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NZ Refining bullish about future

Wednesday 20th April 2011

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New Zealand's sole fuel refinery will be able to significantly increase the amount of petrol it supplies to the domestic market if an upgrade costing up to half a billion dollars is approved.

Northland-based New Zealand Refining Company saw an increase in demand for fuel, and had the potential to meet 90-100% of jet fuel and diesel demand in New Zealand, chief executive Ken Rivers told shareholders at today's annual meeting.

The refinery had some structural advantages over other refineries in the region, and recent improvements to the Marsden Point facility had increased capacity, he said.

However, the company could only supply 50% of the country's petrol, following a government decision in the 1980s to source petrol from a gas-to-liquids plant in Taranaki that then proved uneconomic, with other fuels supplied by Marsden Point.

The $400-$500 million expansion under investigation would increase capacity at the refinery, enable the processing of a wider range of crude oils, improve efficiency and increase its domestic share of the petrol supply market to 75% from the current 50%, Rivers said.

The company was developing a $23 million engineering report to present to the board next February, and if accepted the project's first stage would be commissioned in 2015.

The project appeared economic, but there were also market complexities to consider, Rivers said.

NZ Refining believed it could produce more petrol more profitably, despite forecasts of a global surplus of petrol.

However in the shorter term, the earthquake and tsunami that devastated parts of Japan would create more volatility in an already volatile market, in which profitability was highly dependent on global refiners' margins and the exchange rate.

The company had recently talked to its insurers in New Zealand, Singapore and London. The board believed existing insurance cover was sufficient, and the site faced no threat from tsunami damage.

NZ Refining is majority-owned by fuel companies BP, Mobil Oil, Caltex NZ and Greenstone Energy, and charges a fee for processing crude oils.

Margins and profitability had increased significantly as global demand recovered following the financial crisis, resulting in a 145% rise in net profit for the year ended December 31.

Shares in NZ Refining fell 10c to $4.50 in a negative market.



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