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Refining NZ earnings slashed by shutdown; record throughput planned for 2019

Friday 22nd February 2019

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New Zealand Refining is investigating whether it may be able to bring forward a project to improve the shipping channel into Whangarei harbour by a year.

The widening and straightening of the channel will enable users of the Marsden Point refinery to deliver crude oil in fewer, but larger tankers, and could lift the refinery’s margins on each barrel by as much as 30 US cents.

Chief executive Mike Fuge says the project is “very exciting” and the company is now reviewing its tank maintenance schedule to see if it can have the extra storage needed to cope with the larger cargoes available earlier.

If that can be achieved, the dredging could possibly be carried out during the 2020-21 summer.

“The only question is, can we bring it forward?”

“There’s an opportunity there,” he told BusinessDesk. “I’m not going to promise that we can.”

Marsden Point is the country’s only oil refinery and produces about 70 percent of the petrol, diesel and jet fuel used in New Zealand. It is 43 percent-owned by Z Energy, BP and Mobil, and charges those customers to process the crude oil they deliver to the plant. Processing fees are based on refining margins in Singapore.

The total cost of the dredging project is estimated at $60-70 million, with the dredging component of that expected to be about $35 million.

A year of environmental monitoring is required before the project can get underway, and that work will start in the next couple of months.

Fuge said the storage challenge reflects how “incredibly optimised” the existing refining operation is, with about 60 percent of every cargo going directly into the processing stream.

To cater for an increase in cargoes from 900,000 tonnes to a million tonnes “you’ve got to work quite hard.”

The company, which trades as Refining NZ, earlier reported a 62 percent slide in full-year profit after a major shutdown reduced throughput and regional processing margins fell.

Net profit fell to $29.6 million in the 2018 calendar year, from $78.5 million in 2017. Revenue fell 13 percent to $359.6 million, with average margins declining to US$6.31 a barrel from US$8.02 the year before. Throughput fell to 40.44 million barrels, 3 percent less than a year earlier.

As signalled, the site’s the largest shutdown since 2004 reduced full-year earnings by about $43 million after running over schedule. Lower margins trimmed earnings by about $12 million while higher power costs and remediation work on the firm’s fuel pipeline to Auckland increased costs by about $3 million.

A lower New Zealand dollar, and a record 21 million barrels shipped on the pipeline to Auckland, recouped about $9 million of that.

The company’s shares fell 4.4 percent to $2.16, taking their loss for the past year to 10 percent. Investors will receive a 4.5 cent final dividend on March 21, down from 12 cents a year earlier.

Fuge said 2018 had been a tough year but the record throughput and strong operational performance in the second half “is very encouraging for the years ahead.”

With no major shutdowns planned in 2019, he said the company “fully expects” to lift its operational performance further and achieve throughput of a record 44 million barrels this year. The current record was 42.67 million barrels in 2016.

The firm has maintained a raft of small upgrade projects since completing the installation of the $365 million continuous catalytic regeneration unit in late 2015. It continues to invest to ensure it remains competitive against larger, more modern refineries its customers can also buy product from.

Fuge said the company is re-thinking the final element of a three-stage project to increase the capacity of its fuel pipeline to Auckland. A drag reducing agent it is planning to trial in the third-quarter may increase capacity by 15 percent at lower cost.

The company is also considering a $10 million investment to increase bitumen production as part of its response to market disruption expected in 2020 when new requirements for low-sulphur shipping fuels take effect.

While it’s hard to know how the change will play out, Fuge said the price differential between products may widen. Prices for diesel and low-sulphur fuel oil may spike before flattening over time.

Fuge said the new requirements are a significant event for the global fuel market and the refinery – which has a bias toward diesel and jet fuel and can process heavier crudes – has to be able to respond.

Increasing bitumen production will enable it to capture more sulphur from its processing and also deliver marine fuel oil with 0.5 percent sulphur. The company may also widen its crude diet.

Fuge said the initiative was an example of the technical and creative skills of the refinery’s staff, who identified under-utilised de-sulphurisation capacity within the plant and figured out a way to use it.


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