Will relying on a single supplier for the diesel engine additive backfire?

WHOLESALE reliance on the sole New Zealand producer of an ingredient vital to keeping modern diesel engines running is a risk, an industry involver suggests.

New vehicle distributor confidence in the Kapuni urea plant, in Taranaki, being able to make enough diesel exhaust fluid (DEF) to avoid a global shortfall that is hurting the haulage industry in Australia, has surprised Simon Henry, whose company also provides the additive. 

The Christchurch-born chief executive of DGL Group says NZ is in a better situation than Australia in respect to production and supply of DEF, an anti-pollutant added to most modern diesel engines and more commonly known as AdBlue.

Speaking in response to an earlier MotoringNZ story (https://www.motoringnz.com/news/2021/12/16/home-grown-steers-nz-clear-of-global-diesel-additive-crisis) Henry has proposed a better market situation is one in which supply can come from multiple providers.

He contends thought from the Motor Industry Association, which represents almost all new vehicle distributors, that supply here should safe enough with Kapuni making the additive is not quite reckless, yet is certainly brave.

“We’re running very close to empty as we speak … New Zealand is under considerable pressure. I don’t think there is any wriggle room.

“If Kapuni were to go down, New Zealand would be in real trouble, real fast.” 

DGL is the parent of AusBlue, Australia’s largest AdBlue manufacturer, and a sister company in New Zealand that is the second-largest of three major domestic suppliers.

Australia’s consumption of AdBlue is much greater than NZ’s, at somewhere between 130 million and 150 million litres a year, and it was caught out when the primary provider, China, curtailed urea production.

Our neighbour’s situation improved slightly this week, with an emergency supply equivalent to a month’s normal national usage arranged from Indonesia, but estimates suggest it has less than two months’ reserve.

DGL Group has scoured the world for extra supply and continues to have heavy-lift Antonov charter planes standing by to bring in 250 tonnes of urea each per flight from the Middle East and Asia.

“We have pulled out all stops to get dribs and drabs of material out of plants around the world,” Henry said in a recent interview.

The price of urea and formulated AdBlue has risen significantly, he says, to the point of quadrupling in the space of a week in some parts of Australia.

Henry has cited the China situation, maintenance work at multiple urea plants, Covid-related shipping constraints and rising diesel consumption as having created a “perfect storm” for a shortage to occur. 

Even though NZ is a producer of urea, some of those factors could still hurt us, he believes.

“There is a fundamental problem in being dependent on one plant and that is, when that plant goes down for maintenance or for any other reason, NZ is left high and dry. You never want to put all your eggs in one basket.”

Kapuni was primarily formatted to produce fertiliser and had struggled to modify its processes to produce DEF to a standard required by the automotive industry, he said.

“It’s very technically difficult. It’s not straightforward.”

The MIA was not wrong in assuming domestic AdBlue supply existed, but he likened it to flying transtasman in an aircraft that would burn 100 litres’ fuel to do so and so carried 101 litres.

“You could claim you were safe… but you don’t have any wriggle room. And that’s the problem, in Australia and all over world. There’s no wriggle room left in the supply chain. It is broken and congested.

“To claim that NZ is safe is brave. I’m not going to say it is reckless, but I don’t believe there is much leeway, I believe that it is cutting it very fine.”

DGL Group has been working closely with Federated Farmers and he has also been in talks with Transport Minister Michael Wood.

“We have enough material in our warehouses in NZ to continue to provide our traditional customer base with their traditional volumes.  

“What we cannot do is pick up our competitors’ customers if they run out of material.

 “Our competitors have approached us for material, which would imply they are running low on reserves.”