Appendices

PREVIOUS | Return to CONTENTS

Appendix A: Terms of reference for the Inquiry

Background and Matter of Public Importance

The Refinery to Auckland Pipeline (RAP) was shut down for 10 days following the discovery of a leak on 14 September 2017. The RAP is a 170 kilometre buried pipeline running from the Marsden Point Refinery to a bulk oil storage terminal at Wiri in South Auckland. The RAP supplies most of the Auckland region’s fuel, including all of its jet fuel. Jet fuel is supplied from the Wiri terminal to Auckland Airport via a second pipeline, which remained operational.

The main impact of the RAP outage was the rationing of jet fuel supplied to Auckland Airport over a 12-day period in September 2017. The affected airlines activated their contingency plans to operate under fuel rationing, which included rationalising flights, up-gauging aircraft for some flights (i.e., swapping smaller aircraft for larger ones), and arranging technical stopovers on long haul flights to allow for refuelling. It was estimated that at least three per cent of the scheduled domestic and international flights were cancelled at Auckland Airport during the period[1].

The RAP outage also affected the supply of ground fuels, causing intermittent outages of some products (mainly premium petrol) at a small number of service stations around Auckland.

During the RAP outage, the Government activated elements of its emergency response plans to facilitate the flow of information to interested parties and to help the fuel industry and airlines manage the effects of the outage.  For example, there was temporary permission for heavier loading of road tankers on routes from Tauranga and Marsden Point.

Following the RAP outage, Refining NZ, which owns and operates the RAP, reported that it spent $6 million repairing the pipeline, and lost $6.3 million in processing fees and a further $2 million in distribution fees attributable to the disruption to supply.  Refining NZ received a pay-out of $2.9 million from insurers to cover environmental damage resulting from the pipeline leak[2]. Z Energy (one of the three affected fuel suppliers) reportedly lost $5 million as a result of the RAP outage[3].

The RAP outage and its impact on fuel users is a matter of public importance. 

Northland Regional Council’s investigation into the fuel leak

The Northland Regional Council is responsible for monitoring and enforcing the Resource Management Act (RMA) provisions relating to the operation of the RAP in Northland, including at the rupture site in Ruakaka. In February 2018 the Council concluded its investigation into the unauthorised discharge of fuel from the RAP into the environment in September 2017.  This investigation focused on:

• whether Refining NZ’s maintenance and operating practices were contributing factors to the leak;
• the involvement of any third parties in the leak; and
• Refining NZ’s response to the spill, including efforts to contain the discharge and to remediate the affected land.

The Northland Regional Council found that it does not have a case to prosecute anyone for the fuel leak because “while gouges apparently caused by a digger were believed to have triggered the RAP outage, the actual date of the damage and its specific cause were not known”. The discharge was attributable to “a particular and unique set of circumstances which could not reasonably have been foreseen or provided against” and “the effects from the discharge had been adequately mitigated and remedied”[4].

The Northland Regional Council did not consider the impact of the fuel supply disruption, government oversight of fuel security, and how well other parties besides Refining NZ responded to the fuel leak.

Regulation and oversight

Refining NZ is responsible for the safety and integrity of the fuel pipeline and associated equipment that it owns and operates.  Under the Health and Safety in Employment (Pipelines) Regulations 1999, all pipelines, including the RAP, must be operated with a current certificate of fitness issued by an inspection body recognised by WorkSafe New Zealand, the agency enforcing the regulations.  The certificate of fitness verifies that the pipeline and all equipment necessary for the safe operation of the pipeline comply with the standard or code to which the pipeline was designed, constructed, operated and maintained.

The Government has an oversight role to ensure that fuel supply is reliable and secure in New Zealand, including in relation to emergency response management. The Government’s Oil Emergency Response Strategy sets out the broad policy and operational aspects that underpin the Government’s response to a significant disruption of oil supplies. The strategy focuses principally on international disruptions to oil supplies or disruptions that require a national response. National and regional Civil Defence Emergency Management fuel plans also play an important role.

The Government reviewed fuel security most recently in 2012. The 2012 review found that the fuel supply network in New Zealand is reasonably robust, the oil supply industry is adept at responding to most supply disruptions and the Government has processes in place to manage severe disruption events. 

Purpose and scope of recommendations

The RAP outage highlighted that fuel supply can be vulnerable to disruptions, and that effective risk management practices and contingency plans need to be in place to minimise the risk and impact of disruptions. The purpose of this Inquiry is to draw lessons from the RAP outage to inform how the fuel industry and the Government could improve the resilience of fuel supply in the Auckland region.

To do this, the Inquiry will:

• inquire into the cause(s), contributory factor(s) and impacts of the RAP outage, the operational responses to the outage, and the relevant operational and risk management practices of Refining NZ, fuel suppliers, airlines, national and regional civil defence emergency management organisations, and any other relevant parties; and
• taking into account the factors contributing to the RAP outage and its impact, report and make any recommendations it sees fit regarding the resilience of fuel supply in the Auckland region, and any other relevant matters.

Exclusions from Inquiry

The Inquiry is not to inquire into, determine, or report on whether issues of criminal or civil liability arise.

Related work

The Inquiry may take account of the outcome of any other relevant studies or investigations but is not bound in any way by the conclusions or recommendations of such studies or investigations. Studies and investigations deemed relevant to the Inquiry include but are not limited to:

a.            The Northland Regional Council’s recent investigation into the fuel leak[5];

b.            New Zealand Petroleum Supply Security 2017 Update[6], which was published by the Ministry of Business, Innovation and Employment (MBIE) in September 2017; and

c.            any other fuel security studies commissioned by interested parties that may be completed before or during the course of the Inquiry.

Definitions

“Fuel” means liquid petroleum fuels, including diesel, gasoline and jet fuel.

“Fuel supply system” means the infrastructure and practices associated with the supply of fuel in New Zealand.

“Practices” includes, without limitation, each of the following: decision-making, procedures, processes, services, and systems.

Report back

The Inquiry is to report its findings and opinions, together with recommendations, to the Minister of Energy and Resources in writing no later than six months from the establishment of the Inquiry. In order to ensure the Minister is kept appropriately informed as to progress, the Chair will provide regular updates to the Minister on the Inquiry’s progress throughout the course of the Inquiry.

If the Inquiry identifies issues which may affect its ability to deliver a final report by six months from the establishment of the Inquiry, it shall notify the responsible Minister as soon as possible with a view to identifying an appropriate solution, which may include (but is not limited to) an extension of time.

Consideration of Evidence

The Inquiry may begin considering evidence on and from 10 December 2018.

Dated at Wellington this 6th day of December 2018.

HON DR MEGAN WOODS, Minister of Energy and Resources.

[1] Auckland Airport, September 2017 Monthly traffic update, 27 October 2017. Retrieved from  https://corporate.aucklandairport.co.nz/~/media/Files/Corporate/Monthly_Traffic_Reports/2017/Monthly-Traffic-Update-September-2017.ashx?la=en     

[2] New Zealand Herald, NZ Refining profit jumps 66 per cent despite $14.3 million repair costs for pipeline rupture, 28 February 2018. Retrieved from https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12003417

[3] Z Energy, Z Energy operational data for quarter ended December 2017, 23 January 2018. Retrieved from https://investor-centre.z.co.nz/investor-centre/assets/Uploads/QOD-Dec-17-and-guidance-revision.pdf

[4] Northland Regional Council, No prosecution over refinery pipeline leak, February 2018. Retrieved from https://www.nrc.govt.nz/news/2018/february/no-prosecution-over-refinery-pipeline-leak/  

[5] https://www.nrc.govt.nz/news/2018/february/no-prosecution-over-refinery-pipeline-leak/

[6] http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-security/oil-security/documents-library/petroleum-supply-security-september-2017.pdf

 

Amendment to the Notice for the Establishment of the Government Inquiry into the Auckland Fuel Supply Disruption

Pursuant to section 7(5) of the Inquiries Act 2013, and as the appointing Minister for the Inquiry, the Minister of Energy and Resources amends the final reporting date in the notice titled Establishment of the Government Inquiry into the Auckland Fuel Supply Disruption, published in the New Zealand Gazette, 7 December 2018, Notice No. 2018-go6197. The final reporting date is extended to 19 August 2019.

Accordingly, the paragraphs under the section titled “Report Back” will be removed and replaced with:

The Inquiry is to report its findings and opinions, together with recommendations, to the Minister of Energy and Resources in writing no later than 19 August 2019. In order to ensure the Minister is kept appropriately informed as to progress, the Chair will provide regular updates to the Minister on the Inquiry’s progress throughout the course of the Inquiry.

If the Inquiry identifies issues which may affect its ability to deliver a final report by 19 August 2019, it shall notify the responsible Minister as soon as possible with a view to identifying an appropriate solution, which may include (but is not limited to) an extension of time.”

Dated at Wellington this 17th day of April 2019.

HON DR MEGAN WOODS, Minister of Energy and Resources.

Appendix B: The Inquiry’s process

The Inquiry team

Inquiry panel: Elena Trout (chair), Dr Roger Blakeley (member)

Secretariat: Nicola White (manager), Kirsty Pringle (administrator)

Counsel Assisting: Philp Skelton QC, Tom McKenzie

Consultant advisers: Michael Groesz and Bronwyn Buck, Fueltrac Pty Ltd

Contractors: Danielle Kelly (barrister), Veritas Investigations Ltd (private investigators), LUC Design Ltd (graphic designers), Clear Edit NZ Ltd (copy editors)

Overview of the Inquiry’s process

Timing (2019)	Key steps
14 February	Minute 1 released: Procedural matters, proposed list of core participants; proposed list of issues
February-March	Introductory meetings with parties
6 March	Minute 2 released: Final list of issues, designation of core participants, Inquiry procedure
Throughout April	Formal requests for documents and information under the Inquiries Act 2013 sent to parties
April-May	Formal interviews with parties
15 April	Minute 3 released: Appointment of independent experts to assist the Inquiry, timing and procedure for the Forum
3 May	Minute 4 released: Amended timetable and procedural directions for the Forum
13 May	Minute 5 released: List of issues for consideration at the Forum
27 May	Order made under section 15 of the Inquiries Act 2013 to keep the papers and proceedings of the 30 May Workshop confidential
29 May	Minute 6 released: Procedural matters for the Forum
30 May	Workshop on resilience questions (closed session)
31 May	Forum submissions published on Inquiry website
4 June	Forum Day 1: Causes of the outage, impacts and response
6 June	Forum Day 2: Resilience and security of fuel supply to Auckland
7 June	Forum Day 3: Resilience and security of fuel supply to Auckland
17 June	Meetings in Canberra with Australian government agencies
2 July	Supplementary information requests to some parties
19-26 July	Extracts of draft report provided to parties for feedback
6 & 15 August	Final Section 15 orders made to protect confidential information
19 August	Report delivered to the Minister of Energy and Resources

Meetings

The Inquiry met with the following organisations and individuals between February and August 2019:

Air New Zealand Ltd

Auckland Council

Auckland International Airport Ltd

Board of Airline Representatives New Zealand

BP Oil NZ Ltd

Commerce Commission

Department of the Environment & Energy (Australia)

Department of Infrastructure, Transport, Regional Development and Cities (Australia)

First Gas Ltd

First Union

Gull NZ Ltd

Hale & Twomey

Lynton McMullen

Melbourne Tullamarine Airport

Ministry of Business, Innovation and Employment

Ministry of Civil Defence and Emergency Management

Ministry of Transport

Mobil Oil NZ Ltd

Northland Regional Council

Productivity Commission (Australia)

Refining NZ Ltd

Stolthaven Ltd

Wiri Oil Services Ltd

Z Energy Ltd

Workshop and Forum

The following organisations took part in the Inquiry’s closed Workshop and public Forum:

Organisation	Workshop (30 May 2019)	Forum (4,6,7 June 2019)
Air New Zealand	√	√
Auckland Council		√
Auckland International Airport Ltd	√	√
BARNZ	√	√
BP Oil	√	√
First Gas Ltd		√
Gull NZ	√	√
Hale & Twomey		√
Mobil	√
MBIE	√	√
Qantas	√
Refining NZ	√	√
Wiri Oil Services Ltd	√
Z Energy Ltd	√	√

Appendix C: Legislation relevant to the fuel sector

There are two Acts specific to the petroleum industry in New Zealand: the International Energy Agreement Act 1976 (IEA Act) and the Petroleum Demand Restraint Act 1981. Both date from the oil shocks of the 1970s and the significant international and domestic responses to them. Essentially, they are about how to ration fuel in a crisis.

International Energy Agreement Act 1976

The IEA Act sets up the systems needed to give effect to New Zealand’s obligations under the International Energy Agreement. It gives the government the power to declare a petroleum emergency if there is a reduction in petroleum supplies. That then triggers a range of coercive powers, including the power to make regulations controlling all aspects of the production, supply, and use of petroleum.

The IEA Act also includes a ministerial power to direct the industry to provide regular information to enable the government to meet its obligations under the Agreement to supply information to the International Energy Agency. Under the Agreement, New Zealand must provide information on:

• general matters relating to the activities of oil companies operating in its jurisdiction (including details about their structure and finances, rates of production and access to the local crude oil, how supplies are being allocated, stocks, costs of crude oil and refined products); and
• specific matters relevant to managing an emergency (including oil consumption and supply, levels of emergency reserves, available transport facilities).

The Agreement also requires the government to maintain a permanent framework for consulting with fuel companies, but this has not been included as a legal obligation in the Act. In practice, the Ministry of Business, Innovation and Employment (MBIE) stays in touch with the companies operating in New Zealand and collects the data needed for reporting to the IEA from them.

Petroleum Demand Restraint Act 1981

The Petroleum Demand Restraint Act 1981was passed after the 1979 oil crisis. New Zealand had already experimented with various rationing mechanisms (for example, carless days, closing petrol stations at weekends, lower speed limits) but these had not been very effective. This legislation was enacted to enable a more coherent rationing system to be put in place if it was ever needed. Like the IEA Act, it gives the government power to make regulations controlling the supply and use of petroleum if oil stocks are low. However, it is not linked to the IEA system.

Commerce Act 1986

In the absence of any sector-specific controls, the Commerce Act 1986 provides the main control on the activities of the fuel companies. This Act prohibits contracts, arrangements, or understandings that have the purpose or effect of:

• substantially lessening competition in a market; and
• fixing prices, controlling supply, or allocating market share between participants in a market.

It also prevents a party from taking advantage of their market power to restrict entry to the market and prohibits resale price maintenance (controlling the price at which a supplier’s goods are on-sold).