Govt look to strengthen NZ fuel market with new initiatives

In News8 MinutesBy NZ Trucking magazineNovember 11, 2022

The Government has unveiled a suite of new initiatives as it looks to strengthen New Zealand’s fuel sector.

Energy and Resources Minister Dr Megan Woods said the initiatives will pave the way for a more stable, low-emissions fuel supply,  greater choices for consumers, and a more competitive wholesale fuel market, with the power for the Commerce Commission to regulate prices.

“We know many households are struggling with the increased cost of living, so we are pulling back on any potential extra costs on consumers as a result of the biofuels obligation,” Woods said.

“This supports a range of actions we have taken to ease the pressure on families, alongside the extension to our fuel tax cut, reduced road user charges and half price public transport until January 2023.”

Improving fuel supply resilience

“We are improving New Zealand’s fuel supply resilience with onshore fuel stocks obligations for the fuel sector as well as Government-procured diesel storage,” Woods said.

The Government has agreed to a package of actions to ensure sufficient fuel stocks are held onshore to further improve fuel supply resilience and economic security.

“Having a sufficient supply of onshore fuel stocks will help shield us from major disruptions to international oil and fuel markets, natural disasters and infrastructure failures,” Woods said.

“And while the risk of a major disruption to our fuel supply is very low, the impacts would be significant and felt across the economy.”.

Fuel importers and wholesalers with bulk storage facilities will be required to hold minimum levels of onshore stocks of petrol, jet fuel, and diesel. Minimum fuel stockholding levels for them will equate to approximately 28, 24 and 21 days’ worth of petrol, jet fuel and diesel respectively.

The Government will also procure additional onshore storage of reserve diesel stocks of at least 70 million litres of diesel, providing approximately seven days’ cover.

“The focus on diesel for additional stockholding reflects the importance of diesel for the operation of critical services, such as emergency services and deliveries of food and essential goods,” Woods said.

“Transport fuels currently underpin the day-to-day running of our economy and it’s vital we manage our fuel resilience well.

“New Zealand’s fuel supply has always been reliant on imports, as the refinery was configured to refine imported heavier crude oil. The difference now is that we no longer import crude oil, instead we import refined fuel products from a range of overseas refineries. The additional onshore storage of diesel stocks will also boost our contingency supply.”

An independent review of national fuel security was done when New Zealand’s refinery signalled it would transition to an import-only terminal for storing fully refined fuels.

The review found the refinery’s closure improved the overall resilience of our fuel supply chain in the sense that we no longer face the risk of a single point of failure associated with an unplanned refinery outage, and fuel companies now deliver fuels to New Zealand in more frequent shipments from more diverse sources.

Sustainable biofuels to help reduce emissions

Woods said that while fossil fuels will continue to play an important role in New Zealand’s transport system for some time, other actions will be put in motion to help reach emissions budgets.

“The Sustainable Biofuels Obligation has a significant role in supporting this and delivering the Government’s Emissions Reduction Plan (ERP); it will prevent around one million tonnes of emissions from cars, trucks, trains and ships over the first two years and up to nine million tonnes by 2035,” she said.

The start date for the obligation for fuel wholesalers to deploy biofuels into their fuel supply will be pushedto 1 April 2024 instead of next year, to allow the sector more time to prepare. Woods said this will allow wholesalers to get the necessary infrastructure in place, and to source high quality feedstocks.

“It’s also reducing any extra potential costs consumers could face; while biofuels will account for a very small part of the overall fuel price, we recognise that motorists don’t need any extra costs in the current cost of living crisis,” she said.

Fuel wholesalers will need to meet emissions intensity reduction targets of 2.4% for 2024 and 3.5% for 2025. Provisional targets will be set for 2026 and beyond, increasing up to 9.0% by 2035, with adjustments on the intensity targets in the intervening years to make up for the year’s delay in implementation.

“Biofuels are a great way to reduce emissions without replacing existing ICE vehicles. Biofuels alone won’t get us to net zero, but they are an important part of the toolkit to help us manage a fair, inclusive and equitable transition to a low-emissions future,” Woods said.

Regulatory backstop to promote competition in the wholesale fuel market

The Government has also agreed to give the Commerce Commission the power to step in and set fair prices if needed, in a bid to encourage more competitive wholesale pricing.

The regulatory backstop measure was recommended by the Commerce Commission in 2019 as part of its fuel markets study which prompted the Act.

“While the Act is already facilitating a more competitive wholesale fuel market, there are some outstanding risks to the success of the terminal gate pricing regime,” Woods said.

“For example, the increased price transparency helps competition, but there’s a risk that wholesalers could co-ordinate prices, due to the greater wholesale price transparency, unless there are some disincentives built into the system.

“Following consultation with the sector in 2020 we are now pushing through on development of the backstop regime, which would allow for terminal gate prices of one or more wholesale suppliers to be price regulated if excessive terminal gate prices are found to be offered. It is expected to come into effect in mid-2023,” she said.

“This suite of measures strengthens our fuel system to make it more secure, sustainable and affordable for all New Zealanders.”