Russia – Ukraine conflict tests fuel supply security

02 March 2022

The Russia - Ukraine conflict brings into stark focus the need for New Zealand to have a working oil refinery that could, if the need arises, refine enough of our own home produced oil to maintain critical transport needs.

With Russia being the second largest crude oil producer in the world, the conflict has already seen fuel prices spike dramatically with more increases likely to come if Russian oil exports are further reduced by sanctions imposed by the US and other countries.

New Zealand's Marsden point refinery is due to shut down at the end of this month, leaving us exposed to relying on refined fuel imports and possibly being forced to draw down on reserve stocks notionally held in other countries.

That would mean other countries giving up some of their own refined product, something they are most unlikely to do when their own supplies are being put under exactly the same pressure as New Zealand's.

Yet our government was naive enough to accept oil company assurances that they would be able to ensure security of New Zealand's fuel supply in a crisis.

A paper presented to cabinet in November 2021 by Energy Minister, Megan Woods, states “There does not appear to be a clear case for maintaining refinery operations for fuel resilience reasons, except to address an exceptional ‘no fuel imports’ scenario. This is an unlikely scenario, but not entirely implausible, therefore I believe the option of maintaining refinery capacity warrants an active decision by Government”.

Amongst its recommendations was this “Note that closure of the refinery is expected to have little impact on fuel supply resilience under most disruption scenarios, but it could reduce New Zealand’s resilience to a low likelihood but high consequence event that leaves New Zealand with no ability to import fuels.”

Cabinet sat on its hands and allowed closure of the refinery to proceed, despite concerns raised by the Maritime Union, First Union, the Biofuels Association, the Sustainability Council, fuel researchers, strategic policy analysts both in New Zealand and Australia, and the Social Credit party.

Just five months later that “high consequence event that leaves New Zealand with no ability to import fuels.” and “ an exceptional ‘no fuel imports’ scenario” may just have arrived.

The Social Credit party instituted a petition which gained 18,300 signatures, and that petition currently languishes on the desk of parliament’s petitions committee. Sadly, despite the pending crisis, the committee appears in no hurry to consider it.

That petition calls on parliament to ensure the refinery remains in operation and is taken over by the government, using Reserve Bank, not taxpayer, funds, to buy out existing shareholders and for it to be run as an SOE.  

In its submission on the petition Social Credit foresaw just such an event. “In the event of a natural disaster or a geopolitical conflict…. the supply of fuel for essential services could be severely compromised”.

Already people are feeling the effects of supply lines being compromised with supermarket shelves often empty and prices rising. If the country's transport fleet that moves goods around New Zealand, and our agricultural machinery and horticultural equipment are all facing fuel shortages those shop shelves will quickly become even emptier.

The cabinet paper acknowledges that “Having a domestic refinery could potentially enable the refining of at least some fuels from crude oil produced within New Zealand together with any imported crude oil that is available.”

Yet for the sake of around $300 million cabinet decided not the provide the country with an insurance policy that could have kept at least some essential services, including search and rescue and helicopter rescue, running.

Considering the Reserve Bank has created around $55 billion in the last two years that was an incredibly short-sighted decision.

It’s not too late to change it.