Stable ETS important for Marsden Point

Published: Wed 21 Aug 2019 03:37 PM
By Gavin Evans
Aug. 21 (BusinessDesk) - The top-quartile emissions performance of the Marsden Point oil refinery is a national advantage and one the firm will be working to maintain when it enters the emissions trading scheme in 2023, chief executive Mike Fuge says.
Refining NZ was granted an exemption from emission charges in 2003 as part of an agreement with the then government to enable a $180 million investment to reduce the sulphur and benzene content of the fuel it makes.
The company has begun talks with the government on its inclusion in the ETS as a highly energy-intensive, trade-exposed producer. In July the government proposed a phase-down of the 90 percent exemption those firms receive at a rate of 1 percent a year from 2021, increasing to 2 percent from 2031, and 3 percent the following decade.
Fuge told analysts the company, which is planning a solar farm and is investigating renewable hydrogen production, will be able to “stay ahead of the curve” with its emission reductions. But he said that will require a well-developed programme from the government and one that remains stable long-term so that the company can invest with confidence.
“Stability is really important to us,” he said.
The refinery at Marsden Point makes about three-quarters of the country’s fuel, but has to work hard to remain competitive with newer, larger plants operating in Asia. The $735 million invested in projects since 2005 have increased its throughput and the range of products delivered, while also reducing the site’s carbon intensity by about 20 percent over that time.
While the refinery’s small size leaves it about “middle of the pack” for efficiency, Fuge said it makes some of the cleanest jet fuel in the world, a big advantage given the projected aviation demand growth for the next 30 years. Its overall emissions performance is in the top-quarter of plants globally.
The plant produces about a million tonnes of CO2 annually, split roughly between its process heat requirements and its current hydrogen production.
Fuge said the 26 MW solar array the company is considering would meet about 10 percent of the site’s electricity needs with no emissions. Renewable hydrogen is another important opportunity for the refinery to help “green the country’s fuel supply,” he told BusinessDesk.
Earlier today the refinery reported a $3.5 million loss for the six months ended June 30, up from a $2.8 million loss the year before when production was cut by an extended maintenance shut.
The wider loss was largely due to higher power costs and reduced gas supplies due to lower production from the Pohokura gas field. The firm also faced costs from the government’s inquiries into fuel pricing and the 2017 shutdown of the firm’s fuel pipeline to Auckland.
Revenue increased 16 percent to $171.6 million, buoyed by an 18 percent increase in throughput to 21.2 million barrels of crude. Margins were lower at US$5.31 a barrel, from US$5.65 a year earlier, but a more favourable exchange rate helped deliver a 20 percent lift in processing fees to $117.3 million.
While that provided a $14 million lift to operating earnings, the company said high power costs increased its energy bill by $2.4 million while it also incurred $4.4 million of one-off costs, which included the pipeline inquiry, the firm’s own strategic review and work it has started to re-consent the site beyond 2022.
Earnings before interest, tax, depreciation and amortisation rose to $54.1 million from $50 million a year earlier.
NZ refining will pay a 2-cent a share dividend on Sept. 19 to investors registered on Sept. 12. That is down from 12 cents a year earlier.
The firm’s shares fell 4.7 percent to $2.04, taking their loss so far this year close to more than 9 percent.
The company said the 26 MW Maranga Ra solar farm it is planning on 31 hectares alongside the refinery may deliver annual savings of up to $4 million a year
Accelerating its tank maintenance programme should avoid the need for a new tank planned as part of dredging project the company plans to improve the efficiency and safety of crude deliveries.
That will reduce the capital cost of the work by about $15 million to $45-55 million. The firm is aiming to make a final investment decision later this year or early 2020 on the project which is expected to improve its processing margins by more than 30 cents a barrel.
Fuge said the company is looking for further savings but should be able to begin dredging mid-2021, subject to aligning the work with any other dredging planned around the country at the time.
Fuge said capex this year will be about $80 million, but that will rise to more than $90 million in each of the following two years due to the tank maintenance programme, catalyst replacement and the first inspection of the Te Mahi Hou unit commissioned in 2015.
Longer-term, capex will still be lumpy due to catalyst replacement and maintenance shuts, but should average $60-65 million a year, he said.
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