Refinery on knife edge of viability, MPs told

By BRIAN FALLOW

Uncertainty about how the Kyoto Protocol on climate change might be implemented is casting a shadow over the future of the Marsden Pt oil refinery beyond 2005.

A New Zealand Refining Company executive, Stuart Frazer, told Parliament's foreign affairs select committee yesterday that the company faced a major investment decision which would determine whether the refinery continued to be viable.

It faces the prospect of clean-fuel regulations - unrelated to greenhouse-gas emissions - that would require it to drastically reduce the sulphur and benzene content of petrol from January 1, 2006.

Complying would require investment of between $110 million and $150 million in further processing plant at the refinery, and the company would need to make decisions towards the end of the year, Frazer said.

The refinery company, which is 73 per cent owned by the major oil companies, would have trouble convincing its international shareholders that the spending was justified, given the absence of any policy detail about the implications of New Zealand's ratifying the Kyoto Protocol.

Frazer said later that officials were aware of the refinery's concerns.

The Government has indicated it will deal with major emitters such as the refinery through negotiated greenhouse agreements or NGAs.

The refinery has already cut its emissions per litre of fuel produced by 8 per cent from 1990 levels, a secondary effect of the continual drive for greater energy efficiency in its processes.

But the production of clean fuels is more energy intensive and would increase emissions by between 10 and 15 per cent.

Frazer would not quantify how much of an increase in cost would trigger a decision to close the refinery.

"We cannot pass the costs on to our customers because we work on import parity pricing."

The refinery meets about 67 per cent of New Zealand's petrol requirements and about 90 per cent of its diesel demand. The remainder is imported from Asian refineries which would not be subject to the Kyoto Protocol.

Any switch in demand from Marsden Point to those refineries, in Singapore, Korea or Taiwan, would make no difference to global emissions of greenhouse gases - a phenomenon known as leakage.

The Government has said that climate-change policies would reflect the need to avoid leakage and to maintain New Zealand's competitiveness.

"We are clinging on to those sound-bites," Frazer said.

The refinery employs 350 people. If its output were replaced by imports, the additional cost would be about $175 million a year. The Government would lose about $60 million in tax revenue.

nzherald.co.nz/climate

Intergovernmental Panel on Climate Change (IPCC)

United Nations Environment Program

World Meteorological Organisation

Framework Convention on Climate Change

Executive summary: Climate change impacts on NZ

IPCC Summary: Climate Change 2001