The New Zealand government has significantly expanded the scope and terms of its NZ$200 million Gas Security Fund to address a critical domestic energy shortage. This expansion, driven by declining gas reserves and a challenging investment climate, now includes support for short, medium, and long-term gas supply projects, moving beyond its initial focus solely on new gas field developments.

Expanded Scope of the Gas Security Fund

The fund's expanded scope is structured to address supply needs over different timeframes. Short-term projects, defined as one to seven years, may include additional drilling at existing fields and upgrades to production facilities. Medium-term projects, spanning seven to ten years, can encompass exploration and appraisal drilling. Long-term projects involve greenfield exploration outside the Taranaki region. Additionally, increasing gas storage capacity is now a proposed component of the fund.

Administration and Investment Strategy

The fund will be jointly administered by various government ministries through Kanoa – the Regional Economic Development & Investment Unit, which is set to issue a formal call for expressions of interest. In a parallel move to de-risk and accelerate investments, the government announced it will take a cornerstone investment of up to 10% to 15% in new gas field developments, subject to the evaluation of individual business cases. The overarching goal of these initiatives is to increase domestic gas supply by 2035.

Political and Industry Response

The fund has faced criticism from political opponents and environmentalists, who label it a breach of the multilateral Agreement on Climate Change, Trade & Sustainability (ACCTS) and its ban on fossil fuel subsidies. The government, however, contends that the fund does not meet the agreement's definition of a fossil fuel subsidy. Conversely, the announcement was welcomed by Energy Resources Aotearoa, the country's exploration and production industry association. The association's chief executive stated that the policy provides the stability, clarity, and fairness that energy investors seek, signaling that New Zealand is once again open for responsible investment in gas projects.

Context of Gas Supply Crisis

The urgency of these measures is underscored by a faster-than-anticipated 27% drop in domestic gas supply and the imminent cessation of production at the Maui gas field, New Zealand's largest hydrocarbon resource. The Maui field, a key supplier to methanol manufacturer Methanex, is described as "mature and rapidly declining." Although operator OMV conducted a five-well campaign in 2022, the resulting output increase fell short of expectations, highlighting the persistent and critical nature of the gas supply issue.