The fate of a proposed liquefied natural gas (LNG) import terminal in Taranaki rests on its commercial viability, with Prime Minister Christopher Luxon stating the government will walk away from the project if the business case doesn't stack up. A decision is expected around the middle of the year following a procurement process that began last month.
The government is seriously considering the options on the table, but concerns are growing within its own ranks that high global gas prices could make the project untenable. According to sources, multiple ministers have privately conceded that the final costings might lead Cabinet to abandon the plan, which is intended to secure New Zealand's energy supply as domestic gas reserves dwindle.
Mr Luxon emphasised that the decision will be purely pragmatic. The government's goal is to ensure a stable and affordable energy supply for the country, but not at any cost. The project must demonstrate clear economic benefits before it receives a green light.
A solution to a looming energy gap
The proposal for an LNG import terminal comes as New Zealand faces a potential energy shortfall. The country's major natural gas fields, primarily Pohokura and Maui in Taranaki, are in decline, and no significant new discoveries have been made to replace them. This has raised alarms about New Zealand's energy security, particularly during 'dry years' when low rainfall reduces the capacity of hydroelectric dams, the backbone of the nation's electricity system.
In these scenarios, gas-fired power plants, known as 'peaker' plants, are crucial for filling the generation gap and preventing power shortages. Without a reliable supply of natural gas, experts warn that New Zealand could face rolling blackouts and a less resilient electricity grid. The proposed terminal would allow New Zealand to import LNG from the global market, providing a backstop for the energy system.
The procurement process launched by the government aims to identify a commercial partner to build and operate the facility at Port Taranaki. This infrastructure would be a significant undertaking, requiring specialised docks, cryogenic storage tanks, and regasification facilities to convert the liquid fuel back into gas. As governments across the Tasman grapple with similar issues, a national infrastructure plan in Australia is also prioritising projects amid economic constraints.
High prices and market volatility threaten project
While the strategic need may be clear, the economic argument is less certain. An import terminal would expose New Zealand's energy market to the notoriously volatile global LNG prices. Prices have seen dramatic swings in recent years, influenced by geopolitical events such as the war in Ukraine and shifting demand patterns in Europe and Asia. Committing to LNG imports means subjecting New Zealand consumers and businesses to this price instability.
This is the core of the government's dilemma. While a terminal could guarantee supply, it might lock the country into a future of expensive energy. Mr Luxon's cautious tone reflects the risk of sanctioning a multi-billion-dollar infrastructure project that relies on an unpredictable global commodity market. The 'good business case' he demands will need to prove that the benefits of energy security outweigh the significant financial risks.
The need for major capital investment comes as the government balances spending priorities across various sectors, including recent transport projects such as the Pāpāmoa East interchange, which aim to support regional growth.
A legacy of shifting energy policy
The current situation is, in part, a consequence of the previous Labour-led government's 2018 decision to ban new offshore oil and gas exploration permits. The policy was hailed internationally as a bold step towards tackling climate change, intended to signal a decisive shift towards a renewable energy future. However, critics argued it was enacted without a clear plan to manage the transition, effectively creating a supply cliff for natural gas a decade down the line.
The ban did not affect existing exploration permits or onshore drilling, but it cast a long shadow over the future of the domestic gas industry. With no incentives for companies to explore for new large-scale offshore fields, the country's path was set towards becoming a net importer of gas. The current government has been a vocal critic of the ban, and its move to explore an LNG terminal represents a significant policy pivot back towards fossil fuels as a necessary bridging fuel.
According to official data from the Ministry of Business, Innovation and Employment (MBIE), natural gas currently provides a substantial portion of New Zealand's primary energy supply, highlighting the challenge of phasing it out without a viable alternative ready to scale.
Climate commitments versus energy reality
The proposal has inevitably drawn fire from environmental organisations, who argue that investing in new long-term fossil fuel infrastructure is fundamentally incompatible with New Zealand's climate change commitments under the Paris Agreement. They contend that an LNG terminal would lock the country into dependency on a carbon-intensive fuel for decades to come, undermining the transition to a net-zero economy.
LNG is primarily composed of methane, a greenhouse gas far more potent than carbon dioxide in the short term. While gas burns cleaner than coal, environmental groups point to emissions released during the extraction, transportation, and regasification processes, known as 'fugitive emissions'. They argue that the government should instead accelerate investment in renewable energy sources like wind, solar, and geothermal, along with battery storage and demand-response solutions, to solve the energy security issue.
I genuinely want to make sure the business case is right, and if there's a good business case we'll do it, and if there isn't, we won't.
The government will need to weigh these environmental concerns against the immediate practical challenge of keeping the lights on. The final decision on the Taranaki terminal will be a telling indicator of how the coalition intends to balance its economic, security, and climate objectives.
A decision is expected in the coming months, with the outcome set to have long-lasting implications for New Zealand's energy future, its climate trajectory, and the Taranaki region itself.
