Marsden Point: New Zealand 'naive' to shut down its only oil refinery - Australian analyst

Marsden Point's planned closure is being warned against by some experts.
Marsden Point's planned closure is being warned against by some experts. Photo credit: File

By Phil Pennington of RNZ

An Australian analyst warns New Zealand is being naive about the dangers of shutting down its only oil refinery.

Shareholders in Refining NZ vote this Friday on a recommendation from company directors to turn Marsden Point into a terminal that only imports processed fuels, ending six decades of the country having its own ability to make petrol and diesel.

The Government has received starkly different advice, but the latest and most substantial advice downplays the risks.

The head of the Northern Australia Strategic Policy Centre Dr John Coyne is aghast.

"They're very naive," he said.

"They're buying into a very dated view of globalisation, and they certainly haven't learned the lessons from COVID-19, around secure supply chains and national resilience."

The pandemic disproved assumptions that global supply chains could readily deliver, whether it was vaccines or oil, he said.

"If you listen to the oil companies, they'll tell you that all the risk is under control."

But they could not manage the complexities, when conflicts could escalate very quickly, trade splits were deepening, and one natural disaster might pile on top of another, he said.

"If the oil refinery in New Zealand closes, you are totally reliant on oil companies doing the right things... a really dangerous proposition."

'What would it take?'

Documents show Refining NZ asked the Government early last year what options it was looking at when it came to the "strategic importance" of keeping the refinery open.

Officials in turn, asked the company "what would it take to make continuing to refine in NZ work?"

The answer is blanked out.

However, the company did not go down the path.

In Australia, the Government looked at the geopolitical risks and opted to pay up, through a fuel service payment it introduced last month.

This could transfer up to a billion dollars - if oil margins are low - in the next decade from taxpayers to its last two surviving refineries (down from 10 a decade ago).

Coyne says this gamble might not work, but New Zealand should be copying it anyway.

"It's a starting point.

"Propping up industries never works... but having some oil refining capability... until we can figure a new approach is better than having a strategic vulnerability in New Zealand."

He believed the federal Government would be concerned if New Zealand did not save its refinery.

Staggered and baffled

New Zealand researcher Toby Dalley said he was baffled at the blinkered way this country has for years been weighing the risks of running out of fuel.

Dalley looked into 15 years of risk assessments done for the Government, for his masters degree research last year into New Zealand's oil security.

He said it was "staggering" how these reports relied on assumptions the market could weather any crisis.

"When I started my research, I was quite baffled to find... those assumptions, and that we haven't actually concluded a comprehensive assessment or modelling of our supply chain and its security."

Other Western countries like Australia, had weighed the impacts of actual physical shortages of oil, Dalley said.

But lawmakers here faced a "gap" so that it was not even possible to assess how much Marsden Point's closure would narrow the options.

"We certainly haven't gotten all the information at hand we need to actually make an informed decision."

Simon Terry of the Sustainability Council says it's not too late for the Government to follow Australia, and impose a levy of a cent a litre on fuel to keep the refinery going.

"It's like insurance," Terry said.

"It's hundreds of millions of dollars a day in economic costs if supply lines are cut for an extended period. And that's before what it costs society if food and medical supplies run short.

"So you say OK, in order to guard against that possibility, let's take out some insurance and keep the refinery going so we can at least get 20 percent of the country's fuel needs met."

The trouble was, rosy risk assessments had not factored in the real costs of disruption - or what it was worth paying to avoid that, he said.

Reports to the Government note that whether Marsden Point is handling processed fuel or crude, it still relies on imports by tanker.

But Adelaide energy analyst Dr Graeme Bethune said crude can be secured from a wider range of sources.

Even with two refineries secured, Australia is considered an outlier for not having better oil security, he said.

"The Australian Government has been sort of playing catch up as the outlook has become more and more dire, with refineries closing," Bethune said.

Coyne said "all of a sudden, national resilience is really important".

Though Australia was taking a different tack to New Zealand, and protecting its last refineries, even so the US military based around Darwin had demonstrated "a vote of no-confidence" in Canberra by building up its own strategic fuel reserves, he said.