Hopes hinge on pipeline
Refining NZ, the owner of Marsden Point oil refinery, says it plans to simplify the refinery side of its business to contain costs.
And one of its biggest customers, Z Energy, is welcoming the move, saying it would like it to go further and become an oil importer only.
The refinery, which is coping with a global surplus of oil, is reviewing all its operations as it grapples with plummeting oil margins and a sharp fall in demand for jet fuel.
Chief executive Naomi James said simplifying the refinery production would entail cutting back on production, but there was more work to be done on which areas or products would be reduced.
One market where the refinery does have a competitive advantage is its pipeline to Auckland, which supplies the city with petrol, diesel and jet fuel.
‘‘We’re not proposing a change in the use of the refinery to Auckland pipeline, we’re continuing to supply that market, but for other products, we will look at what’s the most competitive option,’’ James said.
Faced with low margins which have started to outweigh its processing costs, the refinery said in April that it was no longer covering the cost of its capital and something needed to be done.
Competition from newer refineries in Asia is increasing, and chairman Simon Allen said margins were expected to remain at historically lower levels for an extended period of time.
The surplus was exacerbated when motorists stayed off the road during lockdown. Although demand for petrol and diesel has almost recovered, refining is currently suspended at Marsden Point for several weeks in July and August to let fuel demand catch up with supply.
The company said it wanted to be cash neutral going into 2021 under a ‘‘fee floor’’ scenario. The fee floor is the minimum processing fee its oil company customers and key shareholders, Mobil, BP and Z, pay for refining their crude.
With refining margins where they are today, processing fees are currently at the fee floor. Z Energy said it supported the decision to reduce its cost base and thought it was moving in the right direction.
‘‘Z has made it clear to the board of Refining NZ, to Z shareholders and to our customers, that we believe moving to an import terminal model is the best outcome for the refinery and New Zealand,’’ chief executive Mike Bennetts said.
Marsden Point was set up in the 1960s to ensure New Zealand had a secure and competitive fuel supply and it handles about twothirds of the country’s fuel needs.
But internationally the number of refineries is shrinking due to economies of scale.
Another possible avenue for NZ Refining is repurposing some of the refinery facilities, including for green fuel production.
‘‘Part of what we will look at through this next stage of working is working with Government who are certainly interested in those sorts of opportunities but also other stakeholders in what a planned approach to transition might look like,’’ James said.
Allen said the board expected to finalise plans around the end of the September quarter and it was still evaluating the prospect of a staged transition to an import terminal.