Jones ends cushion-gas royalties to unblock underground storage

The Government will end the requirement for underground gas storage developers to pay petroleum royalties on cushion gas that is unlikely to be extracted or sold, Resources Minister Shane Jones said on 9 September 2026.

Cushion gas is the operational volume left in a reservoir to hold pressure so working gas can be injected and withdrawn. It is not gas intended for sale. Jones said the change removes a barrier to storage investment as New Zealand faces tight domestic supply.

An independent expert will set the share of a facility's original gas that qualifies as non-royalty cushion gas. Volumes above that threshold stay under existing royalty rules. Future petroleum framework reviews will test whether the measure lifts storage investment.

The move targets Crown Minerals (Royalties for Petroleum) Regulations 2013. Regulation 15 requires a one-off 5% ad valorem royalty on the estimated value of original gas in an underground storage facility. Amount and value must be fixed by an independent reserves expert acceptable to the Minister.

Jones tied the decision to energy security. Gas output is relatively steady through the year, while electricity generation demand can spike in winter peaks and dry hydro years. Storage bridges that gap.

“Across the world, underground gas storage is a proven way of improving flexibility and resilience in energy systems. There are already proposals being explored that could significantly expand New Zealand's storage capacity, and we want to ensure unnecessary regulatory barriers are not standing in the way of those investments,” Jones said.

Reserves at a 20-year low

MBIE's 1 January 2026 petroleum reserves release put proven plus probable (2P) gas reserves at 731 petajoules. That was down 23%, or 217 PJ, from 948 PJ a year earlier — the lowest level in the roughly 20-year series. Of the drop, 108 PJ was 2025 production and 109 PJ was downward revisions, led by Pohokura. Turangi alone held 51% of remaining 2P. Operators' expected 2026 production was cut to 85 PJ, 15% below the prior profile.

Where the storage capacity sits

New Zealand's only commercial underground facility is Ahuroa in Taranaki, operated by Flexgas (Clarus). After 2020 upgrades it can inject and withdraw up to 65 terajoules a day. Contact Energy's December 2022 update modelled available capacity at 10–12 PJ (P-50), or 6–8 PJ excluding end-of-contract volumes. Genesis Energy holds exclusive rights under an MoU to negotiate up to about 10 PJ of seasonal storage at Tariki, with indicative injection up to 45 TJ/day and withdrawal up to 65 TJ/day.

Two days earlier, Jones and Associate Finance Minister Chris Bishop announced the first Gas Security Fund loans: up to $23.5 million to Todd Energy for McKee Gas Cap and McKee-Tariki well work. Todd will co-fund about $10.1 million. The projects could unlock up to 19.9 PJ over five to nine years, with peak output around 4 PJ a year — about 6% of expected 2027 production — if successful. The $200 million fund opened for expressions of interest in January 2026; 17 proposals were in the pipeline by early September.

Energy Resources Aotearoa chief executive John Carnegie welcomed the Todd loans and linked production to storage. He said the decision to provide Todd Energy with up to $23.5 million in time-limited loans for two Taranaki projects is a long-awaited boost to bring forward projects after several years of difficult investment conditions. He noted investment opportunities across production, exploration and storage.

Methanex exit reshapes the balance

Methanex will idle its New Zealand methanol plants from the first quarter of 2027 and sell remaining gas entitlements through the decade, citing supply. Jones said the freed gas improves the short-term outlook but does not replace longer-term security measures. Gas Industry Co's 2026 supply-demand work flagged that once Methanex's up-to-95 TJ/day demand-response flexibility exits, Ahuroa's 65 TJ/day becomes the main physical balancer.

NZPAM reported petroleum royalties and energy resource levies at $123.7 million in 2024–25, down 44.4% as production fell. Total mining-related Crown revenue was $143.4 million, down 40.1%. The cushion-gas change is a one-off design tweak on original-gas charges rather than a broad royalty cut. Working and produced gas above the expert cushion threshold remains royalty-bearing.

Commerce Commission material for Gas DPP4 noted MBIE forecasts of roughly 10 PJ annual shortfalls versus demand over three years and linked tight supply to high and volatile wholesale prices. Households and industry feel that through electricity firming costs when hydro and wind underperform, and through industrial load risk in manufacturing and processing.

What still has to happen

Implementation still requires regulatory amendment, expert-determination protocols, and clarity on existing Ahuroa-type facilities versus new Tariki-scale projects. Timing relative to Gas Security Fund storage bids and any Genesis–Tariki final investment decision will show whether the royalty relief is material to bankability or mainly a signal after years of reserve write-downs and exploration policy shifts.

Jones said New Zealand cannot afford factories closing, industries shutting and electricity prices spiking for lack of preparation. Future reviews will measure whether cushion-gas royalty relief actually expands seasonal storage and firms the energy system households and businesses rely on.