Latest / Best of Business / Nathan Surendran: Wise Response Society chair on what the Middle East crisis will do to fuel supply

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Nathan Surendran: Wise Response Society chair on what the Middle East crisis will do to fuel supply · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks be follow
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  Speaker 1: this and our wide range of podcasts now on iHeartRadio.
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  Speaker 2: So a lot of talk this week about global oil shortages,
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  Speaker 2: domestic rising petrol and diesel costs, potential restrictions, and yet
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  Speaker 2: politicians are doing all they can to reassure us everything
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  Speaker 2: is okay. So what do New Zealanders need to know
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  Speaker 2: and understand about the impact of the conflict in the
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  Speaker 2: Middle East and how it will affect the supply of
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  Speaker 2: refined fuel to New Zealand. Nathan Surrendra Surrendering is the
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  Speaker 2: chair of the Wise Response Society and an engineering consultant,
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  Speaker 2: and he joins me now, thanks so much for your time.
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  Speaker 3: Nathan, Good morning, Franchis.
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  Speaker 2: You commented yesterday that coverage of fuel shortages so far
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  Speaker 2: have missed the point. Can you talk me through that?
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  Speaker 3: Yeah, So, I think one of the big things that
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  Speaker 3: people aren't understanding about the current situation is that the
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  Speaker 3: conflict is likely to go on for longer than you know,
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  Speaker 3: people would like it too. I think that's it goes
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  Speaker 3: without saying to some degree, but it's likely to be
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  Speaker 3: months based on the messaging from Iran, and we've lost
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  Speaker 3: twenty percent of total oil supply globally. Now we've also
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  Speaker 3: lost what's known as saurkrud from the Middle East, which
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  Speaker 3: means there's sulfur in that fuel when it's refined that
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  Speaker 3: the various refiners around the world, and that sulfur is
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  Speaker 3: a feed stock for other processes making sulfuric acid, for
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  Speaker 3: mining metals, and for fertilizer production. So there are flow
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  Speaker 3: on effects that are going to play out over months
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  Speaker 3: and potentially years as this crisis works its way through
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  Speaker 3: the global economy. And because of that and understanding those
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  Speaker 3: supply chain dynamics, Wise Response is calling for the government
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  Speaker 3: to basically step up and introduce rationing earlier rather than later,
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  Speaker 3: because we know that these second and third order effects
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  Speaker 3: are going to affect us over the long term.
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  Speaker 2: Because we don't really think about where our fuel comes from.
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  Speaker 2: We turn up at the pump, it's there. You know,
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  Speaker 2: we expected to be there. Can you just talk me
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  Speaker 2: through the supply chain of New Zealand's fuel and why
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  Speaker 2: we're not now at risk?
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  Speaker 3: Yes, absolutely so. New Zealand's fuel is no longer produced
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  Speaker 3: domestically and there's been a lot of talk about we
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  Speaker 3: shouldn't have closed Marsden points. That's true to some degree,
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  Speaker 3: but the miss is a bigger point, which is that
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  Speaker 3: you know, because of the amount of fuel that's lost,
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  Speaker 3: the fuel that we were refining at Myerston Point came
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  Speaker 3: from the Middle East anyway, came from the straightfor moves,
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  Speaker 3: so we would have lost that import of the raw
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  Speaker 3: crude instead. Now what we do is we import the
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  Speaker 3: refined products, so the petrol and diesel, and they come
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  Speaker 3: from a variety of refineries, but primarily South Korea is
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  Speaker 3: about forty eight percent of our total supply and Singapore
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  Speaker 3: is about thirty three percent, so about half and a
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  Speaker 3: third from those two refineries alone. Those refineries get their
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  Speaker 3: oil from the Middle East, and that oil from the
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  Speaker 3: Middle East obviously has stopped flowing, so those refineries are
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  Speaker 3: running short on the feedstock, the raw crude oil, and
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  Speaker 3: they are therefore constraining their production and in some cases
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  Speaker 3: having to turn off certain parts of the production. There's
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  Speaker 3: multiple different parts of the refining process and so on
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  Speaker 3: in order to well simply because they do not have
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  Speaker 3: the materials to refine.
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  Speaker 2: So the key thing is that over eighty percent of
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  Speaker 2: our refined fuel comes from South Korea and Singapore, and
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  Speaker 2: both those countries refineries run on Middle Eastern crude. And
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  Speaker 2: of course it's not just actually about rising prices, but
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  Speaker 2: that there may be statehoarding. These countries might start restricting
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  Speaker 2: what they're exporting to protect their own domestic market.
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  Speaker 3: That's correct, I mean, you know, to give you an example,
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  Speaker 3: China has now said there is an absolute ban on
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  Speaker 3: export of refined petroleum products from China at this point,
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  Speaker 3: and that's through to the end of the month for now.
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  Speaker 3: But that's the position that they've taken, and it's quite
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  Speaker 3: possible that other countries will follow suit. South Korea was
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  Speaker 3: having discussions last week about implementing a similar ban. We
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  Speaker 3: haven't yet, as I understand it, heard what their decision is. Obviously,
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  Speaker 3: they're monitoring a developing situation as we are.
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  Speaker 2: So the fuel that is currently en route to New Zealand,
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  Speaker 2: are we guaranteed that that will arrive? Could it be
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  Speaker 2: diverted to another country?
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  Speaker 3: Yeah? Possibly? So that brings up an important point actually,
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  Speaker 3: because the ministers have been on the out in the
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  Speaker 3: media saying, you know, well, we've got about fifty days
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  Speaker 3: worth of fuel, and there's three tiers to our fuel reserves.
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  Speaker 3: Tier one two and three. Tier one is the stuff
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  Speaker 3: we've got on in tanks on the ground in country
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  Speaker 3: and standards of the end of last week, and we
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  Speaker 3: were saying that's about thirty days. Then we have about
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  Speaker 3: another twenty days worth of fuel coming to us on
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  Speaker 3: those ships. And then beyond that the tickets to buy
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  Speaker 3: for the options, which we'll talk about later if you like.
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  Speaker 3: But that second tier, the floating reserve, is oil on
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  Speaker 3: ships that can and potentially be diverted. If a supplier
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  Speaker 3: declares force masure, it has the right to do what
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  Speaker 3: it wants with the fuel that it has in the
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  Speaker 3: tanks and so in the tankers. And so there is
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  Speaker 3: already president earlier last week of fuel that was supposed
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  Speaker 3: to be heading to Europe and Africa being rediverted back
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  Speaker 3: to Asia.
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  Speaker 2: We are hearing this term force masure being used already.
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  Speaker 2: Can you explain, you know what it means within this industry.
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  Speaker 1: Yeah.
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  Speaker 3: Yeah, Basically, it means that there was something happens global,
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  Speaker 3: geopolitical or natural disaster type event whereby the contract that
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  Speaker 3: we've signed with you is no longer valid. And the
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  Speaker 3: reason for that is there's circumstances beyond our control. We
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  Speaker 3: cannot fulfill the contract.
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  Speaker 2: Okay, So if South Korea or Singapore or these ships
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  Speaker 2: which were you know, hopefully en route to New Zealand
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  Speaker 2: are diverted or there is a restriction in what they
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  Speaker 2: are prepared to export, what do we do do we
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  Speaker 2: have a backup option?
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  Speaker 3: Well, there is the National Fuel Plan, so you know,
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  Speaker 3: the government has effectively a staged incremental rationing type process. Initially,
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  Speaker 3: and this is what we called for at the beginning
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  Speaker 3: of the week. Should signal that rationing is a potential possibility,
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  Speaker 3: because signaling it gives people time to adjust mentally, gives
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  Speaker 3: them time to think about what they need to change.
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  Speaker 3: It can indicate that we should be trying to conserve
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  Speaker 3: our fuel resources, so trying to reduce our demand through
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  Speaker 3: elective measures that we can take as individuals and organizations.
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  Speaker 3: It can force that upon us through the nineteen eighty
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  Speaker 3: one forget what it's called, but the Fuel Act that
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  Speaker 3: basically give them the emergency powers to implement rationing after
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  Speaker 3: the last oil crisis that we experienced. And then beyond that,
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  Speaker 3: it's a question of how you ration.
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  Speaker 2: Let's talk about the National Fuel Plan. It doesn't look
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  Speaker 2: like a terribly detailed plane. Would you be expecting at
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  Speaker 2: this point that the government would be just quietly looking
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  Speaker 2: at a more specific plan to deal with this situation,
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  Speaker 2: to make Kiwi's needs.
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  Speaker 3: I've been hearing through the sort of back channels that
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  Speaker 3: I think they are doing that in the background. You know,
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  Speaker 3: it will be very, very irresponsible than not to be
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  Speaker 3: at this point. And I think it's pretty clear that
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  Speaker 3: you know, what they can say publicly and what they
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  Speaker 3: are doing in practice behind the scenes are two different things. Often.
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  Speaker 3: You know, what we've got at the moment is the
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  Speaker 3: situation though whereby doing nothing, you know, no indication that
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  Speaker 3: rationing might be a thing. We're rationing by price and
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  Speaker 3: so you know you've seen these price spikes. It leads
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  Speaker 3: to situations where people who can afford it can go
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  Speaker 3: out and buy fuel, buy some more fuel, cans, store it, etc.
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  Speaker 3: And those who can't are left looking at it. You know,
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  Speaker 3: they turn it to the petal station and maybe the
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  Speaker 3: pump are dry. So you know, that's that's where we
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  Speaker 3: currently are.
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  Speaker 2: It's those tho's quiet mixed messages that becomes the problem,
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  Speaker 2: isn't it, Nathan, Because look, I'm not running out and
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  Speaker 2: buying in bulk and hoarding in anything. But I have
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  Speaker 2: watched the price shoot up dramatically throughout the week, so
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  Speaker 2: you can't deny that it's not going to have an
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  Speaker 2: impact Onnathon. We've got a problem coming from, you know, approaching.
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  Speaker 2: So it's nice to say, hey, it's okay, no need
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  Speaker 2: to panic now. I don't think anyone necessarily is panicking now,
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  Speaker 2: but I do think that everyone understands that in the
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  Speaker 2: medium will potentially the long term, there could also be issues.
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  Speaker 2: And even even the Fine Minster Nichola Willis has said
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  Speaker 2: there's no need to panic now, but in the medium
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  Speaker 2: term there could be issues. What are we looking at?
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  Speaker 3: Yeah? In turn wise, well, I think we will see
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  Speaker 3: some rationing introduced. I mean it seems like it really
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  Speaker 3: is the only option when you've run short of a
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  Speaker 3: resource and you're trying to make sure that people get
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  Speaker 3: a fair allocation of it, but you have to have
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  Speaker 3: some sort of rushing So I mean, I can talk
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  Speaker 3: you through the sort of different increments of rationing if
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  Speaker 3: you like. So, I mean, you know, as I said,
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  Speaker 3: the first one is do nothing. The price spike analogy
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  Speaker 3: and using a water analogy, if you've got a town
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  Speaker 3: where the reservoir is running low, five ways to handle it.
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  Speaker 3: You can do nothing and ration by price. You can
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  Speaker 3: send a letter to your people saying please use less water.
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  Speaker 3: Some people will, most won't. There's no consequences, no real fairness.
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  Speaker 3: It's a voluntary demand restraint. If you go to a
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  Speaker 3: next increment up, no water in your garden on Tuesdays
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  Speaker 3: or Thursdays, which is analogous to you know, different stickers
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  Speaker 3: called stickers for different days you can use your car.
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  Speaker 3: Simple crude problem is the family with four cars picks
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  Speaker 3: a different one each day. Single car household loses a
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  Speaker 3: day of mobility, and the farmer who needs to vehicles
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  Speaker 3: seven days a week the problem. The next increment up
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  Speaker 3: for that is actual rationing by tokens, and we're talking
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  Speaker 3: about tradeable energy quotas as the system we'd like to see.
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  Speaker 3: But before that, you know, just basic tokens affair on
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  Speaker 3: the surface. But if a plumber runs out on Wednesday
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  Speaker 3: and the retired couple has barely used half their tokens,
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  Speaker 3: then they'll trade informally regardless of whether or not you've
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  Speaker 3: got a mechanism in place. So you've created a black
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  Speaker 3: market and tradable energy quotas, which is the option that
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  Speaker 3: wise response is promoting same tokens, but you can legally
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  Speaker 3: sell your spares, so the total town usage stays within
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  Speaker 3: what the reservoir can handle. Back to our water analogy,
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  Speaker 3: but households sorted out amongst themselves, careful that households earn
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  Speaker 3: some money and the ones that need more get it.
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  Speaker 3: Nobody goes to a black market, and the total stays
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  Speaker 3: within the physical limits because we're facing a situation in
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  Speaker 3: rationing where there is a limit to the total amount
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  Speaker 3: that we can share between ourselves.
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  Speaker 2: Okay, it's interesting. I like the water analogy only, Nathan,
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  Speaker 2: because I know that when councils tell us to save water,
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  Speaker 2: we're very good at savent water. Yes, absolutely, Hey, when
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  Speaker 2: when will we reach the hard part for New Zealand
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  Speaker 2: consumers and businesses?
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  Speaker 3: Do you think it's a good question? And I don't
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  Speaker 3: really have an answer to you. You know, we've got
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  Speaker 3: thirty days of fuel on the ground in tanks. If
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  Speaker 3: there was a more widespread force matured declaration, that twenty
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  Speaker 3: two days worth that is still on ships that haven't
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  Speaker 3: arrived yet may not get here. So we're stuck with
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  Speaker 3: that thirty days. There was some work done last year
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  Speaker 3: by Matt Boyd a group called adapt Research, and he
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  Speaker 3: was looking out, well, how could we actually ration out
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  Speaker 3: a finite fuel supply. He was looking at you know,
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  Speaker 3: other potential disastrous scenarios and figured out that, you know,
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  Speaker 3: you can actually stretch out quite a long way if
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  Speaker 3: you start early and you know you've got that thirty
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  Speaker 3: days and say we can reduce demand by two thirds
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  Speaker 3: by absolutely you know, pairing back to the minimum. Then
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  Speaker 3: suddenly we've got ninety days of fuel. So you know,
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  Speaker 3: the quicker we do that sort of thing, the better.
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  Speaker 3: And this is why you know we're calling for demand
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  Speaker 3: re storre ain't and the government's signal rationally now rather
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  Speaker 3: than in two weeks time.
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  Speaker 2: I've got a quick ticks here and wondering if you
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  Speaker 2: could answer for me, Nathan Jerry tick To say, the
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  Speaker 2: question here is why did prices go up over this week?
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  Speaker 2: The cost of that stock wasn't the current cost price?
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  Speaker 2: So why because we're not paying for we're paying for
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  Speaker 2: the now?
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  Speaker 3: Yeah, I think I think you could. You can think
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  Speaker 3: of it as a risk premium. That's the sort of
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  Speaker 3: economic way of saying price gadging.
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  Speaker 2: And it's it's.
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  Speaker 3: Hard to say definitively whether or not that's going on,
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  Speaker 3: because I don't have a clear insight into you know,
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  Speaker 3: the specific commercial priorities. But it seemed pretty clear that
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  Speaker 3: the price went up pretty quickly ahead of any actual
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  Speaker 3: limits happening, and that we've seen that happen historically, and
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  Speaker 3: we know that the price goes up quickly and then
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  Speaker 3: doesn't really come back down as quickly. All of that
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  Speaker 3: is additional profit that is being siphoned out of people's pockets.
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  Speaker 2: So what would you recommend Kiwis do. Should they should
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  Speaker 2: they store a little extra, should they be thinking about,
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  Speaker 2: you know, doing more in one trip, rationing the you know,
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  Speaker 2: the yuse of fuel.
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  Speaker 3: I think that yeah, I think that those sorts of
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  Speaker 3: things are definitely on the table. I mean, you know,
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  Speaker 3: there there's different tiers to what we should be doing.
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  Speaker 3: Right So at the national level, I said, what we're
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  Speaker 3: doing at the regional level, we should look ideally to
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  Speaker 3: some sort of coordinated response from our councils and our
• 13:42
  Speaker 3: emergency management teams. The problem there is that often they're
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  Speaker 3: extremely underfunded, you know, and they also have other mandated responsibilities.
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  Speaker 3: So it's worth going and you know, asking your council
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  Speaker 3: what they what, to think hard about what they can do,
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  Speaker 3: and you know, to support initiatives that, for example, try
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  Speaker 3: to relocalize our food systems, which is part of a bigger,
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  Speaker 3: longer term shift that I think need in response to
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  Speaker 3: the multiple crises, not just this specific one, that are
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  Speaker 3: growing over time as we run into planetary boundaries and
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  Speaker 3: resource depletion issues. So you know, buying from your local grower,
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  Speaker 3: butcher or farmers market, if you're not spending money on
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  Speaker 3: food that was trucked from christ Church or Auckland or
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  Speaker 3: wherever the distribution centers are to the supermarkets, then that
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  Speaker 3: shortens the chain and supports local growers who can then
• 14:37
  Speaker 3: support our communities better in times like this. You've said
• 14:42
  Speaker 3: combining your trips carpools to work if you can't work
• 14:45
  Speaker 3: from home, even if it's only a day a week,
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  Speaker 3: that's twenty percent reduction on your commuting fuel bill and
• 14:50
  Speaker 3: you you know fuel use. Should I say, talk to
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  Speaker 3: your neighbors. You know, we know that communities that cooperate
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  Speaker 3: and who talk to each other do better in a crisis.
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  Speaker 3: There was the example in the christ Church earthquakes of
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  Speaker 3: the community in Littlington which had the Time Bank going,
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  Speaker 3: and you know there's things around that that can be
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  Speaker 3: set up. We do have, you know, as I said,
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  Speaker 3: maybe a month or so. It's worth a feel. Now
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  Speaker 3: it's time to think and prepare and get some of
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  Speaker 3: these ideas out there and socialized and get people moving
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  Speaker 3: on this stuff so that when the actual crisis arrives,
• 15:23
  Speaker 3: which we can see on the horizon, then we've actually
• 15:26
  Speaker 3: made some steps positively now to adjust and then at
• 15:31
  Speaker 3: the individual level, you know, plant some more seeds, make
• 15:36
  Speaker 3: sure you've got some water stored. I mean, the steps
• 15:41
  Speaker 3: people can take. It's really interesting.
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  Speaker 2: Again, sorry, I was just going to say it's really
• 15:46
  Speaker 2: interesting you say that because I popped down to mind
• 15:47
  Speaker 2: a teens today to grab a few more punnets and ludacs,
• 15:50
  Speaker 2: and somebody said to me, ah, yes, we've had a
• 15:52
  Speaker 2: lot of people coming in and restocking their vegi gardens
• 15:55
  Speaker 2: and things, and you know, getting ready for the increase
• 15:59
  Speaker 2: in cost of food prices and things because of the
• 16:01
  Speaker 2: petrol So I think'rebsolutely right on that one. Nathan, surrender
• 16:04
  Speaker 2: and thank you very much for your time. Nathan is
• 16:06
  Speaker 2: the chair of the Wise Response Aside and an engineering consultant.
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