• Bio-fuel will have to be imported
• Oil companies face infrastructure hikes
• Fuel prices will have to rise

BP is warning the Govt’s bio-fuel mandate will add 7c to 15c to a litre of fuel, as oil companies face significant costs to implement the new regime. In a submission on the Bio-Fuel Bill, BP notes ethanol and bio-diesel will have to be imported, as not enough is available in NZ, and this is counter-productive to carbon reduction. The company is also worried about the significant cost of infrastructure required to implement the Bill. BP NZ Managing Director Peter Griffiths told a Parliamentary Select Committee NZ is setting one of the highest bio-fuels targets in the world and it “cannot physically be delivered at the moment.”
Griffiths says the infrastructure required, additional raw material costs, implementation and compliance costs will see BP’s overall costs sky-rocket. He adds, while BP supports the introduction of bio-fuels and has been trialling them for several years, the company has serious concerns about the Bill as currently proposed. Griffiths believes the Bill fails to deliver any of the Govt’s three main aims: sustainability, security of supply and carbon reduction. The proposed legislation requires oil companies to sell a minimum percentage of bio-fuels (calculated on energy content) from July 1 this year.
The mandate increases from 0.53% in 2008 to 3.4% in 2012. Griffiths says while 3.4% doesn’t sound like a high target, the way in which it is calculated and must be implemented means more than 90% of petrol and 30% of diesel sold in NZ will need to contain bio-fuel. Furthermore, Griffiths believes a 10% ethanol blend will be required in most petrol, in order to meet the regulations. He notes Japan’s Ministry of Economy, Trade and Industry doesn’t recommend blends above 3% ethanol in pre-2004 Japanese cars. Oil companies will need to have storage and blending equipment installed at up to nine terminals across NZ to introduce and manage new bio-fuel products and blends. The costs and time involved in creating the infrastructure will be substantial. For BP alone it is likely to be more than $20m for terminal infrastructure.
Griffiths adds the oil industry will also need help with the resource consenting process to manage the risks and HSNO issues. BP has proposed an alternative bio-fuel target starting at 0.23% and rising to 3.23% by 2015. It says this would reduce compliance costs, allow time for more bio-fuel-compatible vehicles to enter the fleet and for local bio-fuels production to develop. Mobil also expressed similar concerns to the Select Committee, saying the bio-fuel mandate would require it to build storage tanks and blending facilities in three or four terminals simultaneously, which would be a “significant burden.” But Gull Petroleum, which has been selling a 10% ethanol-petrol blend since last August at 12 service stations, believes its rivals are over-stating the costs.

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