Extra oil imports are organised to avoid disruption from NZ Refining strike action

Thursday 25th September 2014

Oil companies are forging ahead with a contingency plan to import more fuels into the country to minimise disruption if planned industrial action at New Zealand Refining goes ahead next month.

BP external relations manager Jonathan Mills, speaking on behalf of the industry, said they were currently assessing how much fuel across all grades is being held in storage at the refinery, on ships and in terminals nationwide before deciding how much needs to be imported to meet demand over the threatened 11-day shutdown of the refinery.

Two unions representing 160 of its workers, or about half its workforce, have served notice of a two-day strike on Oct. 7 and 8, a move that would require the company to shut down processing units at the Marsden Point Refinery, and given restart times, could result in 11 days of disruption.

Mills said the most urgent priority was securing further supplies of jet fuel as the refinery supplies 100 percent of the local market. Auckland International Airport is understood to be likely to run short of aviation fuel within three days.

When asked if it was concerned about the proposed industrial action, Air New Zealand said, in a written response, that it didn't anticipate any impact on its fuel supply. It can typically take up to a month to arrange a shipment of imported oil from scratch but BP's Mills said shipments on the water now could be diverted if necessary.

The NZ Refining Company said there had not been a complete shutdown of the refinery since the 1980s so there is some uncertainty over the time it would take to shut down and restart. It would continue to operate the refinery to Auckland pipeline. The four oil companies that are both customers and shareholders in the refinery - Mobil Oil New Zealand, Z Energy, BP New Zealand Holdings and Chevron New Zealand - already import some refined oil with the refinery supplying around half of the petrol market and nearly 80 percent of the diesel.

It's hoped the full withdrawal of labour - the first since 1984 - can be averted with further mediated talks set down for tomorrow in Ruakaka between the company and First Union and the New Zealand Engineering, Printing and Manufacturing Union. The unions gave the required 14 days notice of strike action required under the Essential Services Act.

The company's half-year result showed a net loss of $6.9 million for the six months ending June, compared to a $5.2 million profit at the same time a year ago, due to a global downturn in refining margins. It means that the fee floor included in the processing fee arrangements with the four oil companies has come into play for the first time since 1999. They will be required to pay $36 million in the first six months, although this payment could be offset by the processing fee revenue earned over the rest of the year if that exceeds the annual fee floor.

The controversial processing fee paid to the oil companies which sees them get a rebate of 30 percent of the gross refining margin, has come under attack by minority shareholders who have faced significant falls in the share price, now trading at $1.61.

Earlier this month NZ Refining released an independent review by Hale and Twomey of the processing arrangements, the third such independent review in the past five years. It found the current processing fee structure and split of gross refining margin provided an appropriate balance between NZ Refining's return and customer competitiveness. Four alternative structures it considered were unlikely to provide the same balance and alignment and wouldn't prove sustainable over the typical business cycle for refineries.

The report also found NZ Refining had provided shareholders with an appropriate return - a margin above the weighted average cost of capital (WACC) over a ten-year period, though it had done so only once in the past five years.

BusinessDesk.co.nz

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