LNG in New Zealand

Background

New Zealand is experiencing a renewable electricity boom, but our rapidly declining gas supply means we don’t have access to enough gas to generate electricity when ‘dry years’ happen. Dry years are periods of time when low rainfall means we can’t rely on the hydro lakes we generally use to generate electricity. This is made worse when the wind doesn’t blow and the sun doesn’t shine.

Dry year risk and supply challenges have driven electricity prices up – leading to a decline in New Zealand’s GDP, lower productivity across the economy and higher power bills for businesses and households. The lack of a solution to manage dry years poses significant economic risks:

• $30-$50/MWh risk premium added to forward wholesale electricity prices by 2025.
• $5.2 billion loss in GDP by 2025.
• 1.65% cut in household spending and 1.4% less in real wages by 2025.
• $275 million loss in NZ trade balance by 2025.

As part of its plan to manage dry year risk and secure New Zealand’s energy system, the Government is procuring liquefied natural gas (LNG) import facility services. An LNG import facility could be in place as soon as 2027 or early 2028.

You can read about other work programmes to improve energy security and affordability here:

Review of electricity market performance

What is liquefied natural gas?

When dry years happen, the electricity system needs access to flexible, reliable fuel to generate electricity.

Liquefied natural gas (LNG) is natural gas that has been cooled and liquefied so it can be transported more easily. Importing LNG provides a back-up fuel option for electricity generation. We need it now because our domestic natural gas supply is falling, and other technologies that might replace it – like batteries – aren’t able to provide the same level of cover for the energy system yet.

When LNG will be used

LNG will be treated as an insurance policy for the energy system, available for when New Zealand needs it most. Its primary purpose will be to address New Zealand’s dry year risk by being available for electricity generation during dry periods.

LNG could also deliver more benefits for New Zealand if domestic gas production continues to decline and leads to a structural gas shortage, buying time for businesses to consider their best long-term energy solutions.

Impact on emissions

Importing LNG is expected to result in a small decrease in New Zealand’s emissions. This is because having access to imported LNG as an insurance product for the energy system means generators can use more clean, cheap hydro to generate electricity instead of keeping it in reserve for dry years.

LNG will also make it easier for generators to offer reliable back-up for their renewable generation. This makes projects more attractive to investors, helping to get more renewable energy developments get off the ground. Meanwhile, improving the security and affordability of New Zealand’s electricity system will incentivise more households and businesses to electrify.

Savings for the economy and consumers

Having access to LNG will reduce power price spikes and lower the risk premium that is currently built into power bills because of our supply challenges.

The savings on power bills alone outweigh the cost of an LNG import facility. While the costs will be significant, the positive impact of LNG on electricity prices means that consumers will gain more than double the investment in savings on their power bills. Lower electricity costs will also reduce the costs of producing goods and services, delivering long-term economic benefits for New Zealand.

Modelling tells us simply having an LNG import facility in New Zealand will lower future wholesale electricity prices by at least $10/MWh. This means:

• Savings of at least $265 million every year for the economy – regardless of whether LNG is actually used or not.
• Savings of roughly $50 per year on the average household power bill.
• Growing New Zealand’s GDP by roughly $1.2 billion per year by 2035, and saving 2000 jobs, compared to the likely scenario that domestic natural gas prices continue to rise.

The Government will recover the costs of LNG infrastructure through an electricity sector levy of roughly $2 - $4/MWh. The details of the levy will be confirmed later this year.

New Zealand's LNG import facility

The Government will contract an experienced provider to build, own, operate and maintain an LNG import facility. While the exact location of the facility is yet to be confirmed, it will likely be in Taranaki. The LNG itself will be procured separately from the import facility.

How an LNG import facility works

Importing LNG is a well-established practice around the world. LNG is stored at -160 degrees, ‘regasified’ or warmed into gas, and then sent to the gas distribution network. Typically, it involves a ship-based storage system (Floating Storage Unit), which receives LNG deliveries from a second ship (LNG Carrier) when needed.

Over 45 countries around the world import LNG – including the United Kingdom, the Netherlands, Germany, the United States, Australia, Singapore, Japan and South Korea.

Safety and the environment

Although LNG is a new energy source for New Zealand, LNG importation is a proven, safe technology:

• Natural gas and LNG are not toxic. LNG cannot be ignited.
• LNG importation is managed by a well-established industry made up of international providers with strong track record in safely delivering LNG imports and constructing and operating LNG import facilities. These providers are subject to the International Gas Carrier Code.

During the development of the LNG import facility, a safety case will be required to identify risks and mitigations across the construction and operation of the import facility. The safety case will be approved by New Zealand regulators.

We will minimise and manage the environmental impacts of the LNG import facility as much as is reasonably practical. If the facility is within, or close to, Port Taranaki, we will be particularly mindful of important local features, including the marine protected areas around the Ngā Motu/Sugar Loaf Islands and the Tapuae Marine Reserve.

Project updates and next steps

The Government has agreed to move forward with a shortlist of accelerated delivery solutions we received from the Registrations of Interest process in 2025. These will be developed further, and we are aiming to have a preferred provider confirmed by mid-2026.

An accelerated delivery model could see an LNG import facility operational in 2027 or early 2028, depending on the type of infrastructure required. Shortlisted submissions are all capable of delivering at least 12 PJ of gas over three months – enough to meet winter demand.

More information

Read a fact sheet on the LNG import facility procurement process:

You can access proactively released briefings, Cabinet papers on the LNG import facility project, and relevant modelling here:

Read the Minister for Energy’s press releases:

Delivery LNG to support energy security – Beehive.govt.nz(external link)

Securing New Zealand's energy future – Beehive.govt.nz(external link)