NZ Needs ‘Significant’ Funding to Enable Conventional LNG Importation

An industry-commissioned assessment found the importation of natural gas into New Zealand is technically viable, but one of the companies that ordered the study said Thursday building liquefied natural gas (LNG) infrastructure in the country appears to be “more challenging than anticipated”.

The study, commissioned following a rapid fall in domestic gas that prompted a reversal on climate policy, looked at conventional-scale LNG import infrastructure and smaller-scale solutions. The “New Zealand LNG Import Feasibility Assessment” was conducted by the United Kingdom-based Gas Strategies Group Ltd. with support from New Zealand-based Wood Beca Ltd. for about 10 weeks from mid-September 2024.

For LNG importation through conventional-size vessels, capital cost estimates to build the needed infrastructure range from NZD 189 million ($113.75 million) to NZD 1 billion. The cost depends on port modifications at a given location, pipeline upgrades and onshore regasification installations.

The range is “a significant investment given the uncertainty around how often LNG imports would be needed”, Clarus, one of the companies that commissioned the study, said in a statement online.

“The global LNG trade has standardized around large vessels (carrying around 170,000-180,000m3, or 4.5 PJ of gas), with much of the storage and regasification equipment located on permanently moored ships (known as Floating Storage and Regasification Units or FSRUs)”, Clarus, formerly Firstgas Group, said. 

The study identified six preferred sites across the North Island. “No single location in New Zealand has the existing combination of sufficient water depth, benign metocean condition and existing gas pipeline capacity to meet demand scenarios”, the first of two findings reports said. “Therefore, all locations will require financial investment to address one or more of these issues.

“LNG imports are unlikely to be achieved in less than four years unless the existing permitting and consenting process is fast-tracked and / or some financial risk is taken to commit to long-lead items in advance of taking a final investment decision on the project. These measures could reduce the timeline by up to one year”.

The first findings report said, “The expectation of this Assessment is that the landed price of LNG in New Zealand will be approximately the Japan Korea Marker (‘JKM’) price – the Asian spot price – or a modest premium to that price (up to US$0.25/MMBtu) depending on market conditions at the time a cargo is sourced”.

“This gives a landed LNG price range in New Zealand of approximately US$10.12 to US$10.37/MMBtu [million British thermal units], or approximately NZ$17.83 to NZ$18.27/GJ based on a forward exchange rate of 1.67 NZ$ per US$”, the report added. “This landed price is at the entry point to the import terminal, i.e. Delivered Ex Ship (‘DES’). Terminal and domestic gas transportation costs and losses would be additional to the landed price.

“Given the scale and uncertainty of LNG demand, the expectation of this Assessment is that LNG will be sourced under short-term or spot deals”.

Clarus said, “The large size of the ships involved in conventional-scale LNG imports would necessitate significant infrastructure investment, including port or pipeline upgrades”.

Alternatively, New Zealand could opt for smaller-scale developments that use existing port infrastructure without major retrofits, assuming LNG could be bought from an existing facility in neighboring Australia, according to the study. Port Taranaki would offer the most advantageous site for the import terminal, it said.

“Assuming a typical small-scale LNG value chain with a 15,000 m3 LNG carrier (‘LNGC’) ‘shuttling’ back and forth between Australia and Port Taranaki, up to ca. 9 PJ of LNG could be delivered annually”, the second report said.

The benchmark small-scale landed LNG price at Port Taranaki for the maximum annual delivery potential would be US$ 11.41-11.92 per MMBtu.

“If the same JKM price basis is applied to the 2024 Assessment [for conventional-scale LNG], the benchmark prices for small-scale landed LNG are around 25 percent higher.

“The small-scale landed LNG price includes the cost of transporting LNG to Port Taranaki including chartering a small-scale LNGC, whereas in the 2024 Assessment such costs were the responsibility of the supplier and included in the spot cargo price unrelated to a specific source location”.

“The development of a small-scale LNG concept is likely be constrained by the modalities and commercial arrangements of the LNG supply source”, the second report said.

“The operational risk is that episodic poor metocean conditions at Port Taranaki could lead to the LNGC being unable to unload its cargo and return to Australia within the next loading window.

“Existing project offtakers will not want to accept disruption to their own loading schedules for the purposes of serving a small-scale trade, so agreeing operational terms in the LNG supply agreement to accommodate these risks without triggering traditional ‘take or pay’ obligations will be key”.

While there are alternative sources should Australian supply be cut off, “it may be that the LNG value chain evolves towards a conventional-scale solution”, the second report said.

Clarus said the findings had been forwarded to government officials, “whose support would be necessary for any option to proceed”.

“The study partners emphasized that LNG is just one of several options being explored to support energy resilience”, Clarus added. “Investment in renewables, demand-side management and electrification remain central to the country’s low-carbon energy transition”.

Clarus chief executive Paul Goodeve commented, “Ultimately, our energy future will be shaped by a mix of energy options and this work ensures the option of LNG is properly understood”.

The study was commissioned by Clarus, Contact Energy Ltd., Genesis Energy Ltd., Mercury NZ Ltd. and Meridian Energy Ltd.

To contact the author, email jov.onsat@rigzone.com