Shareholders will vote next month to determine if the country's only oil refinery at Marsden Pt will stop refining oil and instead become an import only terminal to store imported fuel.
The New Zealand Refining Company, Refining NZ, which runs the refinery at Marsden Pt Bream bay, today confirmed the proposed new structure of its import terminal plan, and the date for a vote of non-customer shareholders to approve this change in operations.
If approved in a shareholder vote on August 6, Refining NZ will cease to be a refiner, and will instead become an import terminal, called 'Channel Infrastructure'.
Today's announcement is accompanied by the release of more detail, including specifics on what is involved in a transition from refinery to terminal operations through the explanatory materials issued to shareholders, and marks the next phase in the company's consultation with the community, to bring the new company to life.
Refining NZ, CEO Naomi James said: "While this is not a significant change for most New Zealanders, a conversion to import terminal operations is a significant change for our operations and for everyone at our Marsden Pt site. A key focus for us over the coming weeks and months will be to support our employees and their families and work closely with our community to help lessen the impacts of this change.''
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).
James said the proposed new structure will utilise Refining NZ's highly strategic infrastructure, including the Refinery to Auckland Pipeline (RAP), to receive, store, test and distribute transport fuels imported by Refining NZ's customers safely, reliably, and efficiently primarily to the Northland and Auckland markets.
''A change to the way that Refining NZ operates is necessary as a result of the most difficult circumstances we have faced in 60 years of operating. Refining NZ have faced historically low levels of GRM (Refinery Gross Margin - or GRM - is the difference between crude oil price and total value of petroleum products produced by the refinery and lower than expected demand for transport fuels, exacerbated by the impacts of Covid-19.)
There are structural challenges to the competitiveness of the refinery compared to newer Asian refineries, due to the relatively small scale and higher cost of operating in New Zealand, which includes significant increases in electricity and gas costs.
''As a business, we are necessarily conscious of the global movement towards, and New Zealand's focus on, reducing carbon emissions, with the emergence of new challenges and opportunities expected in the transition to low-carbon transport fuels over time, reflected in a series of policy decisions made by successive governments in recent years.''
She said this is an important step in the process towards a final investment decision by the Refining NZ Board, which is targeted by the end of Q3 2021.
''Subject to shareholder and lender approvals and the negotiation of binding legal agreements with customers, we expect a transition to take place by mid 2022. In parallel with finalising approvals, including ongoing negotiations with Mobil, Refining NZ has been working to identify other potential opportunities for the site...the company has every intention of continuing to operate on the Marsden Point site over the long term.
Refining NZ's Chairman Simon Allen said the conversion to import terminal operations is expected to lead to significantly more stable earnings, superior "through the cycle" returns for shareholders and position the company to actively participate in a decarbonising of the New Zealand energy market.
''A transition to import terminal operations is expected to enable the company to recommence the regular payment of dividends to shareholders within one to two years after terminal operations begin," Allen said.
"Marsden Point has huge potential being a large industrial consented site, with deep water port access, large electricity and gas connections, a very capable workforce and proximity to the largest population base in New Zealand. We are exploring what the best opportunities are for the remainder of our site as we move forward."