Government tipped to partner with Z on emergency diesel reserve
Tuesday, 28 April 2026
The Government is believed to be considering partnering with Z Energy to establish its planned 90 million litre emergency diesel reserve through a deal that would be akin to an underwriting arrangement.
An announcement is tipped within the next 24 hours.
Associate Energy Minister Shane Jones announced earlier this month that the Government would pay Channel Infrastructure $21.6 million to convert some of its storage tanks so they could hold an emergency supply of diesel equivalent to about one week’s national demand for the fuel.
But it is understood the Government’s thinking on how the reserve would operate has evolved since the plan was first sketched out.
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Rather than source and buy its own diesel to fill tanks, or swap fuel options it has placed with the International Energy Agency to secure the fuel, it is understood it has been holding negotiations with existing importers, which would buy the fuel and manage the tanks on the Government’s behalf.
One complication with a Government-run standalone emergency supply is that diesel needs to be turned over about once a year when in storage, to avoid the fuel deteriorating due to oxidation, moisture separation, and microbial growth.
That means the Government would need to regularly sell or cycle the diesel and then top the tanks back up again if it ran the reserve itself, outside of any supply emergency developing.
Finance Minister Nicola Willis noted diesel could begin to degrade after being stored for more than six months.
“So we’ve looked to have an option that allows the fuel to be used as part of the normal fuel distribution, that would essentially increase the overall storage available while still being flushed through the system,” she said.
It is understood the Government could consider its objectives had been met if the fuel was available to it in an emergency and did not count towards importers’ own statutory obligations, under which they are obliged to maintain 21 days’ supply of diesel either in the country or on ships in the country’s exclusive economic zone.
It had been rumoured Z’s Australian owner Ampol had asked for a 15% price premium to supply the Government with diesel, over and above the price at which it supplies Z.
However, that has not been confirmed by the Government and nor was it clear what stage negotiations were at when that conversation was said to have taken place.
Willis said this morning that as well as ensuring the reserve fuel was kept in good condition, the arrangement it was working on would reduce its own outlay.
“We're progressing a commercial negotiation at the moment, so I don’t want to go into the details of that, but suffice to say that that negotiation has given us confidence that we will be able to fill those tanks with minimal cost to the taxpayer, which is the critical thing here,” she said.
If the taxpayer was paying for “the full 90 million litres”, that would be a big charge, she said.
“So we've been doing a commercial negotiation to see whether we can get that reserve there ready for use in a way that minimises disruption and also allows for our normal distribution channels to be used.
“It’s one thing to have fuel stored in tanks. The next step is making sure that can be distributed through petrol stations, truck stops.”