The New Zealand Gas Conundrum: Rising Costs and the Future of Energy

Why businesses need to act now to navigate the volatile energy landscape

Over the past six months, New Zealand’s natural gas market has been experiencing unprecedented turbulence. Rising costs, supply uncertainties, and ripple effects on the electricity market are leaving many businesses grappling with an uncertain energy future. What was once a reliable, cost-effective source of energy has become unpredictable and expensive.

This instability means businesses that rely on gas need to start asking the right questions: How long can we rely on gas? What’s the alternative? With the future looking more uncertain by the day, now is the time to plan for what's ahead.

What’s behind the volatility?

The drivers behind this crisis are complex and multifaceted. Several factors have converged to create a perfect storm in the gas market:

• Supply declines - key gas fields like Maui and Pohokura are showing steep declines in production.
• Permitting challenges - new exploration and drilling projects face legal hurdles and slow approval processes.
• Winter Hydro shortages - low hydro storage over winter increased reliance on gas for electricity generation, driving up demand.
• Offshore exploration ban - since the 2018 ban, investment confidence in the NZ oil and gas sector has dropped, leading to fewer new players entering the market.

As a result, gas prices have surged, with some contracts seeing spikes to $30–60/GJ. The situation has forced major players like Methanex to reduce operations, and many businesses are finding themselves without contracts, relying on expensive spot prices.

Short-term solutions: Energy audits and efficiency gains

The immediate priority for businesses is to take control where they can. Leveraging energy audit services is the most practical step to identify inefficiencies and implement quick-win measures that enhance operational energy efficiency.

At today’s prices, what may have seemed like an insignificant cost-saving opportunity at $10/GJ suddenly makes a lot more sense at $40/GJ. Now is the time to scrutinise your operations — where can you cut down on energy use, recover heat, or improve processes? Efficiency measures aren’t just about reducing consumption; they’re about making your long term plan more cost effective.

DETA can help identify the best opportunities to trim energy use, helping you reduce costs without compromising operations. Our engineers are skilled at finding savings, even in challenging environments.

Long-term planning: What comes after gas?

While short-term solutions are critical, businesses also need to think beyond immediate cost savings. The future of gas in New Zealand is uncertain — reserves are depleting faster than expected, and while liquified natural gas (LNG) is often touted as a solution, it won’t be viable for another 18 months at the earliest. Even then, LNG will be far from a cost-effective alternative.

This raises a crucial question: What’s your long-term energy plan?

Businesses need to explore all options, from transitioning to alternative fuels like diesel, LPG, or biomass, to electrification strategies. Layer on top of that the need to meet net-zero goals, and it’s clear that expert advice is critical.