Businesses have welcomed the government’s agreement with Z Energy to establish an emergency diesel reserve, calling it a practical and long-overdue move to strengthen New Zealand’s energy security in the face of global supply uncertainty.
While the initiative is not expected to immediately reduce persistently high fuel prices, it is being seen as a sensible step to protect the economy from disruption.
Prime Minister Christopher Luxon on Tuesday announced the arrangement, under which Z Energy will procure, own and manage 90 million litres of diesel stored in refurbished tanks at Marsden Point refinery.
Under the plan, the government would be able to release the fuel to service stations if normal supply shipments were disrupted.
“All of the goods that move around New Zealand … for anything industrial and commercial, it’s diesel is really the critical fuel, so I think this will be quite, quite encouraging for businesses to know that there’ll be extra stock on hand,” Business New Zealand’s head of advocacy, Catherine Beard, said.
“It may not need to be used, but it will shore things up. I understand that supply chains are actually working quite normally, which is really good.”
However, she said the arrangement would do little to address high diesel costs, which remain the primary concern for businesses.
“The issue really has been the price problem. This won’t resolve the price problem, but it will give companies and businesses, I guess, more confidence that we’ve got enough.”
“It absolutely is a problem, obviously, and businesses would have been trying to see where they can absorb it, but it will have to be passed on eventually,” Beard said.
“It’ll start to flow through supply chains and ultimately hit consumers in the pocket as it affects everything that’s moved around.”
Former Marsden Point refinery refining manager David Keat said the arrangement would cost Z Energy around $170 million.
He said an extra nine days’ supply was “quite a lot better than doing nothing,” but warned that if supply conditions deteriorated, it would only provide a few additional days of support for sectors such as farming.
Keat said the government is required to maintain 90 days’ cover at any time.
He said the government achieves this partly through purchasing “tickets” that account for oil held by companies in New Zealand or already in transit, which together total around 50 days’ supply.
In many cases, oil is stored by traders elsewhere in the world and can be released if authorised by the IEA.
Keat said this approach is a lower-cost option compared with the government directly holding all of the fuel itself.
“They’re not paying for the oil; they’re paying for the option to release it at a time of their choosing, which obviously would be a time when things are looking pretty dire and they have to release that oil onto the market to keep the farms running.”