Fuel Industry (Improving Fuel Resilience) Amendment Bill

Members, the House is in committee on the Fuel Industry (Improving Fuel Resilience) Amendment Bill. Members, we come first to clause 1. The question—

Glen Bennett: Point of order, Madam Chairperson. I seek leave for all parts be considered as one.

CHAIRPERSON (Hon Jenny Salesa): Leave is sought for that purpose. Are there any objections? There are none. The question is that clauses 1 to 14 and the Schedule stand part.

Thank you, Madam Chair, and good morning. It’s a fine morning to be the Chamber. I really have a question for the Minister about the minimum required stockholding obligation, which has 28 days of consumption for petrol, on average; 24 days of consumption for jet fuel, on average; and 21 days of consumption for diesel, on average.

I just wonder if the Minister is aware that after the Christchurch category earthquake sequence, it was diesel that was in very short supply—not petrol, but diesel—and that was a significant issue. When a natural disaster happens, why then wouldn’t we want to protect the fuel that enables the emergency services to function fully? Yet we’ve got 21 days of diesel fuel minimum, which is seven days less than the petrol—that minimum stockholding. That just doesn’t seem to add up. Why was that not considered?

I’m sure the Minister was aware of the Canterbury earthquake sequence and what happened there, so I think that’s a major miss, in this part here. So I’d really like to find out what the rationale was for the difference.

I can reassure that member that the minimum stockholding on the companies is 21 days. But the Government will be procuring an additional seven days to have as a reserve, which will take it to 28 days.

I have a couple of questions for the Minister of Energy and Resources. Minister, submitters raised a number of issues at the Economic Development, Science and Innovation Committee, which I don’t think have been fully addressed, but I would be really interested to get your perspective. Should vessels with fuel on them, sailing towards New Zealand, be included in the minimum stockholding obligation? Because the refineries on the east coast of Australia are just a couple of days’ sail away, and Australia has a much larger capacity not just to produce fuel but to store it. So, Minister, has the ability for stockholding on the high seas between Australia and New Zealand been considered in the stockholding obligation?

Minister, sorry, I thought you were going to pop up and reply to that. I’m not sure if the Minister has been provided an answer by officials, so I’ll ask that again, and then I’ll move on to—

CHAIRPERSON (Hon Jenny Salesa): The Minister is going to batch up the questions and then answer them at the end.

SIMON COURT: OK, great. Thanks. So the other question I have for the Minister is: given that this bill imposes a requirement on fuel companies to build tank storage in order to fulfil a minimum stockholding obligation onshore, all of the associated pipe work, bunded facilities, groundwater monitoring—often not just for the duration of any consented facility but for a long period afterwards—it imposes significant additional cost on an industry, Minister, which many, including the Labour Government, have told New Zealanders that it is facing a twilight.

Minister, you described in the House, I believe, as recently as last night, a just transition towards a low-carbon economy where hydrocarbon-based fuels will no longer be a large part of the energy mix. So, Minister, one of the issues raised by the organisations, the fuel company suppliers, who will be subject to a minimum stockholding obligation, is this apparently difficult to resolve contradiction between the Government’s requirement to hold more liquid fuels onshore at the same time as the Government’s other policies are directing New Zealand towards using less liquid hydrocarbon fuels and, in fact, making it more expensive to do so.

So, Minister, would you help the committee and those who are subject to these obligations to understand how these two policies, which appear to contradict themselves—the Government’s swift push towards low emissions, low carbon, and reduced reliance on what the Minister calls fossil fuels or what other people call highdensity, high-energy liquid hydrocarbons. How does the Minister resolve that policy intent with the—

Chlöe Swarbrick: Who calls them that?

SIMON COURT: Chlöe Swarbrick asks “Who calls them ‘high-density, high-energy liquid hydrocarbons?” Well, the people who manufacture them, Chlöe Swarbrick—the people in the upstream energy industry who get these hydrocarbons out of deep geological reservoirs in the ground, pump them out or have them come out under their own natural pressure via an oil rig, pump them on shore, these high-density, high-energy liquid hydrocarbons, to fuel storage, processing, refineries, for example. Whereas, in New Zealand, these high-density, high-energy liquid hydrocarbons are often transferred by ship to refineries on the east coast of Australia for refining back into refined fuels, Chlöe Swarbrick.

CHAIRPERSON (Hon Jenny Salesa): Can the member come back to his question to the Minister.

SIMON COURT: Certainly. The question is, Minister, that there appears to be polar-opposite policies that the Government is trying to progress with, moving away from her so-called fossil fuels towards a low-emissions light-vehicle and heavy-vehicle fleet, and, at the same time, imposing all of these obligations and costs on the industry to build more storage tanks. Minister, could you explain that problem, how you might resolve those two policy conflicts?

Secondly, Minister, will you explain how these additional costs to the industry are likely to impact on consumers, and how this might add to, say, the cost for a litre of petrol or diesel?

Thank you, Madam Chair. In answer to the first question that the member put, around stock on the water and the extent to which that would count towards New Zealand’s obligations, I think we need to think about this as being on the water within the exclusive economic zone (EEZ) and on the water which is much further out, and it obviously doesn’t provide the resilience that this whole measure is looking to put in. The allowance for stock on the water within the bill extends to the borders of our exclusive economic zone. There’s a careful balance that has to be struck between the flexibility of allowing some stock to be on the water to count towards it, and pragmatism. Obviously, if it’s within the EEZ, it’s pretty close to being landed, but, as we know, it can take time—particularly for jet fuel—once it’s landed to actually be available to use.

In the event of a fuel emergency, New Zealand already has mechanisms in place for Australia to assist New Zealand. We’re both International Energy Agency countries, so that comes there.

In terms of the conundrum that the member is trying to struggle with between the use of fossil fuels and decarbonisation and the transition there, I point the member to the words “the transition”. Nobody has said that we are going to stop using fossil fuels tomorrow; what we have to do is have a managed and planned transition and we need to ensure that we are ensuring resilience for New Zealand as we go through that. That is exactly what this legislation is about.

Minister, just coming back to this question of minimum stockholding obligation for ships that are within New Zealand’s exclusive economic zone being acceptable but those outside not, Minister, it’s about nine days’ sail from Brisbane to Auckland. There are very large refineries in Brisbane. Currently, the average stockholding for petrol and diesel is somewhere between 20 and 40 days, I’m sure, and this bill proposes to increase it, I think, by just a few days for each. But, Minister, if we’ve already got somewhere between 20 and 40 days’ stockholding onshore currently, and refineries in Brisbane are 10 days’ sail away, doesn’t that mean that there is actually no risk to the supply chain that needs to be solved by building tankage onshore—question one—and couldn’t it simply be resolved by allowing for agreements, even agreements with Australia, as you’ve mentioned, to deal with this issue, with no legislation required, no cost to the suppliers, no cost to consumers?

Minister, you also didn’t reply to my question about what is the cost to consumer. How much is this cost of building this additional stockholding going to cost if you average it out per litre of petrol of diesel? Minister, that’s what taxpayers and consumers want to know—how much is the Crown on the hook for and how much are consumers on the hook for? Minister, I’d appreciate it if you’d answer those two questions.

Thank you, Madam Chair. My question to the Minister is pretty simple: has she been surprised, and, perhaps, shocked, by the actions of Norway and the United Kingdom, who both had curtailed and said they were not going to open up more oil and gas exploration, and yet both of those countries have opened up new licences in the last couple of months? And also the Americans have given the go-ahead for a giant $50 billion barrel oilfield in the north of Alaska. Does that—

CHAIRPERSON (Hon Jenny Salesa): Order! Can the member ask a question that’s within the scope of this particular bill?

STUART SMITH: It is—I am, yeah. So—[Interruption] I think the Chair does that, Minister.

CHAIRPERSON (Hon Jenny Salesa): I am the Chair.

STUART SMITH: Yes, but the Minister was making comments there—gesticulating. So as that—

CHAIRPERSON (Hon Jenny Salesa): Even if the Minister in her response covers a little bit that you might think makes it in order in terms of being in the scope of this bill, this bill actually doesn’t cover that, so I’m asking you to please—

STUART SMITH: I’m coming to that—I’m coming to that. So given that those countries I’ve mentioned, Norway, the United Kingdom, and the US, have decided that their fuel security is such that they have to open up more exploration, does that make the minimum stockholdings that we hold in New Zealand—does she think that makes that more or less tenuous than would have otherwise been? These are recent developments before this bill went to the drafting stages, so was that ever a late consideration in terms of fuel security around the globe?

In terms of those questions and in terms of the member’s question as to whether this is necessary and could we not do this just with arrangements and do we have enough, I point the member to the fact that this is a framework that we need to put in place to ensure our resilience and not just hope that we have that resilience. I point the member to the situation in December when our jet fuel stocks were well below the necessary levels of fuel resilience. What this bill does is ensure that our stocks will not fall below those requirements that we need. This provides the time, insurance, and security to get those additional ships here with much less chance of disruption. These time frames were arrived at through careful analysis of what we needed to ensure that New Zealand could ensure its resilience.

In terms of the cost, there has also been a careful balance in coming up with the number of days for stockholding—fuel resilience against minimising cost and cost to the consumers. So the average stockholding requirement is based on expert advice regarding the quantity of stocks that are held. Therefore, we expect no new storage is going to be required in order to hold this level of stockholding. Fuel companies may need to change their management practices, but the advice we’re getting is there won’t necessarily be new stockholding requirements.

In answer to the tip of the contribution from the member in the National Party that was within the scope of this bill, the answer is no.

I move, That the question be now put.

Thank you, Madam Chair, and thank you for the opportunity to ask a couple more questions. Minister, that is a fascinating insight, and I’m wondering where the evidence or advice comes from which suggests that no new onshore storage needs to be constructed, because, up until now, we’ve been progressing on the understanding that more tankage, more facilities will need to be constructed. So this is new information—if I’m correct, Mr Stuart Smith, this is new information—that there are no additional facilities that need to be constructed. So I’m really interested as to where that evidence and advice comes from.

Because what companies subject to these obligations have told the ACT Party is that they’re very concerned that the commencement date on which these obligations come into force, 1 January 2025, gives them insufficient time to carry out planning assessments, obtain resource consents to build additional tankage, additional storage tanks onshore, given the fact that the Resource Management Act now includes a requirement for consenting authorities to consider the impacts of climate change and mitigating climate change. They’re very, very concerned that if they go to a local authority or council and say, “We’d like to apply for a resource consent to build new storage tanks for petrol and diesel.”, a regional council and an Environment Court—maybe all the way up to the Supreme Court—says, “Well, actually, no. You shouldn’t be building more tanks to hold petrol and diesel, because that goes against the stated commitments of the Government other policy to mitigate the effects of climate change by reducing the amount of petrol and diesel that is used.”

So, Minister, you’ve introduced new information not just to the debate but to the understanding that submitters had, that they’re going to have to build facilities, and also, how on earth is that possible? I mean, if we’re going to increase the amount of storage of petrol and diesel and jet fuel in New Zealand, how is it that you do that without building more facilities? If you’re simply relying on tankers that are anchored up somewhere off New Zealand’s coast, is that going to be sufficient? What calculation has been carried out? Because if that’s the case, then surely a memorandum of understanding between fuel suppliers and the Government would be sufficient to come to that without having to pass legislation that opposes all of these regulations, all of this cost and industry.

So, Minister, this commencement date of 1 January 2025 is a real concern to organisations that have to plan, consent, design, construct, certify, and then receive fuel. This stuff does not happen in 15 months, usually, Minister—partly because the Resource Management Act makes it very complex, but also because carrying out designs and constructing fuel storage tanks has extremely high risks. Organisations involved in that need to obtain insurances. They need to be able to satisfy their insurers that they’re actually delivering a design that is enduring, that is going to meet earthquake standards and so. And also they have to be able to satisfy their financial backers, because anybody who works for a fuel supplier company in New Zealand would know that when they go back to their parent company and say, “We needs tens or twenties of millions of dollars to build fuel storage tanks.”, they’d say, “In New Zealand? They’ve said that they’re getting rid of fossil fuels. They’ve said that they’re transitioning away from a reliance on high-density, high-energy liquid hydrocarbons in favour of solar power, wind power, electricity.”

So, Minister, how on earth are these companies, which have assumed that they need to build more tanks on shore, supposed to actually comply, have tanks standing up, and have product in them by 1 January 2025, given the resource management constraints and given their need to obtain financing and then, of course, carry out the design and construction? How is this going to happen, Minister?

Thank you, Madam Chair. Minister, so this bill aims to ensure that New Zealand has sufficient stocks of diesel, petrol, and aviation kerosene jet fuel to mitigate the risk of plausible disruptions to the domestic or international fuel supplies and sets minimum stockholding levels as expressed in the number of days of demand of consumption required to be covered by each type fuel during the initial period.

I’m just wondering, is there flexibility in this to take into account changing geopolitical considerations? Obviously, there’s the war in Europe, which we have the moment. There’s some other changing considerations. My colleague Stuart Smith mentioned before about Norway, for example, approving more than $18 billion in new oil and gas investments. So there’s some changing geopolitical—fast-changing, actually—considerations at play. Are there provisions in this bill to enable those minimum stockholding levels to be moved up or down depending on those geopolitical considerations?

In answer to the question that was just asked by the member, no, because that is not the purpose of this bill. This is about our onshore national resilience, which is what New Zealand needs and, probably, if there is a marked change to geopolitical circumstance, makes making sure that there is fuel resilience onshore in New Zealand even more important. Where we take account of the international geopolitical changes is actually in our International Energy Agency offshore stockholding. So in terms of what’s in scope of this bill, no, there are no changes.

In regard to the questions that the member asked about the ability to use existing storage and whether there is no storage. That analysis, of course, comes from the Hale & Twomey analysis, which was made available to the select committee. One of the things in terms of the storage that is available, of course, with the closure of Marsden Point as a refinery is that Channel Infrastructure have made some conversion of the storage facilities there to be storage, which has opened up a number of opportunities there. The legislation does have provision for some exemptions should there not be enough storage. So it has put in place insurance around that, but the analysis that we’ve had with the new facilities with Channel Infrastructure is that we’re not going to require new storage to be built.

Thank you, Madam Chair. Thank you, Minister; it’s very helpful to clarify that and I do appreciate that. So given that Channel Infrastructure, a private company, is building the storage that would mean essentially that New Zealand suppliers of fuel comply, why is this legislation necessary?

Given the Minister’s statement that a private company is building all of the storage necessary and that no additional cost is likely to be faced by the sector, that no additional storage is likely to be built as a result of this legislation passing, or it won’t be needed, why is this legislation necessary? It appears to impose a whole lot of regulatory red tape which will tie up the Ministry of Business, Innovation and Employment, the ministry responsible for administering it. It’ll tie up fuel suppliers in reporting obligations not just to a Government department, which will require the information, but also internally to their own boards, to their own governance entities to demonstrate how they’re complying with it. There’ll be legal costs involved. There’ll be technical risk assessments—all kinds of things involved, by the private sector, in order to demonstrate and to satisfy themselves that they’re meeting their legal obligations. All this has cost, Minister—all this has cost. Yet in response to my previous question, you’ve stated quite glibly, honestly, factually—and thank you for that—that you have had advice that Channel Infrastructure’s conversion of Marsden Point refinery to an onshore storage facility means no additional storage needs to be built. The problem is solved.

Minister, this bill is being passed under urgency. It will be passed today, according to the Government’s legislative agenda. There doesn’t appear to be any need for it. It’s of great concern—the cost this will add to a sector that’s already facing additional costs. Petrol prices in Auckland, for example, are already up over $3.15 a litre for regular 91. Minister, how much is all of this regulatory red tape, all of this cost of compliance, going to add to a litre of petrol and diesel? That’s a question I asked you earlier in the session. We still haven’t had an answer.

So here we are, passing a bill under urgency, Minister, at the direction of your Government, at your direction, the Minister responsible—the Minister of energy, which you say is not necessary now because the obligation to hold more stock onshore is already met. How much is all of this red tape and compliance going to add to a litre of petrol and diesel? I mean, Minister, if Channel Infrastructure are building the tankage and the suppliers are going to comply, why do we need this bill?

Secondly, Minister, if it’s an issue of resilience, if we think about where diesel and jet fuel might be required, Marsden Point, Channel Infrastructure—fantastic. But New Zealand’s subject to seismic risks. We have the Alpine Fault in the South Island. We have the Wellington Fault in Wellington. We have fuel storage at Petone at the north end of Wellington Harbour. How would we know that, in fact, New Zealand has achieved some kind of resilience in the supply of liquid fuels when apparently Channel Infrastructure is going to have enough storage? But what about those places around New Zealand which might be subject to natural hazards?

Resilience isn’t just about ticking some box so you can file a report to a Government department and say you comply or fulfilling some legal regulatory obligation to your own company. Resilience means actually being prepared for disasters and being able to respond and being able to restore basic services like the supply of fuel, not just to retail service stations but also to, say, the hospitals which rely on diesel power generators in the case of power outages; telecommunications, as we saw during Cyclone Gabrielle—absolutely reliant on diesel and petrol generators to keep telecoms networks operating.

So, Minister, this bill talks about fuel resilience. Apparently that’s already resolved by the private sector, but what appears to be missing is any additional improvement in fuel resilience around the rest of the country, particularly in the South Island, in Canterbury, the Wellington region, where they are subject to significant seismic risks and natural hazards, and that may very well be where fuel is needed but fuel can’t get through in the event of a natural disaster. So, Minister, why is the bill even needed when Channel Infrastructure is apparently going to solve it all for us? How much is it going to add to a litre of petrol and diesel? And why hasn’t actual physical resilience been taken into account?

I have addressed the why in previous answers. I will briefly traverse that for one last time. The reason why is because it is important that Governments ensure security of supply of fuel for a country—to not leave it to chance. I pointed out, in an earlier contribution, to that member the fact that our jet fuel was below the minimum holdings that does provide that resilience for New Zealand—in December of that last year.

In terms of the member’s concerns around the fact that he seems to be under the impression that everything is going to be held at Marsden with Channel Infrastructure, that is not the case and I point the member to the provision within the legislation that provides a clause to provide for a regulation-making power to adjust obligations, and location specific requests could be part of that. Very much the thinking of putting this together is not only resilience in one place, but what does resilience across the country look like, and, indeed, the request for proposal for the diesel stockholdings is about to go out and geographic disbursement will be part of that. So the member can be assured that it has been part of the thinking of putting together the regime.

I move, That the question be now put.

I’m going to let it go just a little bit longer, but I am listening very closely to new material, and I’ll just see how we go.

Thank you, Madam Chair. I just want to come back to the question that I don’t believe the Minister has addressed, which is: how much is this regulation and red tape and compliance construction operation going to add to the price of a litre of petrol and diesel? Minister, surely there’s been a cost and benefit analysis as part of a regulatory impact assessment. Surely, Minister, officials have provided advice, considering there’s a cost of living crisis. The Government accepts it. The Minister is part of a Government which has reduced GST. It says it is going to reduce the amount of GST paid on fruit and vegetables, apparently because there’s a cost of living crisis.

Minister, surely—surely—there would have been some analysis of the additional cost that this regulatory requirement would impose on petrol and diesel and jet fuel users, because it would seem outrageous in the midst of a cost of living crisis and affordability crisis which every single opinion poll points to being New Zealanders’ number one concern for people who have to make a choice between putting petrol or diesel in a family car or a tradie’s van, or paying a bill, which is what ACT MPs hear about when we go around the country talking to working New Zealanders.

Minister, you have not been able to provide a response to my question, which is: how much will this compliance add to the cost of a litre of petrol and diesel or a tonne of jet fuel?

I’ll repeat the explanation and the answer I’ve given to an earlier question around what the costs would be. I talked the member through, in my earlier answer, the fact that the number of days in the stockholding obligations were a careful balance between ensuring we had resilience for New Zealand’s fuel supply and minimising the cost to consumers. As I’ve already pointed out to the member, this is not likely, and, in fact, the analysis we have is that it won’t be required for new capital expenditure in terms of storage facilities. So that is not something that will be passed on to consumers.

The thing that will need to change is the management practices. Again, it’s something that I’ve already been over in the course of this committee of the whole House stage. This is unlikely to have any large impact, and if the member is looking for an answer around a sense, he’s not going to get that. But I can tell the member that in terms of the analysis, the impact and flow-on of cost to consumers was utmost in consideration in putting together this regime. It is exactly why the Government is looking to do a portion of the diesel procurement itself—because that really is the resilience piece—to have there the additional seven days that the member had missed that took us up to 28 days of diesel stockholdings. That will be Government procurement, and it is not putting that on to what the fuel companies need to hold, and, therefore, have that pass-on to consumers. So I can reassure the member that all the way through this, impact on cost and minimisation to consumers—the analysis that we have is that this should not have a great impact at all on the cost to consumers. You wouldn’t notice it in the daily fluctuations in the cost of either crude or refined.

I move, That the question be now put.

The question is, That clauses 1 to 14 and the Schedule stand part.

Mr Speaker, the committee has considered the Fuel Industry (Improving Fuel Resilience) Amendment Bill and reports it without amendment. I move, That the report be adopted.

Motion agreed to.

Report adopted.

The bill is set down for third reading immediately.

Third Reading