Tuesday 17th September 2019
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The government needs legal powers to compel the owners of the jet fuel supply system to Auckland International Airport to invest in greater capacity as early as the middle of next year, an independent review has found.
The system, comprising the Wiri fuel terminal, the Wiri-to-airport pipeline, and the shared joint user hydrant installation at the airport are owned jointly by Z Energy, BP and Mobil. All are nearing capacity, according to a panel formed to review a September 2017 pipeline break that slashed fuel supplies to Auckland and severely curtailed flights in and out of the country's main international gateway for almost a fortnight.
"We are not satisfied that the three fuel companies that own Wiri, the WAP, and the JUHI will make timely investment decisions to build the infrastructure needed," says the inquiry team, engineer Elena Trout and Wellington Regional Councillor Roger Blakeley, a civil engineer by training. The government should enact new legislation "so that it can step in in a timely way if the market participants are not able to make the needed decisions in a timely way."
The vulnerability of jet fuel supplies to the country's main international gateway was exposed when the single pipeline between the Marsden Point oil refinery and the Wiri fuel depot near the airport failed on Sept. 14, 2017. It had been damaged three years earlier by a digger looking for swamp kauri logs.
"Auckland’s jet fuel supply is currently not sufficiently resilient when assessed against the specific resilience standards we developed during our work, and from a public interest perspective," the inquiry concludes, and its vulnerability is increasing.
Limited jet fuel storage at Wiri is coming under growing pressure as total demand for jet fuel grows. Parts of the supply chain around the airport "will not be able to meet basic demands in a few years' time, let alone recover from, or provide resilience during, an outage of any size."
The inquiry report is critical of the fact that "some" of the infrastructure's owners had proved "slow" to link forecasts of increased jet fuel demand with the need for upgraded and more resilient facilities. Complex ownership and joint venture structures between the three fuel companies also made it "challenging to have visibility and allow us to have confidence about future investment plans."
While the fuel companies began showing the inquiry investment plans late in its work, "the plans are still preliminary," the panel say in their 156-page report..
"In our view, the fuel companies have failed to make timely investments to achieve and maintain the level of resilience in the supply chain that we regard as appropriate," the inquiry finds, although it notes that "BP told us that it disagrees with this view. BP maintains that a cost-benefit analysis of the specific options should be completed before finalising a view on the appropriate resilience standards".
Energy Minister Megan Woods released the report a day after both Z and BP accused the Commerce Commission of getting its sums badly wrong in its recently published draft market study into a lack of competition in the transport fuels sector. That report last month allowed Prime Minister Jacinda Ardern to repeat her view that petrol retailers have been "fleecing" motorists.
The pipeline inquiry concludes that the Wiri storage facility needs to be big enough to provide 10 days of aviation operations at 80 percent of normal activity. The capacity of the shared joint hydrant facility at the airport needs to be capable of handling 110 percent of peak day demand.
"The current storage at Wiri and the JUHI is not adequate and the level of cover will continue to decrease if no new tanks are built."
The inquiry authors recommend the government pursue measures to encourage and promote timely, new investment in the jet fuel supply chain.
"If the sector has not been able to make the necessary progress by 30 June 2020 by committing to the investment needed to bring this infrastructure up to the recommended resilience standards (for example, by making definite decisions to commit capital to relevant construction projects), the government should take steps to intervene, using the statutory powers we have recommended."
Interventions could include "compulsory disclosure of information on usage, forecasts, capacity, and investment plans; mandatory performance standards for the infrastructure: ... and requiring open access to the relevant infrastructure, or a co-regulatory model such as the one operating in the gas industry in New Zealand."
The inquiry found that Refining NZ had operated the refinery-to-Auckland pipeline - the RAP - "properly" and carried out repairs to "a high standard."
But it found the refinery's early message that the pipeline would be repaired within 24 to 48 hours was too optimistic and sector coordination of information to allow rationing of remaining jet fuel stocks could have worked better.
All airlines were limited to 30 percent of their normal daily jet fuel allocation for the 10 days of the outage, causing flight cancellations and delays for passengers.
It noted also that the one back-up storage option in Auckland - offloading from ships into tanks on Wynyard Wharf - no longer exists as the tanks are being removed for urban redevelopment in the city's fast-growing new commercial hub, the Wynyard Quarter.
It recommends greater protection for the RAP under essential infrastructure provisions of the Resource Management Act, among other improvements to the way the pipeline is kept safe and monitored.
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