The operator of New Zealand's sole refinery is facing increasing pressure from its three largest customers and shareholders over plans to convert the 135,000 b/d Marsden Point refinery into an oil product import terminal. BP has joined ExxonMobil and New Zealand downstream firm Z Energy in a dispute over processing fees it pays Refining NZ, the plant operator.
Refining NZ advised that BP has issued a notice of dispute under its processing agreement with Refining NZ in relation to the firm's plans to simplify the Marsden Point oil refinery operations, which includes running the plant at 90,000 b/d instead of its nameplate capacity as part of a longer term transition to an import terminal.
Refining NZ processes crude into gasoline, diesel, jet fuel and other refined products for a tolling fee, which it receives from three wholesalers — BP, ExxonMobil and New Zealand downstream firm Z Energy. Z Energy bought Chevron's New Zealand assets in 2016. BP, ExxonMobil and Z Energy own a combined 43pc of Refining NZ.
Under the terms of the processing fee agreement, customers bear the losses associated with periods of low margins and benefit when margins are high, Refining NZ said. If margins are very low, the refinery's customers pay a fee floor payment to Refining NZ. When refiner margins are high, the customer receives income from the increased proceeds to Refining NZ.
Refining NZ in September said it was in dispute with ExxonMobil over the processing fee. Z Energy last week said it was also in dispute with Refining NZ over the processing fee. Both ExxonMobil and Z Energy have threatened to not pay Refining NZ its processing fee for 2021, although BP has not made a similar threat. The prospect of non-payment puts financial pressure on the plant operator and could be used as a tactic to get Refining NZ to pursue a strategy aligned with its customers' wishes of converting to an import terminal.
Refining NZ has issued a notice of dispute under the processing agreement to BP in relation to a separate claim by Refining NZ that the fee floor payable by all customers in combination should be NZ$70mn/yr ($50mn) higher.
The two firms have agreed to defer the dispute process through January while the parties continue to negotiate in relation to a potential future staged transition to an import terminal, Refining NZ said.
The Marsden plant has largely operated under a processing fee arrangement since it was commissioned in 1964, which means Refining NZ does not own any of the feedstock it uses to make the oil products. Under the processing agreement, Refining NZ keeps 70pc of margins from each barrel it processes while customers receive the remaining 30pc.
Production at New Zealand's only refinery rose slightly in July-September from a 34-year low in April-June even as oil product demand in the country rebounded strongly in the latest quarter. Demand in July-September stood some 4pc below the daily consumption in 2019.
