that. It involves a period of time when you move on, ideally on a planned basis, from where you are to where you want to be.”
Despite viable and healthier alternatives, some people are addicted to cooking with gas. Photo / Getty Images
Cooking, regardless of its fuel, is a minor user of energy compared to space and water heating in homes. But gas cooking is an incendiary topic. Proposals to ban gas stoves in the US hit major resistance in 2023. “God. Guns. Gas stoves,” Republican politician Jim Jordan posted on X.
Gas cooking produces the lung irritant nitrogen dioxide, which aggravates asthma and impedes lungs’ ability to fight infection. Rangehoods help, but not as much as you’d think, and only if they’re actually used and are flued to the outside. EECA recently released a report on this, which aligns with international evidence and concerns. The report didn’t mention cancer, but a recent Stanford University study linked unventilated gas stoves to higher lifetime cancer risks for children.
Some people are attached to gas cooking. It’s common in restaurant kitchens. An appliance salesperson told the Listener that Asian and Indian customers are particularly likely to buy gas hobs.
In general, he said, customers buying for new-builds or major renovations choose electric induction hobs, which heat up fast like gas. For replacements, it’s pricey to switch to induction, both to buy the appliance and to pay for the gas shut-off and the rewiring that’s often needed to supply big bursts of electricity.
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