Appendix 1: Assumptions for Cost Analysis
General Assumptions
| Onshore/Offshore mix | 50/50 |
| All stock crude oil except 20% NZ held stock product | |
| Mix of crude in NZ | 75% medium-heavy/25% light |
| Mix of crude offshore | 50% Australian (light) 50% USA (heavy) |
| Exchange rate (US$/NZ$) | 0.7 |
| All crude cost factored off WTI | US$50.00/bbl (US$362/tonne) |
| Average cost of crude in NZ | US$47.63/bbl (US$362/tonne) |
| Average cost of crude offshore | US$47.00/bblUS$359/tonne) |
| Average cost of product in NZ | US$60.00/bbl (US$472/tonne) |
| Typical bbl/tonne conversion factor | 7.60 |
| Tank costs from Covec/H&T Oil Security Report - land cost included. | |
| Use of existing tanks lower cost than new | 70% of new cost assumed (marginal cost could be very low) |
| New Zealand storage | 50% new tanks, 50% existing |
| All offshore storage existing tanks | |
| Terminal operating and turnover costs as per Covec/H&T Oil security Report | |
| Annual domestic consumption | 6862 million litres (from MED)15 |
| Government's administration costs | |
| Option 1 | NZ$0.5 million |
| Option 2 | NZ$0.6 million |
| Option 3 | NZ$1.0 million |
| Option 4 | NZ$0.75 million |
Assumptions by Option
| | Option 1 | Option 2 | Option 3 | Option 4 |
|---|
| Rate of Return (pre tax nominal) | Commercial Rate 18% | Infrastructure Investor - 12.5% | Government equiv. - 11.5% | Government equiv. - 11.5% |
|---|
| Risk management cost | US$2.50/bbl/yr
(NZ$15.5 mln/yr) | No direct cost | No direct cost | No direct cost |
|---|
| Other costs built into offer | NZ$0.30/bbl/yr
(NZ$1.3 mln/yr) | NZ$0.30/bbl/yr
(NZ$1.3 mln/yr) | NZ$0.20/bbl/yr
(NZ$0.9 mln/yr) | NZ$0.20/bbl/yr
(NZ$0.9 mln/yr) |
|---|
| Management Fee | N/A | NZ$0.25/bbl
(NZ$1.1 mln/yr) | NZ$0.25/bbl
(NZ$1.1 mln/yr) | NZ$0.25/bbl
(NZ$1.1 mln/yr) |
|---|
Rate of Return: Option 1 is reflective of a commercial return. In option 2 the government takes the risk so the tanks/stock become like an infrastructure investment with steady returns over a long-term. These rates are based on advice from companies with financing expertise. Government equivalent returns are similar with a small difference reflective an "imperfect" market.
Risk: Risk is only explicitly priced in Option 1. In all the other cases the Government takes the risk and it is assumed risk is largely managed by the continuing need for stock holding (i.e. minimal purchase/sales once system is operation). It would be possible to model this risk but it is beyond the scope of this report.
Other costs built into offer: This is to cover insurance and other costs in putting a storage option together. It is highest in the commercial case, as they need to recover costs being managed internally.
Management Fee: For all options, except Option 1, it is assumed someone would need to manage the stocks for the investors/agency/government. For option 2 it is assumed an oil company may be involved in putting the deal together and this might be their fee. This fee does not include tank farm operating costs and direct stock turnover costs.
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