The country that almost stopped moving
In late November 2021, Ballance Agri-Nutrients CEO Mark Wynne warned that New Zealand came “within days” of running out of diesel exhaust fluid. AdBlue, sold domestically as GoClear, is manufactured from urea and is legally required in virtually every modern diesel truck on New Zealand roads. Without it, the freight network stops. Not slows down. Stops.
Wynne was blunt: “New Zealand’s freight and transport industries could literally come to a standstill, and have major flow-on effects for many sectors, including food shortages, increased food prices and the interruption to the supply chains which sustain economies.” Ballance averted disaster by diverting urea production and manufacturing roughly six months’ worth of GoClear in three weeks, from a single plant.
That single plant is the problem. And now an Australian-backed proposal to build a $3 billion lignite-to-urea facility in Southland is forcing the government to confront a supply chain vulnerability it has been content to ignore.
Two fragile legs, both buckling
New Zealand consumes roughly 500,000 tonnes of urea annually. The Kapuni ammonia-urea plant in Taranaki produces around 260,000 tonnes, roughly a third of consumption. The rest is imported, overwhelmingly from the Gulf. In 2024, New Zealand brought in 290,010 tonnes from Saudi Arabia and 2,638 tonnes from Oman.
Both supply sources are simultaneously under threat. On the domestic side, Ballance was outbid for its own gas supply by Contact Energy, pushing Kapuni to the edge of a three-to-four month shutdown before securing supply through only June 2026. On the import side, Strait of Hormuz disruptions in early 2025 sent urea prices from the mid-$440s to $585 per tonne in under two weeks, a 30% spike. With 35% of global seaborne urea exports originating in the Middle East, these are not tail risks. They are recurring events.
BERL’s analysis identifies the particularly nasty dual-exposure problem: when global LNG prices spike during geopolitical crises, both imported fertiliser and domestic gas-based production become more expensive simultaneously. There is no hedge.
An old idea with a new backer
The Southland lignite-to-urea concept is not new. In 2009, Solid Energy and Ravensdown investigated a plant costed at up to $2 billion, with Solid Energy CEO Don Elder declaring “frankly the money is no issue”. Southland holds an estimated more than 8 billion tonnes of lignite, a resource New Zealand cannot easily export but could convert domestically.
The current iteration comes from Allan Blood of Victorian Hydrogen & Ammonia Industries Ltd, whose identical project in Victoria’s Latrobe Valley collapsed after the state government and AGL withdrew support. The Victorian version targeted 530,000 tonnes of urea annually. The New Zealand version is substantially more ambitious at 1.5 million tonnes, enough to make the country self-sufficient and a net exporter.
A gas market that created the opening
The project exists because New Zealand’s gas market has failed to deliver. Domestic gas production fell 20.8% in 2024 to 118 PJ, the lowest since 2011. The Major Gas Users Group’s Len Houwers diagnosed the real problem: “New Zealand was not short of gas as much as it was short of investment confidence due to political uncertainty around the role of gas in the nation’s energy future.”
Meanwhile, the government is considering LNG imports as a dry-year electricity backstop, a proposal its own commissioned Frontier Economics report found made “no economic sense”, with costs around NZ$200-$250/MWh before terminal costs exceeding $1 billion. The policy incoherence is remarkable: importing expensive LNG to generate electricity while a domestic industrial project that would eliminate fertiliser import dependency waits for a signal.
The emissions trade-off nobody wants to make
Lignite is the dirtiest form of coal. A plant of this scale would generate substantial CO2 emissions, directly contradicting New Zealand’s climate commitments. This is why the Victorian project died.
Green ammonia is the cleaner alternative, estimated at around $800 per tonne at electricity costs of $45/MWh. New Zealand’s 85.5% renewable electricity generation makes this credible in theory. In practice, no one has built it at the required scale, and no policy framework exists to support it.
The choice is real and none of the options are comfortable: accept lignite’s emissions cost, fix the gas market so Kapuni can operate reliably, or invest in green ammonia that is not yet commercially proven. What the government cannot do is continue pretending the status quo is acceptable. A country that came within days of a freight shutdown in 2021, whose only domestic urea plant is running on gas secured through next June, and whose imports are exposed to a 30% price spike from a single geopolitical flare-up, does not have the luxury of waiting for a perfect answer.
Sources
- Major Fertilizer Project Abandoned Due to Government Inaction in Victoria – Theia (2025-01-01)
- Solid Energy: Cash no problem for fertiliser plan – NZ Herald (2009-09-28)
- Fertiliser plant proposal just the beginning – Scoop News (2009-09-28)
- Kapuni fertiliser plant may temporarily shut due to gas supply concerns – RNZ News (2025-05-01)
- Ballance secures Kapuni gas to June as global fertiliser risks rise – BusinessDesk (2025-06-01)
- A strait in crisis reveals our agricultural vulnerabilities – BERL (2025-01-01)
- LNG vs pumped hydro: will NZ choose to import risk or build cleaner resilience? – The Conversation (2025-01-01)
- The fertiliser gap is Australia’s next supply chain crisis – RenewEconomy (2025-01-01)