Letter to Environment Southland re Hormuz and impending Fuel Shortages

I'm posting this in the hope it may inspire similar efforts from others...

Chairman McPhail, Deputy Chairman Morrison, Councillors,

Thank you for the opportunity to present to Council today on water resource management and the energy constraints facing Murihiku Southland. I ended that deputation with a direct request: that the Strait of Hormuz crisis should be treated as the dominant issue facing this council, and that the agenda should be cleared to focus on response planning for fuel shortages. This email sets out the evidence base for that request.

The presentation is attached (Nathan Surendran - Deputation_ES_Water_Energy_Limits.pptx - Google Slides). What follows is a formal record of the key concerns raised, supporting evidence, and specific asks of Council.

Why “1970s-style energy shock” understates this considerably

Bernard Hickey’s recent Kaka article (NZ faces a 1970s-style energy shock) frames the current situation as New Zealand’s biggest energy shock since 1973. He is right about the severity. He significantly understates the comparison.

The petroleum geologist Art Berman - one of the most respected independent oil analysts in the United States - has set out the quantitative case for why this is, in his words, a “never before seen” oil shock. His analysis is worth understanding, because it explains why treating this as a repeat of the 1970s leads to dangerously inadequate preparation (full analysis here).

The 1973 and 1979 oil shocks involved supply disruptions of roughly 5-7% of global production. The 1979-1982 crisis saw a loss of approximately 12 million barrels per day, but that loss accumulated over three years. The current closure of the Strait of Hormuz has removed 7-10 million barrels per day in the space of two weeks. Berman calculates that, measured as a proportion of global production lost per unit time, the current shock is approximately 100 times greater in relative impact than the crises of the 1970s and 1980s.

The damage extends well beyond fuel. The Strait carries approximately 20% of global LNG, along with fertiliser feedstocks, food exports, and helium critical to semiconductor manufacturing. These are not separate problems - they are compounding feedback loops that amplify the economic impact far beyond what fuel prices alone suggest.

Berman’s GDP modelling of a sustained Strait closure projects escalating damage:

• One-month outage: ~1% loss in global GDP

• Two months: ~2.2% loss

• Three months: ~3.5% - a deep oil shock recession

• If disruption persists through 2026: ~6% global GDP loss, meaning zero or negative growth for the year

For context, the 2008 Global Financial Crisis produced a global GDP contraction of approximately 1.7%. A three-month closure exceeds that. We are already past two weeks.

The commonly cited mitigation - the release of 440 million barrels from OECD strategic reserves - is far less reassuring than it sounds. The withdrawal rate is limited to roughly 2 million barrels per day, meaning the reserves cannot offset the scale of the immediate shortfall. They buy time. They do not solve the problem.

Now apply this to New Zealand. In the 1970s, we had Marsden Point refinery and could process crude domestically. That option no longer exists. We closed Marsden Point in 2022. We now import 100% of our refined fuel, approximately 81% of it from South Korean and Singaporean refineries that sourced their feedstock through the Strait. Our minimum diesel stockholding covers roughly 21 days. The planned increase to 28 days is not scheduled until July 2028.

Singapore diesel futures are above US$170/barrel. Jet fuel has passed US$200/barrel. The last scheduled fuel delivery to New Zealand is the STI Magic, due at Mount Maunganui on 30 March. After that, there is no confirmed supply.

This is not a 1970s-style shock. It is structurally worse in every measurable dimension: the disruption is larger, the compression is faster, the cascading effects are broader, our exposure is deeper, and our redundancy is gone. Council should plan on the basis that significant fuel supply constraints will persist for at least six months, and possibly longer.

My track record on this issue

I have been raising energy security and resource constraint issues with Environment Southland and other Southland councils for over a decade. A full record of submissions and presentations is available at:
energyandresilience.substack.com/p/submissions-and-presentations

This includes submissions to Environment Southland’s Long Term Plans in 2015 and 2018, to the Southland Regional Land Transport Plan, and to the ES Air Plan and Land and Water Plan consultations - all of which raised the dependency of regional planning on continued energy availability. My white paper, “The Limits to the Energy Transition: What Physics Means for New Zealand’s Economy,” sets out the broader physical case.

I mention this not to claim prescience, but to establish that the concerns I am raising today are not reactive. They are the same concerns, now arriving.

The policy response: Tradable Energy Quotas

In my capacity as Wise Response Chairperson, I have been advocating for Tradable Energy Quotas (TEQs) as the fairest and most effective framework for managing fuel scarcity. Two articles published by the Wise Response Society set out the case:

• “Fair Shares: Why Tradable Energy Quotas Are New Zealand’s Best Option for the Crisis Ahead”

• “How New Zealand Could Build a Fair Rationing System in Eight Weeks”

The first walks through the five available rationing options - from price rationing (the inequitable status quo) through voluntary restraint, carless days, coupon rationing, and TEQs - explaining why TEQs combine market efficiency with guaranteed equity. The second demonstrates that New Zealand already has the infrastructure components (IRD’s myIR, MSD’s MyMSD, the EPA’s Emissions Trading Register, the fisheries Quota Management System) and that an eight-week implementation pathway is feasible.

I ask councillors to read these and consider whether Environment Southland, as the administering authority for Emergency Management Southland, should formally request that the government investigate TEQs as part of its National Fuel Plan response.

What should change at Emergency Management Southland

Emergency Management Southland is structured to respond to acute, bounded events: floods, earthquakes, storms. A prolonged fuel supply crisis is a different category of emergency entirely. It is slow-onset, economy-wide, and does not resolve with a cleanup operation. I would ask Council to consider the following.

Immediate:

• Convene an extraordinary meeting of the Emergency Management Southland Coordinating Executive Group to assess Southland’s fuel supply position, including an inventory of council-held fuel stocks across all four Southland councils and generator capacity at critical facilities.

• Request that fuel distributors operating in Southland (Z, BP, Mobil, Waitomo, Allied, NPD) provide current stock and resupply projections. The Otago-Southland Regional Fuel Plan notes that companies have historically refused to provide this information citing commercial sensitivity. That position is no longer tenable.

• Activate community response plan networks now, before a formal emergency declaration. The community response plans developed for flood events include the identification of vulnerable people, key resources, and contact trees. Those same networks are relevant for fuel rationing.

Medium-term structural changes:

• Expand the CDEM Group Plan’s hazard register to include prolonged fuel supply disruption as a named hazard. The current plan (2017-2022, updated 2019) does not treat this as a standalone scenario. It should.

• Develop a regional fuel triage framework that prioritises allocation to health services, water and wastewater operations, food distribution and cold chain, emergency services, and agricultural operations (stock welfare, milking, irrigation). The Otago-Southland Regional Fuel Plan provides a starting framework, but it was written for short-duration local disruptions, not a multi-month national shortage.

• Establish neighbourhood-level resilience planning that goes beyond the current community response plan model. In a prolonged fuel shortage, people will need to reorganise daily life at a local level: shared transport, cooperative food purchasing, mutual aid for elderly and isolated residents. Emergency Management Southland should be facilitating this now, not after rationing starts.

• Integrate food security into energy security planning. Southland’s food production system is fuel-dependent at every stage: fertiliser application, harvesting, processing, refrigeration, transport. A six-month fuel shortage is also a food system disruption. Council should be coordinating with Fonterra, Alliance Group, Silver Fern Farms, and the region’s horticultural and arable producers to understand their minimum fuel requirements and contingency plans.

Council’s own fuel-dependent operations

A substantial share of Council’s operational expenditure involves activities that depend on fuel - either directly through vehicle use and heavy machinery, or indirectly through contractor and consultant mobilisation. Council’s YTD financials show significant spending across employee costs, contractors and consultants, and other operating expenses, alongside capital programmes in flood infrastructure, climate resilience, motor vehicles, and biosecurity.

I am not suggesting I know Council’s operations better than staff do. What I am suggesting is that the executive should be conducting a triage exercise now, categorising all council activities on a spectrum from critical to deferrable under fuel constraints. Some questions that exercise should address:

Which activities must continue and must have fuel allocated?

Environmental incident response is the obvious one - the 24/7 hotline and spill response capability requires vehicle access and cannot be deferred. Flood protection infrastructure maintenance has seasonal urgency windows that may coincide with a fuel shortage. Emergency Management Southland’s own coordination function is clearly critical. Certain water quality monitoring is time-sensitive and losing data continuity has long-term consequences.

Which activities are important but could be adapted?

Consent compliance monitoring - over 4,000 inspections annually - requires extensive vehicle travel across the region. During COVID, Council shifted to more aerial inspections and risk-based prioritisation. Those adaptations are directly relevant here. Biosecurity fieldwork requires field access but some programmes could be seasonally deferred. Land sustainability advisory visits are valuable but not time-critical in most cases. Clearly some of the Catchment Operations waterway maintenance is elective.

Which activities could shift mode or be deferred entirely?

Environmental education site visits and school programmes can move to remote delivery. Community engagement events can shift to online or local venue-based formats. Councillor and staff travel for non-essential meetings should default to videoconference. Non-urgent capital works requiring diesel-powered machinery - particularly where timing is discretionary - should be assessed for deferral.

The point is not that I have the answers. The point is that this categorisation exercise should be happening now, led by the executive, so that when fuel allocation is required under the National Fuel Plan’s later stages, Council knows what it needs and what it can live without.

Request

I ask that this letter and its attachments be circulated to all councillors and tabled at the next ordinary meeting of Council. I request a written response indicating what steps Council intends to take regarding:

1. Emergency Management Southland’s readiness for a prolonged fuel supply disruption

2. The categorisation of Council’s own fuel-dependent operations

3. Whether Council will formally advocate for the government to investigate Tradable Energy Quotas

I would gladly pull back on other professional commitments to assist in this process, I have a vested interest in better outcomes for the region, as I’m sure you do too...

Sincerely,

Nathan Surendran
Transition Engineer - Schema Consulting Ltd
Chairperson, Wise Response Society
Convenor, Electrify Southland
nathan@schema.nz | 021 209 6286