War on Iran a ‘bazooka’ through government’s LNG plan – gentailer CEO

Source: Radio New Zealand

The Energy Minister is expressing confidence in the government’s plans to build a liquefied natural gas (LNG) terminal, even as the Prime Minister says it will not go ahead if the business case does not stack up.

Two of the country’s gentailers have expressed their own doubts on the future of the terminal, while Labour has asked the auditor-general to look at the decision-making process.

The government intends to build a billion-dollar LNG import facility in Taranaki as a back-up to address dry-year risk.

Confirmation the government would proceed with the terminal was announced in February, shortly before the United States and Israel attacked Iran.

The ensuing energy crisis has led to LNG prices rises of 143 percent in Asia since 28 February, leading to criticism from Labour the government was signing New Zealand up to more volatile price spikes in the future.

A decision on procurement is due to be made by the middle of the year, with the aim of having the facility operational and receiving gas in 2028.

The prime minister indicated its future would rely on the business case.

“If it doesn’t stack up, we won’t be doing it. Until we see the commercials on it, we’ll make the decision then,” Christopher Luxon said on Tuesday.

Energy bosses express mixed views

Appearing at the energy sector conference Downstream in Wellington on Tuesday morning, gentailer chief executives were asked what the crisis meant for the LNG terminal.

“It depends which day you read the news, doesn’t it? I think LNG stands for ‘likely no gas’ to be honest,” Genesis chief executive Malcolm Johns said.

“The reality is that only 30 percent of New Zealand’s energy comes from electricity, 70 percent comes from other forms. Fifty percent of our overall footprint is imported, so we have a highly exposed energy system to the rest of the world. Whether you add LNG to that or not is not going to make one iota of difference to New Zealand’s exposure to the imported fuel regime to the world.”

Meridian chief executive Mike Roan agreed.

“It feels like the Americans might have put a bazooka, literally, through that proposal,” he said.

“I think it’s the challenge that we have as an industry, which is, how do we take charge of the resources that are at our fingertips and actually build out a resilient, secure, and affordable electricity system for not only today, but for the generations that follow? Because that’s what people were able to do before us.”

Others on the panel were more optimistic.

David Prentice, chief executive of the Gas Industry Company, said “first and foremost” the LNG terminal was about providing insurance for a dry year.

“We all have insurance in our homes and our cars, and we grumble and moan about it, but at the end of the day, I would bet that most people would still have insurance.”

Transpower executive general manager of operations Chantelle Bramley said LNG would bring new energy into a constrained system, and would buy New Zealand time to “build out” renewables.

“It gives us optionality. And in times of uncertainty, creating more options is actually a really good thing.

“We’re a tiny country at the bottom of the South Pacific. We are not an interconnected power system. There are things that will happen in our domestic market that at some point we’ll also want to be looking at that international fuel mix. The war in Iran won’t be going on forever, so I think that that optionality is also really important.”

Energy minister wants ‘a good deal’

Energy Minister Simon Watts said there were “two conversations” at play, involving the procurement of the import terminal and then the procurement of the LNG itself.

Watts said the government was proceeding with the procurement process “as planned”, but like any procurement process the government wanted to get “a good deal”.

Officials had advised him the procurement process was on track.

“First and foremost, we’re doing a procurement process to build a strategic LNG importation terminal. The second conversation is around procurement of that gas.

“Obviously, the procurement of the gas will be for winter ’28, which is obviously not on Tuesday, and that long-term contracting process will follow once the terminal is built. So we’ve got to separate out. There’s two conversations here. We’re talking about the procurement to build the ability to import.”

Watts said the underlying problem of a lack of gas to make electricity in a dry year remained, and a PwC report two weeks ago had outlined that not having gas in the economy would be “catastrophic” for regional jobs and GDP growth.

The PwC report said introducing LNG would help “stabilise total gas supply and prices,” as well as reduce structural scarcity pressures and restore confidence in the market to support an “orderly” gas transition.

“We need the capability to import, and then we need to do long-term contracting to get that gas when we need it, acknowledging we don’t know exactly when we are going to have a dry year, but having that insurance policy gives us more options,” Watts said.

‘A dangerous idea’ – Labour

Cabinet has delegated the authority for the contract to be signed off by the ministers of finance, energy and infrastructure.

Labour energy spokesperson Megan Woods said she was concerned it was not the “usual” way for a billion-dollar project to be decided on.

“There’s power to ministers to decide, rather than the usual kind of officials process that you’d have in a case like this,” Woods said.

“I’ve actually written to the auditor-general, and I’ve asked the auditor-general to look at that, because I think it is highly atypical that you’d be having political decisions around a billion-dollar project, when the government’s already shown that it doesn’t have the ability to think things through.”

Woods’ letter questioned whether the decision-making criteria at each stage was sufficiently clear, documented, and robust.

It asked the auditor-general to consider whether it was consistent with the Government Procurement Rules, as well as the Cabinet Manual and the auditor-general’s own guidance on procurement.

Of particular concern for Woods was whether the level of ministerial involvement in shortlisting and choosing suppliers was “appropriate for a procurement of this size and risk”, and whether that created a real or perceived risk to the independence and integrity of the process.

“The Cabinet material describes a process where the minister for energy approves the shortlist and a small group of ministers selects the preferred supplier. That appears to be a high degree of direct ministerial involvement in what is, at heart, a commercial evaluation and selection exercise for a very large contract,” her letter said.

Woods said LNG was “always” going to be a more volatile and insecure way for New Zealand to secure its energy system, and accused the government of brushing aside other ways in which it could be done.

“It was a dangerous idea when the government announced it. I think the last three or four weeks have just shown how precarious it is. New Zealand should not be banking its energy security on a volatile fuel like LNG.”

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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand