8 Dec 2022

Boosting fuel security would mean passing cost to customers 'inevitable', National says

4:00 pm on 8 December 2022
National MP Stuart Smith

National Party energy and resources spokesperson Stuart Smith. Photo: RNZ / Angus Dreaver

Increasing New Zealand's energy security by building up onshore fuel supply would result in the "inevitable" outcome of storage costs being passed on to customers, the National Party says.

Earlier this week, airlines were told they would receive 75 percent of what they had planned to use out of Auckland Airport after a shipment of contaminated A1 jet fuel was rejected at Marsden Point Terminal.

Deputy Prime Minister Grant Robertson expressed his confidence in the system being able to handle the issue, confirming talks were underway to bring forward new fuel stockholding obligations, which were originally set to come into force in 2024.

Those rules would require importers and wholesalers to hold between three and four weeks of jet fuel, petrol and diesel.

But National Party energy and resources spokesperson Stuart Smith said the government should have moved quicker, given they knew onshore storage would not be enough for such an event after the closure of the country's only oil refinery based at Marsden Point.

"They were supposed to be looking at getting a set amount, or working out how much we needed and then ensuring that we did have that onshore storage as a reserve, and that hasn't happened."

Marsden Point oil refinery

Marsden Point oil refinery Photo: 123rf.com

His understanding was part of that onshore storage was planned to be on water in New Zealand territory, Smith said.

"As we found out on Friday, a ship on the water is not storage. When [the ship with contaminated fuel] turned up in Marsden Point and they tested it, it wasn't up to specification. Now that wasn't known until the ship arrived in at the wharf. That's why it's so important that the onshore storage is onshore."

While not against the idea, Z Energy warned such a storage could cause costs to be passed on to customers if they had to pay up for it.

"If we were to build a tank that would cover us say for the incident that's happened, which is about 25 million litres of fuel that was affected, that would possibly cost something between $50 [million] to $60 million to build the tank for that fuel," chief executive Mike Bennett said.

"And then of course you have got to buy the fuel and hold it there, should it be required."

For National's Smith, passing on costs to customers was inevitable, he said.

"That's the way commerce works. That's the cost of energy security. But it really shows how unwise it was that the [Marsden Point] refinery was closed."

Minister of Energy and Resources Megan Woods said the government was still investigating storage facility options and the stocks were unlikely to be accumulated until late 2023 or early 2024.

Fuel security and energy sources

Sustainability Council of New Zealand executive director Simon Terry told Nine to Noon even the smallest glitch had huge repercussions, and such incidents warranted urgent discussions about a transition to renewable options.

"What resilience do we want to hold and what is our ability to respond to a crisis?"

National fuel stocks would supply the country for about 28 days at the upper end, though this was still well shy of some European nations which could supply for up to 90 days, Terry said.

"We might have three to four weeks of supply on shore, but is that all we want to invest in?"

Plans to bring electric vehicles forward faster were crucial to ensure security of supply, he said.

He believed the government seemed to have ruled out renewable options as a way of building resilience.

He said global events impacting energy sources were unfolding faster than the potential solutions.

"There is a willingness of stakeholders to engage in a transition plan to renewable options, but there appears to be nothing coordinating this."

On the other hand, the Maritime Union - which was against the closure of the Marsden Point refinery - put the onus on energy companies for not having enough contingency plans in place.

"We sort of thought this was going to happen, given the model that they were running," national secretary Craig Harrison told Morning Report.

"This has happened before," Harrison said, referring to an incident in 2021 where another not up to specification batch of jet fuel had to be diverted to the refinery.

"The fuel companies should have made sure they had enough adequate commercial stock in place for these contingencies … You'd have to wonder what was the resilience planning for our fuel supply given they've had this experience before."

Fuel companies needed "to be a bit more organised" and "they should put some contingencies into place until they got to that [onshore] storage solution", he said.

"They could have retained a couple more tankers or they could have run a stress test on what would happen if they had contaminated fuel."

Z Energy said the next batch would arrive by 12 December at the latest and they would be back to full operations by 18 December.

Another batch was due on 20 December, which Bennett said would plug any gaps.

Half of the contaminated shipment had already been blended into the existing fuel, and the other 10 million litres had been sent back.

Government quells flight disruption worries

Deputy Leader of Labour Party Grant Robertson

Deputy prime minister Grant Robertson Photo: RNZ / Angus Dreaver

The travel industry is worried about the flow-on effects to passengers as airlines are already facing capacity issues, but the government is reassuring the public they do not expect there will be major disruptions.

Deputy prime minister Grant Robertson said giving 75 percent of the usual supply allowed planes to keep operating, particularly at a domestic level.

"If you want a point of comparison, people might remember in 2017 when the pipeline was ruptured by a digger and at that point there was a 30 percent allocation model, so we're some way away from there at 75 percent," Robertson told First Up.

"There's a lot of work being done across the airlines to make sure the planes can keep flying and the word that we had from Air New Zealand is things should be able to operate normally.

In the airline's half-year earnings guidance released today, it said it expected it would fly 75 percent of pre-Covid levels across the entire network in December, with domestic capacity running at just under 100 percent, short haul at about 85 percent, and international at about 70 percent.

Robertson said domestic flights also conduct 'tanking', whereby they carried extra fuel into Auckland so they did not have to fill up as much at the city.

"We do have stocks of fuel. It's not like we run week to week on this sort of thing, but obviously it's better to be safe than sorry, do a little bit of rationing at the moment and we should be fine by the time we get to Christmas.

He expected there would be investigations into how this batch of fuel became contaminated.