Cancelled refinery strike leaves oil companies holding emergency fuel shipment

The cancellation of a two day strike at the Marsden Point oil refinery next week has left the country’s four main oil companies with an unwanted 50 million litre emergency shipment of aviation fuel that set sail from South Korea at the weekend.

Z Energy, BP, Mobil and Chevron (owner of the Caltex brand), acting in concert as the Customer Supply Group, sourced the emergency shipment late on Friday amid fears that Auckland International Airport could run short of aviation fuel if the strike, scheduled for Oct. 7 and 8, had gone ahead, precipitating a break in production at the refinery of at least 11 days while the refinery was shut down, closed for two days, and then restarted.

The shipment, worth perhaps US$60 million, was loaded in Korea over the weekend and the tanker carrying it was already on the way when unions representing some 160 workers at the refinery agreed today to cancel their notice of industrial action and to seek members’ agreement not to issue another for at least five weeks and to seek facilitated bargaining through the Employment Relations Authority.

Jonty Mills, a spokesman for BP, which chairs the customer supply group, said the companies were now “working frantically” to sort out options for the aviation fuel, which cannot simply be unloaded at Marsden Point, since that would overload New Zealand’s limited jet fuel storage facilities.  In total, counting refinery, Auckland and airport storage, the country has around 15 days’ aviation fuel cover.

“The destination of the import cargo is right now unknown,” Mills told BusinessDesk. Options appear to include placing the shipment on the international market for tender, diverting it to another buyer, or returning it to Korea for offloading, all of which will carry shipping and other costs related to the rushed and volatile nature of the order.

A prolonged outage at the refinery last year forced some airlines to carry extra fuel on trips to New Zealand to allow return journeys without sapping local jet fuel supplies.

The oil companies have separately raised with government ministers and the Ministry of Business, Innovation and Employment the unacceptability of a fortnight’s notice of a strike on essential national infrastructure such as the refinery.

“This is very good news,” said Z Energy communications manager Jonathan Hill of the strike cancellation. “But the point we would draw to your attention is that the industry has scrambled around for the best part of a week.  Fifty million litres of jet fuel is on its way to New Zealand and we now have to work out what to do with it. To get those supplies, we’ve had to commit serious working capital.”

The industrial unrest at the refinery comes as Refining NZ, which owns the plant and has the four major oil companies as its majority shareholders, seeks cost savings and a workforce reduction at the same time as implementing a $365 million upgrade to make the plant competitive.  It has been losing money for at least 18 months because of low global margins for oil refining, only shoring up its earnings under special payment arrangements with its oil company shareholders.

Talks before a mediator last Friday failed to resolve the outstanding issues and facilitative bargaining involves both sides submitting what they’ve agreed on and what they are still in dispute over. No date has yet been set to go before the ERA but both sides said they wanted to resolve the matter within the next four weeks.

Oil companies had forged ahead with a contingency plan last week to import more fuels into the country to minimise disruption as they couldn’t risk waiting to see if the industrial action went ahead or not. The main problem would have been jet fuel as the Northland refinery produces all the country’s jet fuel and Auckland Airport holds only three days worth of stock.

The union action centred around company plans to contract out more work and the number of consecutive days workers were required to be on the job. There had been no industrial action at the refinery since the mid 1980s though notice has been served many times over the years. The unions are required to give 14 days notice of strike act under the Essential Services Act.

Shares of Refining NZ closed at $1.62, up 1.3 percent on the day.