The Government is moving to cash in its “tickets” on 40 days of fuel entitlements held under an International Energy Agency (IEA) agreement.
POLITIK yesterday suggested this was about to happen.
The move appears to have been enabled by an unnamed fuel company making an unsolicited offer to swap some of the entitlements, (which include fuels New Zealand does not need) for fuels it does; petrol, jet fuel and diesel.
But it comes with a discernible change in the Government’s mood, which was reflected in much more sober, downbeat messaging yesterday compared with the buoyant confidence of last week.
At his weekly post-Cabinet media conference yesterday, when it was suggested by a reporter that the Government’s tone had changed, the Prime Minister conceded that it had.
“You’re right to identify the tone shift,” he said.
“What we’re talking about today has even been more assertive. We have gone to work from day one on this, putting the Ministerial Oversight Group together; we’ve been engaging with industry from day one.
“We have got ourselves organised, I think, earlier than many other countries around the world. “
But for the first time, he indicated the Government was preparing for a much longer, drawn-out war and crisis.
“Should this situation deteriorate in two months’ time, we want to put ourselves in that place right here right and now and say we’ve done everything we possibly can.”
And so the Government is calling in its tickets with the IEA, which gives it 40 days of oil.
Finance Minister Nicola Willis said Associate Energy Minister Shane Jones was working on a proposal to bring to Cabinet.
“The Government is now actively seeking proposals for New Zealand refined fuel imports on arrangements that would support additional purchase of stocks through to June,” she said.
“The proposals would involve the Government working with industry partners to deliver additional fuel from offshore to manage the risk of a shortage of supply. An insurance policy, if you will.
“The Government has already been approached by some parties with unsolicited proposals to increase supply, and we are now urgently progressing commercial assessment of those proposals.
“This includes one specific proposal to swap the tickets or put options that we currently hold as part of our International Energy agency Obligations.
“The swap would see those crude oil and other stocks converted into usable fuel stock suitable to New Zealand’s needs, potentially stored offshore.”
Willis is willing to back the proposal with cash.
“Facilitating this and other proposals could include support for shipping costs, storage arrangements, underwrites or risk-sharing arrangements,” she said.
But Jones warned that the fuel would not be here quickly.
“This all takes time,” he said.
“45 days on a good day is how long it takes to get fuel from America.
“And if we do not act now, as reflected by the PM and Nicola, we could find that we’re in a mad, frenzied rush in the event that there is a gross shortage of feedstock into the refineries that our importers rely upon.
“That’s Mobil, BP and obviously Z.
“So, yes, we are investing, subject to suitable recommendations to Nicola and me.”
But the question of timing is a complex one.
There could be a downside to acting quickly, particularly if the war continues beyond June, and by that time, we have exhausted our IEA emergency stocks.
“There is s just one thing I’d say for those of you who are worried whether or not we, Nicola and I, are moving too early,” said Jones.
“Let me contrast it. During COVID, there was a situation where the last Government did not move to secure vaccines.
“We are not going to repeat that perfidy.
“Yes, there are risks.
“Yes, it does represent a fiscal burden, but you’ll be the first people complaining in the event that an unexpected range of events take place and we haven’t been proactive.
“So that’s the decision that we’ve made today in Cabinet, then I look forward to actioning it.”
Jones also referred to the Agreement on Trade in Essential Supplies that we have with Singapore.
“I understand the PM has been in regular contact with the Singaporeans who want to ensure that we are in a fit state, because they are going to rely on us,” he said.
“For example, the gross shortage of fertiliser and whatnot in Southeast Asia has the capacity to compromise their food growing.
“The Singaporeans have an expectation of us providing them with food because they had that problem in COVID.”
Supply is one thing, but demand is another, and there are now questions as to when the Government will step up to the next level (Phase Two) on the National Fuel Plan and begin some “prioritisation” of fuel supplies.
Willis said officials had considered this before yesterday’s Cabinet meeting but had advised it was not necessary at present.
However, it is clear that it is now not a question of “if” but “when”.
Luxon said the Government was continuing to prepare for a move to phase two.
Willis said yesterday’s fuel stocks update showed petrol and diesel stocks up and a slight dip in jet fuel stocks.
“These remain within normal ranges, “she said.
It would seem that any move to Phase Two would come with a change in fuel stocks.
There are also issues with allegations of hoarding of diesel, particularly by some farmers.
“We’ve heard reports out of Opotiki, South Canterbury, Southland and Nelson, where at various times there have been what’s sometimes referred to as a stock out, where a regional distributor of fuel, who contractors and others rely on for fuel, hasn’t had sufficient fuel on hand to restock them,” she said.
“We will continue to monitor these regional distribution issues closely, and I note that any significant disruption to regional distribution would be a trigger for an assessment of a change in response phase under the National Fuel Plan.”
The change in tone yesterday reflected the reality that is beginning to sweep through the Beehive.
The Middle East War means everything has changed.
Willis confirmed that the Treasury were revising Budget estimates and they are sure to factor in not only the increased spending announced today but also a big jump in inflation.
Westpac Chief Economist Kelly Eckhold has produced an economic scenario assuming the Strait of Hormuz is closed for six months.
That shows growth at near zero, unemployment over six per cent, inflation peaking at seven per cent and house prices falling significantly.
In six months the election campaigns will just be starting.
Even without Eckhold’s bleak forecasts, the Government is now going to have to switch its election campaign from one emphasising economic recovery to its management of the fuel crisis.
So far, they have looked on top of this, but what happens if (or when) fuel starts to run out and people find their fuel supplies are rationed?
It is that fear that is driving the current effort on the part of Shane Jones to scour the planet looking for fuel.
Luxon can only hope he succeeds.
