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Marsden Point pipeline rupture inquiry – Expert Reaction

The government has released the report of an independent inquiry into the fuel supply disruption caused by the rupture of a key pipeline in September 2017.

A section of the pipe that brings diesel, petrol and jet fuel from Marsden Point Oil Refinery to Auckland ruptured in September 2017, leaking jet fuel into several paddocks and halting fuel supply to Auckland Airport for 10 days, leading to flight cancellations and some petrol stations running out of fuel.

The incident exposed major holes in Auckland’s fuel supply chain infrastructure – namely that there is only supply chain for jet fuel going into the city, meaning that failure at any point along the chain can cause a complete disruption of supply.

The inquiry report identifies lessons we can learn from this incident and how we can improve the resilience of Auckland’s fuel supply in future. The report offers several recommendations to enhance resilience, including:

  • investment in the capacity in the supply chain near the airport to meet the increasing demand
  • sufficient stockpile for an outage event
  • a second permanent supply chain developed (and paid for) by industry

The SMC gathered expert comment on the report. 

Professor Basil Sharp, Professor of Energy & Resource Economics, and Director of the Energy Centre, University of Auckland, comments:

“The event highlights the importance of investing in, and maintaining, critical infrastructure. Before implementing regulatory standards it is important that the costs and benefits of decisions aimed at improving supply chain resilience are clearly understood.

“Of course, it was in the interest of all parties and consumers to get the pipeline back into operation as quickly as possible. And, I am sure there were lessons to be learned.

“However, before proceeding down the regulatory path we need to clearly understand the costs and benefits of resilience, however defined.

“Creating redundancies in the supply chain will cost money. Who will pay? Do the costs exceed benefits? The report raises the spectre of ‘public benefits’. What are these? Are they significant? More detailed economic analysis is needed.”

No conflict of interest.

Professor Tava Olsen, Professor of Operations and Supply Chain Management, Business School, University of Auckland, comments:

“It looks like an excellent and comprehensive report. The lack of resilience in the jet fuel supply chain that they have identified is important but not surprising.

“It seems overly optimistic to expect the commercial suppliers to remedy this on their own as they have few financial incentives to do so. The cost of a breakdown has a much bigger impact outside of their own firms than within their firms, so a firm-specific profit calculation will not, and cannot be expected to, account for this.

“The creation of the National Fuel Emergency Plan seems overdue, but it is good that the committee has highlighted the need for a section on jet fuel within this plan. Hopefully, they will look at Whenuapai as a potential back-up site for Auckland jet fuel, rather than expecting the commercial companies to shoulder all back-up responsibilities. (I have not investigated whether this is feasible, but seems like one possibility for making the jet fuel supply chain more resilient.)”

No conflict of interest.

Professor Emeritus Ralph Sims, Sustainable Energy and Climate Mitigation, Massey University, comments: 

“There is always some risk that a fuel supply chain gets disrupted for a number of reasons. The Auckland pipeline break in 2017 is a good example.

“At the international level, member countries of the International Energy Agency – including New Zealand – are obligated to each hold emergency oil stocks equivalent to at least 90 days of net oil imports. There are high storage costs involved but the outcome is greater oil security on a global basis when extreme events occur because the International Energy Agency’s collective response system is designed to mitigate the negative economic impacts of sudden oil supply shortages by providing additional oil to the global market.

“Perhaps a similar approach could be undertaken in New Zealand if the various oil companies were each obliged to hold a stock of 90 days’ of their average supply, with storage tanks distributed around the country to provide some resilience for when the next supply shortage inevitably occurs.

“The Government Inquiry concentrated on oil product supplies to Auckland but the next disruption, for whatever reason, could be anywhere in the country.

“Perhaps lessons learned from what the International Energy Agency has achieved for global oil security these past four decades could be applied to improving petroleum product supply in New Zealand once appropriate regulations are put in place.”

Conflict of interest statement: I did work at the International Energy Agency a few years ago when I was involved in their emergency response scenarios.

Dr Lincoln Wood, Department of Management, University of Otago, comments:

“The report is right to highlight the dangers of having few backups and redundancies and resulting wide-spread effects to other fuel supply firms and disruption to other industries.

“There are several challenges and risks identified by the report that can emerge in contemporary supply chains consisting of many firms. Each firm has particular investment frameworks and different business priorities. In our markets, there is often an emphasis on short-term planning or ‘just in time’ investments that work well when it is business-as-usual but exacerbate problems in times of uncertainty or disruption. The report also highlights the challenge of information sharing and achieving transparency.

“The recommendations in the report address many of the underlying supply chain challenges that led to the loss of resiliency. The analysis also offers a warning to other areas in our nation where there are similarly fragile supply chains and infrastructure investments. We tend to under-invest to mitigate against high-impact, low-probability events and may require new approaches to reduce long-term disruptions where there is a foreseeable knock-on effect to other firms and societal stakeholders.”

No conflict of interest.

Dr Nirmal Nair, Department of Electrical, Computer, Software Engineering, University of Auckland, comments:

“The 2017 fuel rupture incident has brought into the focus the relative blasé and unprepared attitude of successive New Zealand governments towards formulating a serious national fuel emergency policy.

“The US Strategic Petroleum Reserve is one of the world’s largest example of such an initiative, which claims to hold about 727 million barrels of oil which could be drawn down during a period of 150 days of the country’s national consumption. Very recently, Australia that has estimated its resilience of fuel availability will only last 28 days, and it is seeking a bi-lateral arrangement with the US as a last resort from the US strategic resource to support it in cases of international emergency.

“The current Government’s inquiry report does attempt to analyse our fuel security situation through the lenses of a Civil Defence Emergency Management (CDEM) Resilience framework but does capture this only from the viewpoint of internal transportation of the fuel for New Zealand for functional internal travel needs of people, goods & services and for air-travel.

“The New Zealand national supply situation appears to be not adequately addressed as per this current report’s findings and there is a need to accelerate recommendation #19, i.e: The Government legislates to put regulatory options in place. This will better align ourselves with countries like Australia and the USA.

“The scope of this legislation should comprehensively address the various situations that could test New Zealand’s fuel resilience. These will involve large-scale natural hazards like earthquakes and severe weather conditions affecting fuel supply transportation and global supply chain disruptions for sustained supply disruptions. These will require coordinated assessment and plans by MFAT, MBIE, CDEM and commercial fuel companies.”

No conflict of interest.