Who’s wearing the pants?

In Newsletter Editorial7 MinutesBy Carl KirkbeckJuly 22, 2022

In the second half of 2021, we began hearing media murmurings that the Marsden Point Oil Refinery, owned and operated by Refining New Zealand, was to be shut down. Confirmed on 22 November, the decision would see New Zealand relinquish all local ability to refine crude oil and the site converted into a storage and distribution-only facility for ‘Ready to Burn’ imported fuels.

At the time, I remember thinking that it felt a little weird and a tad scary. Was this really the way forward, being so far away from the global supply chain in our idyllic locale at the bottom of the South Pacific? However, with words of wisdom from Refining New Zealand chief executive Naomi James and Z Energy chief executive Mike Bennetts in the day’s press releases, we were all made to feel so much better about the positive impact of this business decision.

Bennetts explained how the best choice for New Zealand was importing refined fuels, as refining margins had been volatile over recent years. “Moving to a refined product fuel supply chain will improve flexibility and resilience of the supply chain and improve the industry’s ability to respond to changes in the domestic market,” he said.
James went on to explain: “Today is a momentous day in the journey to transition our business from operating as a refinery to an import-only fuel terminal.” James said the key focus for her now was to support the people whose jobs were in jeopardy as operations at Marsden Point were reduced. Warming sentiments that the wellbeing of all New Zealanders was at the heart of this significant decision.

Unfortunately, history is well-documented, and with a little looking back, a slightly more realistic and probable future outcome becomes apparent. It paints a somewhat less rosy outlook for New Zealanders and the situation we are in now, looking towards Bream Head for our rations of 91, 98, jet fuel and diesel to arrive.

It would be fair to say that we are all currently enduring the same ill feeling as we stand at the fuel pump, aghast we watch the digital readout spin out of control. Collectively we shake our heads and ask, ‘How did we get here?’ Scrolling your way through the easy-to-read interactive graphs at https://www.interest.co.nz/charts/commodities/oil-and-petrol, we find a disturbing trend beginning to form. Yes, there have been wild fluctuations in the cost per barrel of crude oil, which directly impacts the cost we face per litre at the pumps. But we are now becoming brutally aware of the ‘Oil Company Component’ (OCC). This is the net fuel price per litre, excluding the crude oil price and taxes. The OCC covers the costs of importing, refining, and distribution to the pump. It is these figures that are starting to raise eyebrows.

Looking back to late November 2021, when the refinery closure announcement was made, the OCC was near 63c per litre. Step forward to Marsden Point’s first day of operation as a storage facility – 1 April this year – and the OCC had jumped closer to 92c per litre. Then by 17 June, a touch over three months since the refinery’s closure, the OCC had leapt to an eye-watering $1.43 per litre, a near 55% increase per litre pumped.

This then begs the question, in the same three-month period, did our contracted transport operators and their drivers responsible for the distribution and delivery of the oil companies’ fuel receive a 55% increase in their rates? I’m guessing no.

It is an absolute crying shame that such an incredible asset, bought and paid for with hard-earned taxpayers’ dollars back in the 1960s to 1980s, is now a shadow of its former self and no longer owned by New Zealanders. Once responsible for almost 85% of the country’s total jet fuel needs, nearly 67% of all our diesel requirements, and about 58% of all petrol as well as all heavy fuel oil for ships, the Marsden Point refinery was a jewel in the country’s crown.

Unfortunately, in 1984, the then Labour government introduced the Petroleum Sector Reform Act. The act deregulated the petroleum industry, and the government transferred the refinery assets to the New Zealand Refining Company, a consortium of the major petrol retailers at the time. All these years later, armed with hindsight, you would have to wonder, ‘Was the disposal of such an important asset that supplied so much to the nation in the way of stability and independence really such a good idea?’

The OCC is now an area of genuine concern, and with a significant portion of the OCC being made of offshore – refining costs as well as specialist shipping – we truly are at the mercy of the three big players handing on fair and reasonable costs. However, looking at the track record thus far, I pray that some form of publicly visible independent auditing and accountability is being applied to these organisations.

Cheers Cheers,

Carl Kirkbeck
Field Editor