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Future Fuels: Background

Future Fuels: Background

Changes to fuel specifications

In May 2002 the Government announced new fuel quality regulations, following similar moves in Europe, the US and Australia. The new regulations, due to take effect from 2006, will:

- apply to all petroleum products used in New Zealand

- are aimed at improving air quality by reducing the emissions of sulphur and nitrogen oxides, hydrocarbon vapours, benzene and particulate matter

- will allow the use of advanced engine technologies which will offer the benefits of further emission reductions and greater fuel efficiency

- will reduce the Benzene content in Gasoline to one percent and the Sulphur content in Diesel to 50 ppm.

Fuel specifications and the New Zealand Refining Company

- New Zealand has one oil refinery - Marsden Point, owned and operated by the New Zealand Refining Company (NZRC).

- The Marsden Point refinery produces 80 percent of New Zealand's refined oil.

- To meet the new fuel regulations, NZRC will need to make significant investment in new technology and processes.

- The project to meet requirements under the new regulations is called "Future Fuels".

The Future Fuels Project

- To meet the new fuel regulations, the refinery needs a new high pressure Hydrodesulphurisation unit (to reduce the sulphur in diesel), and a new Bensat unit (to reduce the Benzene content in petrol).

- The plants need to be up and running by 1 Oct 2005.

- The cost for the total project, including new units and upgrading existing facilities, will be $180 million.

- Without the Future Fuels project, the refinery cannot continue to process crude oil. New Zealand would have to source all refined petroleum products from overseas.

Environmental benefits of Future Fuels

- The Marsden Point refinery's energy efficiency is in the top quartile (meaning the best 25 percent) of refineries in the world.

- Making cleaner fuels means processing the crude oil more - and therefore using more energy. So processing cleaner fuels will lead to higher Greenhouse Gas emissions from the refinery.

- Long term, however, this initiative is seen as delivering a positive environmental outcome through the use of cleaner fuels by enabling more efficient vehicle technology to enter the market.

- If NZRC ceased refining oil products at Marsden Point, its customers, the oil companies, would develop alternative supply sources. The most likely alternative sources of refined products are refineries in Singapore, Korea, Taiwan and Australia. None of the refineries in these alternative supply countries are subject to Kyoto Protocol policies at present. The shift of production and emissions into non-Kyoto countries is known as "carbon leakage", and undermines the intention of the Kyoto Protocol and of New Zealand's Kyoto Protocol policies to reduce global greenhouse gas emissions.

- Alternative refinery sources may not be as efficient as the Marsden Point refinery. For example, the Australian refineries are all less energy efficient than the Marsden Point refinery. If New Zealand were to source its refined oil from such less efficient refineries, the global greenhouse gas emission outcomes would likely be worse.

- The improved products created as a result of the Future Fuels project will allow the use of advanced engine technologies, which will offer the benefits of further emission reductions and greater fuel efficiency in the future.

Economic benefits

- The refinery currently delivers great benefits to New Zealand's economy through employment, taxation, delivery of shareholder value and security and quality of fuel supply.

- The Future Fuels project allows the refinery to continue to operate. The economic benefits of Future Fuels can be summarised as follows:

o The operation of the refinery in Northland contributes taxation revenue of around $24 million a year.

o The foreign exchange savings that come from processing crude oil, rather than importing petrol and diesel, is estimated to be $175 million per annum.

o The refinery's direct contribution to the Northland economy is estimated at $160 million a year.

o The refinery employs 260 full time staff and approximately 200 contractors.

April 2003

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