TLDR/Summary
- NZ is vulnerable to interruptions in global fuel trade.
- MBIE has commissioned a NZ Fuel Security Study.
- This study is to be commended, but the contractor needs to include analyses through the lens of ‘Global Catastrophic Risks’.
- Zero liquid fuel import scenarios are possible and must be contemplated. This is the appropriate ‘first principles’ starting point for analysis of fuel security.
- Mitigation options need to provide for minimal fuel requirements across months or even years.
- The Aotearoa NZ Catastrophe Resilience Project mapped these scenarios and problems in 2023 and provided a high-level framework for approaching these problems.
Purpose
New Zealand imports nearly all its engine fuels, except for small amounts of biofuels.
Therefore, the NZ Ministry for Business Innovation and Employment (MBIE) is:
Seeking specialist services to undertake a Fuel Security Study on fuel security requirements for New Zealand out to 2035. The findings from the Fuel Security Study will feed into the development of a Fuel Security Plan which will be a strategy document for building resilience in the medium to long term.
This blog outlines some potential global catastrophes and suggests that the contractor undertaking the fuel study should apply the lens of global catastrophic risks to address national fuel security in the worst potential scenarios.
Fuel security is essential to the economy, but also to national food security to ensure farm machinery works and food is transported to people.
Global Catastrophic Risks and Fuel Security
NZ’s geography provides potential for a degree of national self-sufficiency in energy and food production. However, economic drivers mean that NZ depends on trade for many essential goods and services, including liquid fuel.
This arrangement is efficient in normal times but may not provide sufficient resilience should trade networks degrade or collapse. The deteriorating world geopolitical situation in 2024, along with the ever-present risk of major catastrophes such as nuclear war, extreme pandemics, global food shocks, and industry disabling technological or cyber disasters, necessitate a measure of national resilience.
Major recent reports detail the risk of significant global disaster, including those by the Joint Research Centre of the European Commission, World Economic Forum, KPMG, and a 2023 superforecasting study of existential risks. Governments such as the US are now taking global catastrophe and critical infrastructure resilience very seriously.
Against this backdrop the coalition agreement between the National Party and NZ First mandated a study of NZ’s fuel security. Proposals for this analysis are now being sought by MBIE (due on 25 June 2024).
The government and MBIE should be commended for initiating this critical work.
MBIE’s RFP notes that:
A secure and resilient supply of engine fuels is critical to our economy. A significant and sustained supply disruption of engine fuels would impact industry and cause significant hardship to New Zealanders.
‘Critical to our economy’ possibly doesn’t capture the full extent of NZ’s dependence on liquid fuel imports.
A short interruption to liquid fuel supply could be mitigated by demand reduction and judicious distribution of onshore fuel stockholdings. But an extended collapse of fuel trade would put agricultural production and food distribution at risk.
Liquid fuel, at present, is ‘critical to our survival’.
The 2023 report by the NZCat research collective titled Aotearoa NZ, Global Catastrophe, and Resilience Options spelled out the dire impact of a zero-trade scenario for NZ. But also provided mitigation options.
Among wide-ranging multi-sector options, NZCat suggested that NZ needs to:
Reverse the trend to decreased energy self-sufficiency, and ensure adequate electrified transport/machinery and local liquid fuel production to supply essential needs in a global catastrophe.
Specific analyses identified the potential for a modest national production of biofuel that could be titrated to absolute minimum needs to support agricultural production of the most efficient crops to ensure food for New Zealanders. NZCat recommended that other sectors perform similar calculations of critical minima.
Additionally, the NZ Productivity Commission (before its disestablishment) included the following box in their 2024 report on Improving Economic Resilience (p.24)
The Productivity Commission highlights the centralised oversight of risk management in NZ and any Fuel Security Study needs to contemplate the full range of potential catastrophes, and feed results into central planning across interdependent sectors and agencies.
It is clear from the scenarios described above, that recent analyses of NZ’s fuel security have not gone far enough in considering the potential magnitude of fuel shocks.
Past studies MBIE commissioned from 2005 on tested only one external supply constraint – a uniform 10% cut in crude production for 6 months. And this was treated as resulting in simply a price effect. I welcome MBIE’s new study.
The 2024 NZ Fuel Security Study
MBIE’s RFP lays out the following objectives for the Fuel Security Study:
- Identify and mitigate vulnerabilities in NZ’s fuel supply chain
- Enable us to minimise the impact of fuel disruption events
- Investigate how NZ could improve sovereign fuel resilience
- Maintain available fuel at an affordable price
Furthermore, the project scope requires the consultants to:
- Investigate the reopening of the Marsden Point oil refinery
- Investigate the strategic importance of infrastructure at Marsden Point and the role it could play in underpinning NZ’s fuel resilience
- Understand the risks, impacts and mitigation measures of an extended fuel supply shortage
- Understand potential domestic disruptions to fuel distribution
- Map fuel consumption trends and how they could impact fuel security
If I was undertaking this Fuel Security Study, as well as investigating the key factors MBIE has identified, I would ensure the following analyses are included:
- Contemplate scenarios where NZ suffers a complete loss of liquid fuel imports. This could arise because of massive destruction of refineries/ports/bunkers worldwide (eg, nuclear war), a total regional shipping blockade (eg, China-Taiwan conflict), catastrophic disruption to electrical systems (massive solar flare, cyber disaster), or any one of several other scenarios.
- Ideally, the cascading impacts of the scenarios in (1) could be modelled through country-level network node analysis of fuel production, import and export volumes, as has been done for global food trade (eg, Hedlund et al. 2022), to estimate the impact of various representative catastrophes on NZ’s fuel supply.
- Contemplate protracted (months/years) fuel supply disruptions and consider essential services that could be disrupted, starting from the most critical basic needs, ie, water supply, agricultural production/food distribution, and heating.
- Estimate the quantities of liquid fuel required by each critical sector (eg, Transport, Energy, Communications, Food/Agriculture, Emergency Services, Defence, etc) to sustain absolute bare-minimum functioning to supply survival needs across months/years. These volumes can then inform a quantified and updated National Fuel Plan.
- Investigate mitigation measures that include local production of liquid fuels. Until widespread electrification (which should be pursued) liquid fuel is critical to NZ’s survival. Local production options at the required scale are probably limited at present to:
- Refining local crude oil (from Taranaki)
- Biofuel production
- Suggest options for how to develop mitigation measures for fuel supply shocks, including the potential for:
- Pilot programmes of incentivised biofuel production
- R&D on electrification of critical industries
- Alternative fuel production
- Infrastructure decentralisation
- Other innovative solutions
- Estimate in broad terms the cost-effectiveness of various interventions. The cost-effectiveness analysis should include:
- A societal perspective (because costs and benefits are not limited to the fuel industries directly and this analysis would demonstrate the potential return on investment for public funding of fuel resilience).
- The collective likelihood (across the lifetime of fuel supply infrastructure) and impact of rare but devastating global catastrophes, such as extreme pandemics, nuclear war, supervolcano eruptions, solar flares, AI powered cyber-attacks, Great Power war, etc (ie, analysis of costs should account for expected value of the largest disasters).
If I was undertaking the Fuel Security Study, I would consult the following resources, which help frame these issues at a high level, through the lens of potential global catastrophe, from a NZ perspective:
- NZCat Main Report (2023): Aotearoa NZ, Global Catastrophe, and Resilience Options
- Minimum NZ agricultural fuel requirements: Mitigating imported fuel dependency in agricultural production: Case study of an island nation’s vulnerability to global catastrophic risks
- Island refuges: Island refuges for surviving nuclear winter and other abrupt sunlight-reducing catastrophes
I would also ensure that the study is framed such that it can inform NZ’s list of Nationally Significant Risks. As the coordinator of NZ’s risk management strategy, DPMC maintains this list (and a confidential National Risk Register). The impact of global catastrophes that could end NZ’s fuel supply needs to be spelled out, so that these can be included in lists of the most important risks NZ faces. The analysis should be publicly facing, so that communities and businesses can respond accordingly.
The first step for a fuel security study is to start from first principles and understand the implications of a zero-fuel scenario. Then priority actions can be identified.
Again, MBIE is to be congratulated for progressing this important work, and hopefully a resilient and thriving NZ emerges, rather than a nation critically dependent for survival on systems beyond our control.
Adapt Research Ltd 