Risk mitigation absent in jet- fuel pipeline case
Country made to look like Mickey Mouse
It beggars belief that even the very concise submission written by Air NZ chief financial officer Rob McDonald in 2012 fell on deaf ears.
Congratulations, New Zealand Inc. Once again ‘ You’ ( businesses, the defence forces, local and central government) have proved you are great in a crisis.
But the brutal truth is that the extent of the impact of many of the infrastructural crises in recent years — including the pipeline rupture which affected fuel delivery to Auckland Airport — could have been averted if a professional approach to risk mitigation had been taken.
The blame for that must not just be laid at Refining NZ’s door. The oil companies, the bureaucracy and successive governments must also shoulder some responsibility.
The upshot of the past week — airlines having to pick up fuel elsewhere in the country, cancel flights and offload vital export trade, or fuel up in Australia or Fiji as a first stop before resuming their “long haul” flights to international destinations — has been to make the country look Mickey Mouse.
All this through somebody supposedly damaging the pipeline through the use of a digger to try to extract valuable swamp kauri from a swamp that the pipeline from Marsden Pt to Wiri ran through.
All the players swung into action to ensure a coordinated response to make sure the fuel supply crisis could be overcome as swiftly as possible — thus minimising disruption to air travel at New Zealand’s major tourism gateway.
But in truth this particular crisis would arguably never have occurred if the Ministry of Business Innovation and Employment ( MBIE) had fully acted on industry responses to its 2012 Review of New Zealand’s oil security. And remained vigilant by upgrading its response as New Zealand’s tourism industry — and its resultant increase in flights through Auckland Airport — went into overdrive.
Tourism is after all NZ’s largest export industry and it is integral to a flourishing economy. Air traffic through Auckland has grown exponentially but the response relating to risk mitigation to protect that business has been amateur hour.
It beggars belief that even the very concise submission written by Air New Zealand’s longtime chief financial officer Rob McDonald in 2012 fell on deaf ears.
McDonald’s submission said a material local disruption to jet fuel supplies to Auckland could occur from: problems at the refinery, with the refinery to Wiri pipeline, or with the Wiri to Auckland Airport pipeline, or at the storage depot at the airport. It noted supply disruptions have occurred at Auckland in the past and would occur in the future.
McDonald noted that it was not only passenger traffic that would be affected by disrupted fuel supply to Auckland. The airport was a major freight port in NZ ( second by value) and NZ exports and imports would also be seriously affected by a major disruption.
The airline’s view was that a global fuel supply shock would be generally understood by the travelling public. “They will not however uncritically accept a fuel supply shock that occurs solely within NZ.”
It is obvious that the fuel storage depots at Wiri and at the airport remain suboptimal and there are further questions about the pipeline’s capacity. McDonald made a range of recommendations which were clearly designed to offset risk and introduce an element of redundancy into the fuel infrastructure — in other words some backup.
Refining NZ owns and operates the pipeline. It has correctly been focused on getting it repaired and back to full flow. Refining NZ this week said it expected its service to the Wiri depot will resume between 24- 26 September, after which it will take another 30 hours before fuel can be transported to the airport. The company also said it expects to forgo some $ 10 million to $ 15m of pipeline and refining income as a result.
But in fact airlines, Auckland Airport, and exporters also have suffered losses.
Airlines — of which Air NZ is by far the most exposed — can be expected to look to their legal options once the immediate crisis is resolved.
All the major parties will have insurance cover.
It is unclear whether Refining NZ will try and claim force majeure in relation to the pipeline rupture. But there must be questions about just how rigorously the pipeline has been “policed”.
The Maui gas pipeline leak in 2011 was estimated to result in a cost of $ 200m to the NZ economy. A Government investigation later showed that the pipeline was at risk of being ruptured by landslides or erosion at a total of 59 different locations. The pipeline’s owner Maui Development Ltd was ordered to develop an improved management plan for the whole line.
A similar investigation must be ordered by the incoming Government.
It’s notable that Vector chief executive Simon Mackenzie earlier warned that even though infrastructure assets can be 99.99 per cent reliable ( like the Maui gas pipeline had been for about 30 years), many of them — including Transpower’s major electricity transmission lines — run through difficult terrain or through areas which are subject to seismic activity.
“Even with the best management in the world there’s only a certain amount of economic cost of infrastructure that can be provided and there’s always a residual risk. The problem is that many people have an expectation of 100 per cent reliability which is never actually married up with contracts because there is always force majeure.”
What is worth pondering in the current case is that the risks around the pipeline and inadequate aviation fuel storage had been outlined. But there was no concerted action to mitigate those risks.