Government wants to bypass fast-track process for proposed liquefied natural gas terminal

Source: Radio New Zealand

A proposed liquefied natural gas terminal will bypass even the fast-track process in order to be built in time for winter next year, documents show.

The government plans to rush through as many of the required approvals as possible ahead of the election, “to give the preferred supplier greater policy certainty that New Zealand is committed to developing the facility”, a Cabinet paper said.

A critic of the proposal says pushing the entire process through so quickly is unwarranted and the public and local communities should be properly consulted.

Energy Minister Simon Watts said this week that the government would proceed with plans to commission a liquefied natural gas (LNG) import facility in Taranaki, with whole-of-life costs spread across all electricity users through a levy.

Watts said it would result in overall savings to households, because it would help to lower electricity premiums during dry years when hydro lakes ran low.

The Cabinet paper, released after the announcement, noted that “timing is very tight” to get the facility up and running in time for winter 2027.

“An LNG terminal will require regulatory consents and approvals if it is to be operational ahead of winter 2027, and the existing Fast-track Approvals Act 2024 processes are unlikely to be sufficient,” Watts wrote.

“I propose developing an Enabling Liquefied Natural Gas Bill to provide the necessary consents, approvals, levy power and any modifications to existing legislation to enable the preferred LNG facility to be built and operational ahead of winter 2027.”

That would protect against the risk of late project delivery, the paper said.

The paper also warned that a future government might not proceed with LNG, and recommended signing contracts by the middle of this year to lock the concept in.

Expediting consents through special legislation would also help, it said.

“Our objective is to provide as many of these approvals as possible before the election.”

There were still risks even with a rapid consent process.

“LNG import facilities are highly technical in nature,” the paper said.

“Further, New Zealand does not have an ideal location (large deep-water port close to the main gas pipeline) to locate an LNG import facility, meaning that the technical challenges of importing LNG here are more significant than in some other countries.”

The government should carry out further technical analysis before proceeding with a preferred proposal, and “be prepared not to proceed with an accelerated proposal should further analysis suggest that the proposal(s) is/are unworkable”.

That could include considering options that might not be up and running until late 2027 or early 2028.

However, any construction and delivery delays could mean “substantial industry exits”, the paper warned.

During the 2024 energy crisis, several industrial users paused operations while others closed completely.

2027 not ‘a magical winter’

Environmental Defense Society chair Gary Taylor said the LNG proposal and the timeframe “sounds like another rushed project, redolent of the [Interislander] ferry fiasco”.

“Good policy, particularly when it involves significant capital investment, should not be rushed like this,” he said.

“I don’t see why the winter of 2027 is a magical winter. If time is constrained, then let’s go for winter 2028 and do it properly.”

Claims of more industry exits if a dry year occured in the meantime were just that, he said.

“Those with vested interests do tend to wave shrouds to support their cause.”

Instead, additional time could be used for a more considered analysis of the proposal and its alternatives, along with more meaningful engagement during the political process.

“It would enable much better consideration than you’re going to get through a rushed select committee process if this proposed bill is put through the House under urgency,” Taylor said.

Multiple reports, including one commissioned by the government, have warned that imported LNG should only be considered as a last resort.

An annex to the Cabinet paper, comparing LNG to alternatives such as diesel peakers, concluded LNG could be brought online faster than any other option – though it gave a timeframe as late as 2029 to get a facility operational.

No substantive consideration was given to grid-scale battery storage systems, or rooftop solar.

Large-scale battery technology had not progessed enough to cover “long-duration cover needs”, while rooftop solar would not provide enough additional energy during winter, when supply was most likely to be a problem, the annex said.

Cabinet proposal mirrors independent report details

Much of the detail in the Cabinet paper mirrored the findings of an independent report commissioned from Boston Consulting Group (BCG) last year by the four gentailers – Contact, Genesis, Mercury and Meridian.

That report recommended LNG only as a fuel of last resort and recommended a $2 per megawatt hour (MWh) levy across all gas and electricity users to make it economically feasible.

The Cabinet paper referenced the BCG report several times, including its estimate of a $10/MWh saving on electricity prices.

A spokesperson for Watts’ office said the $10/MWh was “estimated by MBIE based on Concept Consulting modelling and MBIE’s analysis”, but said it was also consistent with the BCG estimate.

That $10 figure – together with the final proposed levy of between $2 and $4 – appeared to be the basis of the government’s claim that households would save an average $50 on their annual power bills.

A net $8/MWh saving – if it were passed on in its entirety – would translate to between $56 for an average household using 7MWh of electricity a year.

Watts’ spokesperson did not confirm whether that calculation was the same one the government had arrived at.

The Cabinet paper underscored the importance of not creating an ongoing dependency on LNG, which it said would risk an overall increase in power bills.

“Put simply, LNG should function as an insurance product: available when required but used only infrequently. Perhaps counterintuitively, LNG provides the greatest benefit when it is available as back-up and rarely used.”

BCG partner and report author Richard Hobbs said having LNG as a stand-by option in that way broadly made sense, but BCG had made many other recommendations.

“In and of itself, it’s not a silver bullet. There are a lot of other things that need to be done.”

The government needed to keep up the pace of renewables development, and address domestic gas supply and demand.

That included focusing on extracting what remained in existing gas fields – not exploring for new fields that could take a decade or more to come online.

The major gap was “really around the demand side, where there is not a programme to support users to transition from gas to electricity or biomass”, Hobbs said.

His report had recommended a $200 million fund to assist that transition.

The government scrapped the Labour-led government’s Government Investment in Decarbonising Industry (GIDI) fund, which served a similar purpose.

The Cabinet paper noted the need to “continue efforts to strengthen domestic gas supply and ensure alternatives like biomass and electrification continue in parallel, to create optionality, not dependency [on LNG]”.

It noted the BCG recommendation to set up a transition fund but did not endorse or suggest such a policy.

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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand