Northland's Marsden Pt Oil Refinery has moved a step closer to end refining oil to become
an import storage terminal only, with a union official saying it could mean hundreds of jobs lost.
Refining NZ, which operates the refinery, has announced an in-principle agreement on key commercial terms with Z Energy for converting operations at Marsden Pt to a dedicated fuel import terminal. This follows a similar agreement reached with bp in February 2021.
The announcement means Refining NZ will now take steps to prepare for a shareholder vote to approve this change in business model, in coming months.
If the conversion goes ahead it's likely to lead to job losses at the refinery - which is one of Northland's main employers - but exactly how many of the staff would go is not yet known.
However, First Union transport, logistics and finance secretary Jared Abbott said if it goes ahead the move would see about 300 of the refinery's 400 on-site employees go, with several hundred more in the wider community from firms that rely on the refinery for their income.
Abbott said those losses would have a big impact on the Bream Bay and wider Northland economy.
The country's only oil refinery posted an annual loss of $198.3 million last year due to a glut in fuel supplies globally, combined with the impact of Covid-19 on refinery output, pipeline fees and plummeting demand for fuel.
The financial loss included a $158m non-cash writedown on its refining assets compared with a small profit of $4.1m in the previous year to December.
The publicly-listed company has reduced production from 115,000 barrels a day to about 90,000 - the same level as in 1995 - and has stopped producing bitumen, a residue from petroleum distillation used for road surfacing and roofing.
In April this year Refining NZ was given a 35-year consent to continue operating the refinery and to operate an import terminal if the company wants to establish one.
As a condition of the consent, Refining NZ has committed to working with the Northland Regional Council ahead of time to plan for an orderly wind-up of operations, should refinery and import terminal operations on-site cease in the future, to ensure ongoing compliance with the conditions of the consents.
The agreement with Z Energy is for an initial term of 10 years. The agreement includes a provision for third party access to unutilised capacity on its Refinery to Auckland Pipeline (RAP).
Refining NZ remains focused on concluding negotiations with its only other current refinery customer Mobil, CEO Naomi James said.
"This is a significant milestone for us, and it means we can progress to the next stage and prepare for a shareholder vote to approve this shift in our operating model before a final decision is made.
"A change from refinery to import terminal would involve little change for New Zealanders. However, this will be a big change for our operations and workforce at Marsden Pt and for our community. A key focus for us is on how we support our people through this transition and work with central and local Government and agencies to make this a well-planned and managed transition for our workforce and the region.
"Within the business, we have been working hard on the detailed planning about exactly how we might run an import terminal operation, and what other opportunities there might be for our site.''
James said Marsden Pt has huge potential being a large industrial consented site, with deep water port access, large electricity and gas connections and a highly skilled workforce.
''We want to explore what the best opportunities are for the site, for our region, and for New Zealand," she said.
The next step will involve obtaining the necessary lender and shareholder approvals, negotiating binding agreements with customers and progressing detailed plans for the change in operations, including workforce changes.
On current estimates, a final decision in Q3 2021 would enable a conversion to occur by mid-2022.
Abbott said the refinery had about 200 employees directly on the site - around 150 of who were First union members - with another roughly 200 contractors on the site full time.
''A study a few years ago found that every refinery job, supported another eight jobs in the wider community. So there are so many people and companies that rely on the refinery for big parts, or all, of their income.
''There will be a lot of people, and companies, worried about their futures if this goes ahead. Most of the staff are highly skilled and highly paid, and their money goes back into the local economy, so if they go, that money goes too.''
Abbott said the company had not yet let the union know which workers would be retained if the proposal goes ahead, which left a lot of worry and uncertainty for the staff.
''We've known for a year or so that this could happen - the writing has been on the wall - but that doesn't make the prospect of losing your job any easier for the workers.''
Refining NZ is the country's only oil refinery and the leading supplier of refined petroleum products to the New Zealand market, including petrol, diesel, aviation fuel and other products.
Refining NZ processes a range of crude oils imported from offshore markets to produce premium and regular petrol, diesel, aviation and kerosene, and fuel oils for its oil company customers (bp, Mobil and Z Energy).
The Marsden Pt oil refinery supplies around 70 per cent of New Zealand fuel demand, delivering fuel to Auckland through the RAP, to Northland from the Marsden Point site and to other parts of New Zealand through coastal shipping vessels.
In response to a significant decline in refining margins as a result of excess refining capacity in the Asian region, Refining NZ initiated a strategic review of the business to determine the optimal future business model and capital structure for the company's future.