New Zealand’s Gas Shortage: Why Methanex Is Leaving and LNG May Arrive

New Zealand has no gas pipeline to any other country, so when its own fields decline faster than forecast, the adjustment falls on whoever uses the most. This article explains where the country’s gas comes from, why supply has fallen so sharply, what role the 2018 exploration ban really played, why Methanex is closing after more than three decades, and whether imported LNG can fill the gap. It is part of the New Zealand Company Stories hub.

How did New Zealand’s gas industry begin?

The industry began with the Kapuni field in Taranaki, discovered in 1959, and was transformed by the giant offshore Maui field, found in 1969 and producing from 1979. For three decades Maui supplied gas so cheaply that the country built industries around it.

Maui was developed under a take-or-pay contract that committed the state to buy enormous volumes whether or not it needed them. To use the gas, the Muldoon government’s “Think Big” programme of the early 1980s funded a synthetic petrol plant at Motunui, a methanol plant in the Waitara Valley and a urea plant at Kapuni, along with gas-fired power stations and a pipeline network across the North Island.

The synthetic petrol venture proved uneconomic and the Motunui complex was converted to make methanol for export. The Canadian company Methanex acquired the plants in the 1990s. Everything remained concentrated in one region: all of the country’s producing fields lie in or off Taranaki, and the South Island has never had piped natural gas.

How does the gas market work and who makes money?

A handful of producers sell gas under bilateral contracts to a few very large buyers, namely power generators, a methanol maker and a fertiliser plant, and to retailers supplying homes and businesses. There is no import or export link, so price is set entirely by domestic scarcity.

The upstream is dominated by four operators. Austria’s OMV runs the offshore Maui and Pohokura fields. Todd Energy, owned by the family profiled in the article on the Todd dynasty, operates Kapuni, Mangahewa and McKee onshore. Greymouth Petroleum owns Turangi, and Beach Energy operates the offshore Kupe field, in which Genesis Energy holds 46%. High-pressure pipelines are owned by Firstgas.

Demand has historically split into three parts: petrochemicals, electricity generation, and everything else, including dairy factories, steel, timber processing, hospitals, restaurants and roughly 300,000 household connections. Methanex alone took up to 40% of supply when running at full rate. That concentration gave the market a shock absorber: when gas was short, one flexible customer could reduce output and release fuel to everyone else. From 2027 that buffer will no longer exist in the same form.

Why has gas supply fallen so fast?

Supply has fallen because the big fields are old and have underperformed their operators’ forecasts, while too little new gas has been found to replace them. Production fell about 19% in 2025 alone and has halved since 2014.

The official reserves count published in May 2026 was stark. Proven-and-probable reserves at 1 January 2026 stood at 731PJ, down 217PJ or 23% in a year. Only 108PJ of that fall was gas actually produced; the other 109PJ was operators lowering their estimates of what remains recoverable. Output in 2026 is forecast at 85PJ, about 15% below what had been projected a year earlier.

Pohokura, once the country’s largest producer, has disappointed repeatedly, with water entering wells and drilling campaigns yielding less than planned. Maui is near the end of its life and reports suggest it could stop producing within about a year. A single onshore field, Turangi, now accounts for 51% of remaining reserves. There are a further 1,950PJ of contingent resources, gas known to exist but not currently commercial to extract, which is where the argument over investment begins.

Did the 2018 exploration ban cause the shortage?

Only partly. The ban on new offshore exploration permits, announced in April 2018, did not stop production from existing fields, but it signalled to international investors that New Zealand gas had no long-term future, and spending on drilling fell.

The Labour-led government under Jacinda Ardern stopped issuing new offshore permits as a climate measure, while leaving existing permits and onshore Taranaki untouched. Supporters note that the fields now failing were all permitted long before 2018 and that their problems are geological. Critics, including the petroleum industry and the mayor of New Plymouth, argue that the ban raised the cost of capital for every project and drove explorers away.

The National-led coalition repealed the ban in mid-2025 and set aside NZ$200m in that year’s Budget for the Crown to take stakes in new gas developments. In July 2026 the first new exploration permit since 2024 was awarded. The honest assessment is that both sides are partly right: geology explains the speed of the decline, policy explains some of the lack of replacement, and neither can be reversed quickly, since a new offshore discovery would take the better part of a decade to bring into production.

Why is Methanex closing its New Zealand plants?

Methanex announced on 2 September 2026 that it will cease New Zealand production in the first quarter of 2027 and sell substantially all its remaining contracted gas through 2030. It said declining supply and no clear path to new gas made operations unsustainable.

The retreat came in stages. The smaller Waitara Valley plant was mothballed in 2021. In 2024 the company cut back to a single methanol train at Motunui, shedding about 70 jobs, and during that winter’s power crisis it shut down entirely for weeks and sold its gas to electricity generators at a better margin than methanol offered. By the second quarter of 2026 it produced just 46,000 tonnes against operating capacity of 215,000 tonnes.

The closure ends more than four decades of methanol manufacturing in Taranaki and puts roughly 200 to 300 jobs at risk, with many more among contractors. About 95% of output was exported to Asia-Pacific markets. Methanex says the plants will be idled and preserved in case conditions change, but few in the region expect a restart. The buyers of its gas and the price have not been disclosed. For the Vancouver-based parent, the world’s largest methanol producer, New Zealand had become a small, unreliable part of a global portfolio.

Who governs the sector and what has the government done?

Gas is overseen by the energy and resources ministers, the Ministry of Business, Innovation and Employment, which issues permits and publishes reserves, and the industry’s co-regulator, the Gas Industry Company. Since 2024 policy has swung firmly towards encouraging supply.

The coalition’s measures form a package: repeal of the exploration ban, the NZ$200m co-investment fund, faster consenting for energy projects, and a decision in principle to procure an LNG import facility. A review of the electricity market by Frontier Economics, answered by the government in September 2025, treated gas scarcity as the root of high power prices. Officials have also proposed a winter reliability obligation requiring generators to prove they hold firm fuel.

Ownership of the remaining gas is private and partly foreign, which limits what ministers can direct. OMV has previously tried to sell its New Zealand assets. Decisions on whether to drill the contingent resources will be made in Vienna, Adelaide and New Plymouth boardrooms on commercial grounds, and the shrinking pool of customers makes those investments harder to justify. That circularity, in which less supply leads to fewer customers and in turn to less investment, is the central problem.

What is the LNG import plan and where does it stand?

The government decided in February 2026 to procure a liquefied natural gas import terminal in Taranaki as dry-year backup, at a cost put at more than NZ$1bn. Two bidders were shortlisted in June 2026, but the funding model was changed and a final decision has been delayed.

As first announced, the infrastructure would have been paid for by a levy of about NZ$2-4/MWh on electricity, with ministers arguing it would cut dry-year power prices by at least NZ$10/MWh. The terminal would supply around 12PJ over a winter. After criticism from consumer groups, the Parliamentary Commissioner for the Environment and more than twenty organisations, the levy was dropped in June 2026; the government said a new model was being worked out with the large power companies, with operations targeted for 2028.

Methanex’s exit complicated the case. Opposition parties argue that gas freed by the closure covers electricity needs to the end of the decade and that the terminal is now redundant; ministers reply that it remains important because the freed gas is finite and the fields are still declining. In late September 2026 the decision on a preferred provider was reported as delayed, with a general election only weeks away.

Who are the winners, losers and competitors for gas?

Electricity generators are the short-term winners, since Methanex’s gas becomes available for power stations. The losers are Taranaki workers, gas-dependent manufacturers facing higher prices, and eventually households left paying for a pipeline network with fewer users.

Gas competes with other fuels in each of its markets. In power generation it competes with coal at Huntly, with batteries and with demand response; the arrangements are described in the article on the gentailers and the 2024 dry-year crisis. Generators such as Contact have largely replaced gas baseload with steam, as the piece on Contact Energy’s geothermal bet explains.

In industry the alternatives are electricity and biomass. Dairy processors have been converting boilers, a shift visible in the story of Fonterra. Smaller manufacturers have fewer options: contract prices for industrial gas have risen several-fold since 2020, and some firms have closed or moved production offshore. For households, new connections are slowing and network owners have shifted from growth to maintenance.

What can founders and CFOs learn from New Zealand’s gas shortage?

The gas story is a case study in input risk: an economy, and many individual firms, built plans on a resource whose reported reserves turned out to be less dependable than the numbers implied.

• Treat reserves as estimates, not inventory. Half of the 2025 fall came from revisions. Any business relying on a supplier’s stated capacity should ask how that figure has changed over five years.
• Concentration cuts both ways. One huge flexible customer stabilised the market for decades. Its departure removes the buffer for everyone else.
• Policy signals move capital long before they move molecules. The 2018 ban and its 2025 repeal each changed investor behaviour years ahead of any physical effect.
• Optionality has a price. Methanex made more by selling gas than by using it; knowing the resale value of your inputs is a strategic asset.
• Do not wait for the state. The LNG plan has changed shape three times in a year. Firms that electrified early are insulated from the outcome.

What happens next for New Zealand gas?

The next year will bring Methanex’s shutdown, the likely end of Maui production, a post-election decision on LNG and the first evidence of whether the repeal of the exploration ban attracts any drilling.

In the short run the market may feel looser than it has for years, because gas once destined for methanol will be available to generators and industry from March 2027. That reprieve is temporary. With output heading below 85PJ and one field holding half the reserves, the system has little redundancy, and a single well failure could tighten supply again.

Longer term there are three possible paths: a domestic revival funded partly by the Crown, an import-backed market priced off Asian LNG, or a managed wind-down in which electricity, biogas and biomass take over and the pipeline network shrinks. The election due in late 2026 will influence which is chosen. Whichever it is, the cheap, plentiful gas that Think Big was built on has gone, and the country’s energy planning now has to work without it.

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