going through a procurement process<\/a> to have an LNG terminal established in Taranaki by 2028.<\/p>\n\u201cThe LNG import facility will provide a reliable backup fuel source, reducing the impact of dry-year risk on electricity pricing and stabilising electricity costs,\u201d Minister for Energy Simon Watts said. <\/p>\n
\u201cIt will also add another layer of resilience by giving New Zealand access to additional supply options if domestic gas supply tightens unexpectedly.\u201d<\/p>\n
Watts said importing more coal during a dry year wasn\u2019t enough, so it made sense to enable companies to import LNG and turn it into electricity using existing plants that aren\u2019t operating at capacity due to a lack of gas. <\/p>\n
He said the Government would pay to set up an LNG import facility by levying the electricity sector.<\/p>\n
Depending on contractual arrangements, Watts estimated the levy would be between $2 and $4 per megawatt hour (MWh) of electricity produced.<\/p>\n
He said this cost would be more than offset by the terminal removing the risk premium (worth around $10\/MWh) currently included in the price of electricity due to uncertainty around supply.<\/p>\n
Accordingly, he argued the terminal would put downward pressure on electricity prices for consumers.<\/p>\n
Sector looking for certainty and bipartisanship<\/p>\n
Speaking to Newstalk ZB, Contact Energy chief executive Mike Fuge agreed the certainty around having access to gas would put downward pressure on prices.<\/p>\n
However, he said the project really needed bipartisan political support.<\/p>\n
Labour leader Chris Hipkins was unsupportive of the terminal but wouldn\u2019t unveil the energy policy his party would take to the election. <\/p>\n
He didn\u2019t rule out tearing up the agreement the Government hoped to reach by the middle of the year to have the terminal built, if elected to govern.<\/p>\n
Hipkins also took aim at the Government for paying for the terminal by \u201ctaxing\u201d consumers.<\/p>\n
However, Watts said the Electricity Authority would monitor prices, ensuring savings from the terminal removing risk from the sector were in fact passed on to consumers. <\/p>\n
Gentailers wary of costs<\/p>\n
Fuge believed the cost of establishing the terminal should be spread more widely \u2013 including to all gas users \u2013 rather than just falling on the electricity sector. <\/p>\n
Frontier Economics, in May, warned the Government: \u201cIt would make no economic sense to develop an LNG import terminal to meet just dry-year risk, as the large fixed costs would be spread over a relatively small amount of output. <\/p>\n
\u201cIf an LNG terminal is contemplated as a last resort to provide NZ with a secure energy system, this should be considered as part of a wider gas supply strategy …\u201d<\/p>\n
Genesis chief executive Malcom Johns told the Herald Genesis had been \u201cactively assessing\u201d the potential role of LNG as a part of its broader fuel strategy for more than two years.<\/p>\n
\u201cAny involvement by Genesis would be based on commercial discipline and a clear focus on managing energy costs for New Zealanders,\u201d he said. <\/p>\n
Johns said LNG \u201ccould be complementary to our existing flexible generation and gas portfolio, particularly as the market develops future electricity security products and firming arrangements\u201d.<\/p>\n
Simon Upton wary <\/p>\n
However, Parliamentary Commissioner for the Environment Simon Upton feared electricity companies could start relying on LNG. <\/p>\n
\u201cIf the rationale for using LNG is to provide dry-year risk insurance, then it is important that LNG use is confined to addressing that problem and only for as long as is needed to develop a more durable solution,\u201d he told the Herald. <\/p>\n
\u201cIf the availability of LNG is used … [for] thermal firming at peak demand or industrial use of gas, we risk a new path [of] dependency on fossil fuel.\u201d<\/p>\n
Upton \u2013 a former National Party minister \u2013 noted relying on LNG would be costly and bad for the environment. <\/p>\n
\u201cFrom an emissions perspective, it isn\u2019t clear that LNG is any better than coal when you look at the whole life cycle, including liquefication and transport,\u201d he said. <\/p>\n
Upton also raised his concerns in a letter he sent to Watts in November. <\/p>\n
In it, he said the Government should consider \u201celectricity market conditions of today are unlikely to be representative of the future\u201d. <\/p>\n
\u201cFor one thing, much of the uncertainty, which has hampered investment in new generation (will Tiwai close, for example), has been resolved. <\/p>\n
\u201cFor another, the reality of domestic gas prices has led market participants to insure themselves (via the Huntly strategic reserve proposal \u2013 a proposal that LNG could be seen as competing with) as well as seek out alternatives (for example, wood pellet manufacturing and new diesel generation). <\/p>\n
\u201cThe current growth in supply of renewables is promising; if it outstrips the growth in demand for energy, the required scale of any dry year solution will be reduced.\u201d<\/p>\n
Jen\u00e9e Tibshraeny is the Herald\u2019s Wellington business editor, based in the Parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.<\/p>\n
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter<\/a> \u2013 your essential weekly round-up of all the business news you need.<\/p>\n","protected":false},"excerpt":{"rendered":"Meanwhile, the Parliamentary Commissioner for the Environment fears New Zealand will become dependent on imported LNG. The Government\u2019s…\n","protected":false},"author":2,"featured_media":276329,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[8038,95,8613,3246,138,9935,14134,12474,3372,7237,14349,1702,17053,685,53655,43019,12235,111,139,529,69,2170,7254,19764,42912,531,5034,9833,14040,30331,23603,80],"class_list":["post-276328","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-natural","tag-and","tag-billion","tag-both","tag-business","tag-costly","tag-decision","tag-dollars","tag-dubbed","tag-governments","tag-import","tag-infrastructure","tag-insurance","tag-last","tag-liquefied","tag-lng","tag-mixed","tag-new-zealand","tag-newzealand","tag-north","tag-nz","tag-plan","tag-policy","tag-received","tag-required","tag-resort","tag-response","tag-setting","tag-spend","tag-terminal","tag-worthy","tag-zealand"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/276328","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=276328"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/276328\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/276329"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=276328"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=276328"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=276328"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}