Biggest shareholder Mobil questions viability of biofuels production in important vote on the future of NZ’s only refinery.
Up at Whangārei, those orange-vested Marsden Point workers who can spare the time can pop into the refinery’s auditorium, where the company is live-streaming the shareholder vote on their future.
A few members of the management team are there to talk through what it means – but most are down in Auckland. They and the Refining NZ directors representing New Zealand’s three big fuel companies are in an upstairs meeting room at Eden Park, corralling shareholders.
The NZX-listed company had been anticipating uncomplicated support for its headline proposal to shut down New Zealand’s only fuel refinery at Marsden Point, laying off 240 staff and scores of contractors in the process.
The company that had been a critical cog in New Zealand’s economy, and with about 500 workers and contractors has been one of Northland’s biggest employers, would instead just operate an import terminal staffed by 60 technicians and a few management and admin employees.
But in the past few days a spoke has been thrown in the wheel. Media and analysts have reported doubts about New Zealand’s fuel security in an environmental, commercial or geopolitical crisis, without Marsden Point’s big stockholdings. And Newsroom reported the refining company’s tacit endorsement of Australian-style government-mandated fuel security measures, including a domestic stockholding obligation.
(The Australian Government has announced subsidies of up to 1.8 cents a litre to keep some of its refineries open, amid concern that its economy could be threatened it if was forced to rely on Chinese refineries).
Now, Newsroom can reveal that three big customer-shareholders – Mobil (17 percent), Z Energy (15 percent) and BP (10 percent) – are divided on the proposal to work with government to manufacture biofuels at Marsden Point, instead. As customers, these three don’t vote today – but their views are critical to the viability of the new structure.
“Global demand for these feedstocks is increasing, which presents a significant challenge to the commercial viability of biofuels production domestically.”
– Andrew McNaught, Mobil
On the eve of the shareholder vote, Mobil has cast doubt on whether producing biofuels in New Zealand could be commercially viable, because it would be increasingly difficult to buy affordable, suitable, and reliable feedstocks (like meat tallow or forestry waste) with which to make the new green fuels.
Until now, the three fuel companies had presented a united public front. Z Energy chief executive Mike Bennetts has been an outspoken proponent of biofuels. “Imagine if you did something sizeable in Northland, what that could do for employment in that region, given there’s a forest there and there’s Marsden Point refinery that’s currently on track to be closed down in a year,” he told Newsroom in June.
That has underpinned Refining NZ’s position: that Marsden Point could be repurposed as a fuels and energy hub, with the potential to support future production, storage, handling, import and export of energy sources including biofuels and sustainable aviation fuel.
But the shareholder vote isn’t the last word on the decision to shut down the refining operations and repurpose Marsden Point. The final decision is to be made by the Refining NZ board based on a report at the end of Q3.
That report will analyse the shareholder vote, the support from lenders to fund the transition, and the outcome of negotiations with the three fuel companies on terms to supply them imported petroleum for the next 10 years.
Company secretary Chris Bougen advised the sharemarket last month that Refining NZ had reached in-principle agreement with BP and Z Energy on key commercial terms, including price – but negotiations with Mobil are still ongoing.
With 17.18% of the shares, Mobil is the biggest shareholder. It has been represented on the board by Riccardo Cavallo, the manager of refining for ExxonMobil’s Australia and New Zealand operations, but last week the company announced he would be posted away from Australasia. Mobil will put forward new candidates for consideration by the Refining NZ Board.
“As is well-known, we support the Sustainable Biofuels Mandate and there is opportunity for the refinery and its assets to contribute to a low carbon future depending on the outcome of the vote and the decisions of Refining NZ’s management.”
– Mike Bennetts, Z Energy
Andrew McNaught, Mobil’s lead country manager, told Newsroom Mobil wanted the shareholder vote to deliver an outcome that ensures a competitive, cost-effective and efficient supply chain. This would benefit Mobil, its customers, Auckland motorists and aviation passengers, he said.
The company was not worried that New Zealand’s fuel security might be jeopardised by converting to an import terminal. “Refining NZ is already a net importer of liquid fuels, whether in the form of crude and condensate or as refined product,” he said. “Mobil has the ability to leverage its extensive global manufacturing, supply and trading operations to reliably meet the needs of its customers and Aotearoa New Zealand consumers going forward.
But it was dubious about biofuel production as part of Marsden Point’s future. “Mobil believes that there are several challenges to the development of domestic biofuels production in Aotearoa, with the primary barrier to cost-effective domestic biofuels production being affordable, suitable, and reliable feedstocks,” McNaught said.
“Global demand for these feedstocks is increasing, which presents a significant challenge to the commercial viability of biofuels production domestically.”
“We think our infrastructure could have a key role to play in the future shift to biofuels … whatever form that fuel or energy might be in the future from biofuels, sustainable aviation fuel, hydrogen, LNG and electricity.”
– Naomi James, Refining NZ
Ahead of the vote, Mike Bennetts reiterated Z Energy’s support for the Government’s Sustainable Biofuels Mandate, which the Prime Minister announced earlier this year at Z’s mothballed biodiesel plant in Wiri, south Auckland.
“There is opportunity for the refinery and its assets to contribute to a low carbon future depending on the outcome of the vote and the decisions of Refining NZ’s management,” he told Newsroom.
Z Energy was very mindful of the impact that the vote would have, and the questions that would naturally arise, especially about supply security. “Any conversion to an import terminal is, in our view, going to maintain the security of supply for New Zealand,” he said.
“Industry-wide, any conversion will mean more cargoes on the water coming to New Zealand from multiple regional refineries, so reducing the single point of failure risk from disruption to the supply chain and there will be considerably more usable product in New Zealand ready to be distributed to our customers.
“For example, during Covid-19, the refinery was operating at significantly reduced capacity for extended periods of time, and customers did not experience supply disruption despite international supply chain disruption for other sectors.”
BP spokesperson Gordon Gillan said that company supported the refinery’s proposal to transition to a fuel import terminal operation and had continued to progress negotiations with Refining NZ in line with this expectation. “BP is committed to working closely with Refining NZ to ensure the ongoing security of fuel supply to our customers now and into the future.”
“We have been closely monitoring Refinery NZ developments ahead of its shareholders making a decision tomorrow on the future of the refinery. To date, Refinery NZ has not requested financial support from the Government to keep refining operations going.”
– Dr Megan Woods, Energy Minister
Refining NZ chief executive Naomi James emphasised that, in the company’s view, its infrastructure could play a key role in New Zealand’s future shift to biofuels.
“Marsden Point has huge potential being a large industrial consented site, with deep water port access, large electricity and gas connections and a very capable workforce,” she told Newsroom ahead of the vote.
“We want to explore what the best opportunities are for the site as we move forward, whether it’s the import or export of energy, its production or storage. And whatever form that fuel or energy might be in the future from biofuels, sustainable aviation fuel, hydrogen, LNG and electricity.”
Like Z Energy and BP, she reiterated her belief that converting the refinery to a fuel import terminal was the best way forward, and said Refining NZ had been in close contact with the Government as it planned its transition.
The company has rejected any reading of its shareholder briefing as a tacit plea for Australian-style subsidies. “During this time, we haven’t sought subsidies from taxpayers as we don’t believe this is a long-term sustainable plan for the future, and none have been offered,” James insisted.
“Instead, we have had a resolute focus on what’s needed to be a competitive, sustainable business over the long-term. We are in ongoing discussions with Government about potential future repurposing of the Marsden Point site.”
She did, however, accept that the conversion to an import terminal would mean the company stored far less oil on site for the eventuality of a supply chain breakdown.
“The crude and intermediate product stocks held at Marsden Point will be drawn down, which will have an impact on New Zealand’s fuel inventories,” she said. “Fuel security is a question for the New Zealand Government and we have engaged with Government on this topic through our process.
“After conversion, Channel Infrastructure will have approximately 180 million litres of available tank space on site, as well as capacity to provide additional private storage by repurposing existing tanks, if it is required and stand ready to support the oil companies to meet any stockholding requirements they may have.”
“The closure of Refining NZ’s refining operations would mark a significant change in New Zealand’s fuel supply chain … A significant deterioration in fuel stocks could provide a stronger case for more government intervention.”
– Ministry of Building, Innovation and Employment
Energy Minister Megan Woods paid an unreported visit to Marsden Point on June 17, and met management and union representatives. And both central and local government are represented on Refining NZ’s transition group, considering the impact on fuel supply, jobs and the economy as the company plans its big change.
Ahead of the shareholders vote, Woods said Ministers had been closely monitoring Refinery NZ developments. “To date, Refinery NZ has not requested financial support from the Government to keep refining operations going,” she said.
“In terms of potential geopolitical risks to fuel supply (bearing in mind all fuel refined at Marsden Point is already imported), officials have assessed these risks and consider them to be very low.”
The Ministry of Building, Innovation and Employment is reviewing fuel security and stockholding policies and is expected to report back to the Minister in coming weeks; she could ask Refining NZ to increase its stockholdings.
“The closure of Refining NZ’s refining operations would mark a significant change in New Zealand’s fuel supply chain,” a ministry spokesperson said. “In particular, Refining NZ would no longer hold stocks of crude oil, which could mean a drop in the overall commercial stockholding of fuels and crude oil in New Zealand.”
Oil and energy consultants Hale & Twomey had suggested the Government could consider introducing a minimum stockholding obligation on fuel importers, should there be concern that stock levels were deteriorating relative to demand.
“If the minimum stock level were set at the level currently maintained by these companies – approximately 18 days of gross inventory of finished fuel products onshore in New Zealand – fuel importers would not face material cost increase,” the spokesperson said.
“There is not a strong economic case to hold onshore reserve stocks beyond the current stock level, but there may be other reasons to consider this, for example the management of international supply chain risks.”
The ministry would “keep a close eye” on the industry’s fuel stockholding levels, he concluded. “A significant deterioration in fuel stocks could provide a stronger case for more government intervention.”
