Fuel retailer Gull is warning consumers will face more pain at the pump if stockholding regulations are implemented through the proposed fuel industry bill.
In a submission against the Fuel Industry (Improving Fuel Resilience) Amendment Bill, Gull says the “rationale for the legislation is not clear”.
It says New Zealand’s current stockholding arrangements have ensured continuity of supply for the last 40 years and the supply chain for ground fuels “is in extremely good condition”.
The bill was introduced to Parliament on June 1 and will apply to the five fuel companies that have access to storage facilities – BP, Gull, Mobil, Tasman Fuels and Z Energy.
The combined minimum stockholding levels would equate to 28 days use of petrol, 24 days of jet fuel, and 21 days of diesel on average every month.
The bill and the associated regulations are expected to come into effect as early as April 1 next year.
It follows a suite of initiatives announced by the Government in November last year with the aim of strengthening New Zealand’s fuel sector with more supply resilience.
Key to the plan is developing an obligation for fuel companies to store a minimum amount of fuel onshore that can be drawn on in an emergency.
Speaking to TransportTalk, Gull NZ general manager Dave Bodger says the legislation will make the fuel retailer’s current operations illegal unless it finds a way to comply.
He says Gull has successfully imported fuel for close to 25 years into its Mt Maunganui terminal and has never had to rely on the former refinery at Marsden Point which has now switched to a fuel import-only terminal.
The legislation will add “tens of millions of dollars in working capital plus we will have to find storage somewhere”, Bodger says.
“I don’t know how we’re going to do that because we’re probably going to have to hire storage from our opposition to comply.
“By April next year we won’t be able to build another diesel tank, I can tell you that.”
In its submission, Gull says while there have been recent issues with the jet fuel supply, no issues or challenges have affected the ground fuels supply chain. Gull doesn’t operate in the jet fuel market.
In March and December last year, jet fuel arriving in the country tested off-spec, which caused fuel companies and airlines to activate contingency arrangements to minimise disruptions. Another bad batch of jet fuel impacted Wellington Airport in May this year.
“If there is a need for minimum storage obligations, it appears to be for jet fuel and not ground fuel,” Gull says.
Gull sells 11% of New Zealand’s petrol and 5% of its diesel across 117 sites.
Is estimates its own inventory levels will need to rise by 40% to meet the proposed minimum stockholding regulations. With millions of dollars of working capital required, this will be passed on to the end user, the company says.
Gull says it also holds three to 10 days’ supply of fuel stock at each service station it operates but this is being ignored in the proposed bill.
It says the legislation is also likely to result in more inefficient shipping of fuel to New Zealand.
As fuel imports come mainly from refinery hubs in Singapore, Korea and Japan, vessels can steam at 15% to 20% faster at a greater cost.
“Higher speed could save two to four days on the voyage, this will incur greater cost and higher carbon emissions. This will likely happen to meet compliance in certain circumstances,” Gull says.
Furthermore, fuel shipped through New Zealand’s Exclusive Economic Zone (EEZ) is being counted as in the country under the legislation.
This could see tankers travel a new route around the Kermadec Islands into the EEZ to save another day in meeting the obligations.
Gull adds the legislation could also reduce competition. The company has already withdrawn from high volume low margin business tenders “as the additional income is not worth the additional costs that will flow from needing to allocate and fund additional storage”.
“The practical outcome is that this bill will decrease competition in certain market segments as there will be less want to supply them,” Gull adds.
Around 20% of Gull’s diesel sales are into the non-contracted and low margin spot market.
“Going forward, Gull is critically evaluating offering into this market due to the ramifications of compliance with the new law. Should Gull withdraw from this market naturally there will be less competition and invariably prices will rise,” it says.
However, road freight body National Road Carriers Association (NRC) says it supports the bill which will help minimise any potential disruption to transport.
It welcomes the Government’s plans to buy and hold 70 million litres of diesel stocks in New Zealand which is around seven days’ worth on top of the minimum stockholding requirements.
The NRC says it may be necessary for the Crown to take a direct role in adding to this capacity as it may be difficult to justify private sector capital investment in infrastructure that supports a sector that is transitioning away from fossil fuels as the fleet decarbonises.
