Funding Gas and Slashing Biodiversity is a Terrible Idea... Obviously.
I have never commented on a budget before - it’s not really my thing.
But this latest budget devotes $200m to new gas, whilst defunding biodiversity programmes and electrification. And it doesn’t even make economic sense!
TL;DR:
The 2025 Budget has set aside $200 million so the Crown can take a 10-15% equity stake in any new natural gas field. Ministers say it is for “security of supply”. At the same time the Budget has trimmed $56 million from the Energy Efficiency and Conservation Authority (EECA), scrapped the electric-bus fund, and slashed biodiversity programmes including Predator Free 2050.
Yes, that sucks on the face of it. But also, a little economic modelling and you find it also doesn’t make sense…
Where is the new gas funding going?
This budget allocates $200 million to developing more gas fields, because as Shane Jones says “natural gas will remain critical for at least 20 years.” I would like to be petty and just like to point out that Shane Jones is regularly incorrect like here, here and here.
The money will be used to ‘co-invest alongside developers’ to find more fields to extract. Those same developers who share in the $7T of subsidies that we collectively give fossil fuel companies annually.
And in even better news for those poor, struggling fossil fuel companies, “Billion-dollar oil rigs would be eligible for an immediate 20 percent refund from the Government under the new Investment Boost policy,” according to Jones.
Let’s look at some numbers:
7-10 years. That’s how long it takes to start extracting anything from a gas field. So anything found in 2026 will not deliver gas (or revenue) till 2033 at the earliest. Kupe was discovered in 1986 and didn’t produce gas till 2009.
1-in-10. Only about 1 in 10 exploration permits ever return any gas.
600PJ. This would be the median amount of energy (measured in petajoules - PJ) the average field has produced historically in Aotearoa
$40-60m. If the gas price is good, the government would get about $40-60m1 per year - starting in 2033. Sounds like a lot right? But hold on to that thought.
32m T2. That’s how much CO₂ would be emitted from one field that size over it’s lifetime.
Gas in Aotearoa:
What damage could one extra natural gas field really do?
A median-scale field holds about 600 petajoules (PJ) of gas. Burning it emits 32 million tonnes of CO₂ which is about 2% of the country’s emissions every single year for two decades. At today’s carbon price that pollution is worth around $2b, yet the Crown would see maybe $40-60m a year in royalties, starting midway through the 2030s.
Why is there a gas shortage?
It’s tempting to blame the 2018 ban, but exploration was already winding down before the law change. Offshore permitting fell from about six grants a year between 2012 and 2016 to just one in both 2016 and 2017, and exploration drilling dropped from 40 wells in 2013–14 to only five across 2015–18. Aotearoa still has around 1,300PJ of known reserves, which is about eight-ish years at current burn rates. Production has been squeezed even further by unplanned outages at Pohokura and Kupe, and perfectly timed as it was just as we needed more gas during a dry hydro year.
Do we use much gas?
Not heaps, but enough to be very disruptive if we ran out. It’s about 12% of annual generation but that can double to 25% in drought years. There are about 300,000 residential connections, making up about 4% of our total gas usage.
Does this policy fix this shortage?
Nope. A permit issued this year would still take seven-to-ten years to pump gas so the earliest new supply lands in the 2030s.
Okay, but long term this is a good plan to bolster our energy resilience, right?
Still no. Planning for the 2030s with new gas looks sensible only if three things stay true: that demand keeps rising, carbon prices stay low, and cleaner technologies remain more expensive. That will not happen.
Every credible forecast from MBIE to Transpower and everything in between shows total gas demand falling after about 2030 as boilers, home heating, and power stations shift to electricity, biomass, and batteries. Our legislated carbon budgets legally require this to happen, and companies already have transition plans.
Second, the carbon price will climb. At even a modest $80 per tonne (modest is the key there), the annual CO₂ bill for a median-sized field doubles. Buh-bye profit margin.
Third, alternatives that can bolster the grid like geothermal, on-shore wind with batteries, pumped hydro etc, are all being built at scale now and the cost to build them keeps falling.
So, no. This is not a great plan for the future either.
So, the net-net is?
(Looking only at the financials across three scenarios:)
New field:
Royalties (~ $40-60m a year).
Carbon cost (~ $120m a year).
Over 20 years the country is NZ ~$1.4b in the red.
Royalties give the Crown $40–60m a year once gas flows, but emitters must buy about $120m a year in carbon credits. That cash leaves the private sector and only partly returns to the economy via ETS recycling, so the country is still $60–80 million poorer each year.
Renewables:
The same $200m, used to create efficiencies and to fast-track renewables, saves ~$26b while erasing the carbon bill almost entirely.
Super simple really. Every dollar we tip into gas, whether domestic or imported shows up later as a much bigger carbon cost. The only scenario that leaves the country financially ahead is the one that shrinks demand and scales renewable supply now, not in the mid-2030s.
By the way, the term ‘natural gas’ is considered by many to be one of the greatest greenwashing terms of all time. It’s mostly methane.
If your house is on fire you don’t go and find ways to spark more matches do you?! No, you go subsidise the hose industry.
Now obviously this is a complex topic and I cannot possibly have covered every scenario, possibility, variance and so on.
But it actually doesn’t matter because there are three main points that mean regardless, this new budget sucks.
Renewable energy keeps getting cheaper, and environmental compliance means gas will keep getting more expensive. This will not make the country more money in the future.
The climate is heating up. We need to stop burning fossil fuels. Like, now.
The biodiversity and economic opportunity cost. Every dollar pumped into new gas is a dollar not restoring wetlands, controlling pests, or scaling regenerative agriculture - all which Treasury and EY say return between $8-$16 dollars for every dollar spent and protect assets worth $270 billion over fifty years.
I’m not an economist, but the maths here is pretty basic.
Sources used:
https://www.gasindustry.co.nz/assets/CoverDocument/GasSupplyAndDemand_2024_11_28.pdf
https://www.transpower.co.nz/system-operator/notices-and-reporting/market-operations-weekly-report/energy-security-outlook
https://www.legislation.govt.nz/regulation/public/2013/0126/latest/dlm5156989.html
https://www.ea.govt.nz/news/eye-on-electricity/the-levelised-cost-of-electricity/
https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resources/energy-statistics-and-modelling/energy-statistics/renewables-statistics
https://www.weforum.org/stories/2021/11/renewable-energy-cost-fallen/
https://www.eeca.govt.nz/insights/energy-in-new-zealand/the-future-of-energy-in-new-zealand/
https://www.nzpam.govt.nz/nz-industry/value-benefits
https://www.stats.govt.nz/indicators/new-zealands-greenhouse-gas-emissions
This is a best guess estimate from a couple of sources (listed above). It depends on a few factors, but the upper and lower range are about right.