LNG Terminal – an alternative solution
Current market outcomes indicate that available gas supply is increasingly insufficient to meet both industrial demand and electricity generation requirements simultaneously. Recent examples include industrial gas being redirected to electricity generators during periods of system stress.
In the near term, electricity generation has some flexibility to substitute gas with other fuels, including coal-fired generation at Huntly, subject to plant availability and operational decisions. This approach could allow limited gas supply to be prioritised for industrial users that face greater difficulty in switching fuels in the short term.
Decision 1: Prioritising the Use of Existing Gas Supply (Near Term)
New Zealand has sufficient gas to support industrial users, but not enough to meet both industrial demand and electricity generation requirements. This has already been demonstrated through recent market outcomes, including Methanex diverting gas to Contact and Genesis during 2024–25, and Ballance losing its Greymouth gas contract to electricity generators.
Electricity generation has viable alternatives. Coal-fired generation at Huntly can substitute gas for most available output, provided Unit 5 is retired and the currently mothballed 250MW unit is recommissioned. This would result in a net reduction of 153MW of capacity, but preserves gas supply for industries that cannot rapidly transition fuels.
Decision 2: Support Investment in Firming Generation
New Zealand has a strong pipeline of renewable generation projects, particularly wind and solar. While these technologies contribute significantly to energy supply, they do not fully address dry-year risk without additional firm generation.
Geothermal generation is a proven, dispatchable renewable resource in New Zealand, with projects currently under development by established generators. Targeted support mechanisms, such as capital co-investment or risk-sharing arrangements, could accelerate project delivery and attract private capital, reducing reliance on fuel-based generation over time.
In the short term, there are many diesel generation assets that are able to be used to provide this firming generation – EDB’s have identified more then 300MW of capacity that could be utilised as soon as winter 2026 with the right incentives. Or, alternatively, the development of baseload diesel generation could be made at a lower price point than an LNG import terminal also (circa $250M for a 300MW generation plant).
Decision 3: Enable Industry to Transition Away from Gas
Longer-term energy security can also be improved by reducing reliance on natural gas across the economy. Many industrial and commercial users have identified capital cost as the primary barrier to transitioning to alternative fuels.
Financial support mechanisms — including grants or assistance with electricity network upgrades — could enable a broader range of businesses to shift to other fuels. These alternatives may include electricity, biomass, LPG, or other available options, depending on site-specific circumstances. In this context, fuel flexibility and security are key considerations.
Addressing dry-year risk is likely to require a portfolio of measures rather than a single solution. Options such as managed use of existing gas supplies, accelerated development of firm renewable generation, and support for industrial fuel switching may collectively improve system resilience while allowing flexibility as market conditions and technologies evolve.
