N.Z. petrol prices unlikely to reflect world oil slump

Press, 6 February 1986, Page 3

N.Z. petrol prices unlikely to reflect world oil slump

By

SIMON LOUISSON

in Wellington

The collapse in world oil prices is unlikely to be reflected in New Zealand petrol prices. In spite of oil prices slumping to their lowest level in six years — SUSIS a barrel compared with almost double that three months ago — New Zealand motorists are unlikely to see any benefit because of the imminent imposition of the Marsden Point refinery expansion levy. In addition, because New Zealand now gets one-third of its petrol supplies from the Motunui synthetic petrol plant it is unable to cash in fully on the cheap oil. Loan repayments on the refinery are due to begin in July and these will offset the fall in the price of crude oil. A senior adviser for the Ministry of Energy, Mr Rex Young, said prices

would have to fall another SUS 6 or SUS 7 a barrel to cause a lower price. The collapse of world oil prices has raised further questions about the viability of two of the main “think big” projects — the refinery expansion and the New Zealand synthetic petrol plant. Both were planned at a time of a world shortage of oil which saw the world price rise well over SUS3S a barrel. The situation has changed today, and a spokesman for one oil company said the only thing that people could be sure about was that the price would be lower tomorrow. Oil prices were being driven by the market and supply was outstripping demand. Previously, New Zealand was not able to take advantage of price fluctuations on the spot market because it tended to purchase through long-term contracts, but this had changed. Most oil companies had now shifted top purchasing on the spot market. In addition, the synthetic petrol plant is now running at near 100 per cent capacity and supplying much of New Zealand’s petrol requirements. Ms Molly Melhuish, editor of “Energywatch” and a lobbyist on the energy issue, said that it was shame that New Zealand was not able to take full advantage of the fall in oil prices. “The investment in self-

sufficiency seemed a good decision at the time, but has turned out to be a mistake,’’.she said. She calculates the petrol produced at Motunui costs an estimated SUSBO a barrel if energy wastage and funding costs are fully taken into account. the viability of the synthetic petrol plant was outlined in a Government White Paper in 1982. It produced three scenarios — if the real price of crude averaged SUS2B a barrel from 1986 to 2003 (the life of the project), the Government would be able to meet Mobil’s productions costs, would just meet the costs of gas under the take-or-pay agreement, and would pay the Energy Resources Levy. In the worst case scenario, the real price of oil falls to SUSI2 a barrel in 1980 dollars where the Government would have to use both its dividends and tax revenues from the venture to meet the cost of gas processed under the take-or-pay agreement. Twelve United States 1980,. dollars is about equivalent to SUSIS today. The chairman of the New Zealand Synthetic Fuels Corporation, Dr Colin Maiden, said the oil price fall was only temporary. “It certainly would affect the economics of the project on the downside but I don’t believe the price of oil will stay at

that price,” he said. Even at SUSI 7 a barrel the project, was still making considerable foreign exchange savings, he said. There is also little prospect of mothballikng the project because New Zealand is still stuck with repaying the loans. Dr Maiden said he would be surprised if the price of oil was as low in five years time. The New Zealand Refining Company will not reveal what price it pays for its oil or the cost of refining it, claiming the information is commercially sensitive. However, there is little doubt that if New Zealand purchased the refined product on the spot market it would be consider-

ably cheaper to the motorist. Before the shutdown last year it was estimated that the refinery was purchasing Arab heavy at about SUS 26 a barrel, and the average refined product was sold about SUS4O. Equivalent prices on the world market were SUS 39 for a barrel of Saudi light which cost SUS 33 for the premium grade refined product. Mr Rees Thompson, the company’s secretary, said dropping world oil prices did not affect the company. However, inquiries at oil companies were referred to the refinery for more details on the prices New Zealand paid for its oil.