The Russian-Ukrainian conflict highlights the need for New Zealand to have a functioning oil refinery which could, if the need arises, refine enough of our own locally produced oil to meet critical transportation needs.
With Russia being the world’s second largest crude oil producer, the dispute has already seen fuel prices soar dramatically with further increases likely to occur if Russian oil exports are further curtailed by sanctions imposed by the United States and other countries.
New Zealand’s Marsden Point refinery is due to close at the end of this month. The last load of crude oil from the tanker arrived at the refinery last week. We now have to rely on promises from oil companies that they will be able to supply adequate imports of refined fuel from their Asian refineries.
But what if the global oil supply dwindles even further? Sanctions on Russian oil are lasting for a while and other producers are not increasing their supply after getting a taste of the higher prices they are currently getting? Or is China deciding to invade Taiwan possibly cutting off supply lines to Asian refineries?
New Zealand will be exposed, forced to invoke the international agreement and draw on reserve stocks notionally held (on paper and not in tanks) in other countries. This would mean that other countries would give up some of their own refined products to supply us, which they are unlikely to do when their own supplies are under the same pressure as New Zealand’s.
Yet our government has been naive enough to accept assurances from oil companies that they would be able to provide security to New Zealand’s fuel supply in the event of a crisis.
A document presented to cabinet in November 2021 by Energy Minister Megan Woods states “There does not appear to be a clear justification for maintaining refining operations for energy resilience reasons, except to deal with an exceptional “no fuel imports” scenario. It’s an unlikely scenario. but not quite implausibletherefore, I believe that the option of maintaining refining capacity warrants an active government decision”.
Among his recommendations was this “To note this refinery closure is expected to have little impact on fuel supply resilience under most disruption scenarios, but it could reduce New Zealand’s resilience to a low-probability, high-consequence event that leaves New Zealand unable to import fuels.
Cabinet stood idly by and allowed the refinery to close, despite concerns raised by Maritime Union, First Union, Biofuels Association, Sustainability Council, Merchant Service Guild, fuels researchers, strategic policy analysts in New Zealand and Australia, and the Social Credit party.
Barely five months later thanhigh consequence event that leaves New Zealand unable to import fuels” and “an exceptional ‘no fuel imports’ scenario” maybe just arrived.
The Social Credit party launched a petition which garnered 18,300 signatures, and that petition is currently languishing on the desk of parliament’s petitions committee. Unfortunately, despite the impending crisis, the committee does not seem to be in a rush to consider it.
This petition asks Parliament to ensure that the refinery remains in operation and is taken over by the Government, using Reserve Bank funds, not taxpayers, to buy out existing shareholders and that it is run as a state enterprise.
In its brief on the petition, Social Credit anticipated such an event. “In the event of a natural disaster or geopolitical conflict…. the fuel supply of essential services could be seriously compromised”.
People are already feeling the effects of compromised supply lines, with supermarket shelves often empty and prices rising. If the country’s transport fleet that hauls goods around New Zealand, and our agricultural machinery and horticultural equipment all face fuel shortages, those shelves will quickly become even emptier.
If the refinery remained in operation, it could refine our own Taranaki oil (although less efficiently than normal crude) to keep essential services running.
The cabinet document acknowledges that “Having a domestic refinery could potentially allow the refining of at least some fuels from crude oil produced in New Zealand along with any imported crude oil available.
Yet for about $300 million, the cabinet decided not to provide the country with an insurance policy that could have maintained at least some essential services, including search and rescue and helicopter rescue, in the event of a disruption of fuel supplies from abroad.
Considering the Reserve Bank has created about $55 billion over the past two years, this was an incredibly short-sighted move.
It’s not too late to change it.