Fuel reserves cost pondered

Government officials are leaning towards recommending fuel companies pay tens of millions of dollars a year to maintain minimum reserves of petrol, diesel and jet fuel, after the closure of the Marsden Point oil refinery.

The refinery’s shareholders – which include Z, BP and Mobil – agreed last year to close the refinery in April and meet the country’s fuel needs by instead distributing petrol and other prerefined fuels that are likely to be imported from bigger, ‘‘super refineries’’ in Asia.

But the switch has raised concerns the country would be losing a facility that could help it meet its fuel needs from domestically produced oil in the event it was cut off from imports.

The Ministry of Business, Innovation and Employment (MBIE) has now suggested the country should maintain a minimum level of 28 days’ supply of diesel, and 24 days’ supply of petrol and jet fuel. Assuming there would be rationing during any crisis, those supplies could stretch out to last 56 days and 48 days, respectively, and would be the same as will be required in Australia, it said.

The ministry estimated conservative additional fuel storage costs at about $22 million a year.

Z Energy agreed last month some measures to increase fuel reliance would be worth considering but said the best options would be to encourage the local production of biofuels or to make arrangements to bring in fuel from Australia in an emergency.

It also argued that taxpayers rather than fuel companies should foot the bill. But MBIE said in a consultation paper published yesterday that at this stage its preference was to ‘‘impose a minimum stockholding obligation on fuel wholesalers’’.

Fuel companies could be fined a maximum penalty of $1.5m if they failed to meet the minimum stockholding levels, it suggested.

Z Energy’s general manager of supply, Julian Hughes, said the company would review the ministry’s proposals and provide a submission by the February 28 deadline. ‘‘Z is confident security of supply will be maintained, and will continue to work with both Government and industry . . . to enhance this further,’’ he said.

The ministry said the Government could create a new stockholding agency, funded in whole or in part by a fuel levy, to manage the regime and provide co-ordination in the event of a fuel shortage. The overall cost of maintaining the proposed extra fuel stocks and funding a stockholding agency, would amount to a fraction of a cent on the price of petrol and other fuels, assuming it was passed on to customers, it estimated.

The industry has said the overall impact of switching to pre-refined imported fuels will be to lower prices.