UPDATE: Industry split on Auckland jet fuel options

UPDATE: Industry split on Auckland jet fuel options

(Adds Auckland Airport denial from 22nd paragraph that JUHI lease is at risk of early termination.)

By Gavin Evans

June 6 (BusinessDesk) - Extra jet fuel storage can be provided for Auckland International Airport, but suppliers are split on whether an additional pipeline from the Wiri fuel terminal is needed to improve supply resilience.

The partners in the Wiri facility – BP, Z Energy and Mobil – are investigating options for extra storage there, including adding two 11 million litre tanks to help cater for projected aviation demand.

But an inquiry into Auckland’s fuel resilience heard that that work is still at a preliminary stage and that the partners differ on the best path for investment.

BP told the inquiry it is ready to invest in extra storage at Wiri and at the JUHI – the joint user hydrant installation at Auckland Airport – and would like to see its partners commit to an investment at Wiri before the end of the year.

Z Energy also supports an investment at Wiri, but favours building a second pipeline from Wiri to the airport to improve resilience and reduce the reliance on trucking to meet peak jet fuel demand. An extra pipeline would also obviate the need for additional storage at the JUHI, and would improve resilience by providing redundancy for the existing pipeline.

Mobil, from its submission, appears the least willing to invest. While all options should be considered, including upgrading the capacity of the existing Wiri to airport pipeline - or WAP -, it said duplicating the WAP would deliver “substantial excess capacity, resulting in substantial capital inefficiency and unnecessary costs for consumers.”

Inquiry panel member Roger Blakeley asked what confidence people could have that the “fundamental difference” over investment in an additional WAP, or continued use of extra trucking, would be resolved among the venture partners.

“There does seem to be a fundamental difference here” which may only be resolved through commercial negotiation, Z Energy commercial portfolio manager Hamish Dyer said in reply.

He said Z’s positions was more closely aligned with that of the airport, which is concerned at the increased trucking volumes and their potential to add to congestion issues at the airport.

“Trucking is a viable short-term option,” Dyer said. “But in the medium- to long-term the second WAP is the much more viable, safe and sustainable solution.”

BP noted that meeting peak jet fuel demand will likely add only about 25 additional road tanker movements a day.

The inquiry team, comprising Blakeley and Elena Trout, was appointed to review the industry’s response to the September 2017 shutdown of the main fuel pipeline to Wiri in South Auckland from the Marsden Point refinery. The panel is also tasked with examining any wider issues of fuel resilience for the Auckland region and nationally.

The public hearing today heard that a closed industry workshop convened by the inquiry last week endorsed the need for additional jet fuel storage for Auckland, sufficient to ensure 10 days’ jet fuel supply at 80 percent of peak period demand.

Courtney Ireland, BP’s general manager of marketing supply, said two additional 11 million litre tanks at Wiri should be sufficient to meet that by adding about 4-5 days of extra supply. Once the investment was approved by the venture partners, they could be built within about two years.

An extra tank could also be installed at the JUHI, but that would be less straight forward and could take up to three years to build after funding was approved, he said.

He noted that trucking additional fuel during peak periods should be sufficient to meet projected demand growth out to 2025.

Annual jet fuel demand at Auckland is forecast to increase by a billion litres by 2030, but participants acknowledged that industry growth projections range from 1.5 to 3.5 percent a year and timing investment remains a challenge.

A further complication is the oil companies’ claim that they are at risk from the airport terminating the lease for the JUHI site before its expiry in 2035. No location has yet been settled for its replacement – JUHI-2.

While an investment at Wiri can proceed regardless, Z Energy’s Dyer said it was difficult to commit to investment at JUHI if firms didn’t know whether it would still be available in five, 10 or 15 years.

If a second WAP pipeline was to be built, it would need to be able to deliver to both JUHI and its eventual replacement, he said.

Z Energy has previously estimated the cost of a second WAP pipeline at about $25 million. Completion is likely to take four years, including up to two years for consenting.

Auckland Airport says it has not signalled an intention to terminate the JUHI lease early, which would not be in its interests, nor the interests of its airline customers.

Anna Cassels-Brown, the airport’s operations general manager, says that, assuming the JUHI venture exercises all its right of renewal, they have a lease on the current location until 2035.

The airport has previously identified a second site to provide capacity for the long-term future, and expansion to that site is anticipated under the current lease arrangements with fuel companies.

The Board of Airline Representatives noted that to date there have been indications of intent to invest by the fuel companies but no actual commitment. It is keen to see the oil companies’ investment plans published or shared so that its member airlines can have confidence in the security of their fuel supplies.

It also wants to be able to test the business case for investment to ensure the 10-days of cover at 80 percent supply can be provided at a realistic cost.

Trout noted that individual firms may be happy to invest, but the challenge was getting the collective agreement among the joint venture partners.

“What assurity can you give to the public or the wider stakeholder group here that there will be investment in timeframes that have been determined by a number of parties?”

Refining NZ chief executive Mike Fuge said the refinery has about eight days of jet fuel storage and is currently adding another 18 million litres of storage – or 3.5 days - which should be available by the end of the year.

He noted that many overseas jurisdictions specify the fuel storage that must be held at airports. If the industry wasn’t able to provide sufficient assurance of its investment plans and its ability to deliver on them, an option could be for the government to set a deadline on when the additional capacity must be in place.

Fuge said Refining NZ’s preference would be that industry members invest in a timely, effective and commercially sensible way. If that’s not happening, regulatory intervention “could be helpful” to resolve the issue.

“When it’s clear that the decision-making has become somewhat convoluted and clogged up then some clarity around regulatory requirements may be needed to un-jam the process a little,” he said.

Trout noted a “certain degree” of assurance from BP and Z Energy of their willingness to invest in new storage at Wiri, but said commitment from the collective industry was still lacking.

“I don’t get the sense that the industry is in a position to give that assurance,” she said.

(BusinessDesk)

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