Broad South Island reach for new Timaru fuel terminal

Article – BusinessDesk

Broad South Island reach for new Timaru fuel terminal

By Gavin Evans

Aug. 30 (BusinessDesk) – New Zealand’s newest fuel importer believes the terminal it is building in Timaru will be able to supply customers across most of the South Island.

Timaru Oil Services expects to have the four-tank, 32 million litre facility operational in July next year. Two six million litre tanks will be added later.

The firm, owned by French-Pacific interests, told the Commerce Commission the facility at PrimePort Timaru will be able to serve the industry as far south as Bluff and Queenstown and north to Kaikoura.

But the port’s relatively shallow draught means Timaru will need to be the second or third delivery by tankers delivering fuel, the firm told the commission during the regulator’s investigation of competition in the retail fuel market.

The commission last week highlighted the challenge that potential new entrants face getting established in the retail fuel industry when most of the country’s fuel storage, pipelines and coastal shipping are controlled by the three majors – Z Energy, BP and Mobil. They collectively sell about 90 percent of the country’s petrol and diesel.

Industry executives believe Timaru Oil Services – TOSL – will struggle, but the commission takes its presence as a sign that competitive entry is possible.

“Entry at the importer level appears feasible from a structural and regulatory perspective – at least at current importer margins,” the commission said in its draft report. “This is demonstrated by Gull’s presence in the New Zealand market and the upcoming entry of TOSL.”

The commission is testing whether increasing competition in the wholesale supply of fuel will improve retail competition and lower costs for motorists.

It is concerned that investment in tanks has lagged rising fuel demand, limiting competition among the majors and their ability to supply other re-sellers or newcomers.

The commission’s report comes as bulk terminal operator Stolt-Nielsen prepares to shut the last of its storage on Auckland’s waterfront next year. Operations will halt mid-2020, followed by tank demolition and land remediation, general manager Gordon Lasker told BusinessDesk. The site will be returned to Auckland Council in 2022.

Some of the tanks at Wynyard wharf currently store bunker fuel and provide back-up diesel storage during summer when jet fuel demand on the pipeline from the Marsden Point refinery is highest.

They are the last of an industry facility made largely redundant when the fuel pipeline to the Wiri terminal – controlled by the industry majors – was commissioned in 1985. Refining NZ is currently working on plans to further increase throughput on the pipeline and will trial a drag-reducing agent in October that could increase its capacity by a further 15 percent.

Auckland’s growing reliance on that pipeline, and the relative reluctance of some industry players to invest in other pipelines and storage, was highlighted in a government inquiry into the region’s fuel security earlier this year. The panel’s report, delivered to the government on Aug. 19, is yet to be released.

Minimising capital investment is key to keeping fuel costs down. But historically, it is access to spare tanks that has enabled new players to enter the New Zealand market.

Gull – now owned by Caltex Australia – started its business by assembling its own storage in Tauranga in 1999 using disused tanks from Marsden Point. A year earlier Fletcher Challenge started importing fuel for its Challenge! business using spare oil facilities in Taranaki. It then built its own terminal in Timaru the following year.

Gull subsequently expanded its Mount Maunganui facility, where it now has 90 million litres of storage, leasing some of that to BP.

Fuel industry executives believe TOSL has also secured at least an option over land at Mount Maunganui for additional storage there. But they question whether it will be built and what would go in it.

Assuming a tank gets emptied and filled six times a year – the metric the Commerce Commission used in its analysis – TOSL will need to be selling – or have a client selling – close to 200 million litres of fuel a year to make its Timaru facility viable.

It took decades for firms like Gull and Waitomo Group – which is supplied by Mobil and is one of the fastest-growing retailers – to reach those levels.

After years of disinvestment, the major firms have recently been recommissioning mothballed storage or building new tanks.

But while they lend and borrow fuel from each other around the country to minimise inventories, investment decisions can be difficult. In 2017, BP resumed use of the former Caltex terminal in Taranaki, but it was Port Taranaki that acquired it and paid for its refurbishment.

In June, the Auckland fuel security inquiry heard that disagreements among industry joint-ventures are common and that a “circuit-breaker” may be needed to set a plan for increased fuel capacity for Auckland airport.

Jet fuel storage at the Wiri oil terminal – the endpoint of the refinery’s pipeline – is nearing capacity, as is storage at the airport.

The panel heard BP and Z Energy are ready to invest in extra storage at Wiri – Mobil less so. The trio were also split on the relative merits of building extra storage at the airport over expanding the capacity of the pipeline supplying it, or adding a second pipeline to provide additional redundancy.


Content Sourced from
Original url