The Government announced last month that it would remove regulatory barriers to the construction of Liquified Natural Gas (LNG) import facilities [1]. We are not the only country considering LNG imports to shore up domestic gas supply. Ironically, Australia, one of the world’s biggest gas exporters, is facing supply issues in the South Eastern states. A gas import facility being built at Port Kembla, about 100km south of Sydney, is looking to buy gas from overseas [2]. Three other LNG import facilities are at various stages of development [3]. We sat down with one of our Australian colleagues, MinterEllison Partner and energy expert David Perks, to discuss some key considerations for LNG importation.

What is LNG?

LNG is natural gas that has undergone a refrigeration process that condenses it to a liquid state. It is ideal for bulk transportation because it is 1/600th the volume of its gaseous state and not combustible. At its point of destination, LNG is heated to restore it to its gaseous state then injected into the local gas transmission and/or distribution networks.

LNG in New Zealand

Importing LNG to New Zealand is not a new idea. It was considered by Genesis Energy and Contact Energy 20 years ago and canvassed in August 2023, as part of the Ministry of Business, Innovation & Employment (MBIE) Gas Transition Plan Issues Paper. Given the significant costs, MBIE did not consider it viable.

So, what’s changed in a year?

New Zealand’s faster than expected dwindling domestic gas supply has created serious concerns about our energy security and affordability. The Gas Security Response Group has been working with the Gas Industry Company on the feasibility of LNG importation. The original development cost estimates have reportedly decreased significantly to between $80m and $180m – down from between $140m–$624m [4] – for facilities at Marsden Point and Port Taranaki, with the Port recently suggesting it could get underway for ~$50m. LNG prices have also reportedly decreased since the estimates used for the Gas Transition Plan Issues Paper [5].

LNG import terminals

Importing LNG via Floating Storage Regasification Units (FSRUs) – as proposed – is relatively straight forward:

• ships specially fitted with storage units and regasification technologies (FSRUs) dock at port terminals;
• the FSRUs receive LNG from transport ships which dock alongside; and
• the FSRUs store the LNG until it is needed, at which point the LNG is regasified and delivered to the end user.

When considering a site for an LNG import terminal, key considerations include the infrastructure costs (e.g., wharf upgrades or offshore mooring points), delivery capacity (e.g., existing LNG pipelines and their capacity) and the site’s proximity to end users, particularly generators.

There are other important issues to address.

Securing supply

New Zealand may face challenges securing a reliable supply of LNG at reasonable prices due to our unique circumstances:

• New Zealand’s demand forecast is uncertain and small relative to larger importers which may limit our bargaining power in a competitive global market. New Zealand may need to clarify its demand forecast when negotiating long-term supply agreements.
• Taking an equity stake in greenfield LNG projects is a common strategy for importers as it provides them with greater control and security over their supply. New Zealand may need to consider alternative investment / underwriting arrangements to secure a better and more stable price.
• New Zealand will need to consider its proximity to exporters and the associated delivery lead times when negotiating supply contracts. If we can secure exports from Eastern Australia, then lead times may be in the realm of days. However, lead times from further afield may be weeks or even months.

Offtake agreements

Securing offtake agreements or commitments will be an important part of an investment decision. Offtake agreements would likely be a take or pay arrangement in order to provide certainty of revenue for the import terminal owner.

Regulatory barriers

Time estimates for getting an LNG import facility operational vary from six months to three years. While the Government has committed to “removing regulatory barriers”, just how that will look is an unknown.

There is precedent for the swift build of LNG import infrastructure. In June 2022, in the aftermath of Russia’s invasion of Ukraine, Germany passed the LNG Acceleration Act [6]. The aim was to accelerate the approval and construction of LNG import facilities to help overcome the gas supply crisis. The Act simplified and sped up administrative and legal procedures including environmental and public procurement laws. As a result, Germany built its first LNG import terminal just nine months after announcing its intention to do so.

Futureproofing

Should New Zealand pursue LNG import facilities, we also need to give careful thought to futureproofing. One of the reasons cited for Germany’s ability to pass the LNG Acceleration Act so quickly is that it had a narrow scope, a sunset clause, and a phase-out provision. The permits for the German LNG facilities are limited to 2043 at the latest, consistent with Germany’s climate targets. Continued operation beyond that date can only be for climate-neutral hydrogen and its derivatives.

Similarly, an LNG facility proposed for Adelaide is being designed to power onshore and offshore operations with 100% renewable energy and to futureproof its facilities to blend hydrogen and LNG [7].

While the Government’s announcement about LNG indicates its preferred direction, there are still many outstanding issues to resolve. These include market participants’ appetite, funding, and mitigating sovereign risk. We will need to take a swift, but considered, approach if we are to pursue this course.

Please get in touch with one of our Energy experts if you would like to know more.

Footnotes

1. Urgent action taken to bolster energy security | Beehive.govt.nz.
2. Once unthinkable, gas giant Australia is set to import supplies for the first time | ABC News.
3. Future Gas Strategy (industry.gov.au), p.44.
4. https://www.mbie.govt.nz/dmsdocument/27262-lng-import-and-options-to-increase-indigenous-gas-market-capacity-and-flexibility-in-new-zealand-march-2023-pdf; https://newsroom.co.nz/2024/08/15/marsden-pt-and-taranaki-ports-to-vie-for-100m-plus-lng-import-terminal/.
5. Ports cheapest options for receiving LNG | Energy News.
6. LNG: securing national energy supplies | Federal Government (bundesregierung.de).
7. World's first renewable-powered floating LNG import terminal closing in on new partners amid ‘strong’ interest - Offshore Energy (offshore-energy.biz).