Radical new fuel import system sparks big concerns for New Zealand

Oil tanker Mt Matuku delivering fuel. Photo / Doug Sherring

There are fears New Zealand will soon be more vulnerable to fuel supply disruption and shortages at the pump when a new fuel import supply chain system highly reliant on foreign ships comes into effect.

A campaign to save around 100 crew jobs on two soon-to-be dropped New Zealand-flagged coastal oil tankers claims that after the big oil companies start importing finished fuel this year using dozens of foreign tankers there could be congestion and unloading delays at ports - similar to that afflicting container shipping.

The campaign Save our Tankers, by the Maritime Union, the Merchant Service Guild and the Aviation and Marine Engineers Association, says there is also potential for "serious quality issues" with fuel supply under the new supply chain regime.

The campaigners met with deputy PM Grant Robertson last week to lay out their concerns and were to meet Transport Minister Michael Wood today.

They want the Government to insist the big three fuel companies - Z Energy, BP and Mobil - retain the New Zealand tankers - or at least until the country is confident the new 100 per cent imported fuel system using foreign vessels guarantees our fuel security.

The April change to the import system follows the decision of the big oil companies to stop domestic refining of crude oil from the Middle East at Marsden Point and instead import finished product - mostly from Asia.

A report from Z Energy, which has 40 per cent of the fuel market and owns and operates more than 50 per cent of New Zealand's bulk fuel storage terminals, estimates around 175 tankers arriving a year. This meant a tanker would be discharging into the domestic supply chain every two days.

While acknowledging that is "considerably more" tankers than the industry currently imports, and that scheduling ships will be "more complicated", Z Energy said it also means the import-only model will provide greater flexibility and reliability of fuel supply.

The campaign claims the South Island in particular will be exposed to risk of fuel shortages and could run dry at times. It also has concerns about fuel quality and limited fuel storage capacity at smaller ports. Maritime Union secretary Craig Harrison questions the security of fuel supply for emergency generators, for example in hospitals.

Herald inquiries found no concerns in the port sector about potential ship congestion.

The independent chair of the Port Companies Chief Executives Group Charles Finny said the situation was being monitored but future fuel ship calls were expected to be "pretty much the same and no-one is raising concerns".

Ports used different berths for fuel and containers, he noted.

Lyttelton Port, the main gateway for South Island fuel imports, does not foresee any congestion risk.

Paul Monk, general manager bulk cargo and marine services: "We have a dedicated berth, with a deep draft capability able to take large fuel vessels. In discussions around the change, the view we have is we will see fewer, larger vessels calling – and Lyttelton's ability to take large vessels means we can be a port of first call for vessels coming to New Zealand, ensuring direct supply to the South Island".

The Z Energy report said there would always be three ships carrying 144 million litres of product within seven days of unloading at a New Zealand port. Based on current fuel consumption a day of cover equated to 23 million litres.

BP in a statement said it would continue to provide supply security for customers throughout the country.

Exxon Mobil did not respond to a Herald approach.

Transport Minister Michael Wood:"I have received representations from the Maritime Union and Merchant Services Guild on the issue of domestic carriage and along with other ministers we are currently considering their views.

"In general, the Government supports a more significant role for domestic coastal shipping and we will need to consider this particular proposal on its merits and after receiving advice."

Monitoring and consulting on the regime change is the National Emergency Management Agency and MBIE, which sign off on New Zealand's National Fuel Plan. Petrol, diesel, aviation and marine fuels are considered economic and life essentials and are critical resources in an emergency.

MBIE said it had been asked by Cabinet to investigate the option of increasing minimum levels of fuel stock held in New Zealand to improve fuel security.

Consultation on a proposed requirement for a minimum onshore fuel stockholding level and the options for how it can be achieved opened on January 17 and closes on February 28, MBIE told the Herald.

"The preferred option for minimum onshore fuel stockholding levels is similar to what has been proposed in Australia, namely 28 days of cover for diesel and its biofuel equivalent, and 24 days of cover for petrol and jet fuel."

The options for achieving a target level of onshore fuel stocks were: Government procuring stock or tickets for onshore fuel stocks; requiring fuel wholesale suppliers to meet a minimum onshore fuel stockholding level; establishing a stockholding agency for managing the minimum stockholding obligations of fuel industry participants and the Government.

"Fuel companies have advised MBIE that fuel supply will remain resilient, once they rely fully on international tankers to deliver fuels across the country and the coastal tankers are withdrawn. MBIE has been advised that fuel companies have already started using international tankers to deliver to regional ports and no issues have arisen so far."

The services of the two big New Zealand-flagged oil tankers Mt Matuku and Mt Kokako will be terminated after Coastal Oil Logistics, the joint venture between the three oil companies which hires them, advised the company would wind up by the end of this year. The ships are operated by Silver Fern Shipping, a subsidiary of Australian company ASP Ships. Silver Fern did not respond to the Herald.

In a statement Coastal Oil said: "(Its) requirement to lift product from Marsden Point will cease on or about 1 April 2022, as the refinery becomes an import terminal and a new supply chain model begins."

Marsden Point owner, NZX-listed Refining NZ, is to become Channel Infrastructure NZ. It will become an import terminal, supplying fuel to Auckland, Northland and the Waikato.

The plan is for fully laden medium-range tankers (carrying 50,000 tonnes-plus) to access other ports around New Zealand, including Tauranga and Lyttelton. Having partially discharged at larger ports and carrying smaller cargoes, they will then berth at smaller ports.

The Z report said instead of importing crude oil from the Middle East, an area of frequent political instability, New Zealand would now mainly acquire refined fuel from Asia, including Singapore, Japan and Korea.

"Supply will certainly not diminish and could quite plausibly be enhanced with more fuel held in tanks onshore and on the water."

Fuel storage tanks at ports are owned and operated by the fuel companies.