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Amendments to the Petroleum Products Specification


Amendments to the Petroleum Products Specifications Regulations

The New Zealand Refining Company was today advised of the outcome of the Government’s Review of Petroleum Fuel Specifications. The Company has participated openly and constructively with Government throughout the review process. The Company accepts the need for a phased transition to more stringent fuel specifications. The future fuel specifications will improve local air quality by reducing the emissions of sulphur and nitrogen oxides, hydrocarbon vapours, benzene and particulate matter. The specifications will also allow the use of advanced engine technologies which will offer the benefits of further emission reductions and greater fuel efficiency.

As previously indicated in our Annual Reports, and most recently at our Annual General Meeting, the Company has been reviewing the impact of future fuel specifications for some time. Some of the requirements are already met or exceeded by our current production. Other requirements can be met by our existing facilities but will incur higher production costs. However, two future requirements (lower sulphur in diesel and lower benzene in petrol) will require significant investment in new plant and equipment. The currently estimated costs are between 110 and 150 million dollars.

At the Company’s recent Annual General Meeting, the Chairman, Mr Ian Farrant, told shareholders that, after an extensive review of options, the Board has approved these projects in principle and has released 8 million dollars for design work leading to detailed cost estimates. A project team has been established and the technology selection process is underway.

As the further removal of sulphur and benzene inherently requires more energy one key factor that will be assessed prior to final approval of project implementation is the future treatment of the Company’s greenhouse gas emissions. The Government’s recently released “Preferred Policy Package for Climate Change” is seen as a reasonable basis for constructive engagement on these issues. Independent international benchmarking shows the Marsden Point Refinery to be more energy efficient than most other comparable refineries in the region. The majority of the Company’s competitors are not yet faced with the greenhouse gas issue (they do not have obligations under the Kyoto Protocol until 2013 at the earliest).

The New Zealand Refining Company Limited remains fully committed to supplying fuel to the nation safely, efficiently and reliably whilst maintaining financial viability and meeting our shareholders’ expectations.

Alan Davey
Chief Executive Officer

Information Sheet on
The New Zealand Refining Company Limited


1. What has The New Zealand Refining Company Ltd being doing about clean fuels?
The company has been very proactive in the past few years through:
- Conducting trials and puchase of new catalyst leading to the reduction in the sulphur content of diesel produced at Marsden Point;
- studies to identify changes required to meet anticipated changes
(over 1 million dollars spent so far);
- open and constructive discussion with Government and other key stakeholders.

2. What is the impact on The New Zealand Refining Company Limited of the announced change in specifications?
The regulatory impacts can be categorised as follow:
a) Those requiring capital investment;
- Diesel Sulphur Content
- Petrol Benzene Content
b) Those requiring changes to the way we operate existing units, leading to reduced income;
- e.g. Petrol Vapour Pressure
c) Those having no impact, where Marsden Point already operates at better than required standard.
- e.g. Petrol sulphur content
More detail on the specifications requiring capital investment are detailed below.

3. What impact will this investment have on The New Zealand Refining Company Limited's profitability over the next few years?
This investment is required for us to stay in the refining business, which, in the opinion of the Directors, is going to produce satisfactory returns for all shareholders.

Diesel Sulphur Content

1. Where does the sulphur come from?
Sulphur occurs naturally in crude oils.
2. How is sulphur removed from diesel?
Sulphur is removed by a process called Hydrodesulphurisation.
In this process the diesel is mixed with hydrogen, heated to high temperature, compressed to high pressure, and passed through a reactor containing catalyst.
The sulphur is released from the diesel as a gas (hydrogen sulphide) which is separated and converted back to pure sulphur. This pure sulphur is used to make fertiliser.
3. Why can't the refinery make 50ppm sulphur diesel now?
The Marsden Point Refinery has only a small diesel Hydrodesulphurisation unit.
To make 50ppm sulphur diesel a new unit, more than 3 times the size of the existing one, must be built.
4. How much will the new Hydrodesulphurisation Unit cost?
The new unit is estimated to cost between 72 and 93 million NZ Dollars.
5. When will the new Hydrodesulphurisation Unit be available?
The new unit will come onstream during 2005, in time for the 1 January 2006 change to 50 ppm sulphur diesel.
Work on the new unit has already commenced, with the first step being the selection of the technology provider.
Some individual pieces of equipment may take up to 18 months for delivery following placement of the order.
In addition we must schedule the actual tie in of the new equipment with the existing refinery so as to minimise disruption to supply.

Petrol Benzene Content

1. Where does the benzene come from?
Benzene occurs naturally in crude oils.
Benzene is also created in refinery processes to increase the octane of petrol.
2. How is benzene removed from petrol?
Benzene can be removed through a process called Catalytic Distillation.
In this process the benzene is separated from other hydrocarbons by heating in a distillation column. The separated benzene is reacted with hydrogen over a catalyst containing platinum to make cyclohexane.
3. Why can't the refinery make 1% volume Benzene Petrol now?
The Marsden Point Refinery does not yet have a Catalytic Distillation unit. A new unit must be built.
4. How much will the new Catalytic Distillation Unit cost?
The new unit is estimated to cost between 30 and 38 million NZ Dollars.
5. When will the new Catalytic Distillation Unit be available?
The new unit will come onstream during 2005, in time for the 1 January 2006 change to 1% volume Benzene petrol.

Impact on Green House Gas Emissions

1. What are the Refinery's current green house gas emissions?
The Marsden Point Refinery currently emits over 1 million tones of carbon dioxide (CO2).
2. What is the impact of the new fuel specifications?
Greenhouse gas emissions will increase by 10-15%.
3. Why will Greenhouse gas emissions increase?
The new process units, to remove sulphur from diesel and benzene from petrol, both require energy (heat and pressure) and hydrogen.
The new units will be designed to maximise energy efficiency but there will still be a significant requirement for energy leading to increased emissions.
4. What is the overall greenhouse gas emissions impact for New Zealand
The new specifications will enable newer engine technology vehicles to be brought into New Zealand. These vehicles are more fuel efficient and so as more vehicles are introduced there will be a greenhouse gas emission benefit.

Background on The New Zealand Refining Company Ltd

1. Who is The New Zealand Refining Company Ltd?
The Company owns and operates New Zealand’s only oil refinery at Marsden Point
It also owns and operates a product pipeline between Marsden Point and Auckland
It is a publicly listed company on the New Zealand Stock Exchange.
2. What is the benefit of New Zealand having a refinery at Marsden Point?
Employment of over 350 direct staff and contractors on site.
Direct expenditure in the Northland region of around 35 million NZ Dollars.
Annual foreign exchange savings for New Zealand, from purchase & refining of crude rather than importing more expensive finished products, are approximately 175 million dollars.
Direct tax revenue generated is approximately 40 million NZ Dollars per annum.
The presence of a refinery in New Zealand provides increased supply security than would be the case with just imports.
3. How does the Marsden Point Refinery compare with others
Marsden Point is a relatively small but complex and energy efficient refinery.
It successfully operates in a very competitive refining market.

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