Channel Infrastructure, a key player in New Zealand's fuel storage and distribution network, reported a dip in third-quarter fuel throughput on Thursday, even as it unveiled a major new storage deal with BP that could bolster its long-term revenue.
The company, which operates the country's largest fuel import and storage terminal at Marsden Point, said throughput fell to 829 million liters in the three months ended September 30, down from 855 million liters in the same period last year. The decline was driven by lower petrol volumes, while diesel held steady and jet fuel returned to year-ago levels.
In a filing to the Australian Securities Exchange (ASX) and New Zealand Exchange (NZX), Channel Infrastructure also announced a new 15-year storage agreement with BP, which is expected to generate approximately NZ$130 million in revenue over the life of the contract. The deal is part of the company's strategy to lock in long-term, stable cash flows from its infrastructure assets.
What's behind the volume decline?
The drop in fuel throughput reflects broader trends in New Zealand's fuel market. Petrol demand has been under pressure from fuel efficiency improvements, the rise of electric vehicles, and changing consumer habits. Diesel, on the other hand, has remained relatively resilient, supported by commercial transport and agricultural activity. Jet fuel, which was hit hard during the pandemic, has now recovered to pre-COVID levels as air travel normalizes.
Channel Infrastructure's Marsden Point terminal is a critical piece of the country's energy supply chain. It receives refined fuel imports and distributes them to customers across the North Island. The company's business model is built on charging fees for storage and throughput, making long-term contracts like the BP deal particularly valuable.
The BP deal: a vote of confidence
The 15-year storage agreement with BP is a significant development for Channel Infrastructure. It provides revenue visibility and reduces the risk of volume fluctuations, which are common in the fuel industry. The deal also signals that major oil companies still see value in New Zealand's fuel infrastructure, despite the long-term shift toward cleaner energy.
For BP, the agreement secures access to critical storage capacity at Marsden Point, ensuring it can continue to supply its customers in New Zealand without having to invest in its own infrastructure. This type of arrangement is common in the energy sector, where companies often prefer to lease capacity rather than build and maintain their own facilities.
What it means for investors
For everyday investors, the key takeaway is that Channel Infrastructure is trading some near-term volume weakness for long-term stability. The BP deal, if finalized, would provide a steady stream of income for 15 years, which could make the company's earnings more predictable and potentially support its dividend.
However, the volume decline is a reminder that the fuel industry faces structural headwinds. As electric vehicles become more common and fuel efficiency improves, demand for petrol is likely to continue falling. Channel Infrastructure is aware of this and has been exploring ways to diversify, including potentially repurposing parts of its site for other energy uses, such as biofuels or green hydrogen.
Investors should also note that the company's fortunes are tied to the health of the New Zealand economy. Fuel demand tends to track economic activity, so a slowdown could put further pressure on volumes. On the other hand, the company's infrastructure is essential, and its contracts with major oil companies provide a degree of protection.
In the near term, all eyes will be on whether the BP deal is finalized and on any updates about future contracts. The company's ability to secure similar long-term agreements will be a key factor in its long-term growth story.
For context, other energy infrastructure companies have also been navigating similar shifts. For example, Kinetik's volumes are recovering, and energy stocks have led gains on some markets recently. But each company's situation is unique, and investors should consider the specific risks and opportunities.
Channel Infrastructure's shares trade on both the ASX and NZX, and the company is a relatively small player in the global energy market. Still, for investors focused on income and infrastructure, it offers a way to gain exposure to New Zealand's fuel supply chain.
As always, it's important to remember that past performance is not a guarantee of future results. The fuel industry is undergoing significant change, and companies that adapt will be better positioned than those that don't.
