Cabinet has moved quickly to approve a raft of actions to address the serious risk to New Zealand’s energy security and affordability, Energy Minister Simeon Brown and Resources Minister Shane Jones say.

“New Zealand currently has an energy shortage. The lakes are low, the sun hasn’t been shining, the wind hasn’t been blowing, and we have an inadequate supply of natural gas to meet demand,” says Brown.

“That has led to New Zealand currently having the highest wholesale electricity prices of any of the countries we normally compare ourselves to. It is devastating for our manufacturing and export sectors, and is sadly leading to firms reducing production or closing entirely."

Brown says New Zealand needs abundant, affordable energy.

"That's why the Coalition Government is taking a series of immediate actions to restore confidence to our energy sector and remove regulatory barriers that have stopped firms generating electricity or bringing in the fuel that Kiwis need.”

Cabinet has committed to:

• Act with urgency to reverse the ban on offshore oil and gas exploration, with legislation passed by the end of 2024
• Remove regulatory barriers to the construction of critically needed facilities to import Liquefied Natural Gas (LNG) as a stop gap
• Ease restrictions on electricity lines companies owning generation
• Ensure access for gentailers to hydro contingency
• Improve electricity market regulation

Natural gas production dropped by 12.5 per cent in 2023 and by a further 27.8 per cent for the first three months of this year, creating a nationwide shortage. This has resulted in reductions in manufacturing output, and electricity generators resorting to more coal and diesel to power our electricity system.

Resources Minister Shane Jones. Photo: Supplied.

“Unlike many other countries, New Zealand is blessed with energy resources under our feet. Natural gas has drawn new industries to our shores, created well-paying jobs in our regions, and powered the producing, manufacturing, and exporting businesses that are the backbone of our economy,” says Jones.

“It is critical for New Zealand that these keep going, but already some businesses are having to close their doors until energy prices come down; with hundreds of jobs at stake. That’s why we are taking urgent action to shore up our energy security.

“Oil and gas explorers need to have the confidence to invest here and know they will have a key place in New Zealand’s energy sector now and into the future.”

The Ministers will report back to Cabinet in October with options for mitigating sovereign risk in an LNG facility and domestic gas production.

 Cabinet has agreed to:

• Act with urgency to reverse the ban on offshore oil and gas exploration, with legislation passed by the end of 2024

New Zealand's electricity system relies on gas to meet peak demand during cold winter mornings and evenings. Tight gas supply is currently contributing to higher prices, with gas generators struggling to obtain the fuel necessary to offset the current seasonal conditions negatively affecting renewable generation. 

• Remove regulatory barriers to the construction of LNG import facilities

LNG is used widely overseas to provide a flexible and scalable supply of energy. MBIE estimates that around 50 countries across the globe use LNG to support their domestic energy production.

Cabinet has agreed to legislate consents for an LNG terminal. Project-specific legislation has been utilised previously, including for projects such as the National War Memorial in Wellington.

Imported LNG will support flexible generation of electricity, but is unlikely to replace the energy needed from stable, year round, domestic gas. 

Officials have received estimates that the price range for importing LNG to New Zealand using the spot market could be between $17/gigajoule and $24/gigajoule. That price range is below the current NZ gas spot price which traded at an average of $55.27/GJ on Wednesday 14 August 2024, an all time high. 

• Ease restrictions on electricity lines companies owning generation

Electricity distribution businesses (EDBs) are currently prohibited from owning generation assets of more than 50MW connected to their own network, and are also required not to own assets of more than 250MW connected to Transpower’s network. The Government has agreed to ease these restrictions to increase electricity generation, and bolster regional resilience. Details will be confirmed by Cabinet later this year. 

• Enhanced access to extra, contingent, hydro storage

Current hydro storage is among the lowest levels on record and the lowest since 1992. 

The Cabinet is receiving advice on whether the settings to enable the draw-down of hydro lakes below their consented levels are currently fit for purpose and adequately take into account energy security. If changes are needed, then they will be progressed through the Energy and Electricity Security Bill ahead of winter 2025.

• Improve electricity market regulation

The Government will undertake a review of the performance of the electricity market. We want to ensure market arrangements deliver reliable electricity at lowest cost, and that the market is efficient, effectively competitive, and fit for the future. Details of the review will be finalised in the coming weeks.