UPDATE: NZ Refining, Air NZ shares fall as investors weigh pipeline leak

Monday 18th September 2017

(Recasts on market reactions, adds comment from broker, economist, Air NZ)

New Zealand Refining and Air New Zealand shares fell as investors reacted to a pipeline leak disrupting jet fuel supplies at Auckland International Airport.

Whangarei-based NZ Refining expects to miss out on between $10 million and $15 million of pipeline and refining income as it works to repair the leak on its pipeline between the Marsden Point refinery and the Wiri storage depot. Thirty people have been working on a 24-hour basis over the past four days and have recovered most of the jet fuel from the leak site, it said.

The company expects to resume service to Wiri between Sept. 24 and Sept. 26, after which it will take another 30 hours before it can be transported to the airport.

The disruption of jet fuel supply prompted carriers to restrict fuel use by consolidating passenger numbers and cancelling flights, and Air NZ today said it estimates about 2,000 of its own customers will be affected today. The shutdown is limiting available jet fuel to about 30 percent of normal usage. The airline said the disruption isn't likely to have a material impact on earnings.

NZ Refining shares dropped 2.4 percent to $2.42 as at 10.55am and Air NZ shares were down 2.5 percent to $3.17, the biggest declines on the S&P/NZX 50 Index today.

Grant Williamson, a director at Hamilton Hindin Greene, said investors understood that this was a one-off event and beyond the companies' control.

"Investors take these things in their stride - when it comes to these sorts of events, all it does is take a bit out of this year's earnings, but it's not a long-term issue," Williamson said. "The problem for a country our size is you have to be realistic - we can't have redundant infrastructure on the off-chance something is going to go wrong."

A 2012 Ministry of Business, Innovation and Employment oil security review found New Zealand's national fuel supply network was reasonably robust and adept in responding to most disruptions. However, Auckland supply was seen as a risk due to the Marsden Point refinery supply almost all of the city's fuel through the refinery-to-Auckland pipeline. Officials were more concerned about an issue at the Wiri terminal, with pipeline disruptions seen as more likely to be of shorter duration.

Phil Borkin, a senior economist at ANZ Bank New Zealand, said the impact of the disruptions on the broader economy will probably be too small to carve out from some of the other major issues influencing activity, but that it will ultimately depend on how long the rationing lasts and how many flights are affected.

"Cancelling a number of domestic flights affects activity, but it's still up in the air," Borkin said. "At this stage, I don't think it's a major enough event to be noticeable yet."

Transport, postal and warehousing services account for about 4.2 percent of annual gross domestic product.

Z Energy today said its airline customers are already on fuel allocations, which will mean they have to bunker fuel and refuel at other domestic and international locations. Still, the transport fuels company said fuel supplies nationally were healthy and the disruption won't "materially impact company performance".

Z Energy's shares fell 0.8 percent to $7.25, while Auckland Airport shares increased 0.6 percent to $6.345.

(BusinessDesk)

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