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Report: Govt Inquiry into Auckland Fuel Supply Disruption

Government Inquiry into The Auckland Fuel Supply Disruption
August 2019


Preface

On 14 September 2017, the pipeline that brings diesel, petrol, and jet fuel from Marsden Point Oil Refinery into Auckland ruptured. It leaked jet fuel into rural properties and stopped the transmission of fuels into Auckland for 10 days. The rupture resulted from damage caused by a digger when it was being used to dig for kauri logs some three years earlier. No one had been informed at the time that the pipeline had been struck, and over time, the pipe weakened and eventually ruptured.

If there was to be a rupture, it was lucky that it happened when and where it did. The location was easy to access and not in a highly populated area, so the containment and repair could be carried out quickly, with a minimum of risk to people. Had there been the more flammable petrol in the pipeline at the time of the rupture, rather than jet fuel, there would have been a significant risk of fire and explosion, and the fuel would have been harder to contain. In addition, it was lucky that the rupture occurred outside peak air travel times and at a time when the jet fuel tanks at the Auckland end of the pipeline were near capacity, which meant the airport had available close to the maximum amount of jet fuel possible to be used while the pipeline was repaired.

In short, the consequences could have been far worse than they were.

The incident raised awareness and was a reminder that the fuel supply chain infrastructure is nationally critical infrastructure. The pipeline supplies almost all of Auckland’s diesel and petrol, and is the only supply of jet fuel to Auckland Airport. Fuel companies were able to transport petrol and diesel into the Auckland area by truck from other parts of the country. However, there was no equivalent alternative route for jet fuel. Airlines flying out of Auckland Airport had to limit their use of jet fuel to 30% of their usual usage, which caused significant disruption to flights to and from Auckland.

Our task was to look at what lessons we might take from this incident, to determine what steps could be taken to improve the resilience of Auckland’s fuel supply in future. In doing so, we followed current international definitions of “resilience”. Our work therefore examined measures to prevent problems, planning and preparedness; the adequacy of the response and recovery efforts; and whether we could see evidence of adaptation and learning for the region to grow and thrive.

The report makes several recommendations on how the sector can better prevent, prepare for, respond to, and recover from an incident. In particular, we consider it essential that government and industry work together to put in place and regularly practise sector-wide response plans, to improve the response to any future incident.

Most significantly, we found that Auckland’s jet fuel supply is currently not sufficiently resilient, when assessed against the specific resilience standards we developed during our work, and from a public interest perspective.

With only a single supply chain for jet fuel, a single point of failure at any point along that chain can cause a complete disruption of supply to Auckland Airport. There is limited storage near the airport to provide cover for an outage and the number of days of cover that storage provides is decreasing as the daily demand for jet fuel grows. This means our vulnerability is increasing.

In addition, 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.

We have concluded that there is a need to invest in further infrastructure without delay, to achieve an acceptable level of resilience. Investment is needed now to ensure that:

• capacity in the supply chain near the airport will be able to meet the increasing demand; and

• there is sufficient cover for an outage event.

• Ideally, the industry would also develop a second permanent supply chain.

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 infrastructure we have has been able to meet demand to date largely because of investments made in previous decades.

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.

Most of the fuel companies agreed with the forecast growth of jet fuel demand. However, in our interactions with them, some were slow to link those forecasts to a need for further investment in infrastructure and to share information about their thinking on investment possibilities. The complexity of the ownership and joint venture structures, and the confidentiality arrangements between the different parts of the supply chain, made it challenging to have visibility and allow us to have confidence about future investment plans.

Towards the end of the Inquiry process, the fuel companies provided us with information showing that they are starting to consider infrastructure investment options; however, the plans are still preliminary. In our view, the 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. BP told us that it disagrees with this view, because it considers that a cost benefit analysis of the specific options should be completed before finalising a view on the appropriate resilience standards. We address this point in chapters 3 and 18 of the report.

In our report, we have identified what we believe are appropriate and measurable minimum standards of resilience, taking into account the wider community interests. We have recommended a number of actions designed to encourage timely investment to meet and maintain these standards. These include steps to increase the transparency of demand forecasts, capacity constraints, and investment plans; and to develop a legislative framework to give government the power to step in if industry does not invest sufficiently to meet the required standards.

We wish to acknowledge and thank all the parties who met with us, provided information and submissions, and participated in the workshop and forum held by the Inquiry.

The Inquiry is indebted to Nicola White, Kirsty Pringle, and Danielle Kelly, as well as our two Counsel Assisting, Philip Skelton QC and Tom McKenzie. Michael Groesz and Bronwyn Buck of Fueltrac Pty Ltd contributed their expertise. We also wish to thank Bankside Chambers for their helpful assistance.

This incident was a timely reminder of how important this fuel supply infrastructure is for Auckland and New Zealand. Ensuring the ongoing resilience of such infrastructure needs regular consideration and action. We hope that New Zealand will learn from this incident and improve its ability to prevent, prepare for, respond to, and recover and learn from any future disruption to Auckland’s fuel supply.

Elena Trout

Dr Roger Blakeley

16 August 2019

Full report: AFSD_Inquiry_report_FINAL_for_printing_19_August_2019.pdf

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