The Government has announced it will remove one of the costs that holds back gas storage development in New Zealand. Currently, developers pay royalties for ‘cushion gas’, which sits in an underground storage facility to maintain total gas pressure. Cushion gas can’t be sold or extracted, but currently requires a 5% fee to be paid on its estimated value.
This is great news for New Zealand’s energy security, because it makes a new gas storage facility much more cost-effective to develop. The goal is to unlock more investment in underground gas storage, supporting our electricity sector by providing on-call energy when it’s needed.
“Across the world, underground gas storage is a proven way of improving flexibility and resilience in energy systems,” Shane Jones said in a recent Beehive press release, and added, “we want to ensure unnecessary regulatory barriers are not standing in the way of those investments.”
Ahuroa Gas Storage Facility and Mt Taranaki
What are the benefits of underground gas storage?
By storing gas under the ground, we effectively create an enormous battery that New Zealand can tap into when electricity generation is low. There are times when New Zealand struggles to generate enough renewable electricity to cover the demand from all our homes and businesses. This happens when it’s a ‘dry year’ with low rainfall, the water levels in our hydro lakes are low so they don’t generate as much hydropower.
When it’s a dry year, and when it’s cold and dark, the country may need more electricity than we can produce from hydro, wind and solar power. That’s when we run the risk of power outages. Luckily, we can switch on the gas instead of turning off the lights, so our houses and businesses can keep running smoothly.
“Gas production is relatively steady throughout the year but demand for electricity generation can surge during winter peaks and dry years,” Jones explained. “Gas storage helps bridge that gap by ensuring supply is available when it is needed most.”
Ahuroa Gas Storage Facility in Taranaki
Ahuroa stores enough energy to power up to 500,000 Kiwi homes
New Zealand only has one dedicated underground gas storage facility, Ahuroa, which is owned by Flexgas, part of Clarus. It stores gas at 2,500 metres below the surface of Taranaki, in a reservoir that previously held gas and oil. If we withdraw at the maximum rate, Ahuroa can provide enough gas to generate around 10 gigawatt-hours of electricity each day, equivalent to powering around half a million New Zealand households.*
"Ahuroa is like a bank,” explained Dave Maetzig, AGS Operations Lead. “We hold onto our customers’ gas for them. Gas goes in, then it’s taken out when it’s needed. A customer can ring up and let us know they need gas, and we can respond immediately,” added Maetzig.
By reducing the barriers to developing a new gas storage facility, the Government hopes to boost New Zealand’s gas storage capacity. The global energy picture has become increasingly complex, which means that local energy is more valuable than ever, and onshore gas supplies could be a hugely valuable back-up resource for our electricity grid.
Gas will keep supporting New Zealand “for many years to come”
This latest regulatory change is another signal of how vital gas is to our electricity supply and our whole economy, as Shane Jones pointed out, “New Zealand’s energy security relies on reliable access to the fuels needed to keep the lights on, power industry and support economic growth… Gas will continue to play an important role in supporting electricity generation and industry for many years to come.”
You can learn more about the future of gas here.
* Calculation: Based on Ahuroa's maximum withdrawal capacity of 65 TJ/day. Assumes a modern gas-fired power station conversion efficiency of approximately 55%, resulting in around 10 GWh of electricity. Household equivalent is based on average New Zealand household electricity consumption of approximately 7,300 kWh per year (MBIE).
