A slump in margins and reduced fuel demand has ravaged the first half profit of Refining New Zealand.
The Marsden Point refinery operated by Refining New Zealand. Photo: 123rf.com
The company, which operates the Marsden Point refinery, has reported a loss of $186.3 million for the six months ended June compared with a $3.5m loss last year.
The result was hit by $220m of write offs, mainly from lower refining margin assumptions because of the effects of the pandemic and a global oversupply of fuel.
Chief executive Naomi James said the company had come through the Covid-19 induced volatility and managed to reduce its costs so that it was operating cash neutral.
"In response to the low margin environment and Covid-19 impacts on demand, we have reviewed all expenditure planned for 2020 and reduced it by around $70 million."
Processing volumes were down by more than a quarter, and the refinery has cut all non-essential spending, as well as having shut down for six weeks in a bid to balance supply and demand.
The fall in margins has brought the fee floor into operation, which guarantees that the refinery's major users pay a guaranteed price for processing.
"Because the Fee Floor guarantees a minimum level of processing fee income each year, it provided a protection against the impacts from both low margins and the reduced refinery throughputs," James said.
She said petrol and diesel demand had largely returned to pre-Covid levels, but jet fuel demand was still down by 40 percent.
The refinery's future is under review with options ranging from reduced production to becoming an import-only facility being considered.
James said she expected the volatility in demand and margins would continue for some time.
"Simplification of our refinery creates the time and optionality to continue refining operations in the near-term while we assess the potential option to transition to an import terminal in the future."
She said a further update on the review should be given by the end of September.