Could New Zealand have insulated itself against fuel price increases?


The decision to decommission New Zealand’s only oil refinery at Marsden Point has backfired on the entire country


The refinery, which produced 85 percent of New Zealand’s jet fuel and 67 percent of its petrol and diesel, became an import terminal as voted by Refinery NZ shareholders in August last year.

At the time, refining profits were down and it was costing millions to keep the refinery running. The board put it down to an oversupply in refining capacity.

However, that all has since changed. There has been a shortage of refining capacity since Russia’s invasion of Ukraine, triggering a spike in the price for refined product as refineries look to boost their profits.

With New Zealand at the mercy of the global market, those cost increases have been observed at the pump.

If Marsden Point was still operating today, such severe cost increases could have been avoided. This is because, despite refineries around the world putting up their prices, the Marsden Point refinery’s profits were capped.

This has helped New Zealand avoid such severe fuel price increases in the past, when the price of crude oil reached similar levels as recent as 2011-2014. The price at the pump then peaked at $2.22 for 91 unleaded – and that was without a fuel tax cut.

Yes, shipping costs have gone up and the exchange rate is not as favourable to New Zealand, but a big driver of high fuel prices has been the spike in refining margins. Essentially, while the price of crude oil is not much higher than it has been in the past, refineries’ profits have gone up.

Because the Marsden Point refinery’s profits were capped, it is fair to say that fuel prices would not be as high if New Zealand was still refining oil itself. Instead, the country is now completely reliant on refined product from overseas countries and as such, must accept their extreme prices.