Cabinet’s refusal to step in and save the refinery comes despite job losses, concerns about NZ’s fuel security, a dearth of plans for biofuels, and warnings of higher pump prices for motorists.
Aaron Holroyd has worked at Marsden Point for 35 years. When its refining operations shuts down next year, the control room operator will retire. At 59 years old, he can’t face the prospect of a move overseas to learn the ropes of a new refinery – but he is watching as his younger colleagues send off their resumés.
New Zealand could face 40 percent fuel shortages and price hikes, ministers have been warned, if an exodus of Marsden Point workers forces the refinery’s premature closure.
There is now mounting uncertainty about when the refinery will close, with key staff quitting, but deadlines for an April 2022 closure slipping. The Refining NZ board was meant to sign off plans by the end of September but, six weeks later, the company has still not finalised deals with its biggest customers and shareholders, Z Energy, Mobil and BP, to sell them imported refined petroleum.
“There is an elevated risk that a critical loss of staff could force an earlier closure of the refinery. Any closure with less than about six weeks’ notice could result in fuel shortages of around 40 percent before replacement fuel imports can be delivered.”
– Megan Woods, Energy Minister
Staff have not yet got the six months’ notice they’ve been promised – meaning the company is committed to keep paying them through to late May, at least. And now it’s also negotiating a six-month incentive package to hold onto staff.
“But some of those jobs are so good, like in Australia, the guys will just bolt anyway because they can’t wait,” says Holroyd, a First Union delegate.
He warns the loss of skilled staff could jeopardise safe day-to-day production. “These young guys get really good job offers, and it’s possible that some of the skill-sets of the control room operators will go, and you’ll wind up with no skill-sets at all. Because the money is that good. Then we’ll have some sort of accident or incident that will affect the refinery, but then, who would know?
“Major refineries, even as safe businesses, they do have the odd accident or incident to disrupt the process. After all, a digger driver dug through the pipeline, a couple of years back.”
He has his own theories on the delays behind the closed doors of the negotiating rooms. “Some of the companies believe that being overcharged, so they’re digging their heels in,” he says. “They’re being asked to get into long 10-year deals and pay for pipeline access. And of course, they’re probably choking at the price.”
Union delegates at the site, south of Whangārei, say critical staff are being headhunted for overseas jobs. Already, Australia’s biggest fuel company Ampol has run a jobs expo for the refinery’s skilled workers, offering positions at the company’s 109,000 barrels per day Lytton refinery in Brisbane.
The Lytton refinery was kept open with the backstop of a Aust$2.3 billion (NZ$2.4b) federal government subsidy to guarantee Australia’s fuel security, and it has now returned to profitability in the September quarter.
But New Zealand Cabinet minutes show the Government here has refused to intervene to stop the closure of refining operations at Marsden Point, despite the promise of increased refining margins in coming years, and a proposal to convert much of the valuable plant to biofuel production, using Northland’s forestry waste.
The worker exodus has prompted Energy Minister Megan Woods to warn in a Cabinet paper of a risk the refinery may close early and at short notice. jeopardising New Zealand’s short-term fuel security. “Given the planned refinery closure by mid-2022, many refinery workers are looking for new jobs and some have already ceased employment,” she says.
“While Refining NZ is endeavouring to manage this staffing risk there is an elevated risk that a critical loss of staff could force an earlier closure of the refinery. Any closure with less than about six weeks’ notice could result in fuel shortages of around 40 percent before replacement fuel imports can be delivered. The more notice given the shorter and shallower would be any fuel disruption.”
Cabinet has agreed that officials will investigate the option of increasing minimum levels of fuel stock held in New Zealand, after Refining NZ shuts down its refining operation. Pending agreement with the fuel companies, it plans to rebrand as Channel Infrastructure, and resume operations as a small import terminal for overseas-refined fuels.
Woods is to report back to Cabinet before Christmas, for approval to release a consultation paper on minimum fuel stockholding obligations.
But increasing the stockholding of refined petroleum comes at its own price: Woods’ Cabinet paper says any future decision to procure domestic fuel stocks could incur annual costs, though the estimated sum is redacted. She says these costs could be recovered through increasing the existing levy on petrol and diesel sales. Again, the cost per litre of the increase is redacted.
“Any future decision to impose minimum stockholding obligations on fuel companies would not have a material fiscal impact, but the resulting costs incurred by fuel companies would likely be passed on to fuel users through fuel prices.”
“We know that this decision will have an impact nonetheless. Our focus is on continuing to run the refinery safely through to transition in H1 2022, and we are particularly mindful at present of managing the workforce risks associated with Covid-19.”
– Naomi James, Refining NZ
Refining NZ chief executive Naomi James confirmed the company’s workforce of 300 (which is mostly based at Marsden Point) would reduce over the two years following commencement of import terminal operations. In the end, there would be about 70 terminal, IPL Laboratories, and corporate support office employees left.
“It has been a key objective of ours throughout the strategic review and as we progress with our planning to ensure that we have a well-managed, and well-planned transition which minimises the impact of this change on our people and our community.
“But we know that this decision will have an impact nonetheless. Our focus is on continuing to run the refinery safely through to transition in H1 2022, and we are particularly mindful at present of managing the workforce risks associated with Covid-19.
“We are currently working through the appointments process for those members of our team who have secured a position with Channel Infrastructure. For the remainder of our workforce, we are committed to supporting our team into new jobs, or training opportunities at the right time.
“This includes working with a range of companies in New Zealand and Australia who are looking for people with the skills our workforce has. These companies are working with us to help our people find jobs for when they are no longer required at the refinery.”
“We’ve got a hospital that’s leaking sewage down the walls, we’ve got the threat of Three Waters reforms taking control of those assets, we’ve lost our promised four-lane highway. Our infrastructure is crumbling and the Government isn’t flavour of the month at the moment.”
– Sheryl Mai, Whangārei mayor
Whangārei mayor Sheryl Mai said Northland needed an energy strategy to retain its technical expertise, so workers didn’t all leave for lucrative overseas jobs. “It would be really good to move people with both skills into hydrogen production, for example. Let’s face it, that is definitely an area that we need, and we should be incentivising that transition.
The District Council was part of a working group to find job opportunities in the region, to retain the skilled workers. “But of course, there aren’t many industries that have those really high salaries,” she said. “And once you’ve entered that income-generating career, then it’s pretty hard to go and be a lower-paid worker again. There are few higher-paying jobs around our region – that’s it’s a pretty well-known fact.”
But she said trust and confidence in the Government was “pretty low” around Whangārei and Northland.
“We’ve got a hospital that’s leaking sewage down the walls, we’ve got the threat of Three Waters reforms taking control of those assets, we’ve lost our promised four-lane highway. Our infrastructure is crumbling and the Government isn’t flavour of the month at the moment. But we need to partner with them. We’re an important part of our national economy.”
At the weekend, Megan Woods’ office played down the impact of the refining operations shutting down early. “While there could be a short-term tightness of fuel supply, the fuel sector has advised officials that the risk is manageable,” a spokesperson said. “Fuel companies have contingency plans in place, such as diverting ships from other markets.”
“Mobil has systems and processes in place designed to manage supply variations, including unplanned refinery shutdowns. Mobil has demonstrated its ability to manage this type of supply interruption in the past in the past and will continue to do so as part of its business contingency planning activities.”
– Andrew McNaught, Mobil
Newsroom sought comment from the three big fuel import and distribution companies, all if which are both shareholders and customers of Refining NZ.
Andrew McNaught, Mobil Oil NZ’s lead country manager, confirmed the company had not yet completed negotiations with Refining NZ to finalise Terminal Services Agreements, under the proposed operational change to an import terminal.
“With regard to your query about supply security, Mobil has systems and processes in place designed to manage supply variations, including unplanned refinery shutdowns,” he said. “Mobil has demonstrated its ability to manage this type of supply interruption in the past in the past and will continue to do so as part of its business contingency planning activities.”
“We remain committed to securing an agreement that benefits all parties and guarantees flexibility and reliability of supply. It is a complex conversation with a number of businesses, we believe it will be concluded in the near future.”
– David Binnie, Z Energy
David Binnie, the general manager of supply for Z Energy, said terminal services negotiations are still progressing, so the company discuss specifics. “We remain committed to securing an agreement that benefits all parties and guarantees flexibility and reliability of supply,” he said. “It is a complex conversation with a number of businesses, we believe it will be concluded in the near future.”
He said Z remained confident that a smooth transition to an import terminal facility would take place, and its operator was better placed to answer questions about its future use as a bio/future fuels production facility.
Binnie said Z Energy was continuing to review options for its tallow-based biodiesel plant in south Auckland, which has been mothballed for the past two years, and had signed an agreement with international biofuels producer Neste to also look at importing renewable drop-in biodiesel. Z Energy and its chief executive Mike Bennetts, in his capacity as convenor of the Climate Leaders Coalition, have been forthright advocates of government investment in biofuels, as part of a transition to a zero carbon economy.
“BP is well placed to ensure we continue to provide supply security for all our customers throughout New Zealand. We have a dedicated local supply team and are experts in reliably sourcing quality product from international refineries and terminals.”
– Vesna di Tommaso, BP
BP’s Asia-Pacific vice-president for supply and midstream, Vesna di Tommaso, echoed the other fuel companies’ support for the refinery converting to a fuel import terminal.
“We are progressing negotiations to reach final fully termed agreements with Refining NZ in line with this expectation,” he said. “BP is committed to concluding these negotiations as soon as possible and is working closely with Refining NZ to ensure the ongoing security of fuel supply to our customers now and into the future.
“It is business as usual for BP and our customers – BP is well placed to ensure we continue to provide supply security for all our customers throughout New Zealand. We have a dedicated local supply team and are experts in reliably sourcing quality product from international refineries and terminals.”
In what appears to be a particular difficulty for a Government under pressure over its slow decarbonisation path, Megan Woods noted in her Cabinet paper that New Zealand was a leading advocate internationally for fossil fuel subsidy reform.
“New Zealand has no domestic fossil fuel subsidies in place and this position will not change as a result of Cabinet’s recent consideration of the Refinery’s future,” a spokesperson said.
She noted the ongoing negotiations on the Agreement on Climate Change, Trade and Sustainability, and sustained efforts to advance the fossil fuel subsidy reform agenda in multilateral fora including the World Trade Organization.
The Government continues to take the view that there is little risk of geopolitics interrupting the oil supply chain to New Zealand, though Woods does note that is this low risk were to eventuate, it would have a big impact. “The Cabinet Paper provides a risk assessment of global and regional crude oil and fuel supply disruptions – it found a low likelihood of an event resulting in extended loss of physical supply to New Zealand in the next 10-15 years,” her spokesperson said.