All of which rather misses the point.
The LNG terminal is not the Government’s preferred energy policy. It is the consequence of its predecessor’s.
In October 2018, I wrote about the gulf between virtue-signalling and virtue. The occasion was the release of the Ministry of Business, Innovation and Employment’s Regulatory Impact Statement on the Ardern Government’s ban on offshore oil and gas exploration.
The ministry’s advice was sobering. Rather than reducing emissions, it warned the ban would likely increase global greenhouse gas emissions, as production shifted to less efficient plants overseas. And far from making New Zealanders more prosperous, it would make them poorer. The midpoint estimate of losses to the Crown alone was $16.6 billion.
I warned then that the Government would be judged not by the virtues it signalled, but by those it delivered. The verdict is now in.
The exploration ban did not reduce emissions. It capped New Zealand’s offshore gas reserves at a stroke, scaring off for the foreseeable future the investment needed to discover and develop new fields and extend the existing ones. No new gas was going to flow overnight.
But in investment and commodity markets, expectations matter as much as current production. Credible exploration pathways would have eased the scarcity premium and given generators the confidence to contract for future supply.
Instead, the opposite happened. As domestic gas became harder to secure, generators leaned on the only fuel that was stockpilable, dispatchable and available at scale: coal. A policy designed to hasten decarbonisation made New Zealand more dependent on its dirtiest fuel.
The previous Government compounded the problem with its Lake Onslow pumped hydro scheme – a multibillion-dollar mega-project that chilled private investment in the firming and storage solutions the electricity system desperately needed. Why would a private firm invest in dry-year insurance when the Government might build a giant scheme that would eliminate the scarcity rents on which the business case depended?
The result was the electricity crisis of 2024. Wholesale prices spiked. Winstone Pulp International closed, costing 230 jobs. Transpower came perilously close to ordering rolling blackouts.
This was not a market failure. It was the predictable consequence of regulatory choices that had stripped the market of the tools it needed to function.
To its credit, the current Government resisted the calls for price controls during that crisis. Price signals play a crucial role in directing scarce resources, encouraging new supply and highlighting where investment is needed. The Government understood this. It reversed the exploration ban, commissioned a serious independent review, and when the Frontier Economics report recommended against radical restructuring of the electricity market, it accepted that verdict.
The LNG terminal is the final piece of that measured response. It is insurance – a backstop fuel source for when hydro lakes are low, wind is weak and domestic gas cannot be secured. At up to $180 million a year over 15 years, it is considerably more expensive than the gas New Zealand might have had from its own offshore fields. But it may be the least-bad option now available.
A more elegant approach might have embedded the cost in the market’s existing commercial structures rather than a visible levy that has proved an easy political target. But perfection is a luxury unavailable to governments cleaning up inherited messes.
Solar and batteries work for daily peaks, but dry-year risk is about sustained energy deficits lasting weeks or months. Photo / 123rf
What of the critics who say the money should be spent on solar panels and batteries instead? The argument confuses two different problems. Solar and batteries work for daily peaks – shifting power from sunny afternoons to dark evenings. But dry-year risk is about sustained energy deficits lasting weeks or months, typically in winter, when solar generation is at its lowest. Comparing batteries to a seasonal fuel backstop is like comparing an umbrella to a flood levee. Both keep you dry. Only one works when the river rises.
Is an LNG terminal the ideal solution? No. Had the 2018 exploration ban never happened, this expensive imported insurance would very likely be unnecessary. But that is not the world we live in.
The Government inherited an energy system made fragile by its predecessor’s choices. It has responded with pragmatism rather than ideology – resisting price controls, letting market signals work and now securing the dry-year backstop the system lacks. Reasonable people can debate whether LNG is the lowest-cost form of that insurance. But the need for insurance is not in doubt.
Damned if they do. Damned if they do not. The more interesting question is who did the damning.
The answer lies in the cumulative cost of policies designed to signal virtue rather than deliver it. The exploration ban. The pumped hydro overhang. The 100% renewable target that left little room for reliable back-up generation. Each seemed costless at the time. Each was cheered by those who valued the gesture over the outcome.
The bill, as it always does, arrived later – in higher power prices, lost jobs, a more fragile energy system and now a billion-dollar terminal to import gas that New Zealand could have produced itself.
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