Fuel prices ‘almost vertical’ as Strait of Hormuz closure tests NZ resilience

Z Energy says Strait of Hormuz disruption drove sharp fuel price jumps, while emergency planning and trading arrangements helped protect supply.

From a ruptured jet fuel pipeline to the Russian invasion of Ukraine and severe weather events like Cyclone Gabrielle, Z Energy is hardly unaccustomed to dealing with supply chain disruptions.. But even by those standards, the ongoing war in Iran and associated disruption to the Strait of Hormuz – which usually has roughly 20 percent of the world’s oil and gas pass through it – has required New Zealand’s largest fuel importer to think on

its feet in the middle of constantly changing circumstances.. “There’s a level of responsibility that comes with that, and I need to be ready for what’s coming down the chute so to speak, so it gives me a real sense of responsibility,” Julian Hughes, the leader of Z’s supply team, says of the company’s significant role during a global fuel crisis.. Hughes was working from home when news of the US-led strikes on Iran first

broke, and after first digesting the news on a personal level – “I remember when the Gulf War first broke out, I was in a car in central Auckland” – his mind quickly turned to the matter of how the war could affect the supply chain that brings fuel from the Middle East to our shores.. He was better prepared than you might expect: at the end of 2024, Z carried out a ‘stress test’

of the country’s fuel system by modelling how New Zealand would respond to a range of high-risk scenarios, including an event that restricted access to a major maritime corridor.. While the company didn’t model the Strait of Hormuz’s potential closure – it instead focused on what would happen if supply from North Asia was cut off – the exercise nonetheless ensured Z was already aware of how such a disruption would affect New Zealand’s fuel

supplies.. Amid all the noise associated with the war, Hughes and his team (along with the Trading team in Singapore from Z’s parent company Ampol) have focused on three main factors: the state of play in the Strait itself, how the Asian refineries have adjusted their production rates, and what steps individual countries are taking to safeguard their own stocks.. Hughes breaks down the Singapore relationship further.. “People sometimes don’t realise just how physical it

all is.. As we are an import-only fuel system our trading team in Singapore is constantly buying refined products – that’s your diesel, petrol and jet fuels – from Asian refineries and scheduling cargoes weeks and months in advance.. “When they’re ready, those cargoes get loaded onto ships and make their way down here, and then the team is coordinating arrivals across multiple ports – Marsden Point, Tauranga, Wellington, Lyttelton, the list goes on –

wherever there’s storage and demand.. Once it’s here, it’s about getting it off the ships and to our terminals.. “So, when something like the Strait is disrupted, it’s not abstract – we can feel it ripple through the supply chain almost immediately.” A number of refineries did have to cut back their production – but that (for the most part) had the desired effect, with scarce supplies pushing up global prices, which in turn incentivised

the release of more crude oil into the market to “rebalance the system”.. What did surprise Hughes was just how sharply prices went up – “almost vertical”, much more pronounced than following Russia’s 2022 invasion of Ukraine.. While the Russian invasion disrupted access to roughly 10 percent of the world’s crude oil, about twice as much has been affected by the Strait of Hormuz closure.. In addition, Asian refineries have been specifically set up to

process the heavier crude oil that originates from the Middle East, rather than the lighter variants that are found elsewhere.. There were some hairy moments early on, particularly in the spot market with limited fuel available for purchase, although long-term supply arrangements which Z, through the Trading team in Singapore, has in place with refineries remained intact.. This eased as refineries ramped up their production.. As for fears about countries hoarding fuel, while some nations

like Thailand and China have put restrictions on exports, Hughes says others like South Korea have released government stocks into the market to act as a “shock absorber”.. Z has shock absorbers of its own, in the form of pre-arranged protocols for responding to major events like a natural disaster or supply crisis.. Hughes says the company’s business units have their own emergency management teams, overseen by a separate group of senior leaders, allowing staff

to override standard operating practices where needed.. “Basically what we’re trying to do is, in regular periods of time, understand what’s happening and enable the organisation to make quick decisions such that it can minimise the risks that it’s facing.” Z develops emergency scenarios and practises its response once a year, while the protocols were put to real-world use in 2017 when a digger cracked the pipeline bringing fuel from Marsden Point to Auckland and

caused a rupture, with reports suggesting it led to the cancellation of more than 100 flights at Auckland Airport and caused some petrol stations to run out of fuel.. Hughes is “super proud” of the company’s work to keep fuel flowing to Kiwi, saying it proves the resilience of New Zealand’s import-only model following the closure of the Marsden Point oil refinery in 2021.. But he is also conscious that New Zealand, and the wider

world, is not yet out of the woods, with ongoing uncertainty over access to the Strait of Hormuz.. Z is already thinking about how to move to the next phase of its emergency response, and about how the ongoing crisis could reshape the organisation and the wider industry; by way of illustration, Hughes cites the global oil crisis of 1973 that sparked the creation of the International Energy Agency.. He is also thinking about whether

to update the company’s fuel security scenario planning, even though it has held up well in light of the year’s events.. “At one level, I’m saying, ‘Well, it’s actually responded fine, and at one level, we’re going okay’, but is that good enough if you’re a geographically isolated country at the bottom of the world?. Is it what we want, and does it prompt some wider changes?” That desire to keep supply chain planning as

current as possible is just one sign of how seriously Hughes and Z take their role in ensuring New Zealanders have access to the fuel that is critical to their economic and social wellbeing.. “We’ve been able to maintain supply, and it’s not lost on me that in doing that, we’ve been buying product in a very volatile market, and that volatile pricing is being passed on to mums and dads and consumers and businesses,

and that’s having an impact.. “It’s one thing to sit here and go talk about supply chain dynamics and all that stuff – the outcome of all of this is that it has had an impact on people.. It’s a huge responsibility to ensure that product still can come in and people can run their businesses and go about their lives, and we don’t take that lightly.”

Strait of Hormuz, Z Energy, New Zealand fuel supply, fuel price surge, Ampol trading, emergency planning