WELLINGTON – Lindis Jones, chief executive of Z Energy, has warned that the global energy industry is unlikely to return to a “pre-war normal” until some time next year, citing critically low inventories and ongoing volatility in supply chains.
The assessment follows a period of severe market instability triggered by production losses in the Strait of Hormuz, which created a “stress test” for the global energy system and resulted in dramatic price spikes for New Zealand consumers.
While a recently announced peace deal has led to a sharp fall in oil prices, Jones stated that the global industry remains “extremely tight” and is entering a period of rising demand coupled with uncertainty regarding medium-term output.
Global Supply and China’s Role
The balance of global supply and demand has been heavily influenced by shifts in Asian markets, specifically China. According to Jones, the reduction of imports by China served as the primary counterbalance to production losses in the Middle East and helped stabilise benchmark prices that flow through to New Zealand pump charges.
- Import Reduction: China roughly halved its imports over the period.
- Offset Impact: This reduction offset approximately 40% of the production shortfall from the Strait of Hormuz.
Jones cautioned that this trend may be temporary, noting that if China begins rebuilding its reserves, it could significantly impact international prices in the coming weeks and months. He described the current market sentiment as “cautious, conditional optimism,” noting that while the system has “replumbed itself” in terms of product flow, the industry is relying heavily on existing stocks rather than comfortable levels of forward cover.
That leaves governments and regulators watching for a second-round shock if demand from large buyers returns more quickly than new supply can be brought onstream.
The Diesel Shock for New Zealand’s Real Economy
The impact of the global crisis was felt acutely in New Zealand during March, though the effects varied significantly between fuel types. Jones described the event as “more of a diesel crisis than a fuel crisis,” because the pain was concentrated in the freight and logistics sector rather than private motorists alone.
While petrol demand fell as consumers opted for public transport or remote work, diesel consumption-critical for trucking, agriculture, and construction-remained high. Year-on-year demand for diesel, measured by actual consumption and vehicle kilometres travelled by trucks, was higher in March this year than in the previous year, underscoring how exposed core economic activity is to imported fuel.
The price divergence during the first few weeks of the crisis was stark:
- Crude Oil Price: Increased by approximately 70%.
- Diesel Price: Increased by around 200%.
“Prices increased very rapidly during those first three to four weeks – twice as quickly as they’ve come off,” Jones said, adding that many large commercial customers had limited ability to immediately pass those higher costs through to freight and contract prices.
Mechanics of Pump Pricing
Addressing the common perception that fuel companies raise prices faster than they lower them, Jones explained that the correlation between crude oil and the pump price is often misunderstood. He argued that the price of refined “product” is the critical factor, rather than the price of crude oil traded on global benchmarks.
Z Energy utilizes “replacement cost pricing,” a global industry standard where the price of fuel sold today is based on the cost to replace that inventory at current market rates, rather than on the historical cost of fuel already in storage.
“The cost of the product that we take into account when we price today is as if we bought the product today. Ultimately, we do need to recover those higher costs because we need to fund the next cargo.”
Jones noted that during the crisis, the standard economic rule of thumb-where a US$1 change in the price of a Brent barrel correlates to a 1c change per litre at the pump-“completely broke down” as refined diesel prices decoupled from crude benchmarks.
He further detailed the narrow margins of the industry, stating that Z Energy’s average net profitability is approximately 3c per litre. Because the cost of refined product increased by more than 5c per litre over the course of a month, Jones said the company could not pass those costs on in a timely manner without causing further shock at the pump, which “impacted our profitability very materially during the month of March.”
Those dynamics sit alongside domestic tax and excise settings, which make up a significant share of the final retail price and are set independently by government as part of broader transport and fiscal policy.
Energy Security, Regulation and Infrastructure
The crisis has prompted calls for a strategic shift in how New Zealand manages its energy reserves. Jones argued that the events provided a reminder of the nation’s vulnerability to global disruptions and stated, “Should we hold more stock for energy security? Absolutely.”
He compared the current era to the Middle East crises of the 1970s and 80s, which served as catalysts for countries to diversify into natural gas and nuclear power and to formalise minimum stockholding and demand-management arrangements.
In New Zealand, energy security settings-including any move to require higher levels of onshore fuel stocks-would ultimately be determined by ministers under the framework overseen by the Ministry of Business, Innovation and Employment and enforced by the Commerce Commission. That regime already covers wholesale and retail fuel markets, including information disclosure and monitoring of margins.
New Zealand’s immediate supply stability during the recent crisis was attributed to its reliance on major multinational supply chains, including ExxonMobil, BP, and the Ampol Group, of which Z is a part. Jones stated these entities have a “vested position in supply continuity” rather than acting as third-party traders that can exit markets quickly.
Regarding market competition, Jones noted that Z Energy sets the price for approximately 15% of fuel locations in New Zealand, asserting that the market remains highly competitive with a wide spread of prices and an expanding group of discount and unmanned retailers. Independent analysis of competitiveness, including periodic market studies and regulatory reviews, feeds into government decisions on whether further intervention is warranted.
The company also operates within the government’s broader energy and emissions strategy, alongside policies encouraging electrification of transport and greater use of public and active modes. Officials have signalled that future security-of-supply decisions will need to balance short-term resilience in liquid fuels against long-term climate commitments, especially as industrial users and heavy transport transition more slowly than private vehicles.
