The gas industry in New Zealand has its origins in manufactured gas plants that supplied towns and citites, and which date back to 1863. The industry became modernised with the advent of natural gas in 1970 and has substantially increased its contribution to New Zealand energy supply and economic wellbeing. This section summarises the industry's development, its statutory and regulatory framework, the key governance arrangements and the role of Gas Industry Co.
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Optimising the Contribution of Gas
Natural gas makes a substantial contribution to New Zealand’s energy supplies, providing energy security and supporting the New Zealand economy in a way that helps to achieve the country’s environmental sustainability goals.
It is used by about 265,000 industrial, commercial and residential customers. It accounts for approximately 20% of total primary energy supply and 11% of total small consumer energy use.
The energy supply and economic importance of natural gas has grown rapidly since the first commercial discovery at Kapuni in 1959. This discovery led to increased exploration activity and further major gas finds.
The commencement of natural gas deliveries from the onshore Kapuni field in 1970 enabled the replacement of aging town gas works that produced gas from coal. The cleaner, more efficient natural gas was initially distributed through local gas networks to nine communities serviced by a transmission pipeline running north to Auckland and south to Wellington.
Around this time, gas supplies were greatly strengthened with the discovery of the much larger offshore Maui field. Maui gas deliveries began in 1979, heralding the rapid expansion of the high pressure gas transmission system to Northland, the Bay of Plenty and Hawke’s Bay and the reach of natural gas into all major populated centres of the North Island.
Today, natural gas has a wide range of applications, fuelling thermal power generation plants and large industries (including in the key export sectors of meat, dairy and timber processing, and steel manufacture), and providing the feedstock for petrochemical (methanol and ammonia/urea) production. Gas is also used directly in a wide range of small to medium commercial enterprises, and for cooking and for space and water heating in households.
In the past decade, as Maui gas reserves have diminished, the gas industry has transitioned from a dependence on that field to sourcing gas from multiple fields. Today, market demand of approximately 165 PJ a year is met from about 15 different fields and wells.
While there has been exploration activity in many onshore and offshore regions of New Zealand, all gas production so far has been in Taranaki. Natural gas is not available in bulk and in bottles in the South Island. However, LPG (liquefied petroleum gas), a mix of propane and butane extracted from natural gas, is available throughout the North and South Islands. In parts of the South Island LPG is also supplied through small reticulated LPG networks.
The success of the complex and changing gas industry relies on a number of interdependent participants, from upstream explorers to end users, as well as on competitive markets and ongoing efficient investment at all stages.
These changing dynamics, Government policy expectations for the industry and the related need for effective arrangements to ensure industry participants can operate and invest in the market with confidence provided the context for the establishment of the gas industry body – Gas Industry Co – in 2004 under a co-regulatory governance model.
Gas Industry Co’s immediate focus was on enhancing consumer outcomes and developing new market and infrastructure access arrangements. In its first years of operation, a number of significant governance arrangements have been put in place (both voluntary and regulated) to progressively align industry and market practices with statutory and energy policy objectives (see Significant Milestones below).
As ongoing workstreams continue to address the legislative and policy priorities, Gas Industry Co is also building on its statutory role through a broader corporate strategy focused on optimising the contribution of gas to New Zealand. This involves Gas Industry Co taking a stronger leadership and facilitation role to help the “end to end” coordination of the industry and ensuring the New Zealand gas story is well understood and future development is facilitated.
Through our close liaison with the industry and Government, we seek to maintain the gas industry’s attractiveness to explorers, developers, infrastructure owners, wholesalers and retailers, and for gas itself to continue to be available as an efficient, cost effective energy option for consumers.
In seeking to optimise gas’ contribution to New Zealand, our strategic goals therefore are to:
Deliver effectively on our accountabilities as the gas industry body, specifically to:
build on industry arrangements that ensure gas is delivered to existing and new customers in a safe, efficient, and reliable manner
deliver on the provisions of the Government Policy Statement on Gas Governance
Facilitate efficient investment in, and efficient use, of gas infrastructure
Build efficient, competitive, and confident gas markets.
Build and communicate the New Zealand gas story, including through increased disclosure and communication
Gas industry Co’s more detailed objectives and workstreams, developed in consultation with the industry, are set out in the annual Statement of Intent.
Gas Industry Co was established under Part 4A of the Gas Act 1992 (Gas Act) as the gas industry’s approved co-regulatory body. Gas Industry Co works with both the Government and the industry to develop recommendations on industry arrangements that meet the objectives of the Act and the April 2008 Government Policy Statement on Gas Governance (GPS) – itself part of the Government’s wider New Zealand Energy Strategy.
Gas Industry Co is owned by industry shareholders and is funded by a levy on industry participants. It is incorporated as a company under the Companies Act 1993 and is governed by a Board comprising a majority of Independent Directors as well as Industry-Associated Directors.
Gas Industry Co's regulatory oversight encompasses the natural gas wholesale and retail markets, processing facilities, and the transmission and distribution sectors of the industry. It does not have regulatory involvement in the upstream gas exploration and production sector, although a number of producers are wholesale market participants.Gas Industry Co's jurisdiction slao covers aspects of the LPG market, but as yet has identified no issues requiring formal governance arrangements for LPG.
Gas Industry Co works closely with other regulatory bodies whose responsibilities also include the gas industry:
Ministry of Business, Innovation and Employment (MBIE)
The safe supply and use of gas (Work Safe NZ)
Monitoring and overseeing the co-regulatory model of gas governance
Consumer protection (Ministry of Consumer Affairs)
Enforcing competition, fair trading and consumer credit legislation
Administering a price-quality regime for gas pipeline (transmission and distribution) services and the associated information disclosure regime
In recognition of their shared interests in the gas industry, Gas Industry Co and the Commerce Commission have a Memorandum of Understanding (MoU) setting out how they will coordinate their respective roles under the Gas Act 1992 and the Commerce Act 1996. The MoU is available here.
Close liaison is also maintained with the electricity regulator, the Electricity Authority, in areas of mutual interest.
Part 4A of the Gas Act 1992, under which Gas Industry Co was established, prescribes policy objectives which the Company must take into account when recommending rules, regulations or non-regulatory arrangements to the Minister. The main policy objective in this context is to:
'Ensure that gas is delivered to existing and new customers in a safe, efficient, and reliable manner.'
Other objectives of the Gas Act that Gas Industry Co must consider when making recommendations relate to:
Facilitating and promoting the ongoing supply of gas to meet New Zealand’s energy needs by providing:
access to essential infrastructure; and
competitive market arrangements;
Maintaining incentives for investments;
Downward price pressure;
Managing supply risks; and
Maintaining consistency with the gas safety regime.
The Gas Act enables the Minister of Energy and Resources to suggest objectives and outcomes through the GPS. General objectives in the GPS relate to:
Consumer outcomes and retail arrangements;
Gas wholesale markets; and
Specific policy objectives of the GPS require Gas Industry Co, when making recommendations, to have regard to:
Fairness and environmental sustainability as part of its principal objective;
Efficient use of energy;
Signalling to customers the full costs of producing and transporting gas;
The quality of gas services reflecting consumer preferences;
The gas sector’s contribution to the Government’s climate change objective; and
Facilitating competition in the upstream and downstream markets by minimising barriers to access to infrastructure.
The GPS also addresses the need for sound arrangements for the industry to manage critical gas contingencies and specifies the Government’s expectations for a consumer complaints resolution system.
Gas Industry Co works with industry to develop non-regulated solutions to issues where possible. However, it is able to make recommendations to the Minister of Energy and Resources on a wide range of industry matters, including the making of rules and regulations in relation to the wholesaling, processing, transmission and distribution of gas where a non-regulated solution is not achievable for any reason.
Industry governance arrangements are designed to ensure the gas market is competitive and working efficiently in the supply and delivery of gas to consumers. The arrangements are underpinned by non-regulated practices, as well as certain rules and regulations.
As part of these arrangements, Gas Industry Co performs the role of the ‘Market Administrator’, which includes overseeing a central gas registry, and reconciliation processes.
Gas Industry Co also administers the compliance processes, including through an Independent Investigator and an independent Rulings Panel.
As part of its broader strategic activities, Gas Industry Co has provided advice and recommendations to the Minister that have resulted in a range of rules, regulations and industry arrangements.
The GPS requires effective access to a complaints resolution process for all small gas consumers. Gas Industry Co worked with the (then) Electricity Commission to recommend the approval of a single, dual-fuel complaints resolution body.
A free, independent complaints resolution service is provided by the Electricity and Gas Complaints Commissioner (EGCC), operating as part of the Ministry of Consumer Affairs.
A comprehensive review of the gas sector was conducted by the Government in 2001/02 to ensure the gas sector could meet the Government’s overall energy policy objective. In a subsequent Policy Statement in March 2003, the Government stated that it favoured industry-led solutions where possible, but that it was prepared to use regulatory solutions where necessary. This arrangement was consistent with a regime based on self-regulation, and the gas industry was invited to establish a governance structure and work programme.
The Gas Industry Steering Group (GISG) was formed to respond to the Policy Statement. Following consideration of the requirements and the proposed self-regulatory governance structure, it advised that the industry would require some form of regulatory backing to achieve the Government’s objectives and outcomes. The Government agreed, and the Act was changed in 2004 to give effect to a co-regulatory model of governance.