Refinery sees profit potential in giant oil tankers

JAMES WEIR
Last updated 05:00 23/08/2014

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Refining NZ aims to bring in huge tankers carrying as much as 1 million barrels of oil to its Marsden Pt refinery, double the ships' present size, as it looks for yet more ways to improve its currently low profit margins.

Bigger ships could mean savings of up to US50 cents a barrel for the refinery, the company said yesterday.

The company has started talks with local Maori groups but has not yet decided how much dredging would be needed to allow much larger tankers. It may be up to two metres in places.

Refining NZ chief executive Sjoerd Post said yesterday it was talking to local Maori about getting "bigger crude parcels" into the harbour.

"We are looking forward to how that can develop . . . We hope to come to a place where what we need can be accommodated," he said.

Instead of talking to Maori at "the eleventh hour" in the Resource Management Act process, the refinery was talking to them first and would work its studies around that.

At present, ships going to the refinery hold about 500,000 to 600,000 barrels of oil.

"These bigger ships are about 1 million barrels. The bigger ships used to come in, but there were a couple of incidents where they hit the sea bottom and people said it was not safe," Post said. So the former system of smaller ships or big ships with less than a full load was reinstated.

Post said using bigger ships could be "worth US20 cents and US50 cents a barrel". But whether that added to the company's bottom line or benefited customers still had to be worked out.

Refining NZ was not yet talking to iwi about what they might get in return, but more about their "cultural values".

"And the continued existence of the refinery is the biggest gift, because it employs their [Maori] people, and earning opportunities," Post said.

Meanwhile, in a "harsh business environment", Refining NZ has just made a net loss of $6.9 million for the June half-year, a reversal from the $5.2m profit it made in the same period last year.

Globally, refiners are facing over-capacity and falling profit margins. Demand was falling because of slower than expected growth in China and sluggish growth in Europe.

But refiners were now closing capacity and putting off further investment. That pointed to a possible "modest improvement" in their margins in the second half of 2014, Refining NZ said.

The company's profits had also been hit by the high New Zealand dollar, which has recently come off its peaks.

Total income was $92.4m, down 27 per cent from $126.4m previously.

Refining NZ's gross refiners' margin in the half-year was just US$1.66 a barrel, down from US$5.27 in the previous half-year, as the benchmark Singapore refiners slumped to just US10c a barrel in May and June.

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The company will not pay a half-year dividend as a result of the interim loss.

Refining NZ invoked a fee floor for processing for customers, with a total of $36m paid in the first half.

Another big step forward is the company's $365m Te Mahi Hou project, which was progressing to plan, with $240m spent so far.

The project is due to be completed by the end of next year, with assembly of the parts due to start in October.

Te Mahi Hou is expected to see a "structural uplift" in processing fee revenue of about $70m a year and lift processing margins by US$1.10 a barrel.

The company said it was on track to lift its gross refining margin by US66 cents a barrel after a series of improvements at its hydrocracker unit. The profit margin improvement was expected to briefly hit US90c a barrel between July and August.

- The Dominion Post

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