Refining NZ appears set to quit the refining business

Business

An obtusely-worded update from NZ's only fuel refiner appears to indicate the company is favouring a previously signalled option to become solely a fuel importer

25th Jun 20, 10:29am by David Hargreaves

The company that owns New Zealand's only oil refinery, at Marsden Point in Northland, looks as though it is favouring and moving ahead with a previously signalled option to quit the refining business and become merely a fuel importer.

Refining NZ provided NZX on Thursday with a jargon-heavy and obtusely-worded "update" on its strategic review announced on April 15 this year.

Reading heavily between the lines it seems clear that the company's intention at this point is to press ahead with a plan to convert the refinery to an import terminal.

The statement also appears to indicate the company will focus on supplying fuel into the Auckland and Northland markets.

It also refers to now developing plans to "simplify refinery operations and structurally reduce operating costs". It doesn't give any specifics on what that entails.

Fuel company Z Energy, which is both a shareholder in and customer of Refining NZ said in its own statement to the NZX that Refining NZ was "moving in the right direction".

Z's chief executive Mike Bennetts said Z had made it clear to the board of Refining NZ, to Z shareholders and to its customers, "that we believe moving to an import terminal model is the best outcome for the refinery and New Zealand".

Refining NZ says it "will continue to evaluate a possible future staged transition to an import terminal, including exploration of a commercial framework with customers, overseen by the Independent Directors".

"This process will include consideration of the optimal timing of any conversion, the sequencing of supply chain changes, the scale of costs related to an import terminal conversion program, and the range of commercial terms for terminal and pipeline operations," the statement says.

The funding requirements for any conversion would depend on "the exact configuration of any terminal conversion, its commercial framework and timing".

Shareholder approval would be required.

A further update on the review is to be provided by the company by the end of the September quarter this year.

The company's chairman Simon Allen said Refining NZ was "committed to delivering a strategic outcome which delivers sustainable returns for our shareholders over the longer-term".

"At the same time, we are conscious of the significance of the options under consideration and the potential impacts on our people and the local community.

"We will continue to work closely with all stakeholders to ensure the right decisions are made and implemented in a planned and co-ordinated way to ensure the safe, reliable supply of quality fuels to New Zealand now and into a lower carbon future, while managing the impact of changes on our people and the local community," he said.

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51 Comments

by murray86 | 25th Jun 20, 10:34am 1593038047

Strategically a mistake for the country. For the business it might be a good idea. Will the Government do anything at all?

by frazz | 25th Jun 20, 10:46am 1593038781

Friend works there ..its old and to update and compete with Singapore refineries its just too expensive. Also falling demand ..good decision and convert more of the space to proper working port.

by murray86 | 25th Jun 20, 10:58am 1593039502

That's the issue with raking off profits and failing to keep up the technology updates and maintenance. Once again NZ companies entrenching our dependence on very long logistic lines. If the current state of geo-politics continues it's current direction, we'd all better won bicycles! And before the nay sayers rise, COVID should have taught us anything can happen! Importing crude would be a lot safer than importing refined products, AND we cut out a middleman. A refining capability should be viewed as an essential national asset.

by realterms | 25th Jun 20, 10:58am 1593039509

"Importing crude would be a lot safer than importing refined products"

Why?

by youngdumbandbroke | 25th Jun 20, 11:17am 1593040675

Crude doesnt spoil or go stale. It's also more stable/less volatile than petrol

by Boatman | 25th Jun 20, 1:23pm 1593048198

They have mostly overcome the volatility risk of transporting the things like LNG , Petrol and ethanol , its not as much of an issue as before

by realterms | 25th Jun 20, 2:36pm 1593052572

Do we have enough storage capacity to make that an important distinction?

by murray86 | 25th Jun 20, 1:38pm 1593049102

They could consider researching and developing a hydrogen plant/storage? Brand new technology developing all the time, but gaining a lot of momentum across the world.

by delboy | 25th Jun 20, 1:45pm 1593049543

An oil refinery doesn’t fit the current Govt goal of reducing emissions that cause climate change.

I think Marsden Points days are numbered and Whangarei will suffer the same fate as New Plymouth.

by CN | 25th Jun 20, 11:49am 1593042583

".its old and to update and compete with Singapore refineries its just too expensive"

So due to global competition ...

by Logicthinker | 25th Jun 20, 12:34pm 1593045252

You say your friend works there frazz, how many employees may people may lose their jobs. I was born, raised and worked in Whangarei. When the refinery was built, locals thought here we go, big industrial expansion to support the refinery was about to go ballistic. Unfortunately, it never happened and a lot of people left the area. I now live in the Bay of Plenty.

by frazz | 25th Jun 20, 2:17pm 1593051444

You probably did your self a favor - it emits some nasty chemicals from memory.

by Good Samaritian | 25th Jun 20, 11:11am 1593040276

You could be right, but with electric vehicles gaining in scale it becomes a difficult equation on where and how much to invest in the future. It could be a long payback period.

Just hope the government doesnt get conned into aid, where the better investment would be growing the countries electrical fleet. This country has huge green generation potential, and the less we import the better. Oil markets are too volatile to further invest in this field, which is constantly been manipulated by big players.

Self sufficiency is the name of the game, and always has been. All NZ inc needs to maintain is a controlling interest, and internalise finance; so we dont get screwed over by offshore interest; like Muldoon was.

by youngdumbandbroke | 25th Jun 20, 12:08pm 1593043711

Until we commit to the electric alternative long term through R&D and investment, we will continue to forgo any "green potential". There is no quick fix for replacing fossil fuels.
How much to invest - if its genuinely viable, enough to see it through to the end.

by Good Samaritian | 25th Jun 20, 4:13pm 1593058403

Fossil fuels may always have presence, however rather than subsidise the oil cartel, NZ inc would be better to put the subsidy to investment in electric propulsion.

The biggest difference between oil and electricity is NZ can supply all its electricity needs, and use of your own natural resources is way better than having to rely on someone else. (no US$ needed). Even better you are removing yourself from a cartel, who cares only for profit maximisation at the expense of everything else.

by youngdumbandbroke | 25th Jun 20, 4:23pm 1593058999

Yea no doubt that sounds great, but I seriously doubt our politicians would be able to perceive such an innovative vision, let alone execute it properly.

by McNitty | 25th Jun 20, 9:43pm 1593078206

Excuse me but when you say we can supply all our electricity needs can you define how we do that and convert our entire transport fleet to electricity to replace oil? We would need to more than double our existing generation capacity to do that. Do you think we can do that with wind farms?? Good luck with that one.

by Wazim | 25th Jun 20, 11:43pm 1593085408

Vehicle to Grid technology more than lays that tired old horse to rest. Look it up.

by McNitty | 26th Jun 20, 11:22pm 1593170550

Really? Tell me how to replace 300 Petajoules a year of energy with new electricity generation? Wind power would need 30,000 megawatts of new generation. We currently have around 700. At around a $1m per megawatt of wind generation that’s $30b of investment. Pluck that out of thin air if you please. Vehicle to grid is about storage of variable renewable energy not the generation itself. And even if you did build 30 gigs of new wind generation I would be pretty surprised if the nz vehicle fleet would be big enough to store it. And if if we had a really windless period for a week or two?

by fat pat | 26th Jun 20, 5:44pm 1593150277

Wellington recently got rid of it's overhead electrification for trolleybuses in favour of high ongoing cost batteries. Another great strategic decision...not.

by bw | 25th Jun 20, 10:47am 1593038830

Given that " Crude is delivered from around the world to the Marsden Point jetty predominately from the Middle East and South East Asia." does it make much difference to our energy petrochemical needs?
If we were refining 'our own stuff' that's different. But we don't appear to be?

by realterms | 25th Jun 20, 10:57am 1593039475

I tend to agree. Unrefined product shipped in from one place overseas, versus refined product shipped in from another places overseas.

by The Person | 25th Jun 20, 11:11am 1593040278

We ship our own stuff overseas as the raw product, then import some cheaper crude from overseas to refine here.

by Zack Brando | 25th Jun 20, 10:47am 1593038875

I don't like to brag .. but .. TOLD YOU SO !!

A total turkey of a company. Yes I did own stock in NZ Refining. I sold it months back and realised the loss.

I feel sorry for people still holding on now that it's 60% plus down.

Let this be a lesson to people .. sometimes 'the dip' doesn't go back up. I redeployed my capital and probably am suffering a net zero loss - thankfully!

by middleman1 | 25th Jun 20, 11:46am 1593042369

Bravo. None of the rest of us had that figured out years ago.

by Averageman | 25th Jun 20, 11:36am 1593041807

Hmmm loose fuel independence, or expansion for future Auckland port facilities. Looking forward I would take the port relocation project as it has more long term benefits.

While electric is coming I cant see our fleet converting in the near term, so we need a plan to address that. The smelter is making very high quality aluminum. Perhaps we should be funding research into Aluminum battery's (https://www.chemistryworld.com/news/super-fast-charging-aluminium-batte…), that can be manufactured in NZ for domestic and export use. Combine with some sort of conversion set for popular cars already in use and you have a plan.

by Foyle | 25th Jun 20, 1:21pm 1593048082

Average age of car in nz is 14 years. Suggesting 20-30 years to replace our fleet with electric.
It absolutely makes sense to gradually wind down Marsden Refinery in face of switch to electric (that will soon kick into high gear as EV's will undercut petrol vehicles in all market segments within about 5 years). New investment in refining will never be recovered

by Good Samaritian | 25th Jun 20, 4:22pm 1593058974

Forward, bigger picture objective thinking here.

Vehicles should be more expensive here, but they are not because the oil lobbyists have encouraged cheap imports because its good for their business not NZ inc.

These cheap imports, which push the average age of a car out, have made:
- public transport alternatives uneconomic,
- congested our roads, and
- been responsible for alot of premature deaths of our youth (and the expense that goes with it).

If government are smart, and work for the interests of NZ inc, we could replace the fleet to electric in less than 20 years. If I was running the country, I'd make it happen.

by McNitty | 25th Jun 20, 9:59pm 1593079146

Thankfully you’re not. As above unless you’ve worked out where all the miraculous supply of electricity will come from to power the EVs you’re a few planks short of a framework.

by Wazim | 25th Jun 20, 11:46pm 1593085591

And your planks are missing the framework by a country mile! Educate yourself or stop commenting on this (either will be fine thanks)

by McNitty | 27th Jun 20, 3:23pm 1593228231

As above Wazim. You do the maths and tell me what I’m missing. Always ready to be educated so come up with an answer that actually says something. Given you don’t know the difference between storage and generation maybe you’re the one unqualified to comment on the subject.

by McNitty | 27th Jun 20, 3:22pm 1593228134

Thankfully you’re not. As above unless you’ve worked out where all the miraculous supply of electricity will come from to power the EVs you’re a few planks short of a framework.

by rchadz | 25th Jun 20, 11:40am 1593042027

Maybe Labour can nationalise it and we can "think big" again :-)

by Boatman | 25th Jun 20, 1:20pm 1593048035

Cindy and Billy Bunter -Robertson will soon realize this is not the University Students Union Bank account that they are running ........... when you start taking over all manner of businesses using debt and without the skills to run them , you are going getting into a very deep hole

by middleman1 | 25th Jun 20, 11:51am 1593042698

The Aussies have been mothballing refineries for years. Many kiwi travellers will have noted the huge refineries in Asia and long ago figured out refining is a scale play. Tough nut Naomi James is just the going through the motions hatchet wielder, what needs to happen has been obvious for some time. It'll still be a tidy little distribution business.

by powerdownkiwi | 25th Jun 20, 4:12pm 1593058327

committed to delivering a strategic outcome which delivers sustainable returns for our shareholders over the longer-term".

That's the divergence - our shareholders vs all New Zealanders.

We will eventually be without fossil energy. But in the morph, geopolitical upheavals will compromise the ability to obtain supplies (of anything). Whether it's worth having the refining capacity is a political decision, but the current crop of 'pollies' probably don't know enough (although they should: https://www.parliament.nz/en/pb/research-papers/document/00PLEco10041/t… )

Wood-alcohol and biodiesel are the two I'd foster, how/where we produce them is an interesting question; who owns and what is the current state of Motunui? Is it still Methanex?

by youngdumbandbroke | 25th Jun 20, 4:24pm 1593059090

I particularly like the ethanol/biodiesel idea because it uses existing, affordable technology.

by McNitty | 25th Jun 20, 9:45pm 1593078304

And your feedstock will be what??

by Boatman | 25th Jun 20, 1:17pm 1593047865

More blood on the floor of the energy sector .

These highly skilled , highly paid engineers and specialists will be welcomed as taxpayers in Aussie .

New Plymouth already has empty retail stores to let with the banning on new gas exploration , its only going to get worse

by powerdownkiwi | 25th Jun 20, 1:56pm 1593050205

It depends whether their knowledge was future-relevant.

If not, they're like blacksmiths were in the '30's.

What you mistake, is what constitutes wealth. I'll give you the tip; it's not depleting resources, despoiling the planet and having more digital proxy (anticipation of puture purchase). We are heading into a new paradigm, or series thereof. Many 'givens' - the worst being 'endless economic growth'- are now being shown up to be false gods. Energy is the key element (it is the 100% underwrite of everything) so this is a valid discussion - but not bemoaning 'jobs' in the short term, based on one-off extraction(s). The new model will be very different (whether we go there willingly of because the system, or the planet, falls over).

by frazz | 25th Jun 20, 4:13pm 1593058388

Thats been happening for years Boatman (empty stores)..but nice try

by Bossman | 25th Jun 20, 5:18pm 1593062334

Remember why the Refinery was initially expanded????....because of unstable world events that threatened the countrys' fuel supply resulting in the much hated Carless Days scheme.....but of course now that the world is really stable.......this is gonna bite NZ in the ass........

by powerdownkiwi | 25th Jun 20, 5:46pm 1593063968

There were 4 billion on the planet in 1980. Near 8 billion now. And a large percentage want to live like the few at the front end. But even with only a few overconsuming, the planet is on it's knees.

So stable? I assume you jest? It's as unstable as it's ever been and getting more so daily. Can only happen once globally.

by Bossman | 25th Jun 20, 6:44pm 1593067493

Of course I jest, wer'e on the brink of anarchy......& the answer to the electric car scenario is simple......why havent you got one?????

by Gerrit | 25th Jun 20, 10:27pm 1593080859

Price.

by BigTed | 26th Jun 20, 9:19am 1593119998

Anyone who works with batteries knows they don't last forever, that's my biggest concern with electric cars.

by solardb | 25th Jun 20, 7:43pm 1593071036

Having our production / storage in one place is not ideal in earthquake/ volcano prone NZ.
Perhaps every port should have storage.

by Wazim | 25th Jun 20, 11:49pm 1593085754

Your storage is not in one place. Sorted

by Bossman | 26th Jun 20, 10:36am 1593124599

But your price wont be......the suppliers of imported fuel will screw you......because they can......and they know you'l have to pay.....

by seanc | 26th Jun 20, 1:32pm 1593135158

I am surprised it has taken this long. I believe Oz has not had refineries for a couple of years.

by WestieAJ | 26th Jun 20, 3:16pm 1593141419

The government has given special powers the commerce commission to poke its nose into the fuel companies business in an attempt to find out how much money they are really making. The fuel companies are the NZ Refining majority shareholders. This is NZ refinings way to push back on the government and threaten 400 + well-paying jobs in Northland as well as a negative effect on the wider Northland economy during a pandemic recovery period. It is about timing. Next will come to the ask. Just like Tiwai point. At the very least it will be "Bugger off out of our business, our profits are ours to decide. We price what the market can stand". Or "we need a subsidy of some sort to retain
X number of staff and keep the refinery operating". I say Let them go to an import-only model. But make them allow other companies tankers (like Gull) to use the Marsden terminal,Wiri pipeline and Wiri storage facility at true operating cost.