Introduction

A secure fuel supply is critical to our economy and way of life

Having a secure and resilient supply of engine fuels is critical to our economy. Liquid fuels – petrol, diesel, and jet fuels – are our largest source of transport energy. A significant and sustained supply disruption of our engine fuels would cripple industry and cause significant hardship to New Zealanders.  

Holding fuel stocks onshore for use in an emergency is a key part of building our fuel security. The higher the level of fuels that are held onshore, the more likely we will be able to weather any significant disruptions to our fuel supplies, such as a closed border event. Internationally, it is common for countries, particularly members of the International Energy Agency (IEA) and members of the European Union, to maintain government-owned stocks or place obligations on fuel industry participants to hold minimum stock levels in order to build their resilience.

In 2020, Refinery NZ (now Channel Infrastructure) announced that it intended to close the Marsden Point Refinery. Closing the refinery meant New Zealand would move from refining about 70% of our refined engine fuels (from imported crude oil) to being fully reliant on refined fuels imported from overseas refineries.

Given the magnitude of the change, the refinery’s closure prompted government to review New Zealand’s fuel resilience policy. The review found that our total onshore fuel stocks would likely reduce as a result.

In 2022, the Government introduced a fuel resilience policy package that responded to the findings of the review. It included measures to improve the government’s oversight over our fuel security, improvements to how we manage and fund our IEA oil tickets, and a commitment to updating the National Fuel Plan.    

Changes were also made to the statutory purpose of the Petroleum or Engine Fuels Monitoring Levy (the Levy) so that the Levy could be used to recover the costs of promoting onshore fuel resilience, such as government procurement of reserve fuels, resourcing the work to operationalise and update the National Fuel Plan, and funding tools and programmes to improve monitoring and collecting information on fuel resilience.

A key component of the package focused on building resilience in our fuel supply by ensuring we have sufficient reserves of fuel onshore.

Last year, the Fuel Industry (Improving Fuel Resilience) Amendment Act was passed. This legislation introduces a minimum stockholding obligation (MSO) that, from 1 January 2025, requires fuel importers to hold, either onshore or on ships in New Zealand’s EEZ: 

• 21 days’ cover for diesel
• 24 days’ cover for jet fuel
• 28 days’ cover for petrol

The minimum stockholding levels that were chosen for diesel, jet fuel and petrol broadly reflect the average stockholding levels that the fuel industry would hold regardless of government intervention. This approach aimed to minimise the need to significantly increase fuel storage capacity, keeping compliance costs and therefore flow-on impacts on fuel prices relatively low. While the minimum stockholding levels do not immediately improve fuel security over the status quo, the levels ensure that fuel security does not deteriorate.

The minimum stockholding levels are also similar to the refined fuel stockholdings that were in place while the Marsden Point refinery was operating. When the refinery was operating, our diesel stockholding was on average 20 days’ supply.

However, the refinery also held feedstock that could be processed into refined fuels that represented an additional 5 days’ supply of diesel. 

Despite it being a more strategically important fuel, diesel’s minimum stockholding level (at 21 days’ cover) is lower than that for petrol or jet fuel. To increase diesel’s stockholding levels to 28 days, the government decided that it would investigate procuring 70 million litres of diesel - roughly equivalent to 7 days’ extra cover, as part of the ‘reserve diesel arrangement’.

In June 2024, Cabinet agreed to stop work on investigating government procurement of reserve diesel and to investigate other options to bolster our diesel reserves. As procuring additional reserve diesel carries significant capital costs, Cabinet wanted to have a robust understanding of options and their impacts before making decisions.

We are consulting again on how we increase our diesel reserves

We previously consulted on onshore fuel stockholdings in early 2022. Overall, we received 21 submissions, mostly from the fuel and transport sectors. Many submissions noted the importance of fuel resilience and onshore stockholding while some emphasised the particular importance of diesel for emergency and essential services.

The consultation document covered a number of options for onshore fuel stockholding policies, and indicated that the following options were preferred: 

• a minimum onshore fuel stockholding level higher than the status quo and similar to that proposed in Australia, namely 28 days of cover for diesel, and 24 days of cover for petrol and jet fuel
• the introduction of a minimum stockholding obligation for fuel wholesalers.

Of the submitters:

• 9 out of 21 agreed that there should be a minimum onshore fuel stockholding obligation on fuel wholesalers
• 2 agreed in part
• 5 disagreed
• 5 did not have a clear view.

Fuel importers/wholesalers opposed the option of requiring them to hold fuel stocks above their normal commercial stockholding level. They submitted that:

• New Zealand fuel supplies will remain resilient under the new 100% fuel import model.  
• An increase in stockholding would likely require increased investment in infrastructure with flow-on costs through the supply chain. The fuel sector’s comments on the relevant costs are discussed in this RIS.
• The costs of increased stockholding would exceed the benefits.
• If the Government wishes to have more onshore fuel stocks, it should fund the onshore storage of reserve fuel stocks and the fuel sector can manage the turnover of reserve fuel stocks.

The previous consultation gave us a good understanding of submitters’ views on onshore fuel stockholding, but that consultation was for petrol and jet fuel, as well as diesel. We want to reconsult on how to increase our diesel reserves as the benefits and costs of options may differ when just applied to diesel compared to also considering petrol and jet fuel.

Diesel resilience continues to be our focus

New Zealand has never had a severe and sustained fuel disruption, which could be caused by events like a large-scale natural disaster, geopolitical conflict or infrastructure failure. But a severe and sustained fuel disruption would have a profound impact on our economy and could lead to significant hardship. It will take time to convert tanks in order to fill them with reserve diesel and we need to take action to reduce the risks to New Zealand.

While we are considering how best to increase our diesel reserves, we are also considering broader risks to our fuel security. Work is underway on a study into New Zealand’s fuel security that will, among other things, identify risks to our fuel supply chains and investigate how we could improve sovereign fuel resilience. This study will be completed in early 2025 and be followed by a fuel security plan to address the issues identified by the study. Any findings from the study can be incorporated into making final decisions on diesel.

Structure and scope of this paper

This paper outlines the problem, our objectives, and options to address the problem.

We ask a series of questions throughout the document. Answers to these questions will help us identify preferred options that will build resilience, are workable, and minimise costs to consumers. A collated list of questions is at the end of the document. 

Submissions close 6 December 2024 at 5pm.

< Executive summary | Status quo >