The Government has today announced a suite of initiatives to help strengthen New Zealand’s fuel sector by improving supply resilience and sustainability, and encouraging more competition.
Energy and Resources Minister Dr Megan Woods said the improvements will help “pave the way for a more stable, low-emissions fuel supply; greater choices for consumers; and a more competitive wholesale fuel market with the power for the Commerce Commission to regulate prices if required”.
“We know many households are struggling with the increased cost of living, so we are pulling back on any potential extra costs on consumers as a result of the biofuels obligation,” she said in a media release.
“This supports a range of actions we have taken to ease the pressure on families, alongside the extension to our fuel tax cut, reduced road user charges and half price public transport until January 2023.”
Improving fuel supply resilience
Onshore fuel stock obligations and Government-procured diesel storage are among the changes set in place for a more resilient fuel sector.
The move means fuel importers and wholesalers with bulk storage facilities will be required to hold minimum levels of onshore stocks, consisting of 28 days’ worth of petrol, 24 days’ worth of jet fuel, and 21 days’ worth of diesel.
Woods said the supply of onshore fuel stocks will “help shield us from major disruptions to international oil and fuel markets, natural disasters and infrastructure failures”.
“While the risk of a major disruption to our fuel supply is very low, the impacts would be significant and felt across the economy,” she said.
The Government will also look to procure onshore storage of at least 70 million litres in reserve diesel stocks, equating to approximately seven days’ cover.
Woods said the focus around diesel reflects its importance operating critical services, including emergency services and the delivery of food and essentials.
“Transport fuels currently underpin the day-to-day running of our economy and it’s vital we manage our fuel resilience well.”
Sustainable biofuels for emissions reduction
The Government has also announced it will be pushing out its start date for fuel wholesalers to deploy biofuels into their fuel supply under the Sustainable Biofuels Obligation from next year to April 1, 2024, to allow the sector more time to prepare the necessary infrastructure and feedstocks, as well as "reducing any extra potential costs" from being passed on to consumers.
The Sustainable Biofuels Obligation, as part of the Government's Emissions Reduction Plan, is expected to “prevent around one million tonnes of emissions from cars, trucks, trains and ships over the first two years and up to nine million tonnes by 2035”, Woods said.
“Fuel wholesalers will need to meet emissions intensity reduction targets of 2.4% for 2024 and 3.5% for 2025. Provisional targets will be set for 2026 and beyond, increasing up to 9.0% by 2035, with adjustments on the intensity targets in the intervening years to make up for the year’s delay in implementation,” Woods said.
The Government's giving the Commerce Commission the power to set "fair prices" at wholesale for fuel.
“Biofuels alone won’t get us to net zero, but they are an important part of the toolkit to help us manage a fair, inclusive and equitable transition to a low-emissions future.”
Regulatory backstop to promote competition
The Government has also agreed to give the Commerce Commission the power to “step in and set fair prices” if necessary to help promote competition in wholesale pricing, Woods said.
It comes off the back of the terminal gate pricing regime introduced under the Fuel Industry Act 2020, which requires wholesale suppliers selling from terminals to a daily spot wholesale price.
If requested, wholesale suppliers must supply the retailer with the requested amount at the terminal gate price. This improves access to the wholesale market and provides for transparent wholesale prices, which makes it easier for new participants to enter the market and for existing fuel sellers to expand into other regions.
The regulatory backstop measure was recommended by the Commerce Commission in 2019.
“While the Act is already facilitating a more competitive wholesale fuel market, there are some outstanding risks to the success of the terminal gate pricing regime,” Woods said.
She said while the "increased price transparency" helps promote competition, wholesalers could also use the greater transparency to coordinate prices "unless there are some disincentives built into the system".
“Following consultation with the sector in 2020 we are now pushing through on development of the backstop regime, which would allow for terminal gate prices of one or more wholesale suppliers to be price regulated if excessive terminal gate prices are found to be offered.”
The backstop is 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,” she said.
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