The year-long study by the Christchurch-based Centre for Advanced Engineering warned against plans to import LNG as a substitute for indigenous reserves but said there was a “window of opportunity” of only a few years for the exploration industry to find the additional domestic gas necessary to avoid costly imports.
“The investigation reinforces that New Zealand should be extremely wary about importing high-cost fuels, and what that will mean in the long term,” said CAE executive director George Hooper.
“If LNG is established we will continue to be over-dependent on one type of thermal fuel, just as we have been with Maui gas.”
The key difference between the Maui era and now was that the remaining thermal reserves were low relative to the rate of consumption. This situation had given upstream companies a much improved business case for investment and exploration, with the resultant long-awaited upturn in activity.
“Our investigations forecast a supply gap in indigenous natural gas from about 2012 unless new discoveries are made. However the fundamentals for successful gas exploration are good, and with the higher level of exploration occurring now there are good prospects for restoring New Zealand’s gas inventory and improving our energy supply security,” Hooper said.
Any early commitment to imported LNG would discourage new prospecting, according to Hooper. CAE investigations showed a likely LNG price in the region of NZ$8.70/GJ, based on a New Zealand dollar at US55 cents and oil at around US$30 a barrel.
“If a company or consortium can bring in LNG and accept all of the commercial risk then that is their decision. But if the government intends to take a role in an LNG network, such as underwriting some of the commercial risk, then the LNG network becomes a matter of public policy . . . there must be full consultation with all industry stakeholders,” he said.
“For major energy users the price of thermal fuel will be critical. Higher costs will adversely impact on New Zealand’s international competitiveness and the economy as a whole. Public policy needs to examine the risks between establishing thermal fuels certainty and the impact on indigenous production.”
Hooper said LNG would not resolve a dry-hydro electricity shortage and could discourage further investment in other energy forms.
“Our study suggests that committing to an LNG network too soon will take value out of the economy by discouraging the development of indigenous reserves,” he said.
CAE modeling showed the real cost of LNG imports in 2017 could be NZ$600 million, with half being paid for by higher exports and lower private consumption, leaving about NZ$300 million to be accommodated by a change in the mix of imports.
“We consider the commercial viability of LNG importation into the small New Zealand market is doubtful at present,” he said.
