NZ may need to beef-up fuel reserve plan to reduce risk of 'car-less' days

Wednesday, 30 March 2022

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.

Requiring oil companies maintain about four weeks’ fuel reserves in the wake of the closure of the Marsden Point oil refinery may not be sufficient to prevent the risk of petrol rationing in a supply-chain emergency, a Buddle Findlay lawyer has suggested.

Buddle Findlay special counsel Bassam Maghzal said the “car-less sticker days of the 1979 Muldoon Government” might seem like a relic of New Zealand’s past.

But recent shortages in global fuel supplies caused by Russia’s invasion of Ukraine and an economic rebound after the Covid pandemic “may have us closer to car-less days than we wish to recognise,” he said.

During the 1979 oil shock, car owners were required to put stickers on their windscreens nominating one a day week when they would not drive their car.

* Maritime Union says ministers hearing its concerns over axing of coastal tankers

* Taxpayers should pay for any national fuel reserve once refinery shuts, Z argues

* Government decided not to follow through on idea of talks to save refinery

NZDF army drivers work around the clock, delivering tanker after tanker to the Auckland airport fuel storage facility.

Z Energy, Mobil and BP agreed last year to close the Marsden Point refinery by the end of this month and are switching to importing pre-refined fuels from “super refineries” in Asia, in a move they expect to save money.

Refining NZ spokeswoman Laura Malcolm said the last consignment of crude oil had now been refined at Marsden and that decommissioning work that had begun at the refinery was now beyond the point of no return.

Maghzal said the switch to importing pre-refined fuels would remove the option for the country to meet up to 15 per cent of its fuel needs in a supply crisis by refining locally produced oil.

The Ministry of Business, Innovation and Employment (MBIE) has proposed requiring fuel companies stock a minimum of 28 days’ supply of diesel and 24 days’ supply of petrol and jet fuel to compensate for the increased supply risk at an estimated cost of about $22 million a year.

Ministers have held talks and sought advice on whether New Zealand needs to retain its coastal tanking capacity, but as yet there has been no decision.

But Maghzal said that plan, which has been put out for consultation, would only be “a slight improvement on the status quo” given suppliers already held about 20 days’ cover for their own commercial purposes.

Maghzal said he was not calling out the Government, which was being “prudent” by looking into the fuel-security issues, and did not have views on whether the refinery should have been closed.

But he said there was a case for the country holding much higher fuel reserves given “where we sit in the global supply pecking order”.

“If Covid vaccine procurement taught us one thing, the big nations will take what they need first – particularly if they produce it – before supply trickles down the global waiting list.

Some coastal tanker crew are understood to have already accepted other jobs after being told they would be made redundant – which could complicate any government intervention.

“The key issue is we don’t have the certainty we used to have around global supply chains.”

New Zealand was not in the same position as Australia when deciding on the appropriate level of fuel reserves, as Australia still has refineries and shorter international supply lines, he said.

The Government is still separately considering an 11th-hour intervention to ensure New Zealand-based coastal tankers remain able to ship fuel around the country following the closure of the Marsden refinery, after the risk of tanker shortages was also brought into focus by the war on Ukraine.

Until now, refined fuel from Marsden has been shipped to ports around the country using the coastal tankers Kokako and Matuku.

But the oil majors anticipate that foreign tankers will instead drop off fuel to ports around the country after offloading the lion’s share of their cargo in Marsden for distribution in Auckland.

The Maritime Union has been lobbying the Government to ensure the two coastal tankers currently operated by Coastal Oil Logistics, which is jointly owned by Z Energy, BP and Mobil, aren’t withdrawn from service.

National secretary Craig Harrison has said some of the risks associated with the refinery’s closure could be reduced if Marsden remained the hub for fuel imports and the two coastal tankers were still used to distribute refined fuel to other ports around the country.

As well as reducing the need for international tankers to make country-wide deliveries in the event of a tanker shortage, Kokako and Matuku could also be used as floating fuel stores or to pick up petrol and diesel from refineries in Australia in a supply-chain emergency, he said.

The tankers’ 80 crew were advised before Christmas they would be made redundant and the ships are imminently expected to be redeployed to Singapore by their Australian owner, ASP Ship Management Group.

A spokesman for Transport Minister Michael Wood said the Government had received “initial advice” from MBIE on the coastal tankers, but indicated a decision had not yet been made on any intervention.

ASP managing director David Borcoski declined to comment on whether the coastal tankers could still be retained in New Zealand in the event that the Government did attempt a last-minute intervention, or whether they were now contracted elsewhere.

Industry sources suggested there was surprise that decisions might still be pending at the current late stage of the fuel transition.

Harrison said one of the tankers was currently anchored in the Hauraki Gulf awaiting a crew change and the other was sitting off Marsden Point.

It was not clear when there might be further information from the Government, but it would cost a lot of money to have the tankers sitting idle, he said.

“I’d say this is the last week for them to make their mind up.”