Final Report of the Government Inquiry into the Auckland Fuel Supply Disruption

August 2019

• Preface
• Summary
• Recommendations
• Glossary
• Contents

Preface

On 14 September 2017, the pipeline that brings diesel, petrol, and jet fuel from Marsden Point Oil Refinery into Auckland ruptured. It leaked jet fuel into rural properties and stopped the transmission of fuels into Auckland for 10 days. The rupture resulted from damage caused by a digger when it was being used to dig for kauri logs some three years earlier. No one had been informed at the time that the pipeline had been struck, and over time, the pipe weakened and eventually ruptured.

If there was to be a rupture, it was lucky that it happened when and where it did. The location was easy to access and not in a highly populated area, so the containment and repair could be carried out quickly, with a minimum of risk to people. Had there been the more flammable petrol in the pipeline at the time of the rupture, rather than jet fuel, there would have been a significant risk of fire and explosion, and the fuel would have been harder to contain. In addition, it was lucky that the rupture occurred outside peak air travel times and at a time when the jet fuel tanks at the Auckland end of the pipeline were near capacity, which meant the airport had available close to the maximum amount of jet fuel possible to be used while the pipeline was repaired.

In short, the consequences could have been far worse than they were.

The incident raised awareness and was a reminder that the fuel supply chain infrastructure is nationally critical infrastructure. The pipeline supplies almost all of Auckland’s diesel and petrol, and is the only supply of jet fuel to Auckland Airport. Fuel companies were able to transport petrol and diesel into the Auckland area by truck from other parts of the country. However, there was no equivalent alternative route for jet fuel. Airlines flying out of Auckland Airport had to limit their use of jet fuel to 30% of their usual usage, which caused significant disruption to flights to and from Auckland.

Our task was to look at what lessons we might take from this incident, to determine what steps could be taken to improve the resilience of Auckland’s fuel supply in future. In doing so, we followed current international definitions of “resilience”. Our work therefore examined measures to prevent problems, planning and preparedness; the adequacy of the response and recovery efforts; and whether we could see evidence of adaptation and learning for the region to grow and thrive.

The report makes several recommendations on how the sector can better prevent, prepare for, respond to, and recover from an incident. In particular, we consider it essential that government and industry work together to put in place and regularly practise sector-wide response plans, to improve the response to any future incident.

Most significantly, we found that Auckland’s jet fuel supply is currently not sufficiently resilient, when assessed against the specific resilience standards we developed during our work, and from a public interest perspective.

With only a single supply chain for jet fuel, a single point of failure at any point along that chain can cause a complete disruption of supply to Auckland Airport. There is limited storage near the airport to provide cover for an outage and the number of days of cover that storage provides is decreasing as the daily demand for jet fuel grows. This means our vulnerability is increasing.

In addition, parts of the infrastructure near the airport are now operating close to capacity. In its current state, parts of the supply chain will not be able to meet basic demand in a few years’ time, let alone recover from, or provide resilience during, an outage of any significant size.

We have concluded that there is a need to invest in further infrastructure without delay, to achieve an acceptable level of resilience. Investment is needed now to ensure that:

• capacity in the supply chain near the airport will be able to meet the increasing demand; and
• there is sufficient cover for an outage event.
• Ideally, the industry would also develop a second permanent supply chain.

The fuel supply chain infrastructure is largely owned or controlled by the three major fuel companies (BP, Mobil, and Z Energy) through complicated joint venture arrangements, with limited government oversight or ability to intervene. The infrastructure we have has been able to meet demand to date largely because of investments made in previous decades.

As a market-led system, investment decisions seem to have been focused on meeting the demand curve on a “just in time” basis. This may not take adequate account of the interests of the wider community and stakeholders in maintaining a system with greater resilience to withstand rapid increases in demand or events that disrupt supply.

Most of the fuel companies agreed with the forecast growth of jet fuel demand. However, in our interactions with them, some were slow to link those forecasts to a need for further investment in infrastructure and to share information about their thinking on investment possibilities. The complexity of the ownership and joint venture structures, and the confidentiality arrangements between the different parts of the supply chain, made it challenging to have visibility and allow us to have confidence about future investment plans.

Towards the end of the Inquiry process, the fuel companies provided us with information showing that they are starting to consider infrastructure investment options; however, the plans are still preliminary. In our view, the fuel companies have failed to make timely investments to achieve and maintain the level of resilience in the supply chain that we regard as appropriate. BP told us that it disagrees with this view, because it considers that a cost benefit analysis of the specific options should be completed before finalising a view on the appropriate resilience standards. We address this point in chapters 3 and 18 of the report.

In our report, we have identified what we believe are appropriate and measurable minimum standards of resilience, taking into account the wider community interests. We have recommended a number of actions designed to encourage timely investment to meet and maintain these standards. These include steps to increase the transparency of demand forecasts, capacity constraints, and investment plans; and to develop a legislative framework to give government the power to step in if industry does not invest sufficiently to meet the required standards.

We wish to acknowledge and thank all the parties who met with us, provided information and submissions, and participated in the workshop and forum held by the Inquiry.

The Inquiry is indebted to Nicola White, Kirsty Pringle, and Danielle Kelly, as well as our two Counsel Assisting, Philip Skelton QC and Tom McKenzie. Michael Groesz and Bronwyn Buck of Fueltrac Pty Ltd contributed their expertise. We also wish to thank Bankside Chambers for their helpful assistance.

This incident was a timely reminder of how important this fuel supply infrastructure is for Auckland and New Zealand. Ensuring the ongoing resilience of such infrastructure needs regular consideration and action. We hope that New Zealand will learn from this incident and improve its ability to prevent, prepare for, respond to, and recover and learn from any future disruption to Auckland’s fuel supply.

 

Elena J Trout (Chair)                                                               Dr Roger Blakeley

16 August 2019

 

Summary

The aim of this Inquiry was to improve the resilience of the fuel supply to Auckland. The report begins by describing the fuel supply chain and explaining how we approached the question of resilience.

The fuel supply chain

A single supply chain delivers most of the fuel that Auckland uses. In summary:

• imported crude oil is shipped to Marsden Point, where it is processed into a range of products at the Marsden Point refinery;
• the Refinery to Auckland Pipeline (RAP) transports two grades of petrol, diesel, and jet fuel 170 kilometres from the refinery to a storage facility at Wiri on the outskirts of Auckland;
• petrol and diesel are trucked from Wiri to customers and retail outlets;
• jet fuel is transported along a short pipeline from Wiri to Auckland Airport (the WAP), where it is stored in tanks at the Joint User Hydrant Installation (JUHI);
• from the JUHI, a hydrant system moves the jet fuel to the airport apron, where it is pumped into aeroplanes.

Three major fuel companies (BP, Mobil, and Z Energy) own, control, or have exclusive use of all the infrastructure making up this supply chain, through a complex series of joint ventures and commercial agreements.

An independent fuel company, Gull NZ, imports refined petrol and diesel to its storage facility at Mount Maunganui and trucks the fuel from there to Auckland and other parts of the North Island. BP and Mobil also bring in petrol through Tauranga. Other independent companies also supply a small amount of ground fuels.

Resilience

Resilience is a broad concept with many competing definitions in the literature. The Inquiry drew on definitions used by the Ministry of Civil Defence and Emergency Management and the Rockefeller Foundation 100 Resilient Cities Project, which between them encompassed all the different stages of activity that make up a resilient system and the different types of stresses and shocks that a system needs to be able to cope with. As a result, the Inquiry looked at:

• prevention;
• planning and preparation;
• response;
• the ability of a system to deal with both acute shocks (such as the sudden rupture of the RAP) and gradual stresses (such as increasing demand);
• whether we could see evidence of a system that learns from experience; and
• whether the system was aiming to provide a platform for the region to grow and thrive.

Lessons from the 2017 outage

What caused the pipeline to rupture?

The Inquiry established with reasonable certainty why the rupture occurred and how the RAP was damaged.

The pipeline ruptured on an unoccupied property in rural Ruakākā. It had been damaged by something mechanical that had struck it and created gouges. Refining NZ had carried out a technical inspection of the integrity of the whole pipeline in July 2014, so the damage must have occurred after that time.

We established that a 16-tonne digger was working on the Ruakākā property between 26 August and 28 August 2014. It was delivered there so that a contractor could look for swamp kauri logs on the property. The landowner had given him permission to dig but had warned him not to dig in the back paddock, which contained the pipeline. However, a neighbour saw the digger working in the area above the pipeline.

Although the contractor denied it, we were satisfied that he struck the pipeline with the bucket of the digger and damaged it. He then left and the digger was later collected. The landowner returned to find that the property had been left with many holes over it, including a large hole in the back paddock over the area of the pipeline. Using his own small digger, the landowner put some soil in the holes, to patch them up as best he could. Two months later, the company that owned the large digger brought it back again to carry out more repairs to the land. The landowner told us that he had not realised the pipeline had been exposed and damaged because it was not visible when he returned to the property. He said it did not occur to him to tell anyone about the digging.

Almost exactly three years later, on 14 September 2017, the pipeline ruptured where it had been damaged and jet fuel escaped into several properties.

We investigated whether any other factors had contributed to the eventual rupture. In particular, we considered whether:

• the pipeline had been properly operated and maintained;
• the project in 2016–2017 to increase the operating pressure of the pipeline might have contributed; and
• Refining NZ should have carried out a technical inspection of the condition of the pipeline before it began increasing the operating pressure in 2017.

We concluded that Refining NZ operated the pipeline in keeping with its legal requirements and standard industry practice; the increase in the operating pressure may have accelerated the failure of the damaged section of pipe but was not otherwise relevant; and there was no reason for Refining NZ to carry out an additional inspection of the pipeline given the information it had on its condition.

In short, the RAP had been operated properly. It ruptured because it had been hit by a digger operated by contractor looking for swamp kauri in August 2014. The contractor did not report the damage to anyone. The landowner was not aware that the pipe had been exposed and struck.

Protection of the RAP

Prevention of damage or incidents is the first part of ensuring resilience. The Inquiry therefore carefully examined the steps taken to prevent damage to the infrastructure making up the main fuel supply chain.

As the petroleum industry is a dangerous one, the industry has very high standards for safety. There are strong systems in all the workplaces in this supply chain, and built into the design of the infrastructure, to prevent incidents. Our review of the prevention measures focused on the RAP, given its role in the 2017 outage. It is a complex system to protect, given that it crosses 170 kilometres of rural and urban land.

Substantial arrangements are in place to prevent and detect damage to the RAP, meeting and sometimes exceeding standard industry practice. These include:

• legal restrictions on activities in the area above the pipeline and a permit system for people wanting to carry out controlled activities;
• communication activities to make sure landowners and occupiers know about the pipeline and the restrictions on what can be done above it;
• regular communication with others who might be working in the area, such as contractors, construction companies, and local authorities;
• a 24-hour, seven-day-a-week telephone helpline;
• a free “beforeUdig” service to help people locate underground pipes and cables before they excavate;
• “in-line” inspections of the pipeline; and
• surveillance activity, including vehicle patrols, aerial inspections, and foot patrols.

The changes we have recommended

No matter how good a system is, there is always room for improvement. Refining NZ has been actively exploring some possibilities and we have identified others. We have recommended that Refining NZ, with its contractor First Gas, works to strengthen its relationships and communication with landowners, occupiers, neighbours, and the local communities so that they can act as its “eyes and ears” along the RAP. We have also recommended that they explore ways to improve the effectiveness of the surveillance activity, especially the aerial inspections.

We agree with Refining NZ that there is a case for expanding the legal protection of the RAP, using the tools in the Resource Management Act 1991. We note that Refining NZ is assessing whether it would be useful to increase the land area covered by the designation. We have made a specific recommendation to support their work to assess the type of national direction under the Act that would be best suited to protecting the RAP.

We have also recommended that the Government should develop legislation to create a statutory regime to protect networks such as this fuel supply chain and other critical infrastructure, based on the Gas Supply Act 1996 (NSW) and the Submarine Cables and Pipeline Protection Act 1996. A regime of this kind would give the network owner or operator, and law enforcement agencies, greater power to intervene to stop unauthorised activity. It would also create specific criminal offences. Until such a law is in place, we have recommended that Refining NZ and First Gas develop protocols with the relevant local authorities and regional police about how to respond swiftly when enforcement help is needed.

The response to the 2017 outage

The Inquiry looked at three separate aspects of the response to the 2017 outage:

• the physical response to the rupture itself, namely the steps taken to control the leak, repair the pipe, restore supply, and remediate the environmental damage;
• the coordination and communication efforts across the fuel sector, with government, and with customers and others potentially affected by the disruption in supply; and
• the steps taken to manage supplies of fuel during the outage.

Fixing the pipeline

We found that Refining NZ’s work to respond to the leak, repair the pipe, and remediate the damage was of a high standard. Their work was swift, well coordinated, careful, thorough, and effective. We also acknowledge the support and assistance provided by First Gas, BP, Mobil, Worley Parsons, and Lloyd’s Register.

The information we gathered showed a mixed picture for the other two aspects of the response.

Communication and coordination

In any crisis, clear communication and effective coordination are an important part of the response effort. The information gathered by the Inquiry showed that the many public and private sector organisations involved in the 2017 response worked hard to keep each other informed of developments and to coordinate their efforts. Even so, it was clear that there were communication difficulties over the first few days of the outage.

We identified several matters that contributed to those early difficulties:

• In our view, Refining NZ was too optimistic in its early message, over the first 24 hours, that resolving the outage would take 24–48 hours. This was based on their assumption that the problem was a pinhole leak that could be repaired easily. As soon as they had seen the damage, Refining NZ provided clear and accurate information regularly to all those who needed to know. However, we consider that the initial message and later change added to the uncertainty in the first two days.
• We also concluded that there was no shared understanding about the appropriate level of response, which affected the way people approached the need to share information and coordinate.
• There were ongoing difficulties in gathering and collating data on fuel stocks to build a bigger picture of the issue and plan for any further contingency. We found that the sharing of fuel stock information could be improved by putting in place clear, agreed, and tested protocols for obtaining this information during a crisis.

Some of these points have already been identified by the Ministry of Business, Innovation and Employment (MBIE) in its own review of the response effort. We consider there is scope for MBIE to take more of a leadership role for the sector in any future crisis and we encourage them to continue working on the improvements identified in their review and this report.

Managing fuel stocks

The other part of the response effort in 2017 was to find ways to keep Auckland supplied with fuel of all types. We found that Refining NZ, the fuel companies, and other organisations with a role all responded quickly and creatively to this challenge. They explored a number of options, some of which proved not to be workable and some of which were useful. The successful initiatives were to:

• truck ground fuels in from other North Island ports, particularly Mount Maunganui;
• bring more diesel in to Wynyard Wharf and distribute it from there;
• build a new truck-loading facility for jet fuel at the Marsden Point refinery, facilities to receive jet fuel from trucks at Auckland Airport, and truck jet fuel directly to the airport; and
• convert some chemical storage tanks at Wynyard Wharf to be able to hold jet fuel, bring a shipload of jet fuel from Marsden Point to the wharf, and truck the fuel from there to the airport.

As a result, stocks of ground fuels were sufficient throughout the outage, with only a small number of retail outlets running out of higher grades of petrol. However, diesel stocks were getting low by the end of the outage.

The jet fuel tanks at Wiri and the airport held good amounts of fuel when the pipeline ruptured, but not enough to last the whole period. Only modest quantities of jet fuel were able to be brought in to the airport using trucks from Marsden Point and Wynyard Wharf, and only as the pipeline repairs were being completed.

The main response for jet fuel, therefore, had to be rationing. Once the full extent of the damage to the pipeline was understood, the fuel companies limited all airlines to 30% of their normal daily amount. Airlines used various strategies to manage, including flying in fuel from other airports, refuelling flights at other airports, reducing loadings on aeroplanes, rescheduling flights, and cancelling them as a last resort.

However, there were limits to what could be achieved. The limits arose from the lack of any existing:

• alternative supply chain for jet fuel; or
• established contingency arrangements that could be triggered as soon as the need arose.

The lack of an alternative supply chain is a major infrastructure question that we consider in Part E of the report. The lack of practical contingency arrangements in place was of more immediate concern to us. It meant that the sector had to start from scratch in identifying and implementing solutions. They had to come up with ideas, work out what additional equipment or modifications were needed, get all parties involved to agree, find properly trained people, obtain regulatory approvals or waivers, test the equipment and procedures, and more, before they could start to operate. As a result, the back-up supply arrangements only started to operate as the pipeline was fixed.

In our view, much of this work could and should have been done in advance. We regard the fact that this had not happened as part of the lack of robust sector-wide preparation, planning, and practice for a fuel supply problem.

We also highlight that the main back-up supply option for jet fuel that emerged in 2017 – shipping fuel to converted tanks at Wynyard Wharf – is no longer available. The tanks on that wharf are being removed as part of the redevelopment of Auckland’s waterfront.

The changes we have recommended

The 2017 outage was a useful test of the fuel sector’s response systems. It showed us that all parties swung into action quickly and responded well at a practical level. However, there were problems at a “whole-of-sector” level, relating to communication, coordination, contingency planning, and preparation. We have made recommendations designed to ensure these problems do not occur in any future outage, including the need:

• to complete the new National Fuel Emergency Plan;
• for MBIE to take a strong leadership role in making the new Plan effective, including organising regular sector-wide practice exercises to test it;
• for the Fuel Sector Coordinating Entity (Fuel SCE), which is at the centre of any response effort to take on a broader role, to meet regularly, oversee a project on information-sharing protocols, and coordinate sector discussions on contingency planning and preparation.

All parties told us that they supported these initiatives.

The resilience of the infrastructure

We worked with information on forecast demand for the different fuels provided to us by the parties. We chose to concentrate on the ability of the infrastructure to keep pace with the forecast demand through to 2030.

We assessed the resilience of the supply chain infrastructure by looking at the following standards:

• Diversity of supply (all fuels): are there at least two fuel supply chains from port to market?
• Days of total cover from storage versus resupply time (all fuels): what is the gap between the number of days of normal fuel consumption that would be covered by the fuel stored in the total supply chain, and the number of days it would take to bring more fuel from overseas?
• Storage close to market (jet fuel): how many days of jet fuel consumption would be covered by the fuel stored at or near the airport?
• Input supply capacity versus peak day demand (jet fuel): does the total input capacity to the JUHI (from the pipeline and trucking) exceed 110% of the peak day jet fuel demand?

Ground fuels

We were generally satisfied with the resilience of the infrastructure that provides grounds fuels to the Auckland region. There are multiple supply chains, which is a strength from a resilience perspective.

For petrol, there is sufficient storage in the system to manage demand. The system for supplying petrol of all grades is sufficiently resilient, now and through to 2030.

For diesel, the amount of cover provided by the storage at Wiri is forecast to decline as demand increases through to 2030. The latest forecasts show cover falling below three days more often at the low point of the supply cycle, and the removal of the diesel storage tanks at Wynyard Wharf will reduce the resilience of the supply system for this fuel. We have recommended that the fuel companies monitor the situation closely and make timely decisions on investment in new infrastructure, to ensure sufficient resilience in the infrastructure supplying Auckland with diesel.

Jet fuel

We are not satisfied with the resilience of the infrastructure making up the supply chain for jet fuel. Without investment, the resilience will quickly decrease further, given the forecast demand for jet fuel.

The lack of a permanent alternative supply chain is a basic weakness in the system. Although several parties are considering ways of creating an alternative supply chain, that work is in its early stages. Any second supply chain would require substantial capital investment; the market participants would have to work out whether it was commercially viable. We also identified barriers to new entrants trying to join the jet fuel market, which further reduces the likelihood of an alternative supply chain being established.

Drawing on expert advice and discussion with the fuel sector during our work, we have concluded that the appropriate resilience standards for the current supply chain infrastructure are:

• storage capacity at Wiri and the JUHI sufficient to provide 10 days of cover for operations at 80% of normal activity, based on the average of the 30 non-contiguous peak days across a year; and
• input capacity to the JUHI of 110% of peak day demand.

Applying the storage capacity measure, the current storage at Wiri and the JUHI is not adequate and the level of cover will continue to decrease if no new tanks are built.

Applying the input capacity measure, the pipeline from Wiri to the airport does not provide sufficient capacity on its own. In addition, it has nearly reached the limit of its capacity and soon will not be able to meet forecast demand. Making up the input capacity shortfall by trucking additional fuel from Wiri to the JUHI is possible and would bring the input capacity above the range for a few years. However, the current traffic constraints at the airport mean this is unlikely to be a satisfactory option, other than for modest quantities or in exceptional circumstances.

In our view, investment decisions are needed without delay, to build additional storage tanks at Wiri and the JUHI, and to increase the input capacity into the JUHI.

We are satisfied that Refining NZ is making appropriate investment decisions to maintain the capacity of the refinery and the RAP to meet future demand.

We are not satisfied that the three fuel companies that own Wiri, the WAP, and the JUHI will make timely investment decisions to build the infrastructure needed. Although they have recently begun to consider the issue and options, they are still some way from making firm commitments to invest, despite all those facilities already falling below what we regard as appropriate capacity measures.

The changes we have recommended

We have recommended the following measures to promote change and encourage the parties to find ways to invest in additional infrastructure more promptly:

• mechanisms for the parties involved in jet fuel supply for Auckland Airport to regularly share information on capacity constraints and pressure points, demand forecasts, linkages, security of supply, and investment plans;
• Auckland Airport monitoring the developing international trends in the way JUHI facilities are being owned and managed, to inform how and where it establishes the new JUHI that will be needed under its redevelopment plans; and
• encouraging the fuel companies to make the necessary investment decisions without delay.

However, we have also recommended that the Government legislate to put in place a menu of regulatory options so that it can step in if the market participants are not able to make the needed decisions in a timely way. Those options might include compulsory disclosure of information on usage, forecasts, capacity, and investment plans; mandatory performance standards for the infrastructure, based on those we have identified in this report; and requiring open access to the relevant infrastructure, or a co-regulatory model such as the one operating in the gas industry in New Zealand.

We consider the Government should monitor progress on the matters we have identified and consider that information together with the final report from the Commerce Commission’s study on the retail fuel sector, which is due at the end of 2019. If the sector does not make progress on its own, the Government may be able to facilitate a solution through non-legislative means.

If investment is still not forthcoming, the Government should consider using the statutory powers we propose, to require the market to address the problem.

Our overall assessment

Returning to the assessment of the resilience of the fuel supply system for Auckland in its broadest sense, we have concluded that it needs strengthening in several ways:

• More could be done to protect the infrastructure and try to prevent damage to it.
• Better preparation and planning for coordination and contingency arrangements is needed, in case there is another significant outage.
• There is an urgent need to build more resilience into the infrastructure for keeping Auckland Airport supplied with jet fuel.

We have recommended actions in all these areas. If these steps are taken, we believe that the overall system will continue to serve Auckland and the country well.

 

Recommendations

To better protect the RAP and other infrastructure, we recommend:

1. Update the law on operating standards

That MBIE updates the Health and Safety in Employment (Pipeline) Regulations 1999 so that the legal requirements match the current industry standards on pipeline operations.

2. Improve communication with landowners

That Refining NZ continues to work to find cost-effective ways to establish and maintain direct personal contact with landowners or occupiers, such as by developing the role of the RAP liaison officer, or by strategic use of email, messaging services, and social media.

3. Improve communication with neighbours and the community

That Refining NZ works to find cost-effective ways to:

• include neighbours who live close to the pipeline in their communication activities; and
• interact with the general public in the communities living along the RAP, informing them about the dangers, the restrictions, and what to do if they have concerns.

4. Improve the surveillance activity

That Refining NZ continues to work to find cost-effective ways to:

• increase the effectiveness of its surveillance activity, especially aerial surveillance – for example, by changing to note all material soil disturbance over the RAP and follow up with the records of permits issued (and landowners as needed) to assess the level of risk; and
• use technological advances to introduce new surveillance systems as they become available and practical.

5. Expand the protection of the RAP under the RMA

That the Ministry for the Environment works with MBIE and the Treasury, in consultation with Refining NZ, to assess the type of national direction under the RMA that might be most suitable for creating better protection of the RAP and similar networked infrastructure.

6. Create offences for damage to infrastructure

That the Government directs MBIE and the Treasury to develop proposals for legislation to create a statutory regime to protect networks and other critical infrastructure in New Zealand, based on the Gas Supply Act 1996 (NSW) and the offences in the Submarine Cables and Pipeline Protection Act 1996.

7. Put in place protocols with enforcement agencies

That Refining NZ, First Gas, WorkSafe New Zealand, relevant local authorities, and regional police work together to put in place protocols with these agencies on how to respond in situations in which urgent action is needed.

To support better planning and preparation for a crisis, we recommend:

8. Complete the new National Fuel Emergency Plan

That MBIE and MCDEM complete their work on the new National Fuel Emergency Plan which should include a specific section on jet fuel, and issue it by the end of 2019.

9. MBIE should actively lead the work to make the new Plan effective

That MBIE has clear responsibility for providing proactive leadership in giving life to the new Plan, by convening regular meetings of the Fuel SCE, organising exercises to test the Plan, taking the lead in ensuring it is updated regularly, and coordinating and supporting the work programme needed to make the Plan effective.

10. The Fuel SCE should have a broader role

That MBIE broaden the role of the Fuel SCE, drawing on the model provided by NOSEC in Australia.

11. The Fuel SCE should meet regularly

That MBIE convene a meeting of the Fuel SCE within three months after the Plan has been issued and broaden its role as a forum for building relationships, knowledge, and trust between the industry and government organisations. All potentially relevant industry parties should be included in the initial meetings.

12. The Fuel SCE should oversee a project on information sharing protocols

That MBIE develops and tests the information-sharing protocols needed to support the new Plan, including clarifying any competition law issues. The Fuel SCE should oversee this work.

13. The Fuel SCE should coordinate sector discussions on contingency planning and preparation

That the Fuel SCE has a standing agenda item on contingency planning and preparation activities that require sector engagement (e.g., the assessment of the proposed mobile skid facility). In the short term, it should oversee a work programme on the preparation steps that emerged from the 2017 outage.

To encourage timely investment in the infrastructure making up the fuel supply chain, we recommend:

14. Auckland will need additional storage tanks for diesel

That the fuel companies:

• closely monitor the resilience of the arrangements for supplying diesel to Auckland; and
• give early consideration to what investment in new storage tanks will be needed to maintain an appropriate level of resilience, while recognising the multiple supply chain routes to the Auckland region.

15. Auckland Airport updates demand forecasts and shares them

That Auckland Airport establish a system to have its demand forecasts regularly updated and to share them with the fuel suppliers, airlines, officials, and other interested parties.

16. Auckland Airport convenes a jet fuel supply coordination forum

That, having regard to the findings in this report, Auckland Airport convene a jet fuel supply coordination forum, similar to the one operating at Brisbane Airport, to share information on capacity constraints and pressure points, demand forecasts, linkages, security of supply, and investment plans.

17. Auckland Airport takes into account resilience when planning the new JUHI

That Auckland Airport monitor the developments taking place in Australia and overseas on the way JUHI infrastructure is being built, owned, and operated. This should help to inform the airport on the question of how the future JUHI should be structured, including whether the future JUHI should be operated on an open-access basis; whether there should be minimum standards for storage and input supply capacity stipulated in the ground lease; and whether the JUHI operator should have to disclose and consult over its future investment plans on a regular basis.

The final decision about the location of the new JUHI should take into account resilience considerations, including that its location does not limit the options for fuel supply via pipeline, truck, train, or another method.

18. The fuel sector commits to building new infrastructure

That the fuel sector make investment decisions without delay in order to enable work to start on the building of new infrastructure that takes into account the resilience-enhancing measures articulated in this report, including:

• diversity of supply;
• storage at or near Auckland Airport that provides at least 10 days’ cover at 80% of operations, based on the average of the 30 non-contiguous peak days in a calendar year; and
• input capacity into the JUHI that exceeds 110% of peak days’ demand.

The fuel sector should provide information on progress towards these decisions to all those with an interest (in particular, Auckland Airport, the airlines, and the Government).

19. The Government legislates to put regulatory options in place

That the Government begin work immediately to develop and enact new legislation to put in place regulatory options that would enable it to step in should the fuel sector not be able to take into account the public interest in resilience adequately when making investment decisions relating to fuel infrastructure.

20. The Government monitors progress and helps facilitate a solution if possible

That the Government:

• monitor progress on the matters identified in this report on quarterly basis, including monitoring jet fuel demand against the Inquiry’s resilience standards and the plans for investment in fuel infrastructure, and consider that information together with the final report from the Commerce Commission’s study of the retail fuel sector; and
• consider what support it might be able to offer to facilitate an outcome if the sector has not made sufficient progress on advancing investment without delay.

21. The Government intervenes, if the sector does not make progress

That, if the sector has not been able to make the necessary progress by 30 June 2020 by committing to the investment needed to bring this infrastructure up to the recommended resilience standards (for example, by making definite decisions to commit capital to relevant construction projects), the Government should take steps to intervene, using the statutory powers we have recommended.

 

Glossary

Auckland Airport	Auckland International Airport Limited
Barg	A unit of pressure above or below atmospheric pressure
BARA	Board of Airline Representatives of Australia
BARNZ	Board of Airline Representatives New Zealand
BP	BP Oil New Zealand Limited
CBA	Cost-benefit Analysis
CDEM	Civil Defence and Emergency Management
COLL	Coastal Oil Logistics Limited
DPMC	Department of the Prime Minister and Cabinet
First Gas	First Gas New Zealand Limited (formerly Vector Gas)
FSWG	Fuel Security Working Group
Ground fuels	Collective term for diesel and the grades of petrol (91, 95 and 98)
Gull	Gull NZ Limited
Hydrant	A network of pipes taking jet fuel from the JUHI to plane fuelling points
IATA	International Air Transport Association
IEA Act	International Energy Agreement Act 1976
JUHI	Joint User Hydrant Installation
KRL	Kauri Ruakaka Ltd
MBIE	Ministry of Business, Innovation and Employment
MCDEM	Ministry of Civil Defence and Emergency Management
Mobil	Mobil Oil New Zealand Limited
MOT	Ministry of Transport
NCMC	National Crisis Management Centre, managed and maintained by MCDEM, situated below ground at the Beehive
NESO	National Emergency Sharing Organisation
NOSEC	National Oil Supplies Emergency Committee (Australia)
NRC	Northland Regional Council
NSC	National Security Committee of Cabinet
NZDF	New Zealand Defence Force
NZTA	New Zealand Transport Agency
NZX	New Zealand Stock Exchange
ODESC	Officials Committee for Domestic and External Security Coordination
RAP	Refinery to Auckland Pipeline
RMA	Resource Management Act 1991
SCE	Sector Coordinating Entity
Slate Committee	Committee that provides information to support Refining NZ in scheduling the fuel being sent down the RAP
Slate Scheduling Committee	Committee that makes scheduling decisions for COLL to transport fuel from Marsden Point to other ports around New Zealand
Vector Ltd	Operates the high-pressure gas pipeline within Auckland
WAP	Wiri to Auckland Pipeline
WOSL	Wiri Oil Services Limited
Z Energy	Z Energy Limited
Z Energy 2015	A subsidiary of Z Energy Limited which bought Caltex, Chevron New Zealand’s service station network

Contents

Part A: Background

1. Introduction

• Why the Inquiry was established
• What the Inquiry covered
• Why this issue is important
• How we carried out this Inquiry
• The structure of this report

2. How the Auckland region is supplied with fuel

• The overall supply chain
• The history of these assets and the petroleum sector
• How the main Auckland fuel supply chain is now owned and operated
• Capacity of the fuel supply chain
• Back-up options and other supply routes

3. What is resilience?

• Defining resilience
• The qualities of a resilient system
• The attributes of a resilient fuel supply system
• Where does a cost-benefit analysis fit in?

Part B: Why the pipeline ruptured

4. How the pipe was damaged

• Investigations in 2017
• The swamp kauri industry
• Our investigation into what happened in 2014
• Our findings on the cause

5. Were there any other contributing factors?

• How we assessed the maintenance and operation of the RAP
• The project to increase the operating pressure
• Should the pipe have been inspected before the pressure was increased?
• Our findings on the possibility of other contributing factors

6. Protection of the RAP

• Refining NZ’s contract with First Gas Ltd.
• Measures to prevent damage
• Measures to detect damage
• Our findings on how well the RAP was protected

7. The lesson from how the RAP was damaged: protecting the RAP is important, and challenging

• Why it matters
• The current protections
• Creating better legal protection of the RAP
• Our recommendations

Part C: The 2017 outage

8. National and fuel sector systems for responding to crises

• New Zealand’s system of civil defence and emergency management
• Petroleum sector arrangements in 2017

9. What happened in September 2017

• Thursday 14 September 2017: the day of the outage
• Fixing the damage to the pipeline
• Restoring supply
• Fixing the environmental damage
• Our findings on the physical response effort

10. Communication and coordination during the outage

• The organisations involved
• How and when information was shared
• Challenges in communication and coordination
• Our findings on the communication and coordination efforts during the outage

11. Managing the effects of the outage

• Managing the consequences for jet fuel supplies
• Managing the consequences for ground fuel supplies
• What was the overall impact?
• Our findings on the way the effects of the outage were managed

12. Lessons from 2017: The sector needs to be better prepared for an incident

• Planning, preparation, and practice
• Putting a new National Fuel Emergency Plan in place
• Making the Fuel Sector Coordinating Entity effective
• Information protocols
• Having effective contingency arrangements in place
• Do we need to build more infrastructure?
• Our recommendations

Part D: Ground fuels – infrastructure

13. How resilient is the supply system for ground fuels?

• The different routes for bringing ground fuels to Auckland
• The days of cover provided by the storage in the supply chain
• Petrol storage at Wiri
• Storage capacity for diesel
• Our findings on the supply system for ground fuels
• Our recommendation on ground fuels

Part E: Jet fuel – infrastructure

14. The capacity of the jet fuel supply infrastructure

• How we assessed the capacity of the jet fuel supply chain
• The overall capacity across the supply chain
• Forecast demand for jet fuel
• Storage capacity
• Throughput capacity in the two pipelines
• Our findings on the current capacity

15. Is the jet fuel supply chain sufficiently resilient?

• The standards used to assess resilience
• Storage close to the airport
• Input supply capacity into the JUHI, compared with peak days’ demand
• Total days’ cover in the supply chain versus resupply time
• Our findings on whether the supply chain is sufficiently resilient

16. Will the needed investment be made in a timely way?

• Why has resilience declined?
• What investment is likely?
• Our findings on whether investment is likely to occur

17. Alternative methods of supplying jet fuel to Auckland Airport

• There is no permanent, second supply chain for jet fuel to Auckland Airport
• Is someone likely to invest to create a second supply chain?
• Are there barriers to investment in an alternative jet fuel supply chain?
• Would open access to the JUHI remove these barriers?
• Our findings on the possibility of an alternative method of supply for Auckland

18. How to improve the resilience of the jet fuel infrastructure serving Auckland

• The problem with the current supply chain for jet fuel
• The market should try to solve the problem
• What are the solutions?
• Our preferred approach
• Our recommendations

Appendices

Appendix A: Terms of reference for the Inquiry

Appendix B: The Inquiry’s process

Appendix C: Legislation relevant to the fuel sector

Appendix D: Chronology

List of figures

• Figure 1: The fuel supply chain for Auckland
• Figure 2: Ownership of the Auckland fuel supply chain infrastructure
• Figure 3: Capacity of the infrastructure: jet fuel
• Figure 4: Aerial photographs showing soil disturbance, October/November 2014
• Figure 5: New Zealand’s CDEM system
• Figure 6: Response arrangements for the oil sector
• Figure 7: Photograph of the leak site taken from the helicopter, 14 September 2014
• Figure 8: Photograph showing the damage to the pipeline
• Figure 9: Forecasted diesel demand scenarios at Wiri to 2040
• Figure 10: Diesel days’ cover at Wiri through to 2040
• Figure 11: Diesel days’ cover at Wiri in the medium term
• Figure 12: Jet fuel demand forecast at Auckland Airport to 2044
• Figure 13: Capacity of jet fuel infrastructure and forecast demand
• Figure 14: Average jet fuel days’ cover forecast at Wiri to 2040
• Figure 15: Average jet fuel days’ cover forecast at Wiri in the medium term
• Figure 16: Average jet fuel days’ cover forecast at JUHI to 2044
• Figure 17: Forecast reduction in days’ cover at the JUHI to July 2023
• Figure 18: WAP pumping time required per day over the peak month of January

List of tables

• Table 1: Capacity of the infrastructure: ground fuels
• Table 2: Qualities of resilient systems
• Table 3: Fueltrac’s resilience standards for assessing fuel security
• Table 4: Dates the digger was taken to and from the Ruakākā property
• Table 5: Inspections of the Ruakākā section of the RAP in late 2014
• Table 6: Communication activities during the 2017 outage
• Table 7: Fuel stocks at Wiri, 14, 16 and 24 September 2017
• Table 8: Steps taken to manage the effects of the outage in 2017
• Table 9: Updated forecast jet fuel demand for selected years to 2040
• Table 10: Summary of the joint venture participants’ written and oral submissions at the forum

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