Problem definition

However, what is efficient for the market does not necessarily build New Zealand’s overall fuel and diesel resilience. Diesel will continue to be our most strategically important engine fuel for the foreseeable future. It plays a critical role in food production, transporting essential goods around the country, for emergency services, emergency electricity generation and other essential services. But despite its importance for our economy, our diesel reserves are lower than that for petrol or jet fuel.

With 21 day’s cover of diesel stocks onshore, our essential services could operate for 3 months if stocks were immediately rationed (which would involve prioritising certain fuel users, such as providers of essential goods and services). New Zealand is particularly vulnerable to international supply disruptions, given our distance from the rest of the world and because we import nearly all of our engine fuels.  It is in New Zealand’s interests to bolster our diesel reserves to minimise the impacts of a major supply disruption where it would take time to reestablish the supply chain.

This problem is recognised internationally, and many other countries hold significantly larger reserves – our diesel reserves are low by international standards. For example, Australia has recently increased its minimum stockholding obligation for diesel to 32 days.

The 21 days’ cover was broadly based on the average amount of stock expected to be held by fuel companies in New Zealand in the absence of a domestic refinery, the amount of time for reordering fuel shipments from a different country, and the minimum stockholding obligation in Australia. The intent was to prevent deterioration in stockholding level over time.

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