Airport fuel outage probe faults companies

A new inquiry into the 2017 Auckland Airport fuel outage says fuel companies need to invest in more resilient infrastructure, particularly as the airport uses ever more fuel, Marc Daalder reports.

An independent report investigating the condition of the fuel pipeline between Marsden Point and Auckland has found that "Auckland’s jet fuel supply is currently not sufficiently resilient".

The paper was commissioned by the Energy Minister Megan Woods after damage by a digger ruptured Auckland's sole source of jet fuel in 2017. It concluded that, by and large, Refining NZ did everything it could to prevent a leak and responded well to the outage.

However, the report said that fuel companies "have failed to make timely investments to achieve and maintain the level of resilience in the supply chain that we regard as appropriate".

The outage

The report found that the outage was caused by damage to the pipeline on a property in Ruakākā. The damage was done by a contractor operating a digger in 2014, but the landowner was unaware that the pipeline had been affected. On September 14, 2017, the pipe burst, shutting down the sole source of jet fuel into Auckland.

Fuel supply to Auckland was disrupted for 10 days. While the report applauded Refining NZ's response, saying it was "of a high standard", it raised issues with communication between different elements of the fuel sector and the work to manage fuel stocks during the outage.

In particular, the report found that companies failed to adequately share fuel stock information, making it difficult "to build a bigger picture of the issue and plan for any further contingency".

This was necessary because the only source of jet fuel to Auckland and the primary source of other fuels had now been disrupted. Several initiatives were successfully launched, including trucking in ground fuels. However, some retail petrol stations did run out of premium fuels and "diesel stocks were getting low by the end of the outage".

Stores of jet fuel already present in Auckland, particularly in Wiri, were enough to help the airport weather the 10 day outage, although airlines were asked to reduce their fuel usage by 70 percent for the duration. 

Responsibility for infrastructure investment

The lack of alternative infrastructure for transporting jet fuel into Auckland is a major and potentially crippling flaw in the system, the report found. Rectifying this gap is one of the report's chief recommendations.

Part of the issue with this is that the Government plays a minimal role in designing and operating New Zealand's fuel infrastructure.

"The fuel supply chain infrastructure is largely owned or controlled by the three major fuel companies (BP, Mobil, and Z Energy) through complicated joint venture arrangements, with limited government oversight or ability to intervene," the report noted.

This means that the report could have limited efficacy in compelling fuel companies to invest more in infrastructure. Such investments are required, according to the report, not only to patch up weaknesses in the system but also to cope with rising demand.

"... investment decisions seem to have been focused on meeting the demand curve on a 'just in time' basis".

In addition to exploring the possibility of alternative jet fuel sources for Auckland, the report noted that "parts of the infrastructure near the airport are now operating close to capacity. In its current state, parts of the supply chain will not be able to meet basic demand in a few years’ time, let alone recover from, or provide resilience during, an outage of any significant size".

This was not news to the big three fuel companies, which the report said "agreed with the forecast growth of jet fuel demand". However, they were reluctant to make the connection that, in order to cope with this demand, the companies themselves have to invest in new infrastructure.

"As a market-led system, investment decisions seem to have been focused on meeting the demand curve on a 'just in time' basis. This may not take adequate account of the interests of the wider community and stakeholders in maintaining a system with greater resilience to withstand rapid increases in demand or events that disrupt supply," the report stated.

BP New Zealand managing director Debi Boffa said the pipeline outage "underlined the vital importance of this infrastructure for the country. Jet fuel demand at the airport has risen dramatically in recent years, and while this has levelled off, we believe additional capacity will be a key step in meeting increased resilience targets."

"BP has committed funds to be invested in additional storage at the Wiri Oil terminal."

Mobil said it was still considering the report and Z Energy did not respond to a request for comment.

*Article corrected to make clear report was commissioned by Woods rather than MBIE.

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