Minimum stockholding obligation
The government is developing a minimum stockholding obligation for fuel importers with the right to draw fuel from bulk storage facilities. This obligation will help ensure sufficient supplies of petrol, diesel and jet fuel are held in New Zealand that could be drawn on if there is a major disruption to our fuel supply.
The government has reviewed New Zealand’s fuel security policy settings in light of:
- the changing international geopolitical environment and uncertainties in the international oil and fuel markets
- clean energy transition limiting the fuel industry’s incentives to invest in fuel infrastructure
- the closure of the Marsden Point Oil Refinery in April 2022.
The review concluded that the Refinery’s closure does not have a major impact on New Zealand’s fuel security; in fact, fuel resilience would be better in some scenarios due to diversification away from a single point of failure.
However, the review highlighted a need to improve our resiliency to fuel supply disruptions, which could include events such as natural disasters, infrastructure failures or disruptions to international oil and fuel markets.
In 2022, the government announced a policy package to improve our fuel resilience. Key to this was developing a minimum stockholding obligation on fuel importers with the right to draw fuel from bulk storage facilities in New Zealand.
The minimum stockholding obligation aims to ensure a sufficient supply of petrol, diesel and jet fuel to help mitigate the impact of any major disruptions to our national fuel supply.
Fuel stockholdings under the obligation will be complemented by the government procurement and storage of at least 70 million litres of diesel – equivalent to about 7 days of normal use. This was another key part of the 2022 fuel resiliency policy package. Diesel is prioritised because it is a critical fuel for running emergency services and transporting food.
Details of the obligation
The Fuel Industry (Improving Fuel Resilience) Amendment Bill outlines the requirements of the obligation.
The obligation is applicable to the 5 fuel importers with access to bulk storage facilities – BP, Gull, Mobil, Tasman Fuels and Z Energy. The minimum stockholding level will be set at an average of:
- 28 days use of petrol
- 24 days use of jet fuel
- 21 days use of diesel.
These levels of fuel are intended to achieve a balance between minimising the impact of potential fuel supply disruptions, and avoiding disproportionate price increase for consumers.
To meet the obligation, it is expected that fuel companies do not have to make significant investments in fuel storage facilities, although some may need to change the way they manage their stock to reduce fluctuations in their stock levels.
The Amendment Act:
Calculates the required minimum volumes based on the average stock during a single month
Enables companies to count fuel in bulk storage facilities and fuel cargoes within the EEZ for compliance.
Builds in the flexibility to introduce changes through the regulations.
Provides the ability to grant exemptions and exceptions.
Provides for information disclosure and sharing to support management of fuel supply resiliency and risks.
Includes provisions for penalties for failing to meet the obligation, but enforceable undertakings may be accepted.
The Fuel Industry (Improving Fuel Resilience) Amendment Act, which provides the statutory framework for the minimum fuel stockholding obligation and associated information disclosure requirements, was passed in August 2023.
The new information disclosure requirements are expected to come into effect around July 2024. The minimum stockholding obligation is expected to come into effect around January 2025.
Regulations on the detailed requirements associated with the obligation are being developed.
5 year review
The Bill proposes that the Energy and Resources Minister must review the minimum stockholding obligation within 5 years after it begins. The review must consider broader issues, such as:
- the government’s emissions budget and emissions reduction plan
- fuel demand
- transport fuel mix
- the resilience of fuel supply chains.