Margins so high refiner may return cash to buyers

Refiners able to process oil to high standards can charge a premium. Picture / Greg Bowker

NZ Refining's margins have been so high in four of the first six months of this year it may have to return money to its customers - the world's oil majors.

NZR said yesterday it had received an average margin of US$9.60 ($15.14) per barrel of oil processed in the May-June period.

It made a record margin of US$10.79 for the previous two months against US$6.21 in January-February.

The May-June margin compared with US$8.78 received in the year-ago period and was almost three times the US$3.27 margin of two years ago.

NZR's main customers, who are also NZR's major shareholders, have an agreement that its margins must be capped at US$9 a barrel over the year.

The cap is calculated at the final margin at the end of the year for each individual customer.

NZR is a turnpike operation collecting a margin fee for processing customers' crude oil into petrol, diesel and other refined products.

Its main shareholders include BP (23.6 per cent), Mobil (owned by Exxon Mobil) (19.2 per cent), Shell (17.1 per cent) and Caltex (half owned by Chevron) (12.7 per cent).

NZR reported processing fees of $68 million in May-June but that would have been $7.2 million higher had the cap not been in place and that amount will be recouped if margins drop in the second half year.

Throughput for the May-June (two-month) period was 6.325 million barrels compared with 6.89 million in the year-ago period.

Throughput for the six-month period ending June 30 was 2.6 per cent below plan due to the timing of a maintenance shutdown of its hydrocracker.

Chief executive Jerome Kerrigan said refining margins had begun to trend down in the July-August period.

"The crude prices have been dropping and the product prices have been dropping as well," he said.

Crude oil prices have shot up but a global shortage of capacity for refining high-quality (lower-polluting) petrol had added to costs.

Refiners, such as NZR, able to process oil to high standards could charge a premium.

Kerrigan said the bubble for product quality was starting to disappear. Australia had taken time to get its clean fuel projects on line but it was now on stream.

NZR upgraded its Marsden Pt refinery for lower-sulphur diesel two years ago and lower-benzine petrol last year.

- NZPA