The Government has signed a deal with Z Energy to procure an additional nine days' worth of diesel as buffer against supply shocks linked to the Middle East conflict.
Prime Minister Christopher Luxon, Finance Minister Nicola Willis and Associate Energy Minister Shane Jones announced the deal today, saying 90 million additional litres of diesel would be brought into the country.
Luxon said the deal would boost New Zealand's diesel reserves and make the country more resilient at a time of great uncertainty abroad.
Willis said the fuel would only be used in a worst-case scenario to prevent the country from reaching phase three or four of its fuel response plan — the stages at which fuel allocation measures would be introduced.
"This is the backup buffer. It's like the money in the piggy bank that has the masking tape all over it. It's only there if we really, really need it on a rainy day," she said.
The fuel will be delivered to Marsden Point in Northland and stored in a refurbished tank at Channel Infrastructure's site.
The Government signed off on up to $21.6 million earlier this month to acquire the extra storage capacity, which is expected to be ready by early June.
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The extra fuel was expected to be delivered soon after, in late June or early July.
The procurement comes as national fuel supplies have continued to decline, according to the latest MBIE data update published yesterday. A new update is expected tomorrow.
Petrol cover sat at 51.8 days, diesel at 41.3 days and jet fuel at 45.7 days — all down from the previous week. Diesel has shed more than 10 days of cover since peaking at 51.7 days in early April, while petrol has dropped nearly 11 days over the same period.
On-water stocks have also notably continued to trend downwards, though MBIE said the movements remained within normal expectations.
Govt will control when fuel is released into the market
Under the terms of the deal, Z Energy will procure, own and manage the diesel, but the Crown will control when it is released into the New Zealand market.
The Ministry of Business, Innovation and Employment ran a competitive procurement process, inviting fuel importers to submit their proposals to supply additional fuel.
Willis described the additional supply as an insurance policy, saying it would add around 50% to the existing reserve buffer of about 21 days of diesel already in storage.
She compared the deal favourably to Australia's efforts, noting that while Australia had secured around 400 million litres of fuel — equivalent to six to seven days of supply — New Zealand's deal equated to around nine days.
According to the Government, the fuel will be delivered to Marsden Point either as a single cargo or as two cargoes; the Crown's exposure to any long-term fall in fuel prices will be limited, and the fuel will be held at the direction of the Crown.
Jones said the proposal offered by Z Energy was the best one for New Zealand.
"Z Energy’s proposal delivered the strongest overall advantages, providing value for money alongside practical flexibility around how and when the additional fuel could be used," he said in a media release.
New supply will not count towards fuel companies’ minimum stockholding obligations.
'We have driven a hard bargain' on energy profits
Willis said that while the current fuel system continues to serve the country well, additional fuel provides strategic insurance for keeping the economy moving.
"Reliable fuel supply is essential for households and businesses. We have prioritised securing additional diesel because it is the fuel that drives the economy, " she said.
The Finance Minister was pressed for details of the deal, including whether Z Energy would make profits from the deal, but she said that information was commercially sensitive.
"Our negotiators are looking at the whites of the eyes of Z Energy, and we have driven a hard bargain, as you'd expect us to do. I note that the Australians also haven't shared the commercially sensitive details of their arrangements, and that's appropriate."
Yesterday, Regulation Minister David Seymour announced a series of trucking and freight rule changes were being developed to reduce fuel use, including allowing some heavy vehicles to carry more weight per trip and relaxing restrictions for oversized trucks.
New Zealand remains in phase one, which involves increased monitoring but no emergency measures. The Government said it expected options to be ready by the end of the month if the country needed to move up phases.
Luxon said he would travel to Singapore on Sunday to meet prime minister Lawrence Wong to formally sign a trade and essential supplies agreement – already in operation – that ensured Singapore would not impose export restrictions on fuel to New Zealand.
He said South Korea had also assured New Zealand it planned to continue supplying fuel, and that refineries in both countries were sourcing alternative crude feedstock from Canada, West Africa, Oman and parts of South America.
Willis also said the average diesel price had dropped around 55 cents a litre over the past 14 days — an average decline of about four cents a day — although she acknowledged the average price of $3.35 remained high.
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