Great analysis but where is the mention of the need to reduce consumption? I didn't see a demand side solution. Saying that you understand the limits to growth but then demanding it seems odd. i quote "Our energy demand will always increase" AH NO IT WON'T (biophysical reality) and as for "We need more time. Time to inform, time to grieve for what was, and time to create new cultural narratives" 1. we don't have time and 2. we have been saying that for decades but in my lifetime per-capita energy consumption has almost trebled, am i any better off? no a heap more gadgets is all, and the planetary life support capability has been massively diminished. i think you need to look again at LTG
Hi Mike, you are right of course. Right also to point out the inconsistency in my thoughts here. I hovered over the send button for some time because of this specific issue.
It's correct that demand will not "always" grow. It will grow as we grow, but we can't grow indefinitely. This is probably a better way of putting it. That is why I mentioned Jevon's paradox. Sure, we can demand less single use plastic from our energy system, but we will equally match that with more AI powered google searches.
This is the stuff that tortures my mind in a lot of ways. I can't quite circle the square on this and I appreciate it comes across as indecisive and incongruent. Where I get hung up is how do we create some sort of off ramp. As you say this has been a topic of discussion for decades.
The elephant in the room for me is debt and I should have mentioned that in this article. If we did not have debt that needs increased production in the future to remain stable, we would be in a far better position as we would have some head room to move to lower productivity systems that have less externalities. But instead, we are constantly ratcheting up debt which makes bend not break essentially impossible. If we break the environmental and social outcomes will be disastrous.
I appreciate your criticism; it makes me work harder on these problems and look for better answers.
I wouldn't worry too much about Mike Joy's view. Some of what he says is correct, but his "biophysical reality" is based on his {false) belief in the anthropogenic global-warming aka climate-change nonsense and so-called 'fossil fuel' depletion aka peak oil - neither which is true. And neither oil, gas, or coal has ever been near a fossil, let alone comes from them. This is an example for brainwashed and indoctrinated (and indoctrinating) academia. The "the planetary life support capability" is fine.
There is time to come up with the correct solution, though the collapsing financial system will distract people and put them in fear. A Hegelian dialectic problem-reaction-solution model which, if not successfully countered, will place people into perpetual slavery aka CBDCs and digital IDs.
I agree we do need to reduce consumption, but of rubbish disposable plastic junk (for example). As I'm sure you know, engineers are more than capable of producing durable high quality long-life products. But not when they're ruled and regulated by accountants/economists.
The root cause is a financial system centered on debt based fiat currency, which needs to grow. And (one way) to achieve this is to grow consumption - of rubbish disposable plastic junk for example. So if we can get rid of a debt based fiat currency this problem will gradually disappear. If the root cause is not addressed, the problem will never disappear.
I appreciate Mikes comments. He's presented a challenge and hit on a point that I deliberated over for a long time before posting this.
However, I doubt there are many that would disagree that we would all be better off with less disposable plastic junk. Oil depletion is a topic for another day. I want to write on the changes in complexity of offshore oil production over years and what that implies about EROI.
I didn't hit on the implications of NZ's debt in this piece and thats an important omission in hindsight. It changes the demand for future energy significantly and as you know far better than I has a troubled history.
Though I strongly disagree with Mike, I should save that criticism for my own Substack, so apologies for dropping it here. I was probably a bit grumpy - I have seen so many claims being made by academics over the years that either cannot be proven with evidence, or worse, are based on wretched models (and I like models; I did my ME on engineering modelling - they’re a useful tool). Using models as a tool is one thing. Using them to indoctrinate society to drive it onto the road to ruin is something else.
I agree the whole oil story is for another day (plus it’s a massive topic - there’s a lot to be unpacked).
This is incisive thinking of a clarity and eloquence that few other energy commentators can match. Thank you for your major and persuasive contribution, and let us hope that there are politicians that can rise to a similar level of courage, focus and 'big picture' thinking to get the job done.
I read your piece when it came out and have done some more reading and reflecting. I am an economist, and don't detect a comment from one on this blog, and I can see that if you are not a power engineer you are at least not an economist.
Bravo for taking a comprehensive view of all energy needs - that's a very helpful 'scene setter' for what I think of as strategy, which in my case takes in political 'realities' and an economic view - one that reflects the value of one thing, against another, which of course we measure in money.
I accept that energy is a central support for economic activity, but not a driver of it, nor to be sought for its own sake. At one extreme one has Middle Eastern countries with surplus oil and great wealth they have not in our terms done anything constructive with, and Singapore at the other, now much wealthier than us but with less energy but an economy shaped by what they have.
I don't agree we should try to lead economic growth with cheaper energy (electricity) - we can't industrialise more with that and to do so would actually reduce productivity - it's not now dellvered by industrialisation. So my strategy is to use the price mechanism, as we have for 30 years now, to find out how cheaply we can get electricity and to have a myriad of 'experiments' going on to get there. Our electricity consumption has been dead flat for well over a decade to Dec24, while the population and economy has grown. The price mechanism is strongly driving economy of use of electricity obviously, from LEDs to better insulated everything to more efficient production process use.
In taking account of our miserable politics, I think we have to accept there will be no more gas drilling/searching - who would invest at the mercy of Labour/Green ideology on this? Larry, you did not mention LNG, which is much cheaper than onshore gas here. I've seen estimates of about $100million for a 'wharf' and pipes, where we could park up a LNG ship holding 3.5Petajoules and with just a few shiploads, we could get peaker electricity safely through the winter (we've been using an average of 105GTJ a day the last six years), as we build out more wind especially and solar. Drought this autumn? Another shipload or two of gas. I am not in favour of refining here, I think that was the right decision.
For politicians, the nuclear ideal is too hard a sell. But I believe that the huge development of SMRs in many technical forms now underway will deliver nuclear options our population could consider safe, inside 15 years. We would buy modules in containers (or two) as needed. I certainly hope so, maybe the German mistake will help our people to rational behaviour here, although the lack of widely read competing newspapers of quality now makes this hard to develop.
We have a LCOE now of around 90NZD apparently, with the trading cost above it but forward markets trending down. We have new investment going in, paused as the smelter's threat to leave is gone (made in 2020 and causing an investment hiatus). It is not logical in fact that the four generators have an incentive to keep the system on edged - there are big returns to scale as Larry has pointed out and residential is only a third of the market - these guys want to invest and to sell more. Last winter's peak prices didn't affect residential pricing and gave Winstone Pulp the excuse to quit pulp, and blame electricity costs. They knew they were marginal from years ago, and took the opportunity to get out clean in PR terms. Our press is not well-funded enough to expose them.
This leads to the use of a market to manage delivery and growth. With a single seller one would not have the desirable signals our market gives industry and through it, residents (eg, buy heat pumps and insulate, do rooftop). There has been major work over the years to improve market constraints (regulations) to get the market in practice closer to the theoretical ideal, none of which I read about anywhere but on the EA, MBIE or specialised websites, where there is a wealth of information about what's going on. I expect the 'expert group' report promised for June, but likely late, to confirm a market approach is best, and promote more tweaking. This is the global model where politicians have agreed a rational approach. It will be interesting to me to read it and to see what this community thinks of it. I am not an 'energy' economist, just a 'regular' one, and in retirement have a bit more time to look outside my employment focus. It disappoints me to see the implicit negation of all the focused intellect over time from civil servants, the EA people and global experience when reading much of the criticism of our electricity strategy. When 'it's f**ked' is the best one can do, it doesn't help.
I know we have climate warming, and I accept that we are a cause of a lot of it. We should do something if we can, and this has shaped what I have written above. But Iike many, I am not ready to kill our well-being by following ideologically-driven measures (we don't need 100% renewable for example as everyone here knows, we need 'peaker' gas until nuclear is accepted in order to keep prices on average much lower and supply secure). I regret the coal use we have, and am in favour of a gas transition, as above perhaps. I am so relieved to find power engineers are being listened to here so that we won't get the South Australia/Spain type of blackouts and unbalanced generation structure. We need teamwork across several specialisations to solve our current (minor) supply issue. I'm optimistic we will have uninterrupted power, at the best cost achievable, within a year or two if we stay on the current track and solve the gas problem.
Hi Clive, firstly thank you for this great comment, I appreciate the effort that has gone into furthering the discussion here. Secondly apologies for the delay in responding.
I would like to challenge this "I accept that energy is a central support for economic activity, but not a driver of it". An economy is measure in terms of production (GDP). Production can only occur with energy. To quote the economist Steve Keen "labor without energy is a corpse and capital without energy is a statue". Take a look at this article as a good breakdown of this.
What really resonated with me what was correcting the Cobb Douglas production function to remove the TFP (residual) and apply an energy multiplier and efficiency of conversion multiplier to capital and labor individually.
Singapore has 2 x the GDP per capita of New Zealand and 6 x the energy intensity. It is a classic example of the thermodynamics that underpin an economy.
I am interested to explore this further "we can't industrialise more with that and to do so would actually reduce productivity - it's not now dellvered by industrialisation". As you correctly point out my grasp of economics is very basic. I struggle to see how we increase productivity without either lowering the per unit cost of production through cheaper inputs or by adding value. Both things require cheap energy?
As for our electrical use it has been increasing steadily with the exception of industrial. Which is a function of curtailment (under utilisation of capital) which is also a drain on productivity. Ref the chart on page 12 of the Energy In New Zealand 2024 report https://www.mbie.govt.nz/assets/energy-in-nz-2024.pdf.
I think you have a good point regarding LNG and I saw a recent presentation on this that sharpened my thinking about the potential viability of FSRU technology. A future post to come on that.
Thank you for your market comments. I tried to dive into this in my energy strategy post. To me how do we create a market that supports the physics, not at odds with physics is the big question. We are quickly losing baseload dispatchable generation, particularly in the North Island and increasing intermittent generation. The market does not incentivise the large scale baseload we so desperately need to keep the lights on.
I appreciate your expertise and contribution to the discussion. These critiques always help to refine my understanding of the interface of energy and economics. Have a great weekend and tanks again.
Larry, I am sorry I did not follow up in the time I said I would, some distractions! The main thing you were focusing on was the role of energy in a society’s development, and you appear to have the view that it must lead/be plentiful, rather than respond to, other technology developments. I don’t think I should try to leave you links to follow on this topic however, as for economists, the results are in. I accept that oil discovery in Pennslyvania began a long period of productivity growth as its cheapness, ubiquity and range of uses played out for 150 years. But no more.
Perhaps a current example might illustrate what I mean. AI research has been underway for several decades, but in the last two years especially has delivered usable products and ‘use cases’. So all of a sudden demand for the new computing power that makes AI possible has translated into demand for numerous data centres which gobble power. Microsoft and Amazon and others are buying their own generators: old nuclear power plants are to be restarted etc. Availability of power had nothing to do with the rise of AI but now it will be obtained in ways that are economic for AI purposes. I think the development pathway for Singapore would have been the clever successive waves of industry types that Lee engineered, with energy (I think almost entirely gas now) being brought on as needed.
I found on the EA website a document (undated!!) about wind and solar scenarios (Paulo Soares) which in my view deserves attention and shows the EA is thinking strategically. It obtained 7 years of hourly weather data from the 89 weather stations around NZ, fromJanuary 2015 to end December 2021 (a period covering both Niṉos) and modelled what power outputs would have been available from both wind and solar sites at those locations: not a feasibility study at all but a ‘what if’ check for increased solar and wind, and the likely need for associated firming generation. It modelled power capacity availability (adjusting for wind by factors for rotor height above the weather station altitude etc).
The seriously confronting results for wind were that for 5% of the time, wind was at less than 10% of its capacity. Only around 9% of the time was modelled capacity over 50% for wind. For solar, generation would be below 10% of capacity 60% of the time, and above 50% only 14% of the time (obviously nighttime is in these stats). There was a high degree of correlation among wind sites, and solar sites (obviously the weather stations, but a good indication nonetheless).
I can’t escape the implication that we will need SMR nuclear in future distributed around the country. With those availability stats, we are not going to have a secure grid supply much past what is available for firming anyway. Or have I got that wrong? I hope others will look at this document and let me know what they think it implies.
Thanks Clive, from a purely physics perspective nuclear is the obvious choice and I think much could be done to reduce the costs. It makes sense because of the iron law of energy density.
With regards to AI I would suggest that it exists because of the energy systems and its ability to go will be constrained by the energy system. It is for this reason that I see economic activity as primarily a surplus energy proposition. Surplus energy enables new services, products, and production. All of which must be additive to provide growth.
With regards to capacity factors. There is quite a lot of info out there (surprisingly mostly from Chinese universities) about the capacity factors of NZ wind and solar over seasonal timeframes. It is not as good as many profess and nearly always for wind looks at a standalone turbine absent of the influence of wake effects and less optimal siting.
Larry I will clarify what I meant in my main contribution later in the week, but meantime have come across a very interesting series from a 'planning engineer', a Russ Schussler. I found him at the address pasted in and am keen to be sure you have been reading him because he is talking about energy supply and the difficulties of using just markets to get long-term supply built: he's 'your kind of guy' I think. Here is my link:https://judithcurry.com/2025/05/28/why-cheaper-wind-and-solar-raise-costs-part-iii-the-problem-with-power-markets/
Thanks Clive no I am not familiar with the work of Russ Schussler but having just started into the link you provided I think I am pretty aligned with his thoughts so far. Thanks for sharing this, much appreciated.
Thanks Larry, and just to say I overlooked batteries as a development that may get more influential in a few years as the tech develops, and seems already useful to some commercial generators. Some commentators elsewhere are 'big on batteries' but I don't have a view past what I see installed here. Cheers, Clive
Thanks again Clive, I'm not so confident on grid scale batteries. All the battery systems to date a tiny compared to the task that they would need to achieve to be a solution. The price drop is more of a function of China monopolizing the market as they have done with solar, rare-earth metal processing and increasingly refining hydrocarbons. This is all of course a function of them now consuming 58% of the worlds coal. Batteries are a big maybe for me and they still have a very long way to go. A future post topic for certain.
I was with you all the way until you proposed more gas, rebooting Marsden Point and the nuclear as answers. Ten years of hunting prior to Labour’s exploration ban didn’t find anything worthwhile & Shano underwriting the 1st $200M of re-exploration won’t change that. The ‘physics’ benefit of moving from thermodynamic energy sources for electric devices to electric sources for electric devices is that all the losses involved in finding, extracting, moving, storing & burning disappear, reducing the overall input energy required. Sure we’ve got to change a bunch of machines from thermals to electrics and while that is done as part of routine renewals it is financially achievable.
That aside I agree wholeheartedly with you that the current market model for energy in NZ is f**ked.
Thanks for your efforts in getting this message out & putting yourself out there with your recommendations. Let’s hope we don’t need to achieve an economic meltdown before the politicos get on board.
I thought about Marsden Point for quite a while. The clincher for me was the global supply chain risks. Within a couple of hours of posting this piece Israel fired missiles into Iran.
We have so much capital tied up in machines that use diesel and petrol and they are critical to daily function of society that it is a national security issue to have some refining capacity to keep minimum of societal functions going if things get rough. OIl supply would still be an issue but thats a slightly easier issue to address than refined products.
There is gas out there. The issue has always been the future of methanex hence the focus in recent years has always been in field development trying to get stranded pockets in existing fields. We haven't had new a large new development since Pohokura. This is why I propose a single buyer long tern contracting model that would provide that would underwrite development in the same way Methanex has traditionally done.
Thanks reading and contributing to the discussion.
Great analysis. Thankyou. Unfortunately I predict a whole lot of can kicking. Political leaders seem largely incapable of making the big decisions required for fear of upsetting a percentage of the voting electorate, leaving it for the next generation to deal with, pun intended...
Hi Ben this was actually a big part of the motivation to start this substack. I wanted people to understand what they are voting for and how to identify policy and politicians that are energy aware. Thanks for reading!
You have had a good crack at our national problem. We can't not grow the economy as we have a $10 b interest bill to pay each year we have a large number of people on some form of benefit so to maintain social cohesion we have to grow the pie. Compare Europe with America no growth versus higher growth and the is America has cheap energy..We need as you state excess and much cheaper energy. The Government has to get involved due to our sovereign risk.and to avoid a more rapid decline.. For starters scrap the ETS this is just a wealth transfer from the majority to a small minority The $1b saved from ETS would then be used for any base load coal fired generator while more gas was developed by government and industry i could go deeper into this but someone has to cook dinner
Thanks Peter, yes the ETS is a big drain on the economy and could be re-allocated to much more productive things than planting pine trees on good farm land.
You hit the nail on the head growth occurs where there is cheap reliable energy.
At approx US$9B each with a median construction time of 11 years would we hit the target in time and in-budget and would that work out more cost effective than construction of other energy production methods?
I am proposing nuclear only as a strategic piece of infrastructure for the electrical grid. An injection of ~8 TWh of electricity into the grid from a single asset located near one if the undersupplied demand centres would be material.
The more significant point you have hit on though is the energy provided by hydrocarbons. Last year we used 119PJ of natural gas which is about half of our peak and the equivalent of more than four 1GW power stations. Sure there are conversion loses with gas but this still gives an idea of the magnitude of the task ahead. To get to 1600PJ we will need a mixture of all energy types and ideally domestically produced.
"Recommission and modernise Marsden Point refinery" - agreed. You're aware Marsden Point originally couldn't refine NZ crude? An intentional design flaw? It was attempted to change this, though I'm not sure how successful this was. Some site engineers I had conversations with, albeit in the 90s, had their doubts. Couldn't say what the status was when it was closed (by Energy Minister Megan Woods - a Labour MP and PhD History).
That is my understanding also. It makes some sense as the NZ crudes from Maui, Tui and these days Maari command a premium due their properties. My understanding is that the refinery was set up for sour middle eastern crude and that on a balance of trade basis we exported a premium product and imported a cheaper lower quality product. The reality though is that we would not have been able to supply enough feedstock domestically and would always have had to import. An upgrade would improve the spread of feedstocks and the efficiency to keep it viable commercially against imported products. I see more value in the national security aspects that need to be considered over an about a purely commercial proposition weighed against imported product.
"those who have sufficient influence to initiate change" - sorry Larry, but "those who" means you, among others. In my opinion. That means getting this message to a wider audience. Unfortunately (in the sense that Substack is not a wide enough audience) that means public activism.
As the image in my last post said "no more sleeping".
The only thing I really disagree with here is the bipartisan element. Government is not, and will never be, the solution. Government is and has always been the problem. As I said in my NZ Financial Resets introduction "The role of government as enacted is to control and extract. That’s it!" https://craighutchinson.substack.com/p/nz-financial-resets
Political parties are just a mechanism to coral people - where they can be controlled. Nothing we've seen in our lifetimes, let alone recently, counters my view on this.
I also struggle to see a political solution and this is a major problem. Politicians are swamped by lobbyists, offical advice, trying to cut deals and likely have very little time or ability to unpack and evaluate it all. I don't think things of this level of importance should be left to the vagaries of governments oscillating between 3 year terms. The same arguments could be made for a lot of things actually.
An excellent well thought through and developed article on energy. It explains the importance to our economy and to homes and businesses of a reliable and cheap energy supply. It outlines the the reasons we are entering a period of disturbing lack and offers solutions. Thank you for putting this together
Wow. Havent read the Brian Leyland link yet but I will. The industry is so big and so mismanaged it is beyond the capacity of any politician (or individual for that matter) to grasp. I think your final words are prescient.
One specific tho..."Accelerated depreciation of existing gas pipeline infrastructure is being pursued by the network operator signaling that we are at risk of losing the network due to under utilisation." Where can I find this discussion? I assume it is Capus Ltd which supplies both gas and electricity
Thanks Winston, regarding the gas infrastructure it was in the most recent DPP4 gas network consultation document from the commerce commission. My understanding is that network operators were lobbying for accelerated depreciation to avoid stranded assets. Which of course end users were not happy about as they to face stranded assets.
Great analysis but where is the mention of the need to reduce consumption? I didn't see a demand side solution. Saying that you understand the limits to growth but then demanding it seems odd. i quote "Our energy demand will always increase" AH NO IT WON'T (biophysical reality) and as for "We need more time. Time to inform, time to grieve for what was, and time to create new cultural narratives" 1. we don't have time and 2. we have been saying that for decades but in my lifetime per-capita energy consumption has almost trebled, am i any better off? no a heap more gadgets is all, and the planetary life support capability has been massively diminished. i think you need to look again at LTG
Hi Mike, you are right of course. Right also to point out the inconsistency in my thoughts here. I hovered over the send button for some time because of this specific issue.
It's correct that demand will not "always" grow. It will grow as we grow, but we can't grow indefinitely. This is probably a better way of putting it. That is why I mentioned Jevon's paradox. Sure, we can demand less single use plastic from our energy system, but we will equally match that with more AI powered google searches.
This is the stuff that tortures my mind in a lot of ways. I can't quite circle the square on this and I appreciate it comes across as indecisive and incongruent. Where I get hung up is how do we create some sort of off ramp. As you say this has been a topic of discussion for decades.
The elephant in the room for me is debt and I should have mentioned that in this article. If we did not have debt that needs increased production in the future to remain stable, we would be in a far better position as we would have some head room to move to lower productivity systems that have less externalities. But instead, we are constantly ratcheting up debt which makes bend not break essentially impossible. If we break the environmental and social outcomes will be disastrous.
I appreciate your criticism; it makes me work harder on these problems and look for better answers.
I wouldn't worry too much about Mike Joy's view. Some of what he says is correct, but his "biophysical reality" is based on his {false) belief in the anthropogenic global-warming aka climate-change nonsense and so-called 'fossil fuel' depletion aka peak oil - neither which is true. And neither oil, gas, or coal has ever been near a fossil, let alone comes from them. This is an example for brainwashed and indoctrinated (and indoctrinating) academia. The "the planetary life support capability" is fine.
There is time to come up with the correct solution, though the collapsing financial system will distract people and put them in fear. A Hegelian dialectic problem-reaction-solution model which, if not successfully countered, will place people into perpetual slavery aka CBDCs and digital IDs.
I agree we do need to reduce consumption, but of rubbish disposable plastic junk (for example). As I'm sure you know, engineers are more than capable of producing durable high quality long-life products. But not when they're ruled and regulated by accountants/economists.
The root cause is a financial system centered on debt based fiat currency, which needs to grow. And (one way) to achieve this is to grow consumption - of rubbish disposable plastic junk for example. So if we can get rid of a debt based fiat currency this problem will gradually disappear. If the root cause is not addressed, the problem will never disappear.
I appreciate Mikes comments. He's presented a challenge and hit on a point that I deliberated over for a long time before posting this.
However, I doubt there are many that would disagree that we would all be better off with less disposable plastic junk. Oil depletion is a topic for another day. I want to write on the changes in complexity of offshore oil production over years and what that implies about EROI.
I didn't hit on the implications of NZ's debt in this piece and thats an important omission in hindsight. It changes the demand for future energy significantly and as you know far better than I has a troubled history.
Though I strongly disagree with Mike, I should save that criticism for my own Substack, so apologies for dropping it here. I was probably a bit grumpy - I have seen so many claims being made by academics over the years that either cannot be proven with evidence, or worse, are based on wretched models (and I like models; I did my ME on engineering modelling - they’re a useful tool). Using models as a tool is one thing. Using them to indoctrinate society to drive it onto the road to ruin is something else.
I agree the whole oil story is for another day (plus it’s a massive topic - there’s a lot to be unpacked).
The debt…! I better stop now.
All models are wrong, however some are useful ha ha.
All is good.
This is incisive thinking of a clarity and eloquence that few other energy commentators can match. Thank you for your major and persuasive contribution, and let us hope that there are politicians that can rise to a similar level of courage, focus and 'big picture' thinking to get the job done.
Thanks Tony I appreciate that.
Larry good morning
I read your piece when it came out and have done some more reading and reflecting. I am an economist, and don't detect a comment from one on this blog, and I can see that if you are not a power engineer you are at least not an economist.
Bravo for taking a comprehensive view of all energy needs - that's a very helpful 'scene setter' for what I think of as strategy, which in my case takes in political 'realities' and an economic view - one that reflects the value of one thing, against another, which of course we measure in money.
I accept that energy is a central support for economic activity, but not a driver of it, nor to be sought for its own sake. At one extreme one has Middle Eastern countries with surplus oil and great wealth they have not in our terms done anything constructive with, and Singapore at the other, now much wealthier than us but with less energy but an economy shaped by what they have.
I don't agree we should try to lead economic growth with cheaper energy (electricity) - we can't industrialise more with that and to do so would actually reduce productivity - it's not now dellvered by industrialisation. So my strategy is to use the price mechanism, as we have for 30 years now, to find out how cheaply we can get electricity and to have a myriad of 'experiments' going on to get there. Our electricity consumption has been dead flat for well over a decade to Dec24, while the population and economy has grown. The price mechanism is strongly driving economy of use of electricity obviously, from LEDs to better insulated everything to more efficient production process use.
In taking account of our miserable politics, I think we have to accept there will be no more gas drilling/searching - who would invest at the mercy of Labour/Green ideology on this? Larry, you did not mention LNG, which is much cheaper than onshore gas here. I've seen estimates of about $100million for a 'wharf' and pipes, where we could park up a LNG ship holding 3.5Petajoules and with just a few shiploads, we could get peaker electricity safely through the winter (we've been using an average of 105GTJ a day the last six years), as we build out more wind especially and solar. Drought this autumn? Another shipload or two of gas. I am not in favour of refining here, I think that was the right decision.
For politicians, the nuclear ideal is too hard a sell. But I believe that the huge development of SMRs in many technical forms now underway will deliver nuclear options our population could consider safe, inside 15 years. We would buy modules in containers (or two) as needed. I certainly hope so, maybe the German mistake will help our people to rational behaviour here, although the lack of widely read competing newspapers of quality now makes this hard to develop.
We have a LCOE now of around 90NZD apparently, with the trading cost above it but forward markets trending down. We have new investment going in, paused as the smelter's threat to leave is gone (made in 2020 and causing an investment hiatus). It is not logical in fact that the four generators have an incentive to keep the system on edged - there are big returns to scale as Larry has pointed out and residential is only a third of the market - these guys want to invest and to sell more. Last winter's peak prices didn't affect residential pricing and gave Winstone Pulp the excuse to quit pulp, and blame electricity costs. They knew they were marginal from years ago, and took the opportunity to get out clean in PR terms. Our press is not well-funded enough to expose them.
This leads to the use of a market to manage delivery and growth. With a single seller one would not have the desirable signals our market gives industry and through it, residents (eg, buy heat pumps and insulate, do rooftop). There has been major work over the years to improve market constraints (regulations) to get the market in practice closer to the theoretical ideal, none of which I read about anywhere but on the EA, MBIE or specialised websites, where there is a wealth of information about what's going on. I expect the 'expert group' report promised for June, but likely late, to confirm a market approach is best, and promote more tweaking. This is the global model where politicians have agreed a rational approach. It will be interesting to me to read it and to see what this community thinks of it. I am not an 'energy' economist, just a 'regular' one, and in retirement have a bit more time to look outside my employment focus. It disappoints me to see the implicit negation of all the focused intellect over time from civil servants, the EA people and global experience when reading much of the criticism of our electricity strategy. When 'it's f**ked' is the best one can do, it doesn't help.
I know we have climate warming, and I accept that we are a cause of a lot of it. We should do something if we can, and this has shaped what I have written above. But Iike many, I am not ready to kill our well-being by following ideologically-driven measures (we don't need 100% renewable for example as everyone here knows, we need 'peaker' gas until nuclear is accepted in order to keep prices on average much lower and supply secure). I regret the coal use we have, and am in favour of a gas transition, as above perhaps. I am so relieved to find power engineers are being listened to here so that we won't get the South Australia/Spain type of blackouts and unbalanced generation structure. We need teamwork across several specialisations to solve our current (minor) supply issue. I'm optimistic we will have uninterrupted power, at the best cost achievable, within a year or two if we stay on the current track and solve the gas problem.
Here's to more discussion!
Hi Clive, firstly thank you for this great comment, I appreciate the effort that has gone into furthering the discussion here. Secondly apologies for the delay in responding.
I would like to challenge this "I accept that energy is a central support for economic activity, but not a driver of it". An economy is measure in terms of production (GDP). Production can only occur with energy. To quote the economist Steve Keen "labor without energy is a corpse and capital without energy is a statue". Take a look at this article as a good breakdown of this.
https://open.substack.com/pub/profstevekeen/p/the-role-of-energy-in-economics?r=ubsbu&utm_campaign=post&utm_medium=web.
What really resonated with me what was correcting the Cobb Douglas production function to remove the TFP (residual) and apply an energy multiplier and efficiency of conversion multiplier to capital and labor individually.
I would also encourage you to have a look at this paper it really catalyzed my thinking on this subject. https://esd.copernicus.org/articles/13/1021/2022/
As for Singapore, it is near to my heart, and I have written about it before here. https://newzealandenergy.substack.com/p/singapore-sling?r=ubsbu
Singapore has 2 x the GDP per capita of New Zealand and 6 x the energy intensity. It is a classic example of the thermodynamics that underpin an economy.
I am interested to explore this further "we can't industrialise more with that and to do so would actually reduce productivity - it's not now dellvered by industrialisation". As you correctly point out my grasp of economics is very basic. I struggle to see how we increase productivity without either lowering the per unit cost of production through cheaper inputs or by adding value. Both things require cheap energy?
As for our electrical use it has been increasing steadily with the exception of industrial. Which is a function of curtailment (under utilisation of capital) which is also a drain on productivity. Ref the chart on page 12 of the Energy In New Zealand 2024 report https://www.mbie.govt.nz/assets/energy-in-nz-2024.pdf.
I think you have a good point regarding LNG and I saw a recent presentation on this that sharpened my thinking about the potential viability of FSRU technology. A future post to come on that.
Thank you for your market comments. I tried to dive into this in my energy strategy post. To me how do we create a market that supports the physics, not at odds with physics is the big question. We are quickly losing baseload dispatchable generation, particularly in the North Island and increasing intermittent generation. The market does not incentivise the large scale baseload we so desperately need to keep the lights on.
I appreciate your expertise and contribution to the discussion. These critiques always help to refine my understanding of the interface of energy and economics. Have a great weekend and tanks again.
Larry, I am sorry I did not follow up in the time I said I would, some distractions! The main thing you were focusing on was the role of energy in a society’s development, and you appear to have the view that it must lead/be plentiful, rather than respond to, other technology developments. I don’t think I should try to leave you links to follow on this topic however, as for economists, the results are in. I accept that oil discovery in Pennslyvania began a long period of productivity growth as its cheapness, ubiquity and range of uses played out for 150 years. But no more.
Perhaps a current example might illustrate what I mean. AI research has been underway for several decades, but in the last two years especially has delivered usable products and ‘use cases’. So all of a sudden demand for the new computing power that makes AI possible has translated into demand for numerous data centres which gobble power. Microsoft and Amazon and others are buying their own generators: old nuclear power plants are to be restarted etc. Availability of power had nothing to do with the rise of AI but now it will be obtained in ways that are economic for AI purposes. I think the development pathway for Singapore would have been the clever successive waves of industry types that Lee engineered, with energy (I think almost entirely gas now) being brought on as needed.
I found on the EA website a document (undated!!) about wind and solar scenarios (Paulo Soares) which in my view deserves attention and shows the EA is thinking strategically. It obtained 7 years of hourly weather data from the 89 weather stations around NZ, fromJanuary 2015 to end December 2021 (a period covering both Niṉos) and modelled what power outputs would have been available from both wind and solar sites at those locations: not a feasibility study at all but a ‘what if’ check for increased solar and wind, and the likely need for associated firming generation. It modelled power capacity availability (adjusting for wind by factors for rotor height above the weather station altitude etc).
The seriously confronting results for wind were that for 5% of the time, wind was at less than 10% of its capacity. Only around 9% of the time was modelled capacity over 50% for wind. For solar, generation would be below 10% of capacity 60% of the time, and above 50% only 14% of the time (obviously nighttime is in these stats). There was a high degree of correlation among wind sites, and solar sites (obviously the weather stations, but a good indication nonetheless).
I can’t escape the implication that we will need SMR nuclear in future distributed around the country. With those availability stats, we are not going to have a secure grid supply much past what is available for firming anyway. Or have I got that wrong? I hope others will look at this document and let me know what they think it implies.
Thanks Clive, from a purely physics perspective nuclear is the obvious choice and I think much could be done to reduce the costs. It makes sense because of the iron law of energy density.
With regards to AI I would suggest that it exists because of the energy systems and its ability to go will be constrained by the energy system. It is for this reason that I see economic activity as primarily a surplus energy proposition. Surplus energy enables new services, products, and production. All of which must be additive to provide growth.
With regards to capacity factors. There is quite a lot of info out there (surprisingly mostly from Chinese universities) about the capacity factors of NZ wind and solar over seasonal timeframes. It is not as good as many profess and nearly always for wind looks at a standalone turbine absent of the influence of wake effects and less optimal siting.
Larry I will clarify what I meant in my main contribution later in the week, but meantime have come across a very interesting series from a 'planning engineer', a Russ Schussler. I found him at the address pasted in and am keen to be sure you have been reading him because he is talking about energy supply and the difficulties of using just markets to get long-term supply built: he's 'your kind of guy' I think. Here is my link:https://judithcurry.com/2025/05/28/why-cheaper-wind-and-solar-raise-costs-part-iii-the-problem-with-power-markets/
cheers
Clive
Thanks Clive no I am not familiar with the work of Russ Schussler but having just started into the link you provided I think I am pretty aligned with his thoughts so far. Thanks for sharing this, much appreciated.
Clive, great comment. This justifies a more fulsome response when I have some more time. Watch this space I will come back to you. Thanks Larry
Thanks Larry, and just to say I overlooked batteries as a development that may get more influential in a few years as the tech develops, and seems already useful to some commercial generators. Some commentators elsewhere are 'big on batteries' but I don't have a view past what I see installed here. Cheers, Clive
Thanks again Clive, I'm not so confident on grid scale batteries. All the battery systems to date a tiny compared to the task that they would need to achieve to be a solution. The price drop is more of a function of China monopolizing the market as they have done with solar, rare-earth metal processing and increasingly refining hydrocarbons. This is all of course a function of them now consuming 58% of the worlds coal. Batteries are a big maybe for me and they still have a very long way to go. A future post topic for certain.
I was with you all the way until you proposed more gas, rebooting Marsden Point and the nuclear as answers. Ten years of hunting prior to Labour’s exploration ban didn’t find anything worthwhile & Shano underwriting the 1st $200M of re-exploration won’t change that. The ‘physics’ benefit of moving from thermodynamic energy sources for electric devices to electric sources for electric devices is that all the losses involved in finding, extracting, moving, storing & burning disappear, reducing the overall input energy required. Sure we’ve got to change a bunch of machines from thermals to electrics and while that is done as part of routine renewals it is financially achievable.
That aside I agree wholeheartedly with you that the current market model for energy in NZ is f**ked.
Thanks for your efforts in getting this message out & putting yourself out there with your recommendations. Let’s hope we don’t need to achieve an economic meltdown before the politicos get on board.
Hi Stephen,
I thought about Marsden Point for quite a while. The clincher for me was the global supply chain risks. Within a couple of hours of posting this piece Israel fired missiles into Iran.
We have so much capital tied up in machines that use diesel and petrol and they are critical to daily function of society that it is a national security issue to have some refining capacity to keep minimum of societal functions going if things get rough. OIl supply would still be an issue but thats a slightly easier issue to address than refined products.
There is gas out there. The issue has always been the future of methanex hence the focus in recent years has always been in field development trying to get stranded pockets in existing fields. We haven't had new a large new development since Pohokura. This is why I propose a single buyer long tern contracting model that would provide that would underwrite development in the same way Methanex has traditionally done.
Thanks reading and contributing to the discussion.
Great analysis. Thankyou. Unfortunately I predict a whole lot of can kicking. Political leaders seem largely incapable of making the big decisions required for fear of upsetting a percentage of the voting electorate, leaving it for the next generation to deal with, pun intended...
Hi Ben this was actually a big part of the motivation to start this substack. I wanted people to understand what they are voting for and how to identify policy and politicians that are energy aware. Thanks for reading!
Outstanding update - I will have to carve some time out to go through in detail - great job.
Thanks Stu! Appreciate your work and great analysis of such a wide range of topics each day.
You have had a good crack at our national problem. We can't not grow the economy as we have a $10 b interest bill to pay each year we have a large number of people on some form of benefit so to maintain social cohesion we have to grow the pie. Compare Europe with America no growth versus higher growth and the is America has cheap energy..We need as you state excess and much cheaper energy. The Government has to get involved due to our sovereign risk.and to avoid a more rapid decline.. For starters scrap the ETS this is just a wealth transfer from the majority to a small minority The $1b saved from ETS would then be used for any base load coal fired generator while more gas was developed by government and industry i could go deeper into this but someone has to cook dinner
Thanks Peter, yes the ETS is a big drain on the economy and could be re-allocated to much more productive things than planting pine trees on good farm land.
You hit the nail on the head growth occurs where there is cheap reliable energy.
You mention nuclear as an option and it got me curious about the math :)
Roughly how many petajoules would a nuclear station provide? Referring to https://world-nuclear.org/information-library/energy-and-the-environment/energy-return-on-investment seems to suggest that a 1GW nuclear station would provide 27PJ annual so we'd need 30 of them to meet the additional 800PJ/annum deficit that's predicted in the article (or was it just 800PJ total, I wasn't sure)?
At approx US$9B each with a median construction time of 11 years would we hit the target in time and in-budget and would that work out more cost effective than construction of other energy production methods?
Hi Eion great comment.
I am proposing nuclear only as a strategic piece of infrastructure for the electrical grid. An injection of ~8 TWh of electricity into the grid from a single asset located near one if the undersupplied demand centres would be material.
The more significant point you have hit on though is the energy provided by hydrocarbons. Last year we used 119PJ of natural gas which is about half of our peak and the equivalent of more than four 1GW power stations. Sure there are conversion loses with gas but this still gives an idea of the magnitude of the task ahead. To get to 1600PJ we will need a mixture of all energy types and ideally domestically produced.
"Recommission and modernise Marsden Point refinery" - agreed. You're aware Marsden Point originally couldn't refine NZ crude? An intentional design flaw? It was attempted to change this, though I'm not sure how successful this was. Some site engineers I had conversations with, albeit in the 90s, had their doubts. Couldn't say what the status was when it was closed (by Energy Minister Megan Woods - a Labour MP and PhD History).
https://www.engineeringnz.org/programmes/heritage/heritage-records/marsden-point-oil-refinery/
https://reinstatemarsdenrefinery.nz/refinery-history
That is my understanding also. It makes some sense as the NZ crudes from Maui, Tui and these days Maari command a premium due their properties. My understanding is that the refinery was set up for sour middle eastern crude and that on a balance of trade basis we exported a premium product and imported a cheaper lower quality product. The reality though is that we would not have been able to supply enough feedstock domestically and would always have had to import. An upgrade would improve the spread of feedstocks and the efficiency to keep it viable commercially against imported products. I see more value in the national security aspects that need to be considered over an about a purely commercial proposition weighed against imported product.
"those who have sufficient influence to initiate change" - sorry Larry, but "those who" means you, among others. In my opinion. That means getting this message to a wider audience. Unfortunately (in the sense that Substack is not a wide enough audience) that means public activism.
As the image in my last post said "no more sleeping".
The only thing I really disagree with here is the bipartisan element. Government is not, and will never be, the solution. Government is and has always been the problem. As I said in my NZ Financial Resets introduction "The role of government as enacted is to control and extract. That’s it!" https://craighutchinson.substack.com/p/nz-financial-resets
Political parties are just a mechanism to coral people - where they can be controlled. Nothing we've seen in our lifetimes, let alone recently, counters my view on this.
I also struggle to see a political solution and this is a major problem. Politicians are swamped by lobbyists, offical advice, trying to cut deals and likely have very little time or ability to unpack and evaluate it all. I don't think things of this level of importance should be left to the vagaries of governments oscillating between 3 year terms. The same arguments could be made for a lot of things actually.
An excellent well thought through and developed article on energy. It explains the importance to our economy and to homes and businesses of a reliable and cheap energy supply. It outlines the the reasons we are entering a period of disturbing lack and offers solutions. Thank you for putting this together
Thanks Mike, you're welcome.
Wow. Havent read the Brian Leyland link yet but I will. The industry is so big and so mismanaged it is beyond the capacity of any politician (or individual for that matter) to grasp. I think your final words are prescient.
One specific tho..."Accelerated depreciation of existing gas pipeline infrastructure is being pursued by the network operator signaling that we are at risk of losing the network due to under utilisation." Where can I find this discussion? I assume it is Capus Ltd which supplies both gas and electricity
Thanks Winston, regarding the gas infrastructure it was in the most recent DPP4 gas network consultation document from the commerce commission. My understanding is that network operators were lobbying for accelerated depreciation to avoid stranded assets. Which of course end users were not happy about as they to face stranded assets.
Tx Larry, I'll take a look. Capus International (Korea?) is the sole LPG operator as far as I know
I looked for the
Brian Leyland link and found this
https://m.youtube.com/watch?v=9cfOfOUAw58
Pertinent and illuminating (esp. today around aircraft design- Boeing) but not quite what we are discussing here atm.