Why does New Zealand not Implode?

And how Kiwis are just as stupid as were German Jews

There are parallels between New Zealand and German Jews in the pre WW2 years. In both instances warning signals flashed red indicating a blood bath was imminent. In both instances, those in danger took no action - the Jews did not heed the warnings and were slaughtered by the millions - likewise 5 million NZers are caught in headlights watching their economy march towards a disastrous energy tipping point.

Contemplating both situations I have concluded that there this comes down to the stupidity of the barnyard animals. They do not want to hear negativity, even if it is based on irrefutable facts. Even when things are most dire, they will cling to hope regardless of how implausible.

In New Zealand, the oil and gas industry, which operates on logic and bottom lines abandoned the search for oil and gas:

What has changed is that all the extra drilling hasn't turned up much extra gas in the past few years. This is despite record amounts spent on new wells - nearly $1.3 billion between 2020 and 2024. Energy companies now think there's less gas than previously thought. Source

The New Zealand government, in an desperate attempt to generate hopium, budgeted a whopping $200,000,000 to subsidize renewed exploration for oil and gas that do not exist. They also claim to be planning to build an LNG terminal so that they can import gas from the United States. The problem with this ‘solution’ is that LNG is expensive (ask the Europeans about this) and would be a lot more expensive when you consider the tiny market size of New Zealand and the remote location of the country. An LNG terminal would solve nothing (and I question if it will ever be built).

A moderately intelligent 7 year old could be made to understand that New Zealand is fucked. There is no way out.

The thing is, the MSM in New Zealand is not hiding any of this grim information. There have been regular articles detailing the rapid decline in oil and gas over the past couple of years.

The logical response to this situation would be to sell everything and abandon this sinking ship. Anyone owning real estate should be unloading. All owners of New Zealand stocks, bonds and other assets should sell off now, before the tipping point on energy arrives and their value collapses to zero.

But it is not happening. Even when I warn friends of the unsolvable energy predicament, they do not act - instead they ignore me. They could get ahead of the curve and sell and catch a short flight to Australia where NZers have defacto dual citizenship and move a deck or two higher on the sinking vessel.

But they don’t. They sit there mired in endless recession being told "Gas has declined much faster than most people expected." Duh. They are being TOLD point blank that their country is fucked, yet they do nothing.

What is different from the Jews in Germany is that due to the collapsing supply of gas NZers won’t have to be concerned about being herded into gas-fired ovens when their economy implodes. Cannibalism will be the greater concern.

The businesses trapped by New Zealand’s energy crisis

‘We’ve been backed into a corner’

In Bay of Plenty, Whakatāne Growers heats four hectares of capsicum and chilli glasshouses with a mix of coal and gas. The plan had been to get off coal and move fully onto gas - cleaner and easier to run, with captured CO₂ helping lift yields by up to 20 percent.

Instead, site manager and co-owner Michael Simpson is stuck.

A year and a half ago, the company went to renew its gas contract. Their existing supplier could not even offer one. Two other offers came back - at 40-50 percent higher prices.

“There’s two main issues,” Simpson says. “Supply - it’s never a good thing to not know how the future is going to look - and cost. Gas prices have just exploded, and no one’s had the opportunity to make the best decisions for their business. You’ve got to rush now.”

Whakatāne Growers still runs its gas boiler, but has had to dial back temperatures, focus on efficiency and lean harder on coal.

“We never really stopped using coal, but we didn’t go any further with transitioning away from it - more or less because we didn’t have any option,” he says.

The business has looked seriously at geothermal paired with heat pumps. The numbers were “insane”.

“The capital required was absolutely mind-blowing,” Simpson says. “And with electricity prices going up as well, the running costs were going to be the same, or more. You’re kind of between a rock and a hard place.”

With clear signals and a runway, he says, they could have plotted a path.

“Ten years would have been a lot. If there’d been a clear signal: ‘By this date, you won’t be able to run on gas,’ we could have planned. Instead it feels like gas prices have just exploded with little to no warning.”

Without support, many growers and manufacturers, he says, are simply absorbing the costs, passing some on to consumers and hoping something changes.

“Ultimately, if New Zealand businesses have been backed into this corner, to stay productive and operating we’re going to need some help to transition,” he says. “It’s all good and well to say you’ve got to transition. But if the capital outlay is going to kill half the businesses in the country - and the gas prices kill the other half - what are we going to be left with?”

No silver bullets here

New Zealand’s exit from gas was meant to be more orderly than this.

Under the previous government, officials had started work on a Gas Transition Plan, consulting on how to phase down gas while keeping the lights on. The idea was to map out which uses should be prioritised, when new supply would taper off, and how to avoid simply swapping gas for coal when shortages hit.

Alongside it, the GIDI fund helped pay for the hardware needed to switch: electric boilers, high-temperature heat pumps, biomass boilers, and efficiency upgrades in factories, schools and hospitals.

The goal was not only to reduce dependence on a fuel in decline - it was to cut emissions. Gas is one of the biggest sources of industrial climate pollution, and GIDI was designed to help firms shift, to help meet our climate goals.

That has now flipped: decarbonisation has become the bonus, with the driver keeping businesses running as supply worsens.

That dual purpose - climate and energy security - is what a “managed transition” was meant to balance.

The current government parked that process. It had its own plan: the idea of “market-led” transition: where the Emissions Trading Scheme (ETS) and price signals will, over time, make fossil fuels too expensive and clean alternatives more attractive. Ministers have argued that public subsidies distort markets, and say a market-led transition will deliver lower costs over time.

The problem is, since they made that decision none of the markets involved have been behaving the way textbooks say they should.

Gas prices for industry have already doubled on average over five years, but new supply is still shrinking and exploration is yet to restart. At the same time, electricity prices are historically high, and security margins are tightening as gas-fired stations age and new renewables lag demand.

Further, the ETS carbon price has slumped, with multiple auctions failing to clear, weakening the incentive to invest in lower-emissions technology.

“There’s enough evidence already to show that the market is demonstrably not working,” Optima energy consultant Martin Gummer says. “If the market was right, then as prices have gone up there’d be more gas coming on stream. The opposite is happening.”

In that context, a “market-led” transition risks becoming no transition at all.

And as a result, the country faces the worst of both worlds: emissions stay high while businesses face shortages and huge energy bills.

‘The bottom has fallen out of the gas market’

The scale of what might yet happen if New Zealand can not get its energy crisis under control was laid out last month in “Energy to Grow”, a report by Boston Consulting Group for the four main gentailers.

Some of the facts are now well-trodden: New Zealand’s gas supply has fallen around 45 percent in six years. Domestic production now sits below underlying demand. But BCG did future projections too, finding the gas gap is set to worsen rapidly. In one scenario, demand exceeds available gas by roughly 10 petajoules (PJ) in 2026, and double that in 2027.

Even if big users such as Methanex and Ballance curtail production or exit entirely by 2027, their 28 PJ of demand is not enough to restore balance later in the decade. The market is still short.

In a dry year, the picture is worse. Gas-fired power stations need more fuel to back up hydro lakes, soaking up any spare supply that might otherwise go to industry. BCG warns that without better planning, “industrial demand destruction” - companies shutting or relocating because they can’t secure fuel - could begin as early as 2026.

Earlier advice to ministers from the Ministry of Business, Innovation and Employment (MBIE) and the Electricity Authority (EA) underlines how tight it has become. In July, officials were asked by Resources Minister Shane Jones whether New Zealand could burn more coal at Huntly so gas could be diverted to struggling factories.

On paper, yes: Huntly can run more on coal. In practice, both agencies say, doing so would push up power prices and increase the risk of shortages, especially in a dry winter. The “spare” coal units at Huntly are not spare at all; they are the emergency reserve that keeps the system stable when lakes are low or gas plants fail.

In other words - any extra gas for industry has to come from somewhere else.

“This is a serious and complex problem,” Gummer says. “You can’t just pull one lever and think it will be a silver bullet. The government has to pull all the levers it possibly can.”

Fear of the unknown: Businesses don’t know when, or how to jump

For many businesses, the result of the gas shortage has been a state of paralysis.

In a survey of 66 industrial gas users earlier this year, consultancy Optima found strong concern about future availability and pricing, with “low ability to transition in the short term”. Twenty-five percent of respondents had already raised prices to pass on fuel costs; 14 percent had reduced production; eight percent had cut staff.

Of 55 firms, 28 believed they could fully or partly replace their gas use within about three years - but only with help on consents and capital. Together, they could cut demand by about 4.8 PJ a year. The combined capital bill was estimated at $532 million; most said some co-funding would be needed to make the numbers stack up.

The remaining 23 businesses said they could not get off gas within five years and needed a longer runway of up to 15 years.

The Energy Efficiency & Conservation Authority (EECA) commissioned qualitative research with 25 small and medium gas users - coffee roasters, brewers, pet-food makers, plastics moulders, hothouse growers and others.

It found many run specialist equipment with no cheap, like-for-like electric alternative.

Transitioning often means ripping out perfectly functional gas technology, investing heavily in heat pumps or biomass boilers, and in many cases - like at Rainbow Park - paying for expensive grid upgrades just to get enough power to their site.

The single biggest barrier those businesses identified was uncertainty: about how long gas will be available, if there will be rationing, how high prices will go, whether exploration will restart, whether a promised investment into LNG will arrive, and what happens if they jump early and the government later props the gas market up.

“We never considered the risk to the business of not actually having natural gas,” one participant said. “We always expect that the price could fluctuate… But we never anticipated maybe having no gas coming from the pipeline.”

“What is the priority of the gas supply going to be?” another asked. “If supply is limited, which it already is, how is energy going to be allocated? Who gets it first? Who gets it last?”

EECA chief executive Dr Marcos Pelenur says many firms feel they are being pushed into “make-or-break decisions”: absorb higher costs, invest millions in new plant, or close.

“Gas has declined much faster than most people expected,” he says.

Crucially, however, he does not expect a return to “the good old days”.

“I think it is very likely that we will not have cheap, abundant gas,” Pelenur says. “There are businesses out there hoping gas prices will go back to what they were ten years ago. I do not think that’s going to happen.”

It is far more likely that the nation will have abundant renewable energy instead, Pelenur says.

His message is that businesses should act now on efficiency - EECA’s walk-through assessments often find 10-30 percent savings - and start planning fuel switches, even if the big projects will take years.

But without a national strategy or substantial funding, that planning sits largely on individual firms: and eventually comes back to the issue of money.

The devil and the deep blue sea

For many manufacturers, the choice is not between cheap gas and slightly dearer electricity. It is between paying hundreds of thousands or millions of dollars to replace perfectly functional gas equipment - or taking their chances and hoping the fuel keeps coming.

“Most businesses are caught between the devil and the deep blue sea,” Gummer says - unable to afford the capital cost of transition, yet unable to rely on increasingly volatile and uncertain gas supply.

“It’s painful,” one business owner told EECA’s researchers. “The economics don’t work out on our current return on investment.”

Some talked seriously about shutting rather than transitioning. Others said they are passing costs on to customers, but worry those customers will simply go offshore - a wider risk of deindustrialisation.

Major employers such as pulp and paper mills, wood processors and food plants are deeply woven into local economies. If they close, the knock-on effects hit ports, trucking firms, engineering workshops, schools and shops. Once those jobs are gone, they are hard to replace.

Green Building Council chief executive Andrew Eagles says leaving it to the market is an unnecessary risk.

“You’ve either got a considered transition or a disruptive one that will damage people’s lives - kids leave schools, people move towns, regional economies shrink,” he says. “This isn’t about abstract ideas - it’s real people’s lives.”

BCG estimates that once big users like Methanex and Ballance have exited, every petajoule of additional gas demand destruction hits GDP harder and harder - about $400m for the first PJ, up to $700m for the tenth. Losing 5 PJ could wipe out around $3b of GDP a year; 10 PJ, around $7.3b, or nearly two percent of total GDP.

By contrast, the report suggests that with about $200m of co-funding, New Zealand could displace 10-20 PJ of industrial gas use over the next decade by helping firms switch to electricity and biomass.

“$200 million is a one-off,” Hobbs says. “The cost of not managing the transition is in the billions every year. The benefits to the economy outweigh the costs by quite some margin.”

The World will follow New Zealand down the Toilet

The critical measure of the condition of energy supply is the Energy Cost of Energy, a calibration of how much energy, being consumed in the energy access process, is unavailable for any other economic purpose. Driven by the depletion of fossil fuel resources, global trend ECoEs have risen relentlessly, from 2.0% in 1980 to more than 11% today.

It might be thought that the consequences of surging ECoEs have been modest. Using the above numbers, the proportion of produced energy available to us may have fallen from 98% in 1980 but remains at 88%, which, we might be tempted to think, is surely enough to keep the economy growing.

This, though, ignores critical leverage in the system. Most of the energy available to the economy – perhaps 95% in complex advanced economies, and 90% or so in emerging market countries – is required simply for system maintenance. It has to be devoted, not just to repairing and replacing infrastructures and productive capabilities, but also to the support of the population.

The West has long since passed the ECoE threshold beyond which growth becomes impossible, and the same is now happening in less complex, more ECoE-resilient EM economies.