NZ Refining pushing hard to shave $4M off likely annual loss
By Pattrick Smellie
Aug. 25 (BusinessDesk) - A combination of cost cutting, more efficient processing and one-off market factors should
limit New Zealand Refining's expected loss for the year to around $23 million, instead of the $27 million it would
otherwise face, says managing director Sjoerd Post.
"The world is difficult and unkind but we are taking a phenomenal amount of different shaded actions to come out of
this," said Post, who likened the approach to the refinery as that of a private equity investor, trying to "squeeze the
last drop of blood from the business."
"There is a terrific response from 500 people to trying circumstances."
At a media briefing in Wellington after Thursday's announcement of a $7 million half-year loss, Post also outlined the
refinery's desire to return to taking larger shipments of crude oil, which will involve additional dredging for
Whangarei's harbour, and to increase it use of natural gas in the refining process.
That could yield an uplift of between 20 and 50 US cents per barrel on crude once refined, although whether that benefit
would flow entirely to the refinery or to its customers remains unclear at this stage and consultations with local iwi
is at a preliminary stage, with the refinery trying a new approach of seeking engagement prior to having a technical
solution identified, although additional depth of between one and two metres is likely to be necessary.
While tankers capable of carrying one million tonnes of crude currently berth at the Marsden Point refinery, they come
in under-laden to cope with current port depths.
On the natural gas front, Post said the refinery typically uses around 1.5 Petajoules of natural gas annually to provide
heat to the refining process, has increased that to 2.5 PJ's and is in discussions with gas transmission provider Vector
to take that to 4.5PJ's. The opportunity for increased local gas use reflects how far the price of gas has fallen and
that pipeline capacity from Taranaki gasfields improves, thanks to lower demand from gas-fired electricity generators.
Post declined to say how much Refining NZ currently pays for natural gas, but said that "our energy costs are
competitive, both gas and electricity, compared to both Singapore and Korea", the benchmarks for Asia-Pacific
refineries.
However, he discussed how the refinery's move to be more active in crude oil procurement, by working with major
shareholders BP and Z Energy to optimise crude shipments, had allowed it to enjoy the one-off benefit of
opportunistically buying a shipment of Russian crude, which is well-specified for New Zealand's only refinery, when a
temporary threat of sanctions on Russian oil exports to Europe and the US dropped the price of Russian product earlier
this year.
While Caltex and Mobil, also shareholders in the refinery, had so far not taken up the opportunity to be involved in
more strategic buying, the offer remained open, said Post. Local subsidiaries of global players had traditionally
dictated Marsden Point's crude oil inputs by reference to their global operations, but the creation of New Zealand-owned
Z Energy, the transport fuels distribution business sold by Shell, had changed that dynamic in New Zealand.
"Z changed the dynamics by not having a regional supply chain or other refineries," said Post. "They just want the
cheapest. We said, 'if you let us in the tent where we could have a veto right over certain cargoes and decisions about
what crude goes through in a jointly agreed process, we can give you commercial opportunity."
While the refinery expects to achieve a refining margin of US$4 to US$5 a barrel better than its Singapore equivalent,
its returns are dictated by Singapore margins, which represent the cost of imported alternatives to locally refined
product.
The largest single investment occurring on the refinery site is the $365 million replacement of the petrol-making
facility, dubbed Te Mahi Hau, which is scheduled for commissioning late next year, and is expected to yield an
additional US$1.10 per barrel to the refinery's margins, along with 66 US cents of gains from a range of initiatives to
improve the productivity of the plant.
A further US 50 cents per barrel of improvement is expected from a range of cost-cutting measures, including a reduction
in permanent and contracting staff from around 587 to 500.
In the current financial year, the company also expects a short-term 35 US cents per barrel gain from the fact that it
has additional residues available from the refining process, owing to unexpectedly long shutdowns related to an upgrade
of its hydrocracker unit, which will help reduce losses expected in the current financial year, which Post said should
see a forecast loss of $27 million reduced to $23 million.
(BusinessDesk)