A Government inquiry into the 2017 breach of the Marsden Point to Auckland fuel pipeline recommends building new fuel storage facilities near Auckland Airport and legislation to allow the Government to step-in if required.
The report says the events that followed the rupture of the Refining NZ pipeline, which was shut down for 10 days, showed the lack of back up infrastructure and contingency planning for the supply of jet fuel. It says any upgrades are still only at a preliminary stage, and argues fuel companies have failed to make timely investments to achieve and maintain an appropriate level of resilience in the supply chain.
The Marsden Point to Auckland pipeline supplies almost all of Auckland’s diesel and petrol, and is the only major supply of jet fuel to Auckland Airport. Three major fuel companies (BP, Mobil, and Z Energy) control, or have exclusive use of it through a complex series of joint ventures and commercial agreements.
In 2014 a contractor looking for swamp kauri with a digger on a property in Ruakaka damaged the line. But it wasn’t until nearly three years later that the pipeline actually ruptured and set off a chain of events as the fuel industry attempted to reduce the impact it had on the supply of petrol, diesel and jet fuel to Auckland.
Impact on supply
The inquiry report says the fuel companies were able to transport petrol and diesel to the city by truck from other parts of the country.
“The stocks of ground fuels (the different grades of petrol and diesel) already in Auckland, along with supplies brought in by truck from Marsden Point and the Port of Tauranga, proved adequate to keep industry and fuel retailers supplied. A small number of retail petrol stations ran out of some of the more specialised stock towards the end of the outage.”
However, there was no similar alternative source for jet fuel which requires its own facilities, such as storage tanks, valves, pumps, and trucks. And Auckland Airport was hit the hardest.
“The fuel companies rationed the airlines to 30% of their normal usage from Sunday 17 September. The airlines took steps such as flying in aeroplanes full of fuel without passengers, filling up at nearby airports (for example, in Christchurch, the east coast of Australia, and some Pacific islands), reducing the weight on planes by postponing cargo, and cancelling some flights.
“All these steps to reduce the impact came at a cost. Some of the travelling public were inconvenienced and some businesses suffered significant losses. Even so, the outage was over within 10 days and the city quickly returned to normal.”
Need for improved infrastructure
It says that in the process of completing the inquiry they discussed with the fuel companies what contingency plans they were working on and if they were planning to upgrade the necessary infrastructure. But it says any upgrades are still only at a preliminary stage.
“In our view, the fuel companies have failed to make timely investments to achieve and maintain the level of resilience in the supply chain that we regard as appropriate. BP told us that it disagrees with this view, because it considers that a cost-benefit analysis of the specific options should be completed before finalising a view on the appropriate resilience standards.”
The report calls for the Auckland Airport to regularly update its demand forecasts and to share them with the fuel suppliers, airlines, officials and other interested parties. It also recommends that the airport should establish a jet fuel supply coordination forum, similar to the one operating at Brisbane Airport, to share information on “capacity constraints and pressure points, demand forecasts, linkages, security of supply, and investment plans”.
The report also calls for a commitment from the fuel sector to build new infrastructure to improve the diversity of supply with new storage facilities at or near Auckland Airport to provide at least 10 days’ cover at 80% of operations.
“The fuel sector should provide information on progress towards these decisions to all those with an interest (in particular, Auckland Airport, the airlines, and the Government).”
Legislation allowing the Government to step-in advised
And it also says the Government should begin work on legislation to allow it to step in “should the fuel sector not be able to adequately take into account the public interest in resilience when making investment decisions relating to fuel infrastructure”.
“The incident raised awareness and was a reminder that the fuel supply chain infrastructure is nationally critical infrastructure.”
But the situation is complicated by the fact the fuel supply chain is owned by the three major fuel companies (BP, Mobil, and Z Energy), with limited Government oversight or ability to intervene.
“The infrastructure we have has been able to meet demand to date largely because of investments made in previous decades. As a market-led system, investment decisions seem to have been focused on meeting the demand curve on a “just in time” basis. This may not take adequate account of the interests of the wider community and stakeholders in maintaining a system with greater resilience to withstand rapid increases in demand or events that disrupt supply."
And the industry may not be willing to make the necessary investment.
“Most of the fuel companies agreed with the forecast growth of jet fuel demand. However, in our interactions with them, some were slow to link those forecasts to a need for further investment in infrastructure and to share information about their thinking on investment possibilities. The complexity of the ownership and joint venture structures, and the confidentiality arrangements between the different parts of the supply chain, made it challenging to have visibility and allow us to have confidence about future investment plans."