Cost of living burden pushes Govt into fuel sector changes

The Government is tinkering with the fuel industry by giving power to the Commerce Commission to improve the sector’s security and affordability, boosting the country’s fuel supply resilience and delaying plans that reduce emissions amid a cost of living crisis.

The three changes, announced this morning by Energy and Resources Minister Megan Woods, are intended to create a stable fuel supply with more options for consumers, and encourage a competitive wholesale fuel market that can be regulated if necessary.

In March, petrol prices surged past $3 per litre due, in part, to the Russian invasion of Ukraine which led to high oil prices at the time.

It forced the Government to slash both fuel excise duties and road user charges by 25c a litre, alongside cutting public transport fees in half, in a package now in place until January to address the rising everyday costs imposed on Kiwis.

While petrol prices had reduced slightly in recent weeks, the price of diesel had risen above 91 octane petrol for the second time in months - now at an average of $2.64 per litre versus $2.56 for 91, according to fuel price tracking service Gaspy.

The first of today’s changes concerned minimum onshore fuel stocks and Government-procured diesel storage.

Fuel importers and wholesalers with bulk storage facilities would be required to hold minimum levels of onshore stocks of petrol, jet fuel, and diesel.

The minimum levels they must hold equated to approximately 28 days’ worth of petrol, 24 days’ worth of jet fuel and 21 days’ worth of diesel.

“Having a sufficient supply of onshore fuel stocks will help shield us from major disruptions to international oil and fuel markets, natural disasters and infrastructure failures,” Woods said.

“And while the risk of a major disruption to our fuel supply is very low, the impacts would be significant and felt across the economy.”

Minister for Housing and Urban Development Dr Megan Woods. Photo / NZME

The Government would also procure at least 70 million litres of additional onshore storage of reserve diesel stocks, providing approximately seven days’ cover.

The move reflected the importance of diesel in the operation of emergency services and deliveries of food and essential goods.

“Transport fuels currently underpin the day-to-day running of our economy and it’s vital we manage our fuel resilience well,” Woods said.

The second change involved the delaying of the Sustainable Biofuels Obligation - a measure intended to reduce emissions from cars, trucks, trains and ships by 10 million tonnes in the 13 years from 2023 to 2035.

Biofuels are renewable, low-emissions fuels derived from biological matter such as plants, animal wastes, forest residues and other organic material.

Under the obligation, fuel wholesalers must cut the total greenhouse gas emissions from the transport fuels they sell by a set percentage each year, by deploying biofuels as part of their fuel supply.

The obligation was set to come into force in April next year, but has been extended by 12 months to allow wholesalers to build necessary infrastructure and to prevent extra costs from being passed on to consumers.

“While biofuels will account for a very small part of the overall fuel price, we recognise that motorists don’t need any extra costs in the current cost of living crisis,” Woods said.

The year’s delay would reportedly be compensated by adjustments on emissions intensity reduction targets imposed on fuel wholesalers in the period leading up to 2035.

A bill concerning the obligation and its revised start date would be introduced in Parliament in the coming weeks.

Petrol prices soared over $3 in areas such as Auckland in March. Photo / Brett Phibbs

The final change allowed the Commerce Commission to act as a “regulatory backstop” to prevent wholesalers from taking advantage of a new fuel pricing regime.

A terminal gate pricing regime, one of a number of changes brought in under the Fuel Industry Act 2020, required wholesale suppliers that sell from storage terminals to post a daily spot wholesale price, that could act as a benchmark in supply agreement negotiations.

It was intended to increase competition and transparency to encourage market growth and expansion into other regions.

However, it was feared suppliers could co-ordinate prices, due to the greater price transparency.

That fear informed the Commerce Commission’s advice that it acted as a backstop and step in if excessive terminal gate prices were being offered, a recommendation that originated from the commission’s fuel markets study in 2019.

It was expected to come into effect in mid-2023.

“This suite of measures strengthens our fuel system to make it more secure, sustainable and affordable for all New Zealanders,” Woods said.