New Zealand's Frank Energy exits gas supply amid uncertainty over its future

Natural gas supplies to households are gradually declining as demand changes and consumers switch to alternative sources. The shrinking customer base is driving up the cost of operating gas infrastructure. Falling natural gas consumption and the waterbed effect are already influencing suppliers' decisions in New Zealand, and similar trends may also be relevant in Europe.

At the beginning of this year, New Zealand energy supplier Frank Energy, part of Genesis Energy, one of the country's stopped supplying largest energy companies, began turning off natural gas supplies to its customers. A Frank Energy spokesperson cited declining long-term demand for natural gas and uncertainty over its future availability and price when announcing the decision.

Natural gas supplies to households are in decline because of a “vicious cycle”, according to Paul Fuge, head of the B2C division at Powerswitch, a non-profit organisation that provides energy information and advice. Fuge said a 15% increase last year in the cost of transporting natural gas to end customers resulted from households switching away from gas and towards electrification. As the number of customers falls, fewer people have to cover the costs of the same gas transportation infrastructure.

“Natural gas consumers could pay up to $700 (approximately CZK 9,000) more a year just to connect to the gas network,” Fuge says.

The shift away from natural gas around the world

The waterbed effect—where a shrinking number of customers share the costs of expensive, oversized infrastructure—is a potential problem for the natural gas sector around the world.

In the UK, natural gas transportation charges are expected to rise because of the waterbed effect as heat pump adoption grows, according to a policy analysis report from UCL. The report says heat pumps are gaining a dominant position in residential heating.

According to the authors, the government and regulator must take a position that protects customers—especially vulnerable ones—from rising costs for natural gas distribution infrastructure, which will be passed on through energy bills.

Another challenge is how the distribution infrastructure will be used in the future, whether it should be decommissioned, and how this should be funded. According to a report by the Climate Change Committee, hydrogen—which could be transported through some of the surplus infrastructure—has “no role” in the future of heating. The oversized transportation infrastructure will therefore have to remain in operation, be repurposed, or be gradually decommissioned. Operating or decommissioning it will require funding, however—either from the remaining customers or from the state, and therefore taxpayers.

In an interview, report co-author Katrina Salmon added that, according to the information available, no European country has yet taken a clear position on the waterbed effect in gas distribution, either at the level of the market regulator or the government.

The situation in Czechia

Heat pump adoption is also growing in Czechia, where heat pumps compete with gas boilers in residential heating. Between 2020 and 2024, the share of newly completed family houses and apartments heated by heat pumps rose from 13% to 28% of all housing units approved in a given year.

The volume of natural gas consumed by households in Czechia may continue to fall as buildings become more energy-efficient, for example through investment in insulation.

On the other hand, natural gas is expected to play an increasingly important role as a transition fuel in district heating as the shift away from coal continues. The move away from coal in the power generation sector could also mean that several gigawatts of new gas-fired power plants will need to be built to generate electricity when output from renewable energy sources is low.

It is therefore possible that the decline in natural gas consumption will be more than offset by increased consumption in district heating and power generation.