Energy Minister offers sympathies to refinery workers after closure vote

Friday, 6 August 2021

RNZ's podcast The Detail looked in August at the history of Marsden Point, and why some people were warning that closing it could put the country's fuel security at risk.

Energy Minister Megan Woods has offered her sympathies to hundreds of workers at the Marsden Point oil refinery after Refining NZ shareholders voted overwhelmingly in favour of its closure.

The result of the vote had been a foregone conclusion, with fewer than 1 per cent of votes ultimately cast against the key resolution, but spells a major change for the Northland economy.

The decision shareholders have approved will see Refining NZ switch to distributing pre-refined fuels that are likely to be imported from refineries in Asia and potentially Australia.

That is expected to result in the loss of about 240 of Refining NZ’s 300 jobs, and to cost hundreds more jobs among suppliers, but the company will continue under a new name.

* Closure of Marsden Point oil refinery set to cost 240 jobs

* Closure of Marsden Point oil refinery set to be put to shareholder vote

The refinery is expected to close around the middle of next year.

Chief executive Naomi James said jobs would be lost over a period of about two years, though she said the “more significant reductions would happen earlier on”.

Woods said the vote would be very disappointing for the refinery’s workers and she sympathised with them.

The Marsden Point oil refinery in Whangarei.

The Government would continue to listen to ideas about how the refinery could be repurposed to produce green fuels, she said.

Speaking before the shareholder vote, Refining NZ chairman Simon Allen said the company had not asked for, or received, any offers of subsidies from the Government to keep the refinery open.

Energy Resources Aotearoa – formerly the Petroleum Exploration and Production Association – described the vote as “understandable but disappointing”.

“This continues a worrying trend of de-industrialisation and job losses in the regions,” its chief executive John Carnegie said.

James acknowledged that many people would be uneasy with the decision and might consider it a step back for the country, for example in terms of self-reliance.

“We really hear that concern and this is a significant change,” she said.

“We know that a transition from refinery to import terminal is a question of when not if, and based on the terms negotiated with customers, we believe now is the right time to make this transition,” she said.

The final decision to close the refinery is expected to be made by the company’s board before the end of September.

Allen said the financial returns to shareholders from refining had not been satisfactory for some years.

Refining NZ chief executive Naomi James says staff have had time to prepare “but it’s a very big change”. (file photo)

But the company could reflect on 60-years of refining oil with pride as it “looked to open a new chapter”, he said.

Under the import model, fuel would be stored at the Marsden Point site in existing tanks at what would be the largest fuel terminal in New Zealand and Refining NZ will be renamed Channel Infrastructure NZ, Allen said.

“We will continue quality fuel testing services both at the Marsden Point site and around New Zealand.

“Fuel from Marsden Point would be distributed primarily to the Auckland and Northland markets through the 170 kilometre refinery-to-Auckland pipeline and the truck loading facility located adjacent to the Marsden Point site,” he said.

Allen said the space that would be freed up by the closure of the refinery itself had “great potential” to generate jobs and economic activity for the Northland region.

James said options it was investigating included using the site to import, store or produce biofuels, including “sustainable aviation fuel” and hydrogen.

It was also looking at using the site for solar energy, she said.

“We think there is a range of opportunities but there is no single option here that is going to replace the refinery and I don’t think that was ever going to be the case.”

Refining NZ’s workers were feeling the sadness of the change, she said.

Energy Minister Megan Woods says stopping refining won't increase fuel supply risks.

“Everyone has had time to prepare for this, but notwithstanding that, this is a very big change.”

E tū union organiser Annie Tothill said the situation at Marsden Point was similar to “Taranaki and Tiwai” and there needed to be a plan to deal with any kind of transition.

“If we are serious about securing a future for workers and our transition to a carbon-neutral society, then we absolutely need a ‘Just Transition’ plan for Northland,” she said.

Allen and James faced protracted questioning at the special meeting from individual investors who were unhappy with the decision and concerned about the country relying on importing pre-refined fuels.

One said they were not influenced by “smoke and mirror” costings that promised increased dividends to shareholders but were worried about the security of fuel supplies if all refining occurred in Asia.

The country would have to rely on the “goodwill of China” not to impede the movement of tankers carrying fuel to New Zealand, she said.

Woods played down the consequences of the end to refining on the country’s fuel security in June, telling a select committee that even with the refinery open, Refining NZ still had to import crude oil.

She indicated on Thursday that advice from officials was that any additional geopolitical risks to the country’s fuel supply as a result of the switch to an import model were very small.

National Party energy spokeswoman Barbara Kuriger says the Government received two quite different reports about the implications of the refinery closure on fuel security, and she suspected the truth lay in the middle.

National Party energy spokeswoman Barbara Kuriger noted two reports prepared for the Ministry of Business, Innovation and Employment by consultants Hale & Twomey in March and December last year had differed in their tone.

The earlier report said the change to an import model could have a significant impact on fuel security, listing a variety of concerns including about a likely reduction in total fuel storage that were largely muted in the later report after the consultant modelled different disruption scenarios.

“If I was a minister, and I got two completely conflicting reports, I'd be asking where the truth was,” Kuriger said.

“I suspect the truth is probably somewhere in the middle.”

Allen indicated that in one sense the change could improve the country’s fuel security as it would be importing fuels from a variety of refineries around Asia and would have “less exposure to the one single refinery” than it has now.

But he said Refining NZ stood ready to support additional measures to improve fuel security if the Government thought they were required.

James said that if the Government decided to require a minimum level of fuel stocks were held in New Zealand, then Refining NZ would be well-placed to support that “with the spare tank capacity that we will have at Marsden Point after the transition”.

The poor returns of the refinery have largely been blamed on competition from new, larger refineries in countries including Singapore.

But James said significant increases in electricity and gas costs, as well as the costs of coastal shipping, had also been factors, as had the likelihood of higher charges for the refinery’s carbon emissions.

Fuel companies Z, BP and Mobil own almost half the refinery, as well accounting for almost all its custom, and have been the driving force for the switch to the import model.

About 30 per cent of fuels were already imported pre-refined, James said.

Allen said Refining NZ would need to invest $200 million to $220m in the conversion to an import terminal and would receive annual fees averaging about $95m for its terminal capacity over the first 10 years following the switch.

The company would get a tax credit of about $400m to $450m as a result of writing-off its refining assets, which he expected Channel Infrastructure would be able to offset against its profits, meaning it would be unlikely to have to pay tax “for a number of years”.