The offshore Taranaki Kupe Gas Project is to cost 10 percent more than the original estimate of $980 million.
Kupe project director Peter Ashford said the world oil industry was still catching up with hurricane damage done to equipment in the Gulf of Mexico two years ago, and cost increases since then had been huge.
"The oil and gas market is very overheated with a lot of projects, and suppliers are spoilt for choice. Suppliers name their price and their schedule," Mr Ashford told The Dominion Post.
Kupe's platform is to be situated 30km offshore from Hawera.
The project is expected to be completed by mid-2009 and will provide New Zealand with about 254 petajoules of natural gas, 1.1 million tonnes of LPG and 14.7 million barrels of light oil (condensate).
Participants are Origin Energy Resources (Kupe), 50 percent (operator), Genesis Energy 31 percent, New Zealand Oil & Gas 15 percent, Mitsui E&P (New Zealand) 4 percent.