New Zealand is more exposed to fuel supply disruption than comparable countries and urgently need a resilience plan, yet a bill before Parliament just tinkers with fuel stocks
Opinion: Cyclone Gabrielle has left no one in doubt about the need for resilient roads.
But somehow the need for resilient fuel supplies has got buried despite the case being even stronger.
Rising international tensions and escalating climate change impacts make clearer the types of events that could trigger a multi-billion dollar fuel supply crisis.
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* NZ’s critical infrastructure is too important to fail – greater resilience is urgently needed
* The critical importance of improving supply chain resilience
* Emergency resilience and infrastructure are two sides of same battered coin
Yet what to do about resilience in the wake of Marsden Point’s closure has come down to a bill now before Parliament that simply tinkers with the current meagre level of fuel stocks.
The Ministry of Business, Innovation and Employment review the bill springs from has taken us no closer to a fuels resilience plan or the analysis required to build one.
That involves figuring what is the right amount of resilience and then looking beyond just petroleum to see what is the best combination of all fuel options to deliver it.
The longer this gets delayed, the more we unduly risk not just our economy and wellbeing, but also our sovereignty.
Submitters on the bill reminded Parliament how fragile the current ‘just in time’ stock arrangements are, even in ‘normal’ times.
Air New Zealand and others reported that since the refinery’s closure 18 months ago, there have been three instances where stocks of qualifying jet fuel have not been replenished on schedule and airlines were forced to rework schedules or ‘air freight’ fuel at significant cost.
Supermarkets owner Foodstuffs looked out further and said:
“We have concerns that … New Zealand’s fuel supply could be impacted by unpredictable events (such as extreme weather, natural disasters, geopolitical conflicts and pandemic-related events) and the consequences could be dire for businesses and consumers alike.”
Diesel is critical for food distribution and once delivery trucks stop running, supermarket shelves quickly empty.
New Zealand has about three weeks’ supply of diesel onshore, European nations typically carry three months’ of petroleum reserves, and the US holds more than three years' worth.
Under the bill, fuel wholesalers would have to hold minimum stock levels that are simply what MBIE expects them to carry in any case for commercial purposes – 21 days' diesel, 24 days' jet fuel and 28 days' petrol.
That is less cover than the oil industry used to hold before the refinery was closed (as crude oil stocks are no longer in the system).
Though the Government plans to step in and hold an additional seven days’ worth of diesel, total fuel stocks will then still only be at about the level prevailing before the refinery’s closure – see table below.
Both National and Labour MPs pledged during the first reading of the bill to scrutinise whether the levels it proposes are adequate, but none have meaningfully challenged these.
Holding much lower fuel reserves than comparable countries is, however, just one side of the country’s exposure story. We are also considerably more exposed for structural reasons. Among the risk factors are:
* NZ is at the end of long and thin seaborne supply lines and has minimal naval capacity to defend them;
* Most other countries have pipelines and roadways connecting them with other nations, allowing alternatives to shipping by sea;
* We no longer have the ability to process crude oil that can be sourced far more widely than refined fuel products – and no ability to process locally produced crude;
* We are entirely dependent on about a dozen refineries geared to exporting fuel product. How New Zealand fared when queuing for Covid vaccine doses provides a ready guide to how we would end up if output from those export refineries was squeezed for any reason.
New Zealand is exposed not because of any one of these factors in particular. It’s vulnerable because of how they can play out synergistically in ways modelling can’t reliably predict.
Were the country ever held hostage over fuel supply, there is no surety about what circumstances would motivate others to come to our rescue, and it would be naïve to think that would be for free if they did.
Plugging this vulnerability begins by reimagining how we think about fuel supply resilience.
What we are ultimately looking for is transport services, rather than stored petroleum. And fuel stocks are just one way to sustain these services through a crisis.
We need a Resilience Plan for Transport Services that is framed by looking at all the fuel options – especially electricity and biofuels – along with petroleum imports and stocks.
The plan would set out how a targeted level of resilience can be delivered at the least cost over different periods of time. This also needs to be integrated with the Emissions Reduction Plan.
It involves mapping transport demands, with particular emphasis on essential and emergency services, and working out how each is best sustained through a range of potential challenges.
The bill should be requiring the energy minister to set a resilience standard and develop a plan to meet it.
The first step in developing such a standard is to estimate what it would cost New Zealand were there major supply disruptions.
Stunningly, we have no official estimates for this – even when we have detailed assessments of what it costs when electricity supply is lost and we use that information to plan what to spend on the national power grid to avoid it.
What we do know from experience in level four lockdown is that it cost about $230 million a day and took out 29 percent of GDP on those days, with diesel use being halved.
Any serious disruption is quickly going to produce costs in the billions of dollars, so spending tens of millions a year on resilience insurance (about 1 percent) can be justified on economic grounds alone.
The wider frame is New Zealand’s sovereignty. Were the country ever held hostage over fuel supply, there is no surety about what circumstances would motivate others to come to our rescue, and it would be naïve to think that would be for free if they did.
The NZ Airports Association addressed this wider frame in its submission:
“Cost/benefit judgments are being made that are based on the last 75 years when the world sheltered under a trade-promoting Pax Americana, with guaranteed Freedom of the Seas. However, this guarantee is ending and the world is becoming more uncertain. Those opposed to having greater onshore stockholdings are not realistically factoring that in.”
So, what price an independent nation?
And how long do we have to wait for a proper conversation about it? Waiting for the equivalent of a cyclone to drive this message home is too late.
