Source: Radio New Zealand
The government should start prioritising diesel allocation now as the fuel situation is only getting worse, Westpac’s chief economist says.
It comes as supply chain data from US investment bank JP Morgan reports the last shipments of fuel from Gulf Oil are likely to arrive in New Zealand on 20 April.
Prime Minister Christopher Luxon says while there will be “some form of disruption to fuel at some point in time”, for now it’s “business as usual”.
Speaking to Morning Report on the unfolding fuel crisis, Luxon said as long as phases one and two of the national fuel plan are effective, people won’t have to worry about phases three and four.
“At this point in time we’ve had no indication that our fuel importers who we talk to daily, multiple times a day, have had any cancellation of their forward orders,” Luxon said.
“Keep working, keep the kids in school, doing all that stuff. Please don’t think ‘it’s Covid 2.0, I’m making sourdough at home again’.”
Luxon said he had received assurances from Korean President Lee Jae Myung that New Zealand will receive all of the fuel it ordered last year.
Christopher Luxon said he was leaving it to fuel importers and distributors to organise how to allocate fuel. RNZ / Samuel Rillstone
“All of the refineries in the different countries which we source our oil from are hustling in the world looking for alternatives. Some are getting some success, some are not.”
The government’s utmost priority was ensuring that the country had fuel – even if that meant fuel suppliers paying additional Iranian tolls, he said.
“We are as well prepared as any country that I’ve talked to, but … we’re thinking about days ahead.”
Luxon said he was leaving it to fuel importers and distributors to organise how to allocate fuel.
“There needs to be a reworking of the allocations which is what the importers and the distributors need to work out this week, and it’s up to them to do so.”
‘This problem is not going away’
Westpac chief economist Kelly Eckhold told Morning Report the government would be wise to start prioritising diesel allocation now, and that the situation is only getting worse.
Yemen’s Houthis have now entered the war, and Iran has accused the US of plotting a ground invasion while in the midst of negotiations – threatening to lengthen the conflict.
“The US authorities are talking about the possibility of the war lasting at least another two to four weeks and ground operations would more or less guarantee that it would take much longer than that.”
He expected 91 to cost an average of $3.70 per litre by the end of the week.
“New Zealand is at the long end, at the end of a very long supply chain, and basically mid-April is looking like when it lines up for when there will be challenges here.”
Even though crude oil prices were fluctuating, prices were continuing to rise because it was not reaching refineries, Eckhold said.
Diesel was in even higher demand, and the government would be wise to prioritise its supplies, he added.
Westpac chief economist Kelly Eckhold. Supplied / LinkedIn
“Diesel that we burn now could be diesel that we need in three or four weeks.
“You can get on the bus, you can drive your EV to work, but in the end, if we want a farmer to be getting our food off the land, then he needs that diesel.”
There were also concerns that the alternative route taken by some oil through the Red Sea could be cut off at any time, he said.
“Perhaps about a third of the losses are currently being made up by utilising those pipelines. Obviously, it probably only takes one of those tankers to get blown up in the Red Sea before that route would be choked off.”
He was calling on the government to start escalating its fuel plan now.
“This problem is not going away.”
Finance Minister Nicola Willis said earlier this month that inflation could reach 3.7 percent, but Eckhold said it would likely be closer to 4 percent.
“If you want to talk about worst cases, then we probably should be adding a couple of percentage points on top of that.”
Fuel alert level likely to rise – expert
Energy transition consultant and chair of the Wise Response Society Nathan Surendran told Nine to Noon it was likely the fuel escalation level would rise, and that three of the criteria had likely already been met.
Rationing sooner rather than later was right call, because the “implications of running out of fuel are extremely unpalatable”, Surendran said.
“This is a massive amount of energy that’s disappeared from the global economy. And it is very, very likely that we will have some form of rationing at some point.”
The government needed especially to reserve fuel for the production and transport of food, he said.
It was counting ships bound for New Zealand as part of its fuel stocks, but he was concerned that those vessels could be redirected if it was outdbid by another country.
“These are commercial entities and their profit making mandate comes before anything else.”
He acknowledged raising the fuel escalation level could induce panic-buying – but pointed out that was happening already.
“Hopefully people have filled up now and they’re at capacity and we’ll just go back to more normal buying cycles.”
‘A price shock crisis’
Rural fuel distributor Fern Energy says with allocation rules as they are, it is needing to prioritise some of its fuel deliveries based on need.
The most up-to-date figures showed that there was 18.1 days of diesel in the country, with a further 28.3 days worth on ships bound for New Zealand, but an update is due to be released Monday.
Fern Energy chief executive Chris Gourley told Morning Report people were trying to beat the price by filling up early, and in some cases by hoarding, which was creating demand spikes in certain regions that could not be met because of new allocation rules.
“Importers have said to us that in some ports, they are managing that fuel to make sure it lasts until that next boat comes in, and they’re giving us strict … seven-day allocations.”
He emphasised it was not a problem of supply, but increased demand.
These allocation rules meant that sometimes there was not enough fuel where it was needed, and distributors were forced to bring it in from other regions, which slowed it down, he said.
They were also prioritising deliveries based on need, which was especially important at this critical part of the farming season, Gourley said.
“They are harvesting, they are working through that final stages as they work towards winter … so we are trying to prioritise based on that need, and trying to get to those customers before it becomes dire and they lose their crops.”
Federated Farmers spokesperson David Birkett previously told RNZ up to 95 percent of farming machinery used the fuel.
The hops season had just finished, so recently they had been prioritising that industry, Gourley said.
It was also the middle of the grape harvest season, and there was a huge amount of food in the ground that needed to come out, he added.
The most up-to-date figures showed that there was 18.1 days of diesel in the country, with a further 28.3 days worth on ships bound for New Zealand. 123RF
The forestry industry was also struggling, but that was more about cost and less about fuel demand, he said.
“Some of them are actually saying ‘do you know what? We’re going to just pull up and stop working until this settles down’.”
It would be “useful” for the government to start telling certain ports how to allocate their fuel, he said.
“(In) three or four weeks when the supply issue settles, it could be too late for some farmers … There could be some need immediately, if it’s possible, to improve allocations for distributors like Fern, so we can get on and get fuel to farmers quicker.”
He was confident that there would not be any issues around supply to the country, but reiterated that allocation was a concern
“Supply isn’t going to be an issue for New Zealand. Sustained high prices is what we’ve got to focus on next.
“The crisis is a price shock crisis.”
‘Financial pressure’
Meanwhile, companion driver service Driving Miss Daisy had so far chosen to absorb the rising cost of fuel.
This was because a large number of its customers were elderly or disabled – people on generally on fixed incomes, it said.
General manager Andrew Kirkpatrick told Morning Report over the last four to five weeks, their fuel expenditure was up 30 to 35 percent.
It was getting “harder and harder” to afford this additional cost, he said.
“Transferring our pain to our clients is something we want to avoid if we can.”
It would be helpful for the government to provide financial assistance to those people on fixed incomes, who might not be able to afford their service if they had to increase prices, Kirkpatrick said.
“For many of our clients we are an essential service, not a luxury. And for those clients, they don’t necessarily have practical alternatives.
“For them to be able to continue to remain engaged in the community, to get to their medical appointments, to do their shopping or their rehabilitation, whatever it might be. If they are asked to pay that additional costs it will put financial pressure on them.”
The company hoped it would be an essential service as it was during the pandemic, so that if the country is forced to allocate fuel or subsidies are needed, its clients won’t be disadvantaged.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand