Government wants to make the Fuels Sector more resilient — but will this do it?

Having done nothing as the oil majors closed down the Marsden Point refinery, the Ardern government is now belatedly moving into the  market to ensure what it  calls  “supply  resilience”.

Energy and  Resources Minister Megan Woods says  she  wants “to strengthen NZ’s fuel sector” through a suite of initiatives to encourage more competition.

She doesn’t say why suddenly there should be a  need for more competition, but implicitly there is  criticism of the big petroleum companies for their high prices – as if  government taxation wasn’t taking  more out of motorists’ wallets than the actual cost of the petrol.

It’s  rather like  the Prime Minister saying bank profits are too high, while ignoring the government’s action in printing  money during the Covid pandemic to ensure so much cash sloshing around waiting to be banked.

Woods  contends the “improvements” she is  making will pave the way for a more stable, low-emissions fuel supply.

Besides greater choices for consumers, there will be a more competitive wholesale fuel market with the power for the Commerce Commission to regulate prices, if required.

So how will  fuel supply resilience  be  improved?  

The  government has agreed to a package of actions to ensure sufficient fuel stocks are held onshore.

“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 about 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 about 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  notes NZ’s  fuel supply has always been reliant on imports, as the refinery was configured to refine imported heavier crude oil.

She says the difference now is that NZ no longer imports crude oil, instead it imports 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 NZ’s refinery signalled it would transition to an import-only terminal for storing fully refined fuels.

On the issue of sustainable biofuels to help reduce emissions, she says  that while the government recognises fossil fuels will continue to play an important role in the transport system for some time, it is setting in motion other actions 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.

“We are moving the start date for the obligation for fuel wholesalers to deploy biofuels into their fuel supply, out to 1 April 2024 instead of next year, to allow the sector more time to prepare. 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.

“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”.

Government has also agreed to give the Commerce Commission the power to step in and set fair prices if needed, to encourage more competitive wholesale pricing and bed in the changes the government has already made.

 Woods pointed out a terminal gate pricing regime was one of several changes brought in under the Fuel Industry Act 2020 to improve competition at the wholesale level and increase the transparency in fuel markets. The terminal gate pricing regime requires wholesale suppliers that sell from terminals to post a daily spot wholesale price (the terminal gate price).

If requested, wholesale suppliers must supply the retailer with the requested amount at the terminal gate price. This improves access to the wholesale market and provides for transparent wholesale prices, which makes it easier for new participants to enter the market and for existing fuel sellers to expand into other regions.

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”.

All  good, you  say?

Point of Order thinks we’ll have to wait to  see if the fuel sector  does become more “resilient, as Wood claims it will.

Almost certainly what the  motorist wants is cheaper petrol. The wait for that may take a  bit longer.

2 thoughts on “Government wants to make the Fuels Sector more resilient — but will this do it?

  1. Would be a better strategic decision to resume oil and gas extraction, and get the refinery working again.

    Labour’s flawed ideology precludes this of course.


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