Fuel crisis: ‘Business as usual’, Luxon says – but other industries are struggling

The government should start prioritizing diesel allocations now as the fuel situation worsens, Westpac’s chief economist has said.

It comes as supply data from US investment bank JP Morgan reports that the last shipment of fuel from Gulf Oil is likely to arrive in New Zealand on 20 April.

Prime Minister Christopher Luxon said that while there would be “some sort of fuel-burning disruption at some point”, for now it was “business as usual”.

To talk to Morning Report on the ongoing fuel problem, Luxon said that as long as the first and second phase of the national fuel plan are working, people will not worry about the third and fourth phase.

“At this time we have not indicated that our oil suppliers that we talk to on a daily basis, many times a day, have had their original orders cancelled,” said Luxon.

“Keep working, keep the kids in school, do all those things. Please don’t think ‘it’s Covid 2.0, I’m making sour dough at home again’.”

Luxon says it has received assurances from Korean President Lee Jae Myung that New Zealand will receive all the fuel it ordered last year.

“All the utilities in the different countries that we supply oil to are busy all over the world looking for alternatives. Some are successful, some are not.”

The government’s priority was to make sure the country had enough fuel — even if that meant oil exporters would pay additional tariffs on Iran, he said.

“We’re as well prepared as any country I’ve talked to, but … we’re still thinking about the days ahead.”

Luxon said it is left to fuel buyers and importers to organize the fuel distribution system.

“There has to be a new distribution process which is what retailers and distributors need to do this week, and it’s up to them to do that.”

‘This problem never ends’

Westpac chief economist Kelly Eckhold said Morning Report The government would be wise to start distributing diesel first now, and the situation is getting worse.

Yemen’s Houthis have now joined the war, and Iran has accused the US of planning a ground attack amid negotiations – threatening to prolong the war.

“US officials are talking about the possibility that the war will last at least another two to four weeks and the ground operations will ensure that it will last longer than that.”

He expected 91 to cost as much as $3.70 per liter by the end of the week.

“New Zealand is at the long end, at the end of a very long supply, and actually mid-October seems to be the time when there will be problems here.”

Although crude oil prices were falling, prices continued to rise because they were not reaching refineries, Eckhold said.

Diesel was in higher demand, and the government would be wise to prioritize its supply, he added.

“The diesel we burn now can be the diesel we need in three or four weeks.

“You can take the bus, you can drive your EV to work, but at the end of the day, if we want the farmer to get our food from the soil, then you need that diesel.”

There were also concerns that another oil route to the Red Sea could be cut off at any time, he said.

“Probably about a third of the losses are being repaired by using those pipelines. Obviously, it might only take one of those ships to blow up in the Red Sea before that line is choked.”

He was asking the government to start increasing its fuel policy now.

“This problem never ends.”

Finance Minister Nicola Willis said earlier this month that inflation could reach 3.7 percent, but Eckhold said it would be closer to 4 percent.

“If you want to talk about worst-case scenarios, we’ll probably be adding a few percent more than that.”

The level of fuel awareness may be rising – expert

Energy transition consultant and Wise Response Society chairman Nathan Surendran said Nine o’clock to Noon it was possible that the level of inflation was going to rise, and that the three criteria had already been met.

Giving estimates sooner rather than later was the right call, because “the effects of running out of fat are not very pleasant”, said Surendran.

“This is a lot of energy that has disappeared from the global economy. And there is a high probability that at some point we will have some way to provide it.”

He said the government mainly needed to save fuel for production and transportation of food.

It counted ships bound for New Zealand as part of its fuel, but he was concerned that those ships could be diverted if another country was bypassed.

“These are commercial entities and their mandate to make a profit comes before anything else.”

He acknowledged that raising the fuel rate would cause panic – but pointed out that it was already happening.

“I hope that people are now full and strong, and we will go back to normal shopping habits.”

‘A price shock crisis’

Rural fuel supplier Fern Energy says with distribution rules as they stand, it needs to prioritize some of its fuel inventory to meet demand.

The latest figures showed there were 18.1 days of diesel in the country, with a further 28.3 days worth on ships to New Zealand, but an update is due to be released on Monday.

Fern Energy chief executive Chris Gourley said Morning Report people tried to beat the price by filling quickly, and in some cases by hoarding, which caused spikes in demand in certain areas that could not be met due to the new distribution rules.

“The importers said to us in some ports, they are managing that fuel to make sure it lasts until the next boat comes in, and they are giving us power … a seven-day supply.”

He emphasized that it is not a supply problem, but the demand has increased.

These distribution rules meant that sometimes there was not enough fuel where it was needed, and the distributors had to bring it from other places, which caused it to slow down.

They also prioritized supply based on demand, which was very important in this critical part of the farming season, Gourley said.

“They’re still harvesting, they’re in the final stages of winterizing … so we’re trying to prioritize based on that demand, and try to get to those customers before it becomes dangerous and they lose their crops.”

United Farmers spokesman David Birkett previously told RNZ up to 95 per cent of farm machinery used fossil fuels.

The hop season had just ended, so they had recently prioritized the industry, Gourley said.

It was also the middle of the grape harvest season, and there was a lot of food on the ground that should come out, he added.

The forestry industry was also struggling, but that was more on costs and less on fuel demand, he said.

“Some of them actually say, you know what?

It would be “good” for the government to start telling other ports how to distribute their fuel, he said.

“(In) three or four weeks when the supply issue ends, it may be too late for some farmers… There would be an immediate need, if possible, to improve the distribution of distributors like Fern, so that we can go in and get the fuel to the farmers quickly.”

He was confident that there would not be any problems with the supply of the country, but he also said that distribution was a concern

“Supply will not be an issue for New Zealand. High stable prices is what we have to focus on in the future.

“Problems are expensive problems.”

‘Financial stress’

Meanwhile, their colleagues at the driving service “Driving Miss Daisy” have so far chosen to accept the rising price of fuel.

This was because a large number of its customers were elderly or disabled – people generally on fixed incomes, it said.

CEO Andrew Kirkpatrick said Morning Report in the last four to five weeks, their fuel consumption has increased by 30 to 35 percent.

He said it was becoming “more and more difficult” to cover these additional costs.

“Transferring our pain to our customers is something we want to avoid if we can.”

It would be better for the state to provide financial assistance to people on fixed incomes, who may not be able to pay for their services if they raise prices, Kirkpatrick said.

“For many of our customers we are an essential service, not a luxury. And for those customers, they have no viable alternatives.

“So that they can continue to stay engaged in the community, go to their medical appointments, do shopping or their rehabilitation, whatever it is. If they are asked to pay those additional costs it will put financial pressure on them.”

The company hopes that it will be an important service as it was during this epidemic, so that if the country is forced to provide fuel or aid is needed, its customers will not be disappointed.

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