Marsden Point closure: Shutting New Zealand's only oil refinery could expose country to fuel security risks - report

Plans for a $250m shutdown of the country's only refinery  are already well advanced.
Plans for a $250m shutdown of the country's only refinery are already well advanced. Photo credit: File Image

By Phil Pennington for RNZ

The government has been warned that closing down the country's only oil refinery could expose New Zealand to fuel security risks.

The Energy Minister said these risks are not significant, but a consultant's report to the government says the opposite.

The risks centre on reconfigured supply chain, meaning the country would hold significantly less fuel because it held no crude awaiting processing.

Officials have sought a review of the risks to a reconfigured supply chain from a pandemic, natural disaster or regional war.

Plans for a $250m shutdown of the country's only refinery, Marsden Point at Whangārei Heads, to turn it into an import-only terminal instead are already well advanced.

Officials have also raised questions about 320 jobs being on the line, and about cleaning up the contaminated site.

The change to stop refining is expected to cut fuel throughput at Marsden Point by 40 percent, and leave it needing only a third of the land and a fifth of the tanks.

Briefings from the Ministry of Business, Innovation and Employment (MBIE) to Energy and Resources Minister Minister Megan Woods show central and local government in talks with Refining New Zealand since early last year.

Woods has told the company about the strategic importance of the refinery. Officials say this revolves around fuel supply security, jobs and getting new green-fuel industries going.

"The maintenance of domestic refining capacity is of some strategic value to New Zealand, at least for a transitional period," they told Woods.

The company has countered that the change carries no risk because overseas fuel supply chains are diverse and strong, and some official advice echoes this.

Refining NZ is beset by increasing competition from bigger refineries in Asia.

The extra blow of COVID-19's impact on demand already led to it reducing refining this year.

A recent $750 million expansion and investment has not paid off at the 60-year-old refinery.

It has painted the change to an import-only terminal - importing 3 billion litres of processed fuel a year for Auckland and Northland - as a matter of survival.

In 2020, the company talked of carrying on with reduced refining till 2035, then going full import.

But that appears to have sped up: "The earliest possible timing of import terminal commencement is in 2022," a briefing said.

Documents show conversion could take between 18 months and five years, and cost $200m, plus $50-60m on demolition.

Local iwi are concerned about how contaminated land is handled.

Environmental assessments say the aquifer beneath the refinery "is already contaminated due to the presence of hydrocarbons in groundwater, and for this reason, the resource has little value for other purposes".

The conversion plan must still pass the hurdle of a shareholder vote later this year.

However, two of its three biggest customers, BP and Z Energy, are already on board.

Refining NZ has told the government that if the refinery is shut down, fully restarting it ever again would cost too much.

Some changes have not waited for a vote: Marsden Point has already permanently cut bitumen production.

The biggest bitumen user, the Transport Agency,issued a tender in December saying it had "identified potential risks" in the future bitumen market.

"These risks relate to security of supply of quality bitumen ... cost-reflective price of bitumen at points in the supply chain, and downstream competitive effects within our contracting markets."

A 14-page consultants' report to MBIE in March 2020 listed eight risks to stopping refining, including:

  • Between a quarter and a third less overall fuel stock in the country
  • No ability to correct imports that are not up to standard
  • No ability to process crude in a global supply emergency

It summed up:

"The change of the Marsden Point facility to a fuels terminal would have a significant impact of New Zealand's fuel security."

By contrast, Woods' spokesperson last night said officials had advised the conversion "is not expected to have a significant impact on fuel security".

"Relying solely on imports of finished fuel products, which are ready for distribution, allows for a flexible response to fuel supply disruptions."

Current crude oil imports were "not immune anyway to import supply chain risks".

Conversion would probably increase by up to $12m the annual cost to the Government to meet its international obligations to hold 90 days of stocks.

MBIE has received a review of geopolitical risks and natural disasters to the supply chain, but not released it yet.

The Ministry of Foreign Affairs and Trade (MFAT) told the MBIE there was "quite a significant national security element to having 100 percent reliance on fuel imports".

MBIE said it will manage risks by finding some suppliers outside Southeast and North Asia.

MBIE's briefing to the Incoming Minister last November makes little mention of the refinery.

Its briefings note 320 jobs could go from stopping refining, including the refinery's 50 engineers.

Working groups are looking at the impacts on the region's economy.

Refining NZ has been approached for comment.