US embassy cable - 05WELLINGTON248

UNCLAS WELLINGTON 000248 
 
SIPDIS 
 
STATE FOR EB/ESC/IEC/ENR-JSTEELE AND EAP/ANP-TRAMSEY 
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/ABENAISSA 
 
SENSITIVE 
 
E.O. 12356: N/A 
TAGS: ECON, NZ, ENGR 
SUBJECT: NEW ZEALAND GOVERNMENT CHOOSES OIL-STOCKPILE OPTION 
FAVORED BY INDUSTRY 
 
REF: (A) WELLINGTON 10; (B) 04 WELLINGTON 291 
 
(U) Sensitive but unclassified -- protect accordingly.  Not 
for Internet distribution. 
 
1. (SBU) The New Zealand government announced March 23 that 
it would hold a tender for additional oil storage in an 
effort to meet an international standard to maintain 90 days 
of reserves.  The decision pleased oil companies, which had 
feared that the government would significantly raise their 
costs by ordering them to hold additional stocks.  The 
Ambassador on February 25 wrote two government ministers 
expressing concern that alternative strategies for resolving 
the stockpile issue might ultimately reduce U.S. oil 
investment in New Zealand.  Shortly before the March 23 
announcement, Minister of Energy Mallard called the 
Ambassador to thank him for his letter.  The Minister said 
he appreciated the Ambassador's drawing his attention to the 
issue and implied that the Ambassador would welcome the 
government's decision. 
 
2. (U) In his statement announcing the decision, Mallard 
said, "I believe that tendering best meets the government's 
objectives of minimizing costs while avoiding any adverse 
effects on competition between the oil companies and ongoing 
investment in the sector."  A levy on oil companies that 
pays for monitoring fuel security and quality will be 
increased to cover the tender's costs.  The five oil 
companies in New Zealand -- BP New Zealand, Caltex New 
Zealand, Mobil Oil New Zealand, Shell New Zealand and the 
independent company Gull -- are likely to pass the increased 
levy on to consumers.  That cost is expected to be NZ 0.7 
cents to NZ 1 cent per liter, spread over all petroleum 
products.  The additional oil stocks -- 500,000 tons of oil, 
or about 30 days of net oil imports -- are expected to cost 
about NZ $500 million (US $363 million).  In addition, new 
storage capacity probably will need to be built. 
 
3. (U) New Zealand has relied on voluntary industry 
stockpiles to meet its International Energy Agency (IEA) 
obligation to hold 90 days of oil reserves.  However, rising 
oil consumption and decreasing domestic oil production had 
led to a stockpile shortfall that had not been detected 
until last year because of inaccurate accounting of 
reserves.  New Zealand depends on imports for about 80 
percent of its oil consumption.  The government expects the 
country to be about 28 days under the 90-day obligation in 
2005. 
 
4. (SBU) A government-commissioned study, released December 
14, outlined options and costs for boosting New Zealand's 
oil reserves (ref A).  The oil companies had worried that 
the government would force them to pay for additional oil 
stocks and storage capacity.  Peter Thornbury, public 
affairs manager for Mobil Oil New Zealand, said such a plan 
would have affected each company differently -- depending on 
the company's obligations and investment requirements -- and 
thereby distorted the market.  While the companies initially 
wanted the government to pay for the additional reserves, 
the industry ultimately pushed for the tendering option 
because the added levy would be relatively easy to pass on 
to consumers and would affect the five companies equally. 
John Kerr, public affairs manager for Caltex New Zealand, 
said the government's decision also opened the door for more 
consultations with industry on a number or remaining issues. 
 
5. (U) The government may discuss with other IEA countries 
in the region -- Australia, Canada, Japan, Korea and the 
United States -- the possibility of holding some of New 
Zealand's oil stocks in those countries, as allowed by the 
IEA.  An IEA review team is scheduled to visit New Zealand 
in late April.  Post has requested a briefing from the team 
on its views of New Zealand's energy policies. 
 
6. (SBU) Comment: The government's apparent shift in 
strategy may be due in part to a change in energy ministers. 
The previous minister, Pete Hodgson, had said that the 
Cabinet had decided to impose the expense of expanded oil 
stockpiles on the oil companies.  He was replaced in an 
unrelated Cabinet reshuffle December 20 by Minister Mallard, 
who may have been more open to considering industry's 
concerns.  Newspaper coverage of the announcement led with 
the cost to consumers, then detailed the government's 
decision. 
 
SWINDELLS