Petrol price to rise when NZ increases oil reserves

The price of petrol is likely to increase when the Government moves to increase New Zealand's oil reserves, Cabinet papers said today.

Energy Minister Trevor Mallard today announced the Government would hold a tender to meet New Zealand's international obligations to hold 90 days of reserves.

Officials have projected that New Zealand will be about 28 days under the 90-day-obligation in 2005 and 2006, and the shortfall will reach 34 days by 2009.

The cheapest way of increasing reserves while maintaining competition between oil companies was to put out to tender a request to increase their oil reserves held in New Zealand, Mr Mallard said.

Cabinet papers said the increased cost would be levied on the oil companies and this would be passed on to consumers as a one cent rise.

"The capital costs of compliance are estimated at approximately $500 million for... 30 days of crude oil, which is $50 to $75 million a year on an annualised basis," the papers said.

"This cost is equivalent to about 0.7 to 1 cent a litre is spread across petrol, diesel, jet fuel and fuel oil (or about 33 per cent higher if it applies only to petrol and diesel."

The Government has already announced a hike in petrol tax of 5 cents a litre to pay for roads.

Further prices set to come from the Government include the imposition of carbon charges in 2007 -- about 3.4 cents a litre, officials said.

The increase to pay for more oil storage would probably start hitting motorists in early 2006, the papers said.

Oil prices have rocketed over the past two years due to increased prices overseas as demand increased and certainty of supply decreased.

"The increase in the levy (for storage purposes) is not expected to take effect until around mid next year. Legislation will be required to amend the rate and purpose of the levy," Mr Mallard said.

It was estimated that some new oil storage tanks would have to be built in New Zealand and this could take up to five years to build, though there was some spare capacity in New Zealand.

The International Energy Agency which enforces the 90-day obligation also allows countries to store some reserves offshore as long as they can be accessed in an emergency.

Mr Mallard said it was important to meet the obligation which was designed to reduce countries vulnerability to oil shocks and stabilise world oil prices.

The shortfall had arisen as New Zealand had relied on voluntary commercial stockholding.

Increasing oil consumption and decreasing domestic oil production had led to the shortfall which went undetected until last year due to errors in stockholding reports, papers said.

- NZPA