Where is the Government on oil reliance?

Written By: - Date published: 7:57 am, September 19th, 2019 - 14 comments
Categories: energy, jacinda ardern, labour - Tags:

Even though New Zealand is one of the most oil-reliant countries on earth, this government appears unable to pronounce the words let alone respond to what is going on.

Three things inside a month are really bringing this home big time.

The first on Monday was the key Saudi refinery and oil installations being attacked. The resulting spike in oil prices also drove up price at our petrol station pumps by late Tuesday. There’s some chance that – just as they did in the Gulf War – the United States will artificially drive up the price of oil through a massive military attack in the Middle East.

What provided some global oil price stability was President Trump agreeing to make available the U.S. strategic oil reserves.

New Zealand was unable to make any such assurance on opening oil reserves to its own citizenry because as citizenry we don’t have any. We only have about five days’ worth of fuel on hand, and they are completely privately owned. The price spike isn’t a bother yet, but military action against Iran by the U.S. would sure be a bother. If Iranian installations were attacked, the degree of Chinese investment in them could also see China drawn in to such as war.

Another moment that really brought that vulnerability home was when the fuel line from Marsden Point to Auckland was ruptured in 2017. Doesn’t matter who did it. It showed that our entire aviation section relies on this one fuel line, and 90% of our car and truck fuel as well. All of our land transport was close to just stopping (excepting the tiny supplies that Gull could have brought in).

So this week a report finally came out recommending that “government and industry work together to put in place and regularly practise sector-wide response plans, to improve the response to any future incident.” Ta-daaa.

But before we all get excited that something could be done, the report notes that “The fuel supply chain infrastructure is largely owned or controlled by the three major fuel companies (BP, Mobil, and Z Energy) through complicated joint venture arrangements, with limited government oversight or ability to intervene.”

And these three also own a very big interest in the Marsden Point oil refinery.

Way back in June this year MBIE finally got to hear what the total fuel storage those companies have on hand for us all actually is.

Woo hoo. No idea from said officials how to control, influence, price-regulate, emergency-ration, or successfully regulate it, but we get some idea of how much is on hand.

So, already, you can see this isn’t one of those gentle How To Get There posts. This is a What The Fuck Is Going On post. It’s here and now.

Another key moment was in August this year when the Commerce Commission released its findings into its exhaustive investigation into the main fuel companies. That’s the one in which Prime Minister Ardern asserted that the New Zealand public were being “fleeced”.

That’s also the one in which the major suppliers were so reluctant to give up their information that the government actually changed the law so that they could be forced to give it up to investigators.

The results were as blunt as they could be without being written on a charge sheet in front of a court when it came to cartel-like behavior.

This report spelled out that Z Energy, BP and Mobil had a series of interlocking infrastructure ownership and operational arrangements that go back to before the fuel market was deregulated in 1988, 31 years ago. Yup, that far. And they’ve probably been screwing us for longer. In more straightforward language than the report into the pipeline disaster, this report spells out that the Marsden OIl Refinery, coastal shipping operations, inland support logistics, and regional ports, are all fully bought into this. Here’s a quick graphic on the findings:

These same firms use this joint network to supply 90% of the nation’s petrol and diesel, either through their own branded service stations or via other distributors or resellers on exclusive long-term wholesale supply contracts.”

And with that much control over the supply chain, any new importer has a very, very, very hard time even imagining forming their own supply chain.

Of course the Commerce Commission have issued this as a draft report, so no doubt the fuel supply majors will seek to water it down and pick it to pieces. Unfortunately we don’t have good anti-cartel legislation, and no sign the Commerce Commission is really going to have a crack at them.

What do we hear from this government or indeed the Opposition on any of this? Close to radio silence.

On all three counts this government has done nothing.

Those are three really big warnings that New Zealand is utterly reliant or foreign oil, is in the thrall of three cartel-like companies for supply and transport and retail of fuel, has no strong regulatory mechanisms to decrease the impact of any constraint upon that supply either within New Zealand or internationally, and no plan in short for the next oil crisis which is so obviously coming.

(All power to you if you just ride a bicycle and never fly a plane. Almost everyone in New Zealand mostly uses a car to get around. We’re driving more than ever before, own more cars per capita, and have one of the highest rates of vehicle ownership in the entire world).

It’s not just the absurdity of the Prime Minister going to another United Nations climate conference on the weekend without a post-oil plan. If only the problem were that small when any “transition” is simply code for kick the can down the road, again. What’s more pressing, more outrageous, is the lack of response across the entire government to a clear, growing and accelerating crisis in the fuel and oil that drives every single piece of our economy. Nothing we do is untouched by oil, and most everything we do is reliant on it, so security of supply is critical to security of our entire country.

Hey government, anyone home?

14 comments on “Where is the Government on oil reliance? ”

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  1. Tiger Mountain 1
    19 September 2019 at 8:30 am

    The blunt answer to the NZ Refinery Consortium, set up in the wake of deregulation all those years ago, is to wind it up and return Marsden Pt to full public ownership.

    Sustainable energy not dependent on oil is obviously the answer for NZ in the medium term. The Marsden Refinery has been seriously looking at Hydrogen fuel production at the old Marsden B site–well, they were until the new CEO quit this week after less than a year…watch that space I guess.

    The oil companies could be allowed to continue retailing, or not, just sent packing would be the tidy way, with any compensation paid over a very long period. There are countries like Indonesia with state run petroleum industries and pricing is a lot more favourable to consumers.

    For your info Advantage, there was a Commission that investigated the Oil Industry in the 1970s, significantly instigated by the Northern Drivers Union and its secretary GH (Bill) Andersen. Nothing much changed of course ultimately, but it was one of the first times that practices such as industry cartels/monopoly, multi national company transfer pricing and repatriation of profits to overseas owners were proven, and bought before the public here.

    Nationalising the oil industry would not even be in the worst nightmares of the MPs that support the parliamentary neo liberal consensus, but such demands need to be raised, along with restoring Electric power generation and supply to public ownership.

  2. Dukeofurl 2
    19 September 2019 at 9:07 am

    "New Zealand was unable to make any such assurance on opening oil reserves to its own citizenry because as citizenry we don’t have any"

    This is incorrect as we do have a strategic Reserve
    'Energy Minister Megan Woods says New Zealand has a month's worth of crude oil held offshore,"

    https://www.tvnz.co.nz/one-news/new-zealand/minister-says-were-not-even-close-calling-crude-oil-reserves-after-attack-saudi-fields

    This is another False claim in the story.

    "It showed that our entire aviation section relies on this one fuel line, and 90% of our car and truck fuel as well. "

    That fuel line supplies Auckland only , not the rest of the country which is via Coastal Shipping direct from Marsden Point

    Some basic research would have found this

    https://www.coll.co.nz/

    "COLL transports refined petroleum products from Refining New Zealand to 10 coastal ports around New Zealand.

    Our vessels transport a wide range of products including:

    • Regular Motor Spirit (91 octane petrol)
    • Premium Motor Spirit (95 octane petrol)
    • Jet Fuel
    • Automotive Gas Oil (Diesel)
    • Vessel Bunker Fuel
    • Bitumen"

    Auckland is among the ports serviced , which include Tauranga, Napier Wellington New Plymouth, Nelson ,Lyttleton ,Timaru Dunedin and Bluff.

  3. Ric 3
    19 September 2019 at 9:09 am

    How petrol prices are set is being discussed on nine to noon now

    • Dukeofurl 3.1
      19 September 2019 at 9:36 am

      I used to live outside of Rotorua…on the road to Mt Maungnui. The same raod had a string of service stations close to the city.

      One , a Mobil in private ownership was an old style with pumps close together and they set the price. They closed every night at Six pm. The rest of the BP Gull Caltex etc were corporate owned with spread out type pumps, they would raise their price every night at 6PM by around 4-5c per litre.

      Even so this road had far cheaper prices than the other main road on the side of Rotorua where they could be 10c per litre more.

  4. MrTaniwha 4
    19 September 2019 at 1:20 pm

    I really liked Bills series of ‘Free Petrol’ posts, which I think need further consideration -> https://thestandard.org.nz/search/Free+petrol/

    For now I would treat the petrol distribution network as national infrastructure like power or fibre. The petrol distribution business needs to be split from the retail business as has been done to good effect with Chorus and Spark/Telecom.

    Perhaps KiwiRail could get into the petrol distribution business?

    • Dukeofurl 4.1
      19 September 2019 at 2:42 pm

      The petrol distribution network to service stations doesnt require a single access point like power or comms lines.

      If anything the existing 'common system' of refinery – shipping -port terminals which are owned as a group by the majors has inhibited competition. They have their own separate road tankers from the ports – which are now changing to generic trucking companies

      Gull works outside that with its own import terminal at MT Mauganui and then its own tanker trucks around the North island and still its cheaper.

      • MrTaniwha 4.1.1
        19 September 2019 at 3:15 pm

        The problem with Gull – in terms of the Lower North Island anyway – is that they don't have a distribution point from the tank farm in Seaview (I think?). Gull can only distribute to about Otaki/Levin from Mt Maunganui before it becomes uneconomical.

        So then we get the situation in the Wellington region where petrol prices are ~20c more expensive than 45mins up the road in Otaki even though distribution costs must be a lot less.

  5. Adam Ash 5
    19 September 2019 at 4:28 pm

    IIRC, NZ imports about 60,000 barrels of oil per day, and produces about 20,000. The NZ oil is not able to be processed in the current Marsden refinery due to its setup for Middle East oil.

    So if government wanted to give NZ a bit of oil security, it could set up a line to refine NZ oil, buying that at fair market price from NZ producers. That would give us 20,000 bbl per day of domestic supply for key services like police, medical, fire, energy distribution military etc. That would be enough to keep some wheels turning in the event of a global oil shortfall, tho obviously a bit of belt-tightening would be needed by those without a 'key industry' designation. A nice little 'think big' project, and some jobs for the boys. If done alongside Marsden Point, staff and their expertise can just move from one site to the other, as Marsden will have to reduce imports and production accordingly.

    The strategic oil reserve is not for NZ to use directly, it fulfills our obligation to sustain a portion of the global storage pool to buffer impacts of oil supply shocks on all consumers, not just for NZ explicitly. We can't just go to that pantry and get ourselves some oil.

    A month's supply is about 1.8 million barrels (286,000 cubic metres). That fits into about five 70 m diameter tanks, like they have at Marsden. So no reason why NZ cannot start stockpiling its own fuel as a government exercise in prudent planning. With five tanks giving us a month's full supply, why not aim for building 3 months-worth of new storage every year, for the next eight years. Then we can really say that we have a two-year buffer in a national strategic oil reserve.

    With that local reserve of two year's crude in place, we can then allow continued draw out of that NZ oil reserve by Marsden Point to smooth out the short term variations in price at the pumps the oil majors love to play with.

  6. greywarshark 6
    19 September 2019 at 6:37 pm

    Might we have to burn our trees like Indonesia to keep our economy going so we don't have to become a third and a half world country?

    https://asiapacificreport.nz/2019/09/18/toxic-smoke-chokes-region-as-indonesian-rainforests-burn/

  7. roblogic 7
    19 September 2019 at 11:19 pm

    Green Party posturing on oil exploration was short sighted denial of reality. Shooting ourselves in the foot and increases our reliance on foreign oil. Won't reduce our carbon footprint by one gram.

  8. Stuart Munro. 8
    20 September 2019 at 12:50 am

    We could really use a credible alternative fuel option like cellulosic butanol or algal biodiesel. Both rely on the end of science in which NZ has often prospered. And a few tech jobs or an exportable expertise would do us no harm at all. But no, we'd rather flood the country with cheap workers and real estate speculators.

    • roblogic 8.1
      20 September 2019 at 1:09 am

      & build a decent electric rail network

      • Dukeofurl 8.1.1
        20 September 2019 at 8:32 am

        Using any type of train is far more fuel efficient than trucks doing long haul.

        The major truck carriers use depots to load and unload trucks at , just like they used to do with railway yards, its not like its a single truck from point to point