BusinessNZ published a plea last week for electrification assistance, saying “the impact and risk of government inaction threatens to erode operations that directly generate $18-$24 billion in GDP for New Zealand”.

BusinessNZ noted that the government had “previously put $200 million on the table to help de-risking gas exploration”.

“If the government is willing to provide this assistance to one side of the table, we would like to see them consider similar assistance to the demand side,” it said, while echoing what had been a growing belief that the $200m fund might not be taken up.

BusinessNZ head of advocacy, Catherine Beard, told Carbon News there were hopes that, if unspent, the funds could be directed instead to electrification assistance.

The proposal had been presented to the minister prior to the report’s publication and “we got a good hearing,” Beard said.

However, Finance Minister Nicola Willis’s office told Carbon News this week that “there are no plans to repurpose the $200 million co-investment fund”.

Her office would not comment on other possible Budget measures, saying that “ruling in or out any potential proposals would undermine the Budget and policy development process”.

Willis also this week signalled further pressure on the government’s capacity to offer any sweeteners in the Budget on May 28, announcing that the Treasury had taken the unusual step of reopening its Budget forecasts in light of the deteriorating global economic outlook caused by the US-Israeli war on Iran.

This would place further pressure on the government’s $2.4b new spending allowance for the next fiscal year, particularly as it had already expended funds from that source on targeted relief for working families facing rising fuel costs.

Final Budget decisions are now expected at the Cabinet meeting scheduled for Monday, May 11, remarkably late in the normal Budget cycle and reflecting the fact that ministers will only have clarity about fiscal headroom once the Treasury’s new forecasts have been produced.

They are expected to be delivered in the next few days.

Willis first signalled her intention to make “reliable, affordable, abundant energy” a centrepiece of the Budget before Christmas, although at the time that appeared to reflect her support at the time for an LNG import facility.

Since then, she has acknowledged that rising oil prices incentivise a shift away from fossil fuels and that while her “means are limited … my intentions have only strengthened”.

However, a growing belief among energy sector observers that the $200m gas fund might not be taken up is giving way to an expectation most or all of it will be allocated, most likely to new gas storage facilities.

The most likely candidate is the Tariki storage project, owned by Canadian-listed company NZ Energy Corp, which announced a memorandum of understanding to develop Tariki with Genesis Energy.

“Dynamic subsurface modelling to define the range of gas storage capacity, cushion-gas requirements, operating pressures, injection/withdrawal rates, and long-term storage behaviour is on schedule for delivery in December 2025,” NZEC said at the time.

In December the government widened the scope of the fund to include gas storage, with Resources Minister Shane Jones saying they were looking for proposals to accelerate or increase the volume of gas to market as quickly as possible, or enable gas to be stored, “so it is available when most needed for industry and homes.”

Some gas industry experts have expressed doubts about Tariki’s suitability as a gas storage project to complement the existing Ahuroa storage facility, both being sited in reservoirs left by previously exhausted gas fields.

Genesis currently lacks the ability to store gas, forcing it to use the increasingly scarce resource at times when it would be more valuable to store it and use other means of electricity generation.

Tariki could work either as a venue for storage of LNG or to store domestic gas supplies.

The BusinessNZ paper said the precipitous decline in the supply of natural gas had quadrupled prices for many commercial and industrial users in the last five years.

If the government did not go ahead with LNG imports, GDP would be $4.5b lower than baseline estimates by 2035 and, even with imported gas, GDP would be $3.5b lower.

“We see this as an urgent reason to pull all available levers to limit the effect of higher natural gas prices on the economy,” BusinessNZ said.

Capital hurdle

This was particularly as firms were often facing a choice of whether to commit new capital to electrify processes currently using gas or to close down.

”Businesses considering a switch may find that alternative options offer little or no reduction in input costs compared with natural gas, despite being asked to make substantial capital investments.”

It noted sectors that the Energy Efficiency and Conservation Authority (EECA) had identified as suitable for heat pumps – the closest alternative in heating costs to gas – were: dairy, meat, food and beverage manufacturing, wood product manufacturing, textile, leather, clothing and footwear, indoor cropping, and agriculture.

EECA had found that “for most businesses, transitioning away from gas is theoretically possible but financially unattractive”.

“If these barriers can be removed or lessened then fuel switching decisions will increasingly be driven by operational logic rather than capital constraint,” BusinessNZ said.

It advocated making dwindling, remaining supplies of gas available only to those industries whose processes could not move off gas.

BusinessNZ pointed to the fact that other governments were assisting their industries in the transition from gas to electricity and cited the GIDI fund “for all its faults” as having “demonstrated that with assistance businesses were able to successfully transition their use away from fossil fuels”.