Most of you know me. I'm Rob Buchanan, Channel Infrastructure Chief Executive. I joined Channel in January of this year, and I'm delighted to be here today, to talk through our go-forward plans for the business. This is my first Investor Day as Chief Executive, and I've been really looking forward to sharing some of our thoughts and insights around our refreshed strategy and the opportunities that are ahead of us. Some really important information on this slide. So I won't go through the slide, but, more importantly, safety is at the heart of everything we do at Channel, and so I'm gonna run you through what you need to know to keep safe during this afternoon. In an emergency, the nearest fire evacuation route is through the door next to the toilets, so that's behind us here.
Follow the instructions of the Generator staff and fire wardens, in the event of an evacuation. They're here to help you. The meeting point is outside Downtown Car Park . Turn right once you exit the PwC Tower. Bathrooms can be found out the back door as well, through the glass doors to the left. We're videoing this to enable us to share this content with those who can't be here today, so we'd really appreciate if you could ensure your cell phones are on silent, and if you ask questions during the course of the day, if you could have a microphone when you do that. We will have set times and spaces to have Q&A. So let's get started.
Our business plays a critical role in New Zealand's fuels infrastructure supply chain, providing New Zealand the largest transport fuel storage capacity and the key supply route for fuel to Auckland and jet fuel to Auckland Airport. Since joining Channel, I've been really impressed with the clear vision and highly capable team who have successfully delivered on the three-year plan set by the board and management team back in 2021. I joined the business in January and was tasked by the board to lead the team to complete this plan and then help Channel to continue its journey to become a world-class operator of terminal and pipeline assets, and position the company to prosper in a decarbonizing world.
To this end, over the past few months, we've conducted an independent review of our assets to determine how they compare to world-class and undertaken a strategy refresh to set us up for decades to come. The purpose of today is to provide you with an update on this work and outline what's next for Channel Infrastructure. I see a real exciting future for Channel as we look to grow both at Marsden Point and, importantly, beyond the Marsden Point gate, providing fuel resilience for New Zealand and playing a critical role in the country's energy transition by leveraging our strategic assets and core capabilities. We have a unique opportunity to sustainably fuel New Zealand's gateway beyond 2050, and I look forward to providing insight on our refresh strategy today. So moving to the agenda, we've split the afternoon into two parts.
We're gonna start with the future, looking at our refresh strategy, including the key enablers and what Channel Infrastructure will be called on to deliver for New Zealand, given the opportunities ahead of us. We'll then cover the outlook for fuel demand. I know, having met a lot of you over the course of the past few months, either through investor meetings, or post-results, you're very keen to hear from the advisory team formerly known as Hale & Twomey. We're fortunate today to have Ian Twomey here with us. Where are you, Ian? Your hand up, down the back. And he's gonna speak to us about their fuel demand forecasts, which we published in February, and to provide you with an opportunity to ask questions about their process and assumptions when these were put together.
We'll then explore what the opportunities are for the decarbonization of aviation and the opportunity within this for Channel. Then, after a short break for some sausage rolls, we'll dive into what Channel needs to do to provide resilient infrastructure so we can unlock those opportunities to grow. How we think about sustainability in setting our strategy and our financial profile, concluding with a summary of the way forward. We'd like to give you the opportunity to have all your questions answered today. Some of your questions should be answered as we progress through the pack. So if we could ask you to hold your questions to the four Q&A sessions structured into the afternoon, that will keep us on time and get you out for a drink at 5:00 P.M.
I trust that with the Q&A breaks, afternoon tea, and the drinks after this event, all your questions will be answered. It's great to be able to introduce you to our leadership team and some of our directors, actually here today as well, who will lead the execution and delivery of our strategy. Jack Stewart, our GM Operations, leads our operations, maintenance, project works, and delivery of terminal services to our customers. You'll hear directly from Jack today about our plans to deliver world-class operations that will provide resilient infrastructure and unlock growth opportunities for us. In fact, some of the work Jack has already done over the past six months is starting to pay dividends in this regard, which, in turn, is leading to growth opportunities for us.
Peter van Cingel is our Business Development Manager and is responsible for Channel's growth strategy and business development activities. Peter will share with you the latest insights regarding the future for aviation fuel and the different growth opportunities we have in front of us, as well as how we think about executing them.... Alexa Preston, our newly appointed Chief Financial Officer. She's only been with us for a week, so doing very well to be up here today, who joined us just a week ago. She brings a wealth of experience in listed companies and will bring a strong financial and commercial lens to the growth opportunities that are ahead of the business. Also here today are Chris Bougen, down the back there, our General Counsel and Company Secretary, Steve Lavelle. Where are you, Steve? Over there.
Steve heads or is a General Manager of our fuel testing business, IPL, and Caz Jackson, our Chief People Officer. Also in the room is Denise Jensen, our outgoing Interim Chief Financial Officer, who has been instrumental in delivering the pack that you see in front of you today. I'm delighted to have a number of our independent directors with us today as well, including Anna Molloy, who chairs our Audit and Finance Committee. Paul Zealand, sitting over there, who chairs our HSEO Committee, and James Miller, you're pretty well known to most people in the room, our Board Chair. So moving on to where we've come from, you'll see the theme of world-class throughout the presentation. Since I joined around seven months ago, it's clear that there's been a world-class delivery and execution of our conversion project from a refinery to an import terminal.
In doing that, we have safely shut down the refinery and commenced import terminal operations to plan. We've successfully managed to transition over 95% of employees who are leaving the business into new employment and training opportunities. We have contracted and commissioned an additional 100 million L of private storage, doubling our jet fuel storage capacity at Marsden Point. And of the conversion activity completed so far, this has been done to plan and to budget in a high inflation environment. The slide represents a number of very significant achievements in very challenging macroeconomic conditions. The successful execution of this work is a testament to the capability of our team. Having now substantially completed decommissioning and conversion, it's the right time to conduct a strategy refresh and focus on the next phase of our journey at Channel Infrastructure. So what's next? For us, there are five key imperatives.
We will need to provide infrastructure that will enable the energy transition and support aviation fuel supply beyond 2050. We have an ambition to become a world-class operator that will provide infrastructure resilience for many decades, enable us to pursue growth both at Marsden Point and beyond. We will continue to focus on unlocking the value of our highly strategic, unutilized real estate at Marsden Point, and Peter's gonna talk a lot about this later on in the presentation. We'll continue our focus on a highly disciplined investment criteria. We're committed, committed to delivering above WACC returns with stable dividends and a stable capital structure, and metrics that track towards a shadow BBB+ credit rating. And critically, for New Zealand society and globally, we will continue to invest and support New Zealand's decarbonization efforts where we can. So moving to what our strategy looks like post-conversion.
We've put up a slide that is Channel Infrastructure's logo. And what I wanna focus on with this, and actually the thought process that we went through when we did our strategy refresh and review, was: What are the enablers for Channel strategy? What are the key strategic advantages that we have as a business that will help us chart our course? And then we also thought about what Channel will be called on to deliver. What are the things that we truly believe as a company that we will need to do over the next 20, 30, 40, 50 years to deliver on our strategy? And we've put this into our logo in quite a, I think, quite a nice way. But it reinforces for me, to me, the importance of those enablers for our future strategy.
So just focus in on those for a minute. First one is our strong and stable cash flows. We're an import terminal business now. We have long-term contracts that are PPI escalated. We've got strong capabilities as a company, so we're building on those existing capabilities with an ambition to become a world-class operator. We've got very strategic assets. Marsden Point is a highly unique and strategic site in New Zealand. You don't sort of often get this combination of a 35-year resource consent, deep water harbor, jetty access, electricity and gas connections, and sitting right on the import terminal system that delivers 40% of New Zealand's fuel to its biggest city. And lastly, we are the key supply route for jet fuel to Auckland International Airport, and you'll hear a lot about this today.
Auckland International Airport accounts for 75% of New Zealand's seat capacity, and 80% of New Zealand's jet fuel usage. Let's just spend a bit of time on those, enablers, just to understand where the strategy came from. This will not be new to you, but I would like to talk about the commercial framework, as it's a core feature of our infrastructure business, and it's really, it's a really key enabler of how we go forward. There are a few key elements of our contracts that are really important to draw your attention to here. Firstly, our long-term contracts are with BP, Mobil, and Z, now owned by Ampol, who are all strong counterparties. Secondly, we have take-or-pay commitments of between NZD 90 million and NZD 100 million per annum over the first six years.
These were set at a higher level to enable the company to debt fund conversion and to allow recovery and demand post-COVID. Of course, the high level of fixed fees also incentivizes utilization of our infrastructure by our customers, and from 2025, we will be able to bring new customers in to use available capacity in the pipeline. Finally, all fees, including fixed fees, take-or-pay commitments, or private storage fees, are subject to indexation, which provides protection through inflationary cycles. Having said all of that, I want to draw your attention to the picture that's on the bottom right. This is a picture of Hale & Twomey's base case demand forecast for our business. It's important to note that as demand continues to grow, our revenue will be driven by demand and not the take-or-pay profile.
We are already starting to see volumes start to exceed the take-or-pay underwrite. We talked about that in our interim results this year, and you saw that come through quite strong, and you've seen that come through quite strongly as we release those quarterly operational reports, which we'll continue to do. Turning to our capability set. We've set out here what we see as our core strengths as a business and what we want to leverage to grow, both at Marsden Point and beyond. For us, that's fuels infrastructure, project development and delivery, critical operations and asset capability, and New Zealand's leading laboratory. I don't want to steal too much of Jack's thunder here because he's gonna spend a lot of time talking to you about this capability set a little bit later on in the presentation.
But from my perspective, executing the conversion on time, on budget, and delivering private storage, doubling our jet capacity on site, and adding 100 million L of fuel resiliency for New Zealand's supply chain are great proof points of our capability that we can leverage as a business going forward. Turning now to reflect on our uniquely strategic assets. As I've met all of you in investor briefings and post-results presentations, you, this is a familiar story for you. I've spent a lot of time talking about it and the uniqueness of the Marsden Point site. It is really hard to, it's really important to underline just how important these features are that you see on the page, and how valuable they are to our future strategy going forward.
There just isn't another site in New Zealand that carries this unique set of features that the Marsden Point site does. Sitting within the import terminal system, having industrial-grade natural gas, water, and electricity connections, and the capacity to expand, thanks to our significant long-term resource consent. We also have access to the deepwater harbor and jetties capable of receiving the largest refined product ships in the world. Again, I repeat, you just won't find another site like this in New Zealand. And moving to the last key enabler for Channel, our supply route to Auckland and Auckland Airport. Our pipeline is the safest, lowest cost, most efficient, and lowest emission distribution option to get fuel to Auckland Airport and the broader Auckland region. We deliver safe and reliable and unobtrusive jet fuel supply to Auckland. We don't contribute to emission, additional road congestion or road transport emissions.
And thanks to the new electricity contract that the company has signed, we expect to be near emissions-free from 2024. A great illustration of the role our pipeline plays is on the right-hand side of the page. If we didn't have the pipeline to deliver the 1.3 billion L of jet fuel a year we deliver, this would require 32,000 truck movements a year, on a road that's, I think those of you that travel it, would understand its capacity, too. So on to our refresh strategy. I'm actually gonna go and, point to the page with this one. So this is our refresh strategy. We've called it Helping Fuel New Zealand's Future in 2050 and beyond, and every word on this page is really important. Words have meaning.
So our vision is to be a world-class energy infrastructure company. So just talking about some of those worlds, words, world-class. We're only 18 months in to being an import terminal, and we know that our customers interact with import terminals all over the world that are best in class. So for us to continue to be really relevant to them, deliver a good service, highly resilient service for New Zealand, it's our ambition to be on the same level as all those other terminals in the world, i.e., world-class. The next word, energy. We're a fuels distribution company today, clearly, but we have opportunities beyond fuels on our site, and the eSAF project, which Peter's going to talk a little bit about later on, is one really good example of that. The next word, infrastructure. We are committed to delivering stable infrastructure returns to shareholders.
That is a key part of who we are. So our purpose: delivering resilient infrastructure solutions to meet changing fuel and energy needs, and this has driven the strategic priorities that you see at the bottom of the page. Sort of titled under being New Zealand's infrastructure partner of choice, grow through supporting the energy transition and having a more sustainable future. So just touching on each of those, being a world-class operator means strong safety systems and a strong safety culture. Having resilient infrastructure, having a focus on long-term asset management, planning for 15, 20, 30 years rather than the next two, three, four, or five, and being customer-focused, importantly. Secondly, having a high-performance culture, which means investing in our people to be adaptive and future-focused.
And if we can do these things, then we will compare well to all the other terminals that our customers interact with, and that's part of earning the right to grow, both at Marsden Point and beyond Marsden Point with new and existing customers. Secondly, grow through supporting the energy transition. Pete's gonna talk to you a lot about this, but we see a lot of brownfield opportunities at the Marsden Point site. We see opportunities to consolidate fuels infrastructure beyond the Marsden Point site, but to do that, we need to be world-class. And then, obviously, supporting the energy transition, and again, Pete's gonna talk to you a lot about our thinking around sustainable aviation fuels, transitioning to lower carbon fuels, and the opportunity for a Marsden Point energy hub.
The last part of the slide on the right is really about our license to operate. Being disciplined managers of shareholder capital, and being a good neighbor and a good citizen. If we don't do these things, then we can't do any of the first two. So it's really important to understand where that, where that slide on a page came from. And we spent quite a bit of time as a team debating and getting the words right, 'cause words are important. Right, to keep us all on time, I'm gonna skip through to a bit of an introductory slide for our advisory. So what will we be - what will we be called on to deliver for New Zealand? For us, we need to support stable, medium-term diesel demand outlook and a resilient transition of petrol.
We've got a view that you'll see, diesel for longer than I think people will expect. There are some very difficult-to-abate sectors like heavy transport and agriculture. We know that petrol demand will continue to decline over the next 20 years as EVs continue to grow in the vehicle fleet, and we will be there to enable a resilient transition of that infrastructure in a cost-effective way for our customers as demand continues to consolidate. We will need to meet expected and growing jet demand, with increasing middle class in Asia and India, and a sector that is incredibly important to our exports and our tourism industry.
We will need to provide resilient infrastructure to support New Zealand's reliance on long-haul air travel to reach all of our offshore export markets, as well as providing a liquid solution to support medium- to long-term long-haul flights in a decarbonizing world. It is critical for New Zealand that the aviation sector finds a way to participate in the energy transition, and it's a really difficult problem to solve. So with that, I'll hand over to Ian Twomey from Envisory. Ian is a highly experienced energy professional, well known for valued advice in many areas of the New Zealand energy sector, particularly liquid fuels, and we're lucky to have him today. So over to you, Ian.
Thank you very much for that introduction, Rob, and very pleased to be here to give you all a little bit of detail behind what was published in February, and obviously, the opportunity to ask questions. So, I'm a director of Envisory. We've had a name change since the published work in February, but we're still essentially the same team as Hale & Twomey, but now known as Envisory. And we've been doing independent forecasts, particularly around liquid fuels, for companies like Channel and governments for a couple of decades now. So it is very much our thing. So if we look through at the chart, and the chart's here, published in the February document, that I'm sure many of you have pored over to get numbers. It really highlights...
This one is just there to highlight the trends that Rob's already talked about. Petrol is already in transition. We're underway. It's not something that's gonna happen, it's something that's happened. So those volumes, although they're still climbing post-COVID, they will fall away. Diesel, again, harder to transition, a lot longer tail with those hard-to-abate areas. We're talking liquid diesel here. Of course, there could be a renewable component in that. Channel Infrastructure provides the sort route for that to market, so these forecasts don't distinguish. So it's not a fossil fuel forecast, it's a liquid forecast. And then, of course, jet, you've heard about the growth, and obviously from a Channel Infrastructure point of view, becomes a much more critical part of the business, and that COVID recovery is well underway.
Still not up to pre-COVID levels, but that's expected in the next couple of years. Behind our forecast: How did we come up with the forecast? It's important to really understand the demand sectors well, and so we translate all the fuel demand, particularly when you get into diesel, into all the demand segment, and then look at how the demand for transport is gonna change. And in case of land transport, vehicle kilometers traveled. It doesn't mean how it's fueled. You start with demand and how demand's gonna change. Obviously, there's policies and, and transitions around demand, more public transport, more opportunities to live more intensely, and those sorts of things which are supposed to, in forward picture, reduce demand on a population basis. The drivers, we then look at what's driving that.
Population, price, behavioral change, particularly in the light transport area. Heavy transport, a lot more linked to GDP, how the economy's going, and then obviously, for each segment of diesel, be it agriculture, marine, it can be different. Then when you get into the fleet, then you start looking at, well, what fuel is it? EV modeling, so going into the whole car fleet and how EVs are gonna come into the fleet, be they new, be they secondhand, the rate of the turnover, what things can influence them. But a real key driver, actually, for the petrol forecast in the short term, is actually the efficiency of the internal combustion engine. There's still a lot more ICE vehicles coming into the fleet.
That fleet efficiency is improving quite rapidly, and actually, in the next 10 years, arguably, has a much bigger impact on how it's changing than the number of EVs. We then, for the national picture on landfills, we look at the national picture, and then we build the segment back up of all the different components, and in case of Channel Infrastructure, we then work out their market share. You do have to appreciate, though, that it's ultimately the customers who decide which terminal they're lifting from. Channel Infrastructure obviously wants to make it as positive as possible from the terminals they're supplying, but we make an estimate of that to build our forecast up. So how does it look with petrol?
As I said, we're still in the 2023, looks like the peak there, but just to recognize, that's actually 8% down on what we'd say New Zealand's peak demand was, which was 2017, or arguably, surprisingly enough, 2007. Petrol has actually been flat for well over a decade. We're now in a transition downward. So doubt that, we're certainly should be about 8% down on that, that peak. How are we doing? We're pretty on a national basis, we'd say it's actually down a little bit on what we expected. Not much, it's all in the percent roundings. But Channel Infrastructure's pretty much in line with forecast, as, as they have announced, which indicates you're getting a slightly higher share than we estimated of that market, in fact, a wider distribution, particularly from Wiri.
Why is it a bit lower demand than we expect? We're transitioning quickly, more quickly, the way you look. EVs uptakes are a bit ahead of our assumptions to date, but we've got the rebate going. That could easily fall back into line. Those sorts of swings we see as just short-term noise. We, they don't really affect our view of the long-term outlook. High prices, I think one of the fuel companies announced that they, they're seeing lower volumes because of the higher prices being seen this year. But as I mentioned, improving internal combustion efficiency, and that is actually supported by the Clean Car Standard, different than the Clean Car Rebate. That's about the efficiencies that the importers need to meet over their fleet. That does have broad political support and has not been put on the chopping block.
That's actually driving that improvement in the efficiency of the fleet. We're really still very comfortable with the trend we've got out, and at this stage, would stick with what was announced in February. Diesel flat, pretty much. It looks flat for the next decade. I think that's just important to be in a context of very strong growth over the last decade or two decades, really. So the fact that you think, "Oh, it's solid," it's actually coming off growth. It does increase higher, too. It will be higher than before COVID. So how have we got the transition there? Well, you've got the same driver in the light commercial and passenger fleet as you've got in petrol, albeit that's a relatively small part of the diesel. You've got heavy transport. We...
Hydrogen's an option, electric, but at this stage, probably, even since we would have said in February, we were fuel agnostic in terms of the transition, in terms of what's gonna happen. Could be hydrogen, could be electricity. You'd have to say over this year, electricity's probably got a bit more lighter, the way they're doing electric with the heavy trucks now is improved. Hydrogen, there's still lots of cost questions about that. Probably really not gonna impact later, so that's why the curve doesn't start going to 2030. But what's really important to model with your diesel is the 30% that is non-transport. So agriculture, fishing, marine, residential, industrial, and commercial. So we model each of those separately, and there's obviously work, particularly in industrial, trying to get things off coal and diesel to other fuels.
So each one of those has their own path in that. We didn't really distinguish biofuels. There's obviously biofuels could be in there, and Channel Infrastructure's well placed to handle, and out here would be renewable diesel, which is a drop-in fuel. How are we going? National demand is pretty much exactly in line with where we expected it to be. Channel Infrastructure is slightly up again. Again, indicating they're doing well on their market share and what the fuel companies are picking up from them. So we remain very comfortable with the outlook as published in February. And you know, with diesel, there's more uncertainty, more of the transitions further away.
As you'll get closer, that certainty will improve, but you have to accept that the diesel outlook has more variability about how it will go. So in terms of the influences on some of the things, just in terms of what behind for land transport, we've taken a moderate position down the middle, but obviously some things could change that make the transition faster. Other things could change to make it slower. Couple of examples on this: We're really assuming a break-even capital costs, I guess, when EVs become equivalent to ICE for the same sort of car. Some would argue we're not too far away now. Our forecast is still in the 2025-2030 period. If it's, you know, slower or faster, that could change things a bit.
Obviously, the economy, how quickly the fleet's turning over, how often people buying it, and some of that is the shift, obviously, in New Zealand's case, is pretty close to half of what comes in is secondhand, so we are dependent on those countries transitioning in order to transition their fleet. So that's all modeled through. We don't assume a ban on ICE cars. Obviously, a number of countries have them in place. Most importantly, a lot of the manufacturing, car manufacturing countries have them in place. So we're gonna be on the receiving end if the countries we get cars from decide that they're only gonna make EVs, not ICEs. So again, we've taken the position, the moderate position. We're very comfortable with how that's looking.
So in terms of land transport, no change, but I really wanna focus, obviously, on aviation because of its importance. I will really skip over this slide in the sense of, Rob's covered it. But the key figures here that were mentioned, 80% of New Zealand's jet demand comes through Channel Infrastructure, and about 80% of it is international. And it's very high for, I've looked at countries' statistics, I can't find another country like where so much is the proportion of international. So this graphic came from Auckland Airport. It shows where they fly to all over the world. So how do we model jet? You know, how do we come up with that curve?
We've developed models over a number of years that look at the number of passengers flying, the fleet and the aircraft yield, how full are those aircraft, and that changes over time, and then they add capacity. The type of aircraft used in coming through, and particularly the destination of that aircraft, and particularly flight length, and we also, for fuel, you're looking at the balance between takeoff, landing, and cruising, 'cause takeoff and landing use so much fuel. Just 'cause you're doubling the length of the flight, you're certainly not doubling the use of fuel. So all those things are detailed in our model. And you've got continued efficiency improvement in the aircraft themselves, new aircraft coming in, old aircraft, and that's an efficiency. The plane might, the aircraft could use the same amount of fuel, but it might take 20% more passengers.
So in terms of passenger use to, in terms of fuel use per passenger, you're actually getting that big step up improvement. So you've actually are thinking about the number of passengers being moved. So we've tuned those models to jet demand, over time to ensure the robustness of those relationships, and we can model both in detail going forward because the airlines all have to book slots, so they come up with a winter program or a summer program. So we can forecast pretty accurately the monthly demand in the short term, but more importantly, for the Channel Infrastructure work, we can get a forecast of the expected flight movements, expect where the passengers are coming from, and translate that into a jet demand.
For Auckland Airport, which is what we're talking about here, in terms of Channel Infrastructure, the real key drivers for Auckland Airport that we've seen is pure passenger movement. That's fine, that's understandable. But really, the destination of the passengers. For Auckland Airport, they would tend to split them into domestic, regional, domestic trunk, that's the jet. Short-haul, international, covers Australia and the Pacific Islands, and then long haul, which is everything else, pretty much everything over six or seven hours flying. What we found is that the flight distance is a critical plan, and in order to accurately understand what's happening to the fuel demand, you've got to understand what's happening to the fuel demand before you can outlook the future picture, is the extra long-haul flights, and these are flights over 15,000 kilometers.
So these are the flights to Qatar, Dubai, Chicago, the non-East Coast American flights, essentially. And if you go back a decade, there were virtually none coming out of Auckland, all right? And now they make up around 20% of those flights. And if you just think about one case, which is 10 years ago, Emirates would fly a 380 to New Zealand, but they fly across from Sydney, park it here, fly back to Sydney in the evening, pick up passengers, and of course, Qatar started it, but they said: "Oh, actually, we've got enough demand. We'll just fly all the way back." How much jet you need to put on a plane if it's going to Sydney, versus how much do you put on if it's going to Qatar?
That was the real driver of the jet increase between 2014 and 2019. Jet demand shot up. We were using more jet fuel per passenger, and indeed, there have been some studies, and people couldn't work it out, and it's like, well, didn't you think about how far those planes are flying? And that's essentially it. So when we looked at, fortunately, Auckland Airport's passenger forecast where those passengers are coming from, or where the flights are coming from. So we can break the passengers into – so we made an extra category for extra long haul, so we can model each separately. And the growth, in terms of passengers, is higher in the long haul, extra long haul, than it is in domestic or short haul.
So in other words, the growth we're expecting of people is weighted towards the ones who will need effectively more fuel per passenger. So that's built into our forecast. And to give you a figure of where it is, long haul and extra long haul flights, they will generate or require 55% of the jet demand that is going through, so only 23% of the passenger numbers. So that obviously there's a lot of detail and behind there, but that's sort of a number that falls out, that you can see how important it is to model where these come, things are coming from. So, the continued development of those long hauls and the aircraft to do it, is obviously gonna be a key driver. India, people are promoting, we need direct flights to India.
That would be another one, more obviously, to North America. Those are the sorts of flights that really amp up Auckland Airport and obviously at the moment, extra flights with Qantas coming through Auckland Airport to fly to New York. Now, that probably is not a long-term one, 'cause they wanna do it direct from Sydney, but certainly here for a number of years. And obviously, our outlook, we work together with Auckland Airport on those forecasts that I talked about, and that was developed by a company called DKMA, who are an airport market research and advisory, and you'll see the same company in Auckland Airport's announcements. Obviously, they're interested in the passenger numbers. We're interested in how those passengers translate into jet fuel demand.
Should just talk about jet substitution, but recognizing that, Peter's gonna give you a lot more detail, but I wanted to just touch on it in terms of our forecast that's been published. Our view is, realistically, in terms of transition, liquid SAF is the only medium-term solution to trying to decarbonize. It uses the existing infrastructure. More importantly, it uses the existing aircraft. No modification. You don't need to redesign, and redesign of aircraft is a decades-long plan, not a year-long plan. Channel Infrastructure is obviously well-placed for that, whether it's import, and obviously they have announced possible manufacturing. We did look at how non-liquid SAF alternatives could impact, and the ones we looked at were direct use of electricity. So this is direct use, so this would be electric aircraft, which are really only talking about being feasible for short haul.
So we took that as regional. So this is turboprop. Our medium-term view is it's actually probably, if anything, a new electric aircraft are gonna create a new demand center, more like a taxi, than actually replace jet fuel. But if they do get up to that turboprop demand, we have modeled that that could transition, could start in the 2030s, late 2030s. More particularly as the fleet's upgraded during the 2040s. But just important to recognize, in terms of what comes through Channel Infrastructure, at the moment, it's only about 6% of the demand that jet fuel into regional infrastructure. So it's pretty small. We also thought about hydrogen, and this is even more speculative, so we're well into 2040s here, because you've actually got to design a whole new aircraft.
Again, they're thinking short haul, which is possible, domestic trunk, possibly Australia. We saw that possibly having those sorts of aircraft in the 2040s is still with limited impact, because of the slow turnover. And just to go back to that chart, those two translate into that red area at the top, is the demand. Now, of course, that blue area, and this is gonna be peak, so could easily be... Doesn't have to be fossil fuel, we're just saying liquid fuel in terms of our forecast. So Pete will go into more detail with that, but, I'm very happy to take some questions.
Thanks, Ian, and well done. We're bang on time, so perfectly handled. We've got 10 minutes for Q&A for this section. Some microphones coming around, so feel free to put your hand up and we'll get somebody to you to ask a question.
We talked about-
No, sorry.
We talked about the impact of efficiency in internal combustion engines being the biggest driver of demand. Why are you confident that car manufacturers will focus on that part of the business as opposed to EV evolution, given global subsidies in say, the European markets?
I think it's, they'll run together, and possibly what I should say is, this Clean Car Standard that New Zealand's brought in, we were one of the last two OECD countries. Australia is the only one who doesn't have it. That has been in most of the countries for a long time. So that has already been driving the fleet for a decade. They can meet it with EVs, so you've had some manufacturers, probably more the Japanese, have really focused on efficiencies. Others have gone, "Well, I'll do EVs to offset my higher emissions," in balance. So I think it's sort of that twin track, it's both, and all the plans for countries are those standards tightening over time. So even with your existing ICE cars, and particularly the bigger ones that might be harder to transition to electric.
They've really got to look at ways, and I think what we're seeing here, the announcement of Toyota, is to say: "We're just doing hybrids," is in response to that policy. You know, it's not New Zealand driving that, it's all the international main markets driving that sort of policy.
So it's as much the improvement in the secondhand market over time, as it is new cars coming through?
Particularly since companies like Japan have had those standards for a lot longer, so yes.
Great. Thanks.
Yeah.
All right, over here, Neville.
Thank you. I'll keep it to one question at a time. The high-low scenario for jet. You sort of don't have an equivalent slide talking about what the key scenario drivers are there. Can you sort of give us a broad outline of what, what drives the top or the bottom of your forecast range?
Economic growth is a key one. Essentially, global. We're not talking New Zealand economic growth particularly, we're talking global economic growth. I don't want to steal Peter's thunder, but there's a slide very much how linked global travel is to economic growth, and that's built into DKMA's assumptions that particularly in Asia, more people coming into the market. Lower global growth is not so good, and I think probably the best example we can see at the moment is the Chinese impact, and
That's our lead indicator, isn't it?
Yeah.
Sort of how many Chinese travelers we've got.
Yeah, yeah.
While I've got the microphone, but you talked about sort of monthly forecast for jet, and I'm assuming you're doing the same for petrol and diesel. What's the seasonal profile like? And I guess when we look towards the total literage, it looks like that's sort of roughly within the RAP sort of capabilities. You know, you can be more specific perhaps about whether or not it is. But I wonder if there's a seasonal profile below that annual total that suggests you kind of peak over the top of the capacity to import through Channel.
I might, I might actually leave that to Peter to talk to, actually. So, Peter?
So all of advisory models tend to be annualized models, and so long-term outlooks. What we do internally is to actually use historical trends and seasonality to convert Ian's information into literally month-by-month data. So we literally model out to 2050 monthly demand, and do exactly that. Based on the profile you just saw before on the page, we have no capacity constraints whatsoever on the pipeline as it stands today.
Great, thanks. I'll relinquish this.
Any other questions in the room? Oh, Andrew.
Yeah, just a couple from me. The first one is probably just more of a clarification than anything, but I mean, government policy in this space feels like it's pretty key. I'm assuming that the forecasts at the time were based on what current, both local and international policies are, as opposed to any views that policies might become more stringent or less stringent, and that's sort of dealt with in your upside-downside case. That's the right way to think about it?
That, that's a good way to talk about it, yes.
Yeah. Okay. And the second one, which I suspect, the answer is it's not significant, but, I guess post-COVID, work from home has become... Well, during COVID and then post-COVID, work from home is still a feature. I mean, have you sort of looked at that at all, and, and is that having any meaningful impact at all?
Yeah, it's a really interesting question, because modeling through COVID and how much the work from home impacted. Look, it probably does a little bit. If I was modeling beforehand, 2019-2023, without COVID there, probably would have gone down, not quite as much. Can I equate to that, that it's just work from home? Not exactly, 'cause I haven't done it in that detail. You've sort of got to wait till the numbers all come out and work back. But certainly, as I said, the peak, the efficiency was already coming through. We're probably a little lower than I would have thought, so I think there probably is a lingering impact.
You know, we're talking 2%-3%, perhaps, but I don't—let me stop in my head, not, not from detailed analysis. But it is, I'm sure if, if you got inside the numbers, and particularly the monthly ones and work backwards, you'd come up with a number. Yeah.
Feels like it's a bigger feature in Wellington than Auckland anyway.
We try not to get too Wellington-centric.
Great. Any other questions in the room? No. Excellent. We've got that right on time. Thank you, Ian. We really appreciate that. So I'm now gonna hand over to Peter to talk you through supporting the goal of lower carbon aviation.
Good afternoon. So we've just heard from Ian Twomey, that transport fuels in New Zealand are undergoing a transition. That petrol demand has peaked, and that while diesel demand will peak in the foreseeable future also, we still need a resilient diesel supply chain for quite a long time to come, yet to fuel the heavy transport and agricultural sectors. And the outlook for aviation is for continued growth, and while decarbonization will also have significant impacts on this industry, I now want to share with you the underlying drivers for continued liquid fuel in aviation for decades to come.... New Zealand is reliant on long-haul air travel. As an isolated trading nation in the deep South Pacific, we are heavily reliant on the connectivity provided by air travel. Our largest export earner, tourism, is totally dependent on this.
The tourism industry employs 8% of the country's workforce, pre-COVID. And then there's freight. While containerized sea freight makes up a large portion of New Zealand's trade, air travel still accounts for 16% of our exports and 22% of our imports by cargo value. This illustrates New Zealand's dependence on air connectivity, and with Auckland International Airport being the gateway to New Zealand, it is no surprise that it accounts, as Ian said, 80% of New Zealand's jet fuel consumption. And as you heard from Rob earlier, Auckland Airport jet fuel is totally reliant on our infrastructure to receive the fuel from imports and to ship this down to Auckland. New Zealand is a small fish in a very large pond.
Economic development taking place in China and India is expected to grow the middle classes by 350 million households over the next 10 years. As the chart in the bottom right shows you, travel is a discretionary activity. When we have more money, we tend to travel more. It is for this reason that both Boeing and Airbus are projecting strong growth in aviation demand in Asia Pacific region for the next 20 years. Indeed, of the 40,000-45,000 new aircraft that they expect to require to meet fleet obsolescence and this, this predicted growth, the largest portion of that is going to emerging economies, and most of these new planes will still be using existing propulsion technologies. Robust demand for dedicated cargo freighters will also continue due to growing e-commerce and evolving supply chain networks.
With New Zealand's strong trading ties to the rest of the world and being seen as a clean, green, safe, and desirable tourist destination, it is no surprise that the airport consultants, DKMA, and Auckland International Airport anticipate this aviation growth to flow through to Auckland Airport demand. The aviation sector has a commitment to Net zero. Ian Twomey has shown that the aviation industry has seen a strong recovery in post-COVID demand, and there's an expectation of continued growth for at least another 20 years. At the same time, the sector recognizes the need to decarbonize and to reduce emissions. Aviation currently makes up about 2.5% of global emissions, and that can be expected to grow as aviation demand grows and as other easier-to-abate sectors decarbonize more rapidly.
Airlines recognize that irrespective of any need to abide by increasingly stringent regulations, they will need to take action to decarbonize because that is what their customer base demands. IATA, or the International Air Transport Association, which is a trade association to the world's airlines, representing 300 airlines and 83% of global air traffic, has committed to a net zero pathway by 2050. If we focus on the main airlines that fly out of Auckland Airport, we can see that they have made even stronger commitments than this, with most of them committing to a 10% substitution with sustainable aviation fuels by 2030. Qantas has made further commitments to emission reductions by 2030, fuel efficiency improvements, and securing up to 500 million L per annum of sustainable aviation fuel from 2028.
SAF is currently the most viable route for lower carbon, long-haul aviation. Hydrogen and battery electric will play their part in decarbonizing the aviation industry, but these methods of propulsion have their limitations. The energy density of jet fuel is about 14 x greater than that of batteries, even when you take into account the inefficiency of a jet engine. This means that electric aircraft will likely be used only on small aircraft and regional flights. This is shown on the chart in the dark green area in the lower left-hand corner, indicating only a very small power portion of the aviation need will be met by battery electric propulsion. Hydrogen has greater promise, but as the world's lightest molecule, it also has energy density challenges. Unpressurized, it has an energy volume density 3,000 x lower than jet fuel.
Although this can be improved, of course, if it's stored under pressure or at cryogenic temperatures of -215 degrees Celsius. But this adds complexity, risk, and cost. It is conceivable that hydrogen may play a part in the short haul sector, though this is still reliant on revolutionary technologies that are still under development, whether via fuel cells to make electricity onboard the aircraft or via the direct combustion of hydrogen in the engines. While Boeing's interest in hydrogen is limited, Airbus is planned to have its first commercial hydrogen fuel cell power plane available by 2035. Airbus's ambition is to scale this over time to 100-seat passenger planes, capable of flying up to 1,000 miles. This is represented on the slide by the lighter green area.
If this capability and timeline is achieved, we can see this is still only provides limited substitution of jet fuel use. But we have to consider that new aircraft take 10 or more years to develop, and there are currently no long-haul or 100+ passenger planes with alternative propulsion currently being designed. When we think back to the Airbus A380, that took 17 years to develop from concept to the first commercial flight, and this didn't require any new propulsion technologies. The most aircraft built globally in any one year is about 1,800. So even if these were all alternative, alternatively fueled aircraft, it would be arithmetically impossible to convert the entire fleet to hydrogen by 2050. Boeing estimates that by the end of the 2030s, we will still have 40,000 non-hydrogen commercial jets in service.
The challenge in New Zealand at Auckland Airport is even greater. As Ian pointed out earlier, of the regional flights only account up 6% of New Zealand's jet fuel consumption. Nearly 90% of Auckland's jet fuel consumption comes from international travel, with the bulk of this, as Ian pointed out, from long haul. Even though long haul only makes up a small proportion of aircraft movements, the long-haul flights simply load more jet fuel per flight. This sector is unable to be substituted by electric or hydrogen in the foreseeable future. The greatest fuel use and the emissions come from the small segment of aviation, which is the long haul, and this is a segment that can't be decarbonized with batteries or hydrogen. This will be reliant on sustainable aviation fuels.
As we saw on the previous slide, from a technical perspective, SAF, sustainable aviation fuels, is the only feasible pathway to decarbonize the medium to long-haul aviation sectors in the foreseeable future. It is also likely to represent the lowest cost route to decarbonize the industry. This is because SAF is a drop-in fuel that can be used today. It utilizes existing infrastructure, existing ships, storage tanks, pipelines, airports, and doesn't require any change to the tens of thousands of aircraft in use today. It does not require new storage facilities at airports or infrastructure to fuel the planes or even new aircraft. It does not require replacement of a capital-intensive supply chain that's been built up over decades around fossil jet fuel.
Indeed, Channel Infrastructure handled a 1.2 million liter cargo of sustainable aviation fuel just last year as part of a trial being performed by Air New Zealand and one of our customers. Today, there are already seven different pathways to manufacture SAF, which allows up to 50% blends into jet fuel in today's aircraft. And Boeing is committed to having 100% SAF-capable aircraft by 2030. The International Air Transport Association has developed a roadmap to zero, depicted by the pie chart on the slide. This shows the sector we're pulling all the levers to reduce emissions to enable it to reach net zero by 2050. This includes improved engine efficiency improvements, further development of plane technologies, electric taxiing, optimized route plans, and other operational efficiencies.
Despite the focus on alternative propulsion systems, IATA anticipates alternative propulsion systems will only account for about 13% of the emission reductions by 2050. SAF will do the heavy lifting, representing about 65% of the carbon reduction solution by 2050. And while SAF may have a cost premium, it can utilize existing planes and the fuel infrastructure, which means it's expected to be the lowest cost route for the aviation sector to decarbonize.... When we talk about sustainable aviation fuels, we are talking about a group of hydrocarbons that are largely indistinguishable from fossil jet fuel. But there are different ways to manufacturing the SAF, and there's a range of feedstocks that can be used to make this. These can be broadly grouped into two classes: biogenic SAF and synthetic SAF, and both will be needed.
Biogenic SAF, or Bio SAF for short, it is the same aviation fuel that's produced from organic molecules and feedstocks like fats, oils, woody residues, and municipal solid waste. The beauty of this pathway to manufacture is that the technology pathways are in use today. While today's production volumes only make up a fraction of a percent of global jet consumption, nearly all of this is Bio SAF. Bio SAF does face challenges, though, to scale production, that it requires enormous amounts of feedstock. The quantities of used cooking oil and municipal wastes are far too small to enable production to scale materially. Forestry wastes are dispersed, and there's a high cost associated to harvest, aggregate, and transport this to a central processing facility.
Where feedstocks are cultivated, they may compete in land use for food crops, and there's a real risk of feedstock cost escalation as the demand for SAF feedstocks scales up. The second type of SAF, shown in blue on the slide, synthetic SAF or eSAF, is produced by combining renewable green hydrogen with carbon dioxide. The Fischer-Tropsch process, developed during the 1920s, combines the hydrogen and the carbon dioxide to produce the hydrocarbons that are then further refined into jet fuel. With the green hydrogen being produced by the electrolysis of water, this process is also known as the power-to-liquids or PTL route. So effectively, this is a way of turning water and carbon dioxide into jet using renewable electricity.
This is the process that Fortescue, the Fortescue pre-feasibility study is looking into, and I'll talk about this project a little bit more in my next presentation. The power-to-liquids process does not have, not have the same scalability issues that Bio SAF has, but the process is very capital-intensive, and manufacturing is still in its infancy. We are likely to see more synthetic SAF projects being announced in the future as this technology matures. Since both synthetic SAF and Bio SAF are drop-in fuels, it will make no difference to our business whether fossil jet fuel is substituted by one or the other. Our infrastructure and throughput will not be impacted. Country targets for SAF will speed up the adoption of SAF, but supply today is limited. There are already a number of countries today that have SAF mandates, so SAF targets, consumption targets.
Most of these with a 2030 compliance date, and more will continue to be introduced. Such targets will speed up the adoption of SAF by providing investors around the world with the confidence that there's demand for SAF in the near term and also longer term. These targets are in addition to the voluntary commitments that airlines are making to decarbonize, including the large number of airlines that committed to 10% SAF use by 2030. This includes Air New Zealand and many other airlines flying out of Auckland Airport. Air New Zealand is also working with MBIE to understand what it would take to stand up a domestic SAF production facility in New Zealand. Qantas is working with Airbus to accelerate SAF production in Australia, initially focusing on the alcohol-to-jet process using bagasse as a feedstock.
So this is effectively turning the waste from sugarcane into jet fuel. Airlines are driving the demand for SAF, and since last year, there've been almost 60 new offtake agreements signed, accounting for 12 billion L of SAF demand. Most of these are for Bio SAF, with only eight offtake agreements being based on the power-to-liquids process. This demand is stirring investment in new projects, with more than 130 new projects being announced over the last year. This is a good thing for the aviation industry because supply today is limited. The impact of SAF on ticket prices is likely to be limited. The reason the aviation industry is currently based around fossil fuels is because these are relatively low cost.
Switching to lower carbon fuels will cost more, but the impact on the consumer is initially expected to be small because the blend proportions are going to be small, at a 3% blend ratio, which is a ratio consistent with the capacity of the plant that Fortescue is looking at, at Marsden Point. The SAF cost premium would equate to about NZD 23 on a ticket worth NZD 500. The cost impact should be small in the long term also, as continued fuel efficiency improvements will mean that less fuel will need to be consumed for the same flight, and as the cost of production declines as the industry scales. This cost reduction is likely to play out the most for power-to-liquids, which on the chart in the bottom left, can be seen about 3-9 x the cost of fossil jet fuel today.
But by 2050, if you look at the chart on the right, power-to-liquids are expected to be the lower cost of the biogenic fuel options. This is because synthetic SAF production is still very early on in the technology curve and doesn't have the same feedstock scalability challenges that biogenic SAF does, as we discussed before. The chart on the right shows how the power-to-liquids cost is going to be as competitive to other energy sources by 2050, closing in on fossil jet fuel parity pricing. So what we would expect to see over time, that as industry scales up and the cost of production reduces, such that it offsets the increasing proportions of SAF that are being blended into the jet fuel pool, and hence, the impact to ticket prices will remain limited. Low-carbon liquid fuels are expected to dominate aviation propulsion by 2050.
The chart on the slide here shows the pathway to net zero aviation by 2050, as developed by the Mission Possible Partnership and the Clean Skies for Tomorrow coalition. This has been endorsed by major global aviation leaders, including Airbus and a variety of other companies. Signatories include more than a third of the global airline industry, about 95% of the global commercial aircraft manufacture industry, and almost 2,000 airports in 185 countries. The industry anticipates continued strong growth in aviation demand to 2050, as shown on the chart. It shows that a step up in fuel efficiency improvements will mitigate a lot of the emissions associated with the increased aviation activity, and that only about 11% of the emissions will be abated via the use of alternative propulsion, such as hydrogen and battery electric.
Which means that a large part of the abatement will be reliant on some variation of SAF. This production capacity does not exist today. To be on track for this 2050 net zero target, another 300-400 SAF manufacturing plants are required globally by 2030. And if we think about the fact it takes about five years to design and build such plants, we can see that massive commitment is needed now to meet these targets. So in summary, liquid fuels will continue to play a large part in the aviation future, even in a net zero 2050 case. Alternative propulsion like hydrogen and battery electric, we only have a limited impact on the total fuel consumption. Most of the liquid fuel consumption today is all fossil jet, but we're likely to see increasing substitution with bio SAF and synthetic SAF.
Just to summarize the key points of my presentation: We know that when households have more money, they travel more, and we're going to see a huge increase in the middle class population in emerging economies, which will lead to increased aviation demand in this part of the world. It's also likely to be the lowest cost option to decarbonize the aviation sector, simply because it's a drop-in fuel and behaves just like fossil jet fuel, and does not require any changes to planes or the supply chain infrastructure. Auckland is the gateway to New Zealand, which consumes, as we said before, 80% of the country's jet fuel, with the bulk of this coming from long-haul flights that are going to be reliant on SAF to decarbonize.
So with Channel being the only real supply route for jet fuel into Auckland, and with the bulk of Auckland International Airport's jet fuel consumption coming from long-haul travel, that can't be substituted with hydrogen or electric, there will continue to be a reliance on Channel's infrastructure for many, many decades to come. Still allowing New Zealand to decarbonize while maintaining air connectivity with the rest of the world. We can consider this pictorially on the chart. If you look at the gray, green, orange areas, they show the proportion of aviation that is still reliant on some form of liquid aviation fuel, whether this be Bio SAF, eSAF or fossil fuel jet. Even in a net zero 2050 scenario, as depicted on this chart, the amount of liquid fuels being consumed in 2050 looks very similar to the quantity of liquid fuels being consumed today.
There is a very long-term future for our infrastructure to keep Kiwis connected to the rest of the world. I'll now take questions.
... Thanks, Peter. As you can imagine, that's an incredibly large voluminous topic, and I think you've done an incredible job summarizing that for us in half an hour. So, we'll take some questions. One down here.
Thanks, Peter. You mentioned that the move to SAF, you don't foresee will impact volume. Just keen to understand then, is your assumption then that there may be little or, or no domestic production in the future of SAF?
Good question. So, the challenge with making SAF domestically is once you've produced it, you need to get it to the airport. As we mentioned before, Auckland Airport is 80% of the country demand, so that's... You wanna focus your supply to Auckland Airport. We currently have a pipeline that goes from our site to Auckland Airport, to Auckland, and thereon to Auckland Airport. The cost of transport is such that if you wanna move material volumes of aviation fuel, you probably would be wanting to be close to the import supply chain. So for that reason, we expect the bulk of jet fuel in the future to still be imported. To the extent it's produced domestically, as we are looking at with Fortescue, it makes good sense to locate it very close to the existing supply chain.
Otherwise, you're building a whole new supply chain.
As you can imagine, just take woody biomass as an example. You've either got to build the processing facility next to the forest and then truck the fuel to Auckland Airport, or you've got to bring the wood to Auckland Airport and process it. Either of those is quite expensive, and we gave you an idea with the 1.3 billion L of fuel that goes through our pipeline, just how many truck movements that is. Sorry, over here.
Just on eSAF and the cost of green or blue hydrogen as the input, seems to be quite expensive. I've been reading recently that some French research organization drilled quite a large hole in France and found what we call white hydrogen or natural hydrogen. They say they can get it out of the ground at $1 a kilogram. Now, given the fact in New Zealand that we haven't been allowed to drill any holes for six years, do you think the possibility of white hydrogen could actually change the dynamics of eSAF quite markedly?
That's a really good point. I don't have the answer to the question. The key thing for the Fortescue study is actually looking at the renewable energy they're gonna use. They're going to be developing new generations, so they won't be taking electricity from the existing supply chain. They'll be generating new, and cost of supply is a key feature of that. To the extent that the cost of hydrogen production drops, even I believe the American target is $1 a kilogram over 10 years. So that wouldn't be much different to the number you're talking about.
It's out of the ground now.
Yeah, I think the key thing with this is that, if that's the case, and we're all kind of, "Nobody knows, right?" Like, who knows whether you can or you can't? But I think the point is, the most efficient import route is through our infrastructure, whether that comes from France or wherever. On our thesis today, and it's just a view today, so, you know, we'll update it in a year and talk to you and see where we're at, is you'll start to see these facilities popping up around the world. I think given the targets that have been set and the airline demand for it, I think you could imagine quite a bit of national interest in this as well, 'cause I think initially it's gonna be pretty difficult to get a hold of this stuff.
There's just not a lot of it around today, and, you know, production is scaling up, but, you know, Peter talked about it being five years to build it. So, I think there'll be strong appetite for it. And to your point on white hydrogen or if there's really cheap renewable electricity somewhere for some reason, I think it just comes in through the import terminal system.
Yep.
Just with respect to the Fortescue facility, I mean, you mentioned that at a 3% blend. So putting aside the economics, is there other limiting factors in terms of scaling that facility? I mean, is it land usage? Is it
Yeah
... access to carbon like, carbon dioxide? I mean, because presumably every refinery that's getting repurposed for this type of usage would be going through these similar type of challenges.
Well, the answer to your question, so to the last bit, yes. Actually, if you look at ex-refineries around the world, they are indeed being repurposed for these things. And so you would've heard me at the start talk about that electricity connection. So you know, I talked about the challenge with woody biomass, is you've got to truck it. The nice thing about electricity is there's a main line to our front door, so you can bring it to us, and then it's a matter of how much renewable electricity is there available in New Zealand in 20, 30, 40 years' time to scale it, and at what cost? And I think at that point, you're starting to talk about things like offshore wind and those types of things.
Okay. Yeah, so theoretically-
Yeah
... there's nothing about the site that would stop it.
Well-
I mean, we're getting-
Undoubtedly, there'll be-
... ourselves, but-
Undoubtedly, there'll be size constraints on our site.
Yeah.
Right? Like, 'cause then at a point, it's full, and if you look at the footprint of what we're talking about on the Fortescue thing, takes up a lot of site. So, you know... Down here, Shane?
Thank you. Firstly, thanks, Peter. I really appreciate your time. What do you have to do to get ready for SAF? What does Channel need to do now or start to do now?
The really good thing is nothing. So we took a cargo through last year. It really is, as far as we're concerned, indistinguishable from fossil fuel jet. So if it comes in very blended, it's just a replacement substitution of existing volumes. If our customers saw a supply chain reason to bring it in neat, and they want us to blend it on site, we need to build some infrastructure, pretty minor, and we could do that, too. So whether it comes in neat or pre-blended, there's little or nothing to do.
Over there.
Thanks, Peter. As you said, as the technology matures for SAF, no doubt adoption early on will, the SAF will come at a premium, right? If there's pressure to share that additional cost across the supply chain, is Channel willing to sort of support transporting SAF at a lower cost?
So I think, yeah. I mean, I think our contracts are our contracts, and I think from our perspective, we actually make up a really small amount of the overall delivered fuel cost, whether it's in jet or petrol or diesel as it is today. So I don't think it's our supply chain that's gonna be the cost inhibitor. I think your cost inhibitor, as it stands today, going on that chart, is that eSAF today is 3, 6, 9 x more expensive than jet fuel. And sure, at a 1, 2, 3% blend, the impact is low. At a 50% blend, that's a very significant impact, and so you're gonna need to see significant technology advances in the production to bring that cost down and make it more competitive with jet.
Obviously, if you do collaborate on some sort of eSAF production on site, you will suffer scale disadvantages relative to the global players, and yet you're probably going to have to price the import parity for eSAF, which will impact the economic model for that business, because an airline obviously wouldn't pay a premium for New Zealand-produced product. So given the fact that you will have a scale disadvantage, and you will have a pricing premium to support that, at a very early stage, how does it pass the sniff test?
Yeah, so I think, I think from our perspective, as I said before, I don't think that there's, there's not, like, a whole bunch of global production available today at scale, at all, in fact, anywhere. In fact, I know in terms of the project on our site, Fortescue's been using that to help build their own model for how this looks globally. So what I would say in the first instance is that, there's gonna be a bit of a scramble to get a hold of this stuff, and I think the assumption that you'd just be able to import it, I don't know where you get it from, to be frank. I think secondly, you know, the question is, what happens to-- Does New Zealand start to follow some of these targets and mandates?
And other countries are putting in place targets and mandates around domestic SAF consumption, and if you can't get hold of the stuff, then where else do you get it from? I think the third thing that's important to understand is the nature of how we think about that Fortescue project. We provide the enabling infrastructure. I think we're a long way away from being in a place where we actually invest in the manufacturing part of it. Maybe we'd be an operator of the facility, provide infrastructure around it, but I think there's a long way to go in the business case to be able to support that.
But isn't that the point, though? I mean, Air New Zealand has got a stated objective of 10% by 2030. Even if you're up and running, there's only 6% of Air New Zealand's requirements, so they're gonna have to import at least most of it just for Air usage. So doesn't it mean that aspirational targets for the airlines are worth nothing or have a lower amount? It's nothing more than an aspirational target. It cannot make-
Can you talk into, sorry, the microphone? We just need that to use. So we wanna record the question, so—
Oh, yeah, sorry.
Yeah.
So I'm just sort of saying, if the Fortescue model could only contribute 6% of Air New Zealand's-
Of New Zealand's jet fuel demand.
Of New Zealand's, yeah.
Yeah.
But 6% of Air New Zealand, so-
Sure
... so ignore the globals, 'cause they have a global target. So if you look at Air New Zealand in isolation, so if you gave it all to Air New Zealand, that's 6% of their aviation needs. They have a stated objective of 10% by 2030-
Mm-hmm
... meaning they have to import at least as much as you can make.
Yeah.
There is gonna be global production, or these aspirational targets will not be met by anybody.
Correct.
Therefore, you have to price to parity-
Yep
... which creates a problem in the argument. So-
Mmm, yeah, I think-
Either those aspirational targets are unrealistic, or...
Yeah, well, look, I think, well, first of all, all of this is really hard, 'cause none of this production capacity exists today, anywhere, right? So everybody is scaling and building this stuff up, and what you see is it's actually happening in ex-refinery locations. So Ampol is looking at a similar project, albeit it's bio SAF, in Australia today. And so, yep, it's gonna, where Air New Zealand gets it from, well, today, it just isn't available. And so we see an opportunity to play the part, but I would say we're at the pre-feasibility stage, so we're just working through these things now. And, you know, we don't know whether an incoming government or a government five years down the road would think about mandates in the same way that other countries are.
But what we're illustrating is there's an opportunity on our site. It's really well designed for it, and so we're gonna do the mahi just to, just to see whether the option's worthwhile. I think, like, I don't want to confuse people about how we think about SAF. The key point here that Peter's landing around SAF is, it's very likely to come through our facility. That's what this whole section is about. It's the future for decarbonization of medium to long-haul travel, and it comes through our import terminal facility, just like jet does today. We've got a page on the eSAF project a bit later on, but we're really early on it.
Thank you.
Sorry, just, I guess, a further one in, in that regard. I mean, in regards to the airline's 10% targets by 2030, then appreciating your background in the sector and understanding of how long these things take to get off the ground, appreciating it's at its infancy today, is that realistic, 2030? And then from there, I mean, how quickly do you think we get to 50%?
Really good question. So not one that I can answer in terms of knowing the detail behind it, 'cause as Rob says, it is really very hard. In terms of the work Fortescue is doing, they're certainly looking this decade, absolutely. That's what they're working on. But like Rob says, we're still in the pre-feasibility stage. There's a lot more stage gates to go through. There are challenges, absolutely, in terms of cost. It needs to make sense to the investor. But what we mustn't forget, though, is that airlines have a problem. They have to decarbonize. And as we saw before, hydrogen and electric, they'll play a part, but they can't fix the problem, so they have to do more.
They have to go to sustainable aviation fuel or some new technology which doesn't exist yet, and so SAF is a real tangible solution. If you're an airline flying out of Auckland or around the world, you're looking for solutions. To the extent that you would have seen Air New Zealand's journey to net zero publicized over the last few years, what they're targeting. They're looking for all the levers they can pull to allow them to decarbonize, which includes working with MBIE. I'm going to talk about this later on. But they're working with MBIE to look at what it would take to set up a domestic SAF manufacturing site. So there are ways, there are real drivers to decarbonize.
But I, but I think we're not sitting here going, "2030 looks easy or even necessarily doable," right? 'Cause, you know, we've kind of laid it out for you. Costs are high, no matter which way you go. Production doesn't exist today, scaling up, so it feels pretty challenging. But like, it's-- as I said before, it's a mahi that the industry needs to do.
Is there anyone on your radar that could potentially come in and displace your position with, you know, you've got a highly strategic set of assets. You're in pole position at the moment. Is there anyone on your radar that can come in and potentially push you away and substitute SAF coming in, either manufacture it here by the airport or whatever, by 2035 and so forth?
Well, again, so if you look at the different pathways that that could happen, Bio SAF, really hard, 'cause you've either got to truck, whatever it is that you're making the Bio SAF from, to the airport, or you've got to create it next to the feedstock source and truck it to the airport, right? So it's really hard to scale that up. I think in terms of eSAF, again, I don't really know where that site is. What I do know is that they could do that. What I do know is Fortescue came to us for a reason, and actually, there are, you know, others that when they do their screen on New Zealand, they all come to our site. 'Cause you go, "Where else could you put something like this?" There just doesn't, there just isn't a place. Sorry, Neville.
Great, thanks. It's kind of a question we could cover in the FFI section, but I guess since we've got the charts here-
Why not?
... I'll ask it now. Obviously a massive leap, apparently, according to these charts, right now for power-to-liquids versus the Bio SAF route. I mean, two questions in that. One, does FFI see those similar kind of positions today, or do they see it much more competitive relative to Bio SAF? And the 2050 story makes it look like power-to-liquids looks great. And two parts to that question, which is: When does that change, and what are those key drivers that see that transition?
Yeah. So I'll start that, Peter, and you can, you can kind of fill in where I've gone wrong. So on the bio SAF side, the problem with looking at it today is it's pre-scaling up of bio SAF, and therefore, the cost impact on the feedstocks, which prices that on that chart. So you look at it and you go, "It's way cheaper today," but as soon as you scale it up and you've got to get those feedstocks, by definition, you've got to market and the price changes, right? And so that's the look-through on the biogenic routes, which is, yeah, there's some certain places where they work really well, where there is a local product, whether it's sugarcane waste or whatever it is, but once you use that up, scaling further becomes much more expensive.
And then I think in terms of eSAF, it's really about just that technology curve. We're just very early on it today. And again, these are assumptions to 2050, so by definition, treat them as such, kind of. Anything you'd add to that?
No, the only thing I'd add to that, Rob, is we're part of a consortium the previous years, looking at converting woody waste into SAF. We focused on wood because you need enormous amounts of feedstock. And so even taking Auckland's refuse wouldn't do the trick. It would do the trick for a small portion, but then you can't scale. It also become expensive trucking it up from Auckland, for starters. So the focus was on, well, what feedstock does is you didn't have a lot of, and you got a woody biomass.
The ability to source that feedstock, if you don't raid our neighbor's Northport across the road and take all the wood chips, which they're exporting, you have to aggregate the stuff off the forestry floor; it becomes really, really challenging again to get the amount of feedstock. Turning a tree into jet fuel is challenging.
Great, thanks. Oh, actually, well, just the question, I mean, do FFI sort of see the picture as dramatically as this, I guess, was the sort of first part of that question?
Well, I don't think any different, yeah. In terms of if you're talking about price today or-
Correct. Yeah, price today.
Yeah. But also recognize that we're just about to go through the process, which actually discovers that for ourselves, right? So this is based on international comparisons with a bunch of assumptions. We actually need to do the work for our site to understand what it would cost.
Thank you.
All right, I'm getting to kind of wrap it up, so I can all. I think we've got a cup of tea, and then we're back here at 4. So 2 minutes for a cup of tea or bathroom. Thank you. All right. Excellent. Thanks, everybody. Hopefully, you managed to have a quick break. So we're running 5-10 minutes behind, so hopefully we can try and catch that up and get you to your drink of coffee at the end of the day. I've actually had some questions via email as well, so what I'll do is ask those in the Q&A at the end of Jack's section, so you can all hear what questions are being asked, this is from some Aussie investors.
But now we're gonna head over to Jack Stewart, General Operations, who's gonna talk you through world-class operator.
Thanks, Rob, and good afternoon, everyone. You've heard from Ian and Peter on how the long-term demand for aviation fuel provides a strong foundation for the business going forward. Next, I'd like to take you through how our world-class operations strategy will be fundamental to supporting that long-term future and unlocking future growth opportunities for the business. Over the last two years, we've been laser-focused on delivering a safe and smooth transition for New Zealand's fuel supply chain. Work on the conversion program is now in the final phase, with only firefighting and bund work to complete. Construction of these upgrades is now well underway on site, and this work will run out to 2027.
Funding for all but the remaining bund work is now spent or committed, while conversion contingency remains appropriate for the current inflationary environment, and we retain the demolition provision, which will be subject to asset sales. Through the conversion, we've concentrated on getting the basics right first, establishing the minimum viable terminal operations, while maintaining excellent safety and supply chain performance, and then building on that with additional storage for customers. And we've done all of this while managing through COVID and weather disruptions and delivering the conversion within budget. The capable team at Marsden Point have done an excellent job on the conversion, and the results of their efforts has been a truly world-class import terminal conversion, and with this work now substantially behind us, we're really excited to be turning our sights on delivering a world-class fuels infrastructure operation.
As you heard earlier, our infrastructure will be required for decades to come to support long-term fuel demand, and this drives our ambition to be a world-class fuels infrastructure operator. Building world-class capabilities is key to ensure our operations and assets continue to perform efficiently to meet current and future fuel demand. Furthermore, by demonstrating these capabilities, we will build credibility amongst our customers and other stakeholders to play a broader role beyond Marsden Point. To support this ambition, some targeted investments will be needed to build our capabilities across operations, asset management, and project delivery, along with some targeted investments in our assets to ensure the optimal configuration for product quality management in the import supply chain.
Through our strategic refresh, we have undertaken an assessment of how Channel is performing against world-class operations benchmarks, highlighting the strong operational capabilities, leadership, and safety focus of the Channel team, and the commitment to successfully delivering on the conversion outcomes. In recent months, we've already made good progress on the identified improvements in a number of areas. Increasing our customer focus and focus, including running regular customer satisfaction surveys, implementing our safety culture program to embed the high standard of operational discipline which is needed for terminal operation, completing our first long-term strategic asset management plan, and lifting employee engagement through our regular Your Voice engagement process.... The remaining work in front of us spans seven key work streams, including operational efficiency and discipline, asset renewal and upgrade, streamlining our procedures and training, and lifting, resourcing, and capabilities in key areas.
Our assessment work has given us insight on what truly world-class terminal operations look like across both performance and cost, cost efficiency, along with where our full potential lies as a converted refinery, noting that there are some inevitable compromises compared to a purpose-built terminal facility. In this way, we have established targets against which we will continually monitor our progress towards our world-class goal. It has been important for Channel that we maintain our excellent safety performance through the transition, and take forward and build upon our excellent safety culture, born from operating what was New Zealand's most hazardous industrial facility. In addition, the substantial upgrades to safety systems, including the aforementioned bunding and firefighting upgrades, combined with the decommissioning of the refinery assets, has substantially reduced the environmental and safety risk of our operations.
As we turn to achieving world-class performance, our focus will be on ensuring our assets are maintained to a high standard to support continued improvement in that performance, while building on our excellent safety culture with a greater focus on operational discipline through our safety culture program. Streamlining overly complex safety systems and procedures inherited from our prior refinery operations will also be important to this. The scale of our operations continue to grow as we complete the commissioning of additional storage capacity, fuel demand recovers from COVID impacts, and our customers adapt their operations to leverage Channel's capabilities for their supply chain. The average import cargo to Marsden Point is already up 10% on last year, leveraging our capability as the only port able to receive the larger LR class oil tankers.
Our storage capacity has increased over 80%, including a more than doubling of jet fuel storage, while jet fuel throughput itself is up 43%, increasing pipeline utilization, while maintaining plenty of headroom to accommodate future growth. And Steve and the team at IPL have been doing an excellent job with laboratory testing volumes, up 16% on last year. As we continue to grow as a world-class operation, we want to ensure that we provide the most efficient and resilient fuels infrastructure services by improving our operational efficiency, in particular, ship turnaround times, with freight and demurrage being a key cost driver for our customers, and to be always working on the next opportunity through a continuous improvement mindset, and maintaining and building capabilities through robust training and development for our people.
Our infrastructure has proven resilient through the recent cyclone and floods, ensuring uninterrupted supply of fuel to Northland and Auckland through these events. Despite these challenges, we've maintained EBITDA performance through disciplined cost management. Going forward, our approach to asset management will ensure the ongoing resilience of our assets into the future. This year, we have completed the first version of our long-term strategic asset management plan with a 15-year view of CapEx, and that confirms that forecast CapEx remains within our earlier NZD 5 million-NZD 12 million guidance levels. While CapEx will be in the upper end of guidance over the next few years as we work to complete tank maintenance, our current forecast reflects stay-in-business CapEx squarely in the middle of guidance on average.
We expect that this forecast will go up and down over time as we mature our understanding of maintenance requirements for key assets, such as the jetty, and consider the impact of inflationary effects and additions to our asset base through growth over time. Within the asset plan, there are elements which are fairly fixed due to compliance and customer requirements, such as our tank maintenance, and others over which we have more discretion. Our objective through the asset management process is to manage these different demands, to deliver the most consistent and reliable CapEx program we can for the business.
As a world-class operator, our job is to ensure we have well-maintained infrastructure to support current and future fuel demand, and this will mean making some incremental investments to our tank facilities to ensure they are set up optimally to handle import products, while at the same time being efficient and careful with investment in facilities that may not be needed in the longer term due to changing fuel demand. We're already presented with examples of this, a great one being the maintenance of a petrol tank that we're undertaking next year, where after having reviewed lifecycle options, we've been able to reduce the maintenance cost of that asset by implementing some clever engineering that will allow us to keep the tank operating safely, but not for longer than it will be needed due to changing demand.
To support this work, we need the right asset management capabilities, which we're working to build through recruitment, training, and apprenticeships. Investors should quite rightly ask what we will get for this investment. Adopting a world-class approach to asset operation and maintenance will support efficient delivery of long-term reliability and resilience of the fuel supply chain, while aligning investment in our assets commensurate with their expected life… whilst also ensuring that we have the capabilities to execute on projects and growth opportunities that arise through the fuels transition. Beyond our existing operations at Marsden Point, demonstrating these capabilities, along with the drive to grow and invest to meet New Zealand's changing energy needs, will be a key enabler for Channel. Differentiating us as a partner of choice for fuels infrastructure, and in that way, unlocking a pathway for growth opportunities beyond Marsden Point.
Just to talk to the photo here, this is of the recently commissioned jet fuel storage tanks, which were converted from existing crude tanks at Marsden Point, and reflects a great example of the opportunity that Channel aims to be the partner of choice for, whether that's further growth opportunities at Marsden Point or beyond. While some investments are required to achieve this aspiration, the investments are modest relative to the benefits they will enable. Incremental OpEx required to support world-class capabilities represents around 1% of current spend, with the expectation that this will drop over time as this internal capability grows and displaces currently outsourced work. Incremental stay in business capital is included in the asset plans and capital guidance I talked about earlier, and this remains squarely in the middle of guidance on average.
This work is needed to support more effective handling of import product quality, and targeted to prepare our facilities for renewable aviation fuels, which typically demand even more stringent product quality measures. All of this work builds on existing improvements that are already being completed through the conversion program. Like the example shown here of our bunds. So the bund upgrade work's currently underway at Marsden Point, and you can see on the top photo, the original ex-refinery bunds, and at the bottom, the work we've been doing to upgrade these assets to meet the latest industry fire and earthquake resilience requirements. So with that, we're happy to take any questions. Pete talked to us about growth. David?
Just on the, demolition costs that you've quoted several times, NZD 50 million real in ten years' time. That's a net number after an assumed, value for the sc- the scrap value of the decommissioned assets, which at the time that you gave that NZD 50 million, estimate, were NZD 30-odd mil. Obviously, we know, assuming the Seadra deal goes through, that that scrap value estimate was happily conservative. But is there an actual likely to be a reduction in that gross NZD 80-odd real number, given what Seadra are proposing to do in terms of taking those assets away and, and, remediating the site, et cetera?
I can, I can probably answer that, David. I don't, I don't think at this point there's any, any need to change that provision, noting that the Seadra deal is still an option rather than a, rather than a deal that's concluded. So we need to let that take its course and, you know, if we get a good outcome on that transaction, then, then that perhaps that's something we can take a look at.
Okay, thanks.
Just kind of interested, what you think kind of the exemplar sites are for terminals elsewhere in the world, and do you have sort of any kind of connection with them? Do you visit them, you know, kind of to directly benchmark yourself?
Yeah, look, so, we are planning to do exactly that as part of this process, to go and see what good looks like. I think as a reference point, you know, the well-established operations in Europe, where, you know, there's been import supply chains operating for decades, is a really good reference point, and the independent operators up there, such as likes of Vopak and so on, have been operating in that environment for a long time. Yeah.
Great, thanks. And second question, I know you've just completed the 15-year asset management plan. I'm gonna ask you beyond that period, is there any reason to think between sort of the 2036 kind of period that you've kind of gone out to, to 2050, that we should think that the same business CapEx looks much different to the 5-12 guidance you've given us for that first 15 years?
Yeah, look, nothing that we're aware of at the moment, right? So I think the reason we've chosen 15 years is because that's a typical tank maintenance cycle, and so then that effectively represents the, what is the most significant maintenance cycle in our business. And so I think it represents, you know, at this stage, it's a fair representation of what we should expect going forward.
The one kind of caution I'd give there is that NZD 5 million-NZD 12 million is in today's dollars, right? So, yeah.
Thank you.
Darren.
Jack, do we think, in terms of this pipeline, appreciate what you're spending on it and things. Ultimately, in a simple sense, does this have a finite life in your view, or not? Does the rolling R&M take care of that?
Yeah, look, so, great question. The first thing is, the pipeline's in really good condition, and, we only recently fully inspected that just last year, so with our, inspection gauge, and, there's very little work to do on it at the moment. Every pipeline has a design life when it's constructed, but globally, there are thousands of pipelines which operate well beyond their original design life. There's examples in Australia that were commissioned in the 1960s and in the US that have been operating since the 1940s.
... and, you know, our, our view is as long as we continue to maintain the pipeline in, you know, a really excellent way that we are, and keep it in a really good condition, you know, there's, there's no foreseeable life constraint for that pipeline. Any other questions? I had a couple from email, so probably this one's possibly for you, Peter, but with the RAP becoming open access in April 2025, if the advisory fuel volume forecasts are accurate, how much spare capacity will there be to offer to other parties?
So the first thing I'll answer there, Rob, is that the pipeline throughput is driven by Auckland need. So if you get a new player selling the fuel in Auckland, if it's displacing existing volumes, it has no impact on the pipeline. To the extent it's a new player that comes in, at the mid-case outlook from Hale & Twomey advisory, beg your pardon, we're gonna have spare capacity. And to add to that, to the extent that we get anywhere near a congested period, in a very high case scenario, over the very long term, we're already supplying volumes into the Waikato region, which could easily be supplied from Tauranga. So in terms of congestion, there'd be no issue on the pipeline.
One more, one more question about the pipeline from the, from the email. Any idea what the gap is between the cost of trucking from Mount Maunganui to Auckland versus using the RAP?
When we developed the pricing model for our facilities, for the new contract with our customers, we were very, very mindful of the next best alternative. We ensured that we had no bypass risk by ensuring the new pricing in our models were at a discount to those costs. We have no real concern in terms of being bypassed.
Great, thank you. Right, if there's no more questions from the floor, we are on the home stretch now, so we'll get Peter to come up and talk us about our growth ambitions over the next five years.
Thank you, Rob. You've seen how we successfully transitioned the business from being a fossil fuel producer to being infrastructure provider. You've heard today how we see a solid future for our business, and that we have an ambition to become a world-class operator. This is exciting for us, as it creates the opportunity for us to grow the business. And that is what I want to talk about to you in this section of the presentation. Oops, sorry. When I reflect on the company history, and I've been here for a few decades, I cannot think of another time we've had greater confidence in our future revenues and future cash flows than any time unlike today. And this is a result of our long-term contracts with our customers and the longer-term outlook for fuels demand, which we've shared with you.
To add to that, we have a very capable team across the entire site, with the capability to operate and maintain complex, capital-intensive, and high-hazard infrastructure. And to successfully deliver a NZD 220 million business transition during a COVID and severe weather impacted period, while being subjected to supply chain challenges and high construction cost inflation. Our Marsden Point site is uniquely placed to support the upper North Island's transport needs and to provide a resilient and low-cost supply chain while the country transitions to a lower carbon economy. We have long-term, reliable cash flows that can be leveraged to generate growth. And we're willing to leverage our capabilities to invest in adjacent and infill opportunities in order to grow the size of the business, as long as these deliver above WACC returns for our shareholders.
Our infrastructure will fuel New Zealand to 2050 and beyond. We have many brownfield opportunities at Marsden Point. With the cessation of refining activities at our site, we are well-placed to realize what we call infill opportunities. We are currently preparing a submission to a government tender, who are looking to contract for up to 70 million L of strategic diesel storage. This represents a very large volume. It's equivalent to about 7 days of New Zealand's diesel demand. The storage capacity compares to our existing 180 million L of shared storage capacity and an additional 100 million L of customer-specific private storage that we have already. We are well-placed to support the government in this, as we have existing tanks that can be repurposed. We have the ability to reload ships so that diesel can be redirected to other ports if required.
We're already completing engineering study on the suitable tanks. Our terminal is also a high throughput site, where as much fuel is coming through our terminal as those of our customers' ten terminals in the large ports of Tauranga, Wellington, and Lyttelton combined. This helps with efficient turnover of the stock for product quality purposes. We will be submitting this tender by the first of December. The government recently passed the Improving Fuel Resilience Amendment Bill, which means that from 2025, all fuel importers will face obligations to have minimum stock holdings in the country. We are well-placed to assist our customers with additional storage at Marsden Point should they require it.
We continue to look for other opportunities to assist our customers, including opportunities that allow us to repurpose the approximately 400 million L of unutilized storage capacity we still have at Marsden Point. On the topic of providing additional storage capacity, I'm pleased to announce that we've very, very recently contracted additional capacity to an existing customer. This will necessitate a small amount of incremental growth CapEx next year, but deliver approximately NZD 9 million of additional revenue over the contracted period of 10 years. We're currently in discussions with customers on another potential project, which Rob alluded to, that would require approximately an additional NZD 10 million of growth CapEx, and will deliver approximate- and we'll make sure that it delivers appropriate commercial returns. This has not yet been contracted and is still under discussion.
While we are open to new business, to any new customer on our site today, as Rob mentioned, our multi-product pipeline will become open access from April 2025. So as you can see, there's lots of opportunities for infill activities at Marsden Point. So I've just discussed the range of storage opportunities at Marsden Point, but we're also looking beyond our gate. Our proven credentials, our ambition to be a world-class operator, and our low cost of capital position us as a strong infrastructure partner. The fuel markets are undergoing a transition, and to the extent that parties may be looking to divest in terminals or seeking support in standing up additional storage capacity, Channel is open to owning and operating other terminal assets. The greatest growth opportunities lie in aviation fuels, as I mentioned the growth previously.
But the forecast decline in road transport fuels could also present an opportunity for us. We might be able to benefit our customers by being a consolidator in the industry. These are opportunities that we're open to, but are likely to play out over a longer timeframe. When we think about growth opportunities for us, both within and outside the gate, we want to reassure you that we'll be taking a very disciplined investment criteria. We'll be looking for strong counterparties in any new contracts, and for contracts that have that provide a degree of revenue certainty. This is how we will intend to grow the shareholder value. I talked before about long-term outlook for aviation fuels and the industry's long-term reliance on liquid fuels via sustainable aviation fuels.
With Auckland consuming the majority of the country's jet fuel and a lot of consumption being consumed on international flights, Channel will benefit from the expected growing volumes of imported jet, whether it be SAF or fossil fuels. As Rob mentioned before, we think that global SAF production will lag global SAF demand for many years, and domestic SAF production capability is important to support New Zealand's decarbonization goals. As we talked about, we're currently working in supporting Fortescue with the pre-feasibility study into a 300-MW, 60 million L per annum synthetic SAF manufacturing facility. This will produce synthetic e-SAF at Marsden Point, which would then be blended into the imported fossil jet fuel and then be transported to Auckland via our pipeline.
A manufacturing plant of this capacity will produce about 3% of New Zealand's jet fuel needs, although there is scope to scale this in the future. The Energy Efficiency and Conservation Authority is providing some funding support to the study to investigate the potential for large-scale demand, electricity demand response opportunities that will benefit all electricity consumers. The Marsden Point site, with its unique site attributes, which include the pipeline to Auckland, as well as having Air New Zealand's interest on the planned eSAF MOU, provides a unique opportunity for Fortescue, who see this project as a frontrunner in the global portfolio. We'll be working with Fortescue during this pre-feasibility phase to develop the commercial model. And as Rob mentioned before, we anticipate this being aligned with our current business model of being an infrastructure provider.
It's a good example of partnering with others to leverage our collective strengths. At the same time, as we're exploring all the growth opportunities, we'll be continuing to work to realizing value from decommissioning the refinery. We announced in July that following a comprehensive marketing program, we've entered into an asset sale agreement with Seadra. We've granted them an option to purchase some of our former refinery processing equipment. They've paid a non-refundable option payment of $4 million. They have the ability to extend this by a further six months for another $500,000. Should they exercise the option to purchase the equipment, it will be for a total consideration of around $34 million. This represents a win-win for Channel. If the deal goes ahead, then we're able to monetize these assets, and it will clear the site for future development.
If they don't wish to exercise the option, we retain the non-refundable option payments. We are in constant dialogue with Seadra as they work through the assessment of the assets. It's a complex task to deconstruct this large, complex industrial asset for reassembly at another location. This requires an enormous amount of planning and by industry experts, and this is underway now. We continue to market other refinery processing equipment so we can monetize those assets while simultaneously clearing the site for further opportunities. So we've discussed a number of times the strategic value of our Marsden Point site, with a combination of attributes that you won't find anywhere else. We've described those previously. This creates enormous repurposing potential for our site.
Add to this, we think broad-based economic growth and development stimulated by the proposed four-lane highway through Whangarei, the proposed expansion of Northport, and the railway spur to Marsden Point. The graphic on this slide provides indication of the amount of unutilized land that we have available for redevelopment. It has significant latent value, although our financial accounts currently only recognizes at about NZD 18 per sq m. We're now working through a process to determine the highest and best use for our land, which will assist us in understanding the true value of it. We're currently working with a real estate specialist to assist us with master planning for our site. Opportunities that leverage existing assets, especially the pipeline to Auckland, are of greatest interest, as these compound the value for our shareholders.
Some examples of what could be considered include the eSAF manufacturing facility being looked at by Fortescue, hydrogen production and truck refueling facilities, construction of our consented solar farm, and grid-scale electricity storage. This could see our site developing into a significant energy hub to assist the country into a lower carbon economy. We recognize our strength as an infrastructure provider and operator, and we would seek to partner with others rather than redevelop some of these projects ourselves. As I mentioned, the work we're doing with Fortescue now is a good example of this. The common link is tapping into the site's unique features. This truly is an exciting period for our business, and I'm now happy to take questions.
Actually, we're gonna push through this-
We're gonna push through.
Take the questions at the end.
I'll hand you over to Alexa.
Thanks, Peter. For those of you I haven't met, my name is Alexa Preston, and I'm the new CFO at Channel Infrastructure. I'm excited to be joining the company at this point in its journey with so many opportunities in front of it, and it's great to be able to speak to you today after joining the company only last week. I'm now gonna take some time to talk through our financial metrics and capital allocation framework. Here's our financial profile at a glance. I won't spend too long on this today, as it will be familiar to most of you, and Rob touched on some of this earlier. Our long-term customer contracts with take-or-pay commitments and PPI indexation have provided downside protection to our revenues in a post-COVID environment, and in the case of the PPI indexation, have provided upside.
We are now seeing strong recovery in jet fuel volumes, and both jet and diesel volumes are slightly ahead of advisory's forecast for the year to date. As outlined at the half year, we were slightly ahead of the pro rata take-or-pay as a result of ancillary and wharfage charges being higher than anticipated. I will cover our balance sheet, cash flow position, and capital management approach over the coming slides. Turning to our debt position. In May 2022, we undertook a retail bond offer, and in November that year, we completed the refinancing of our bank facilities, which has significantly lowered our cost of funding. Our exposure to interest rate movements is mitigated, with 83% of our net debt exposure being hedged or fixed, which provides significant interest rate protection over the coming three years.
The refinancing program has established Channel Infrastructure's strong presence in both the bank and bond markets, which will support future growth and continue to facilitate an efficient cost of capital. Net debt is expected to peak in the next 6-12 months at around NZD 15 million-NZD 35 million, above the September 30, level of NZD 315 million, assuming no further growth projects are undertaken within this timeframe. As announced this morning, we are currently considering a new unsecured, unsubordinated, fixed-rate bond offer of up to NZD 75 million, with the ability to accept oversubscriptions of up to NZD 25 million, to refinance the subordinated notes, which have an initial election date of the first of March 2024. If the offer is made, it is expected to open in the week beginning October 30, subject to market conditions.
I'll move now to our capital allocation framework, which has been structured to deliver both strong dividend yield and growth. With the stability that comes from our long-term contracts, we are focused on maintaining stable dividends for shareholders, with a dividend policy to pay out 60%-70% of free cash flow, noting that our normalized free cash flow definition excludes growth CapEx and conversion costs. As most of you know, our tax loss position following the closure of the refinery will mean that once imputation credits are exhausted, dividends will not be imputed. We estimate we have sufficient imputation credits remaining for a dividend of approximately NZD 0.025. Our dividend policy leaves the other 30%-40% of free cash flow available to deleverage and execute on our growth strategy.
Our leverage target is net debt to EBITDA ratio of 3-4 x, and the board are committed to targeting credit metrics consistent with the shadow investment grade credit rating of BBB+. You have heard today from Peter the significant growth opportunities that lie ahead. Our clear investment criteria for these growth opportunities is to only invest in projects that generate returns above the weighted average cost of capital, and opportunities with contracted revenues to provide revenue certainty. Now let's work through the capital allocation framework in action. As we have spoken about previously, this is a highly cash-generative business, with EBITDA to free cash flow conversion of 70%. This slide uses the latest guidance for FY 2023, which we are pleased to reconfirm today.
An EBITDA range of NZD 84 million-NZD 88 million after CapEx, financing costs, and no tax, given the significant tax losses I referred to earlier, translates into free cash flow before growth CapEx and conversion costs of NZD 59 million-NZD 62 million. A free cash flow yield of around 11% based on our closing share price on the thirteenth of October of NZD 1.47. Applying our dividend policy of paying out 60%-70% of normalized free cash flow provides an indicative dividend range of between NZD 0.095 and NZD 0.115 per share across the full year, a dividend yield of 7%. This would leave the balance of our free cash flow to deleverage the business and invest in growth.
As I mentioned, we are pleased to reconfirm the guidance for FY 2023 that we provided at the time of our half-year results release. We will look to provide guidance for FY 2024 when we release our results for the 2023 financial year. Feeding into this will be a few key drivers, including the applicable PPI escalator for 2024, which will be published in mid-November this year. A full year contribution from the revenue associated with the 100 million L of private storage. A full year contribution from the new storage contract Peter touched on today, which will generate an additional NZD 9 million of revenue across the 10-year contract period. And the impact of the savings from the new renewable electricity contract of around NZD 2 million. Like many other businesses, we are starting to see inflationary pressure across the variable portion of our cost base.
Our disciplined approach to cost management is well embedded and will help mitigate some of this pressure. I'll now hand back to Rob to close out today's presentation.
Thanks, Alexa. Right, on the home straight now. Probably five minutes behind, 10 minutes behind, so I'll try and bring it in at five. So our environmental and ESG scorecard is incredibly important to us, and as we support the energy transition, we've got to work through the sustainability of our operations. We're committed to being a good neighbor and to playing our part to limit our impact on the environment. Through the transition, we've already made significant progress in reducing the impact of our operations by reducing CO2 emissions and water consumption, continuing remediation of legacy contamination, supporting staff through the transition, and maintaining diversity in our organization.
We're working hard to clean up from the historic practices at our site, and it's really pleasing to report that we've seen a 30% reduction in the size of the hydrocarbon plume under the Marsden Point site. The work to fully remove this known contamination will not stop until it's been fully remediated. It's fully funded. It's important to everybody at Marsden Point that we protect the pristine environment in which we operate, and we continue to invest in our environmental systems to support this. A key example this year has been the work we have done to remove over 200 tons of sediment and sludge from our stormwater systems to improve stormwater quality in the heavy weather events. One other point not listed here, but a point we're really proud of, is the recycling that we've been able to do from our decommissioned refinery.
Just to draw out a couple of figures for you, we sent over 1,000 tons of steel, aluminum, and additional wood from the decommissioning to be recycled, and collected over 47,000 L of lubricants and seal oil, which is now being recycled into a cost-effective heating fuel, which is used to power various New Zealand industries, including horticulture, timber processing, meat processing, and bitumen. We're continuing our history of engagement with local iwi and other community partners, and collaboration on local environmental initiatives remains a cornerstone of these relationships as we go forward.
To support our understanding of climate risks and opportunities, this year, we've undertaken a comprehensive materiality assessment, consulting with a broad range of stakeholders and focusing on our most material issues, impacting our ability to create, preserve, or erode economic, environmental, and social value for the company, its stakeholders, the environment or society at large. These insights have actually informed Channel's strategy, as you can see on the right-hand side of the slide, contributing to the operational excellence, growth, and community pillars of the strategy that I shared with you at the start of the day. Lastly, it's important to talk about how our site performed through the significant weather events earlier this year. Northland and Auckland have had quite a bit of rain in recent months, and our Marsden Point site and pipeline were certainly not spared.
We received some 400%+ of the normal seasonal rainfall last summer. Despite this, our assets and operations proved resilient through the period, ensuring uninterrupted supply of fuel to Auckland and Northland. This experience has, however, reinforced the importance of the work we have started this year to understand and respond to the long-term climate hazards of our operations. Modeling of coastal erosion and inundation risks for the Marsden Point site, including for a 4-degree global warming scenario, reflect limited impact to the predicted impact to the site before 2080. Through this process, we have identified practical options, including floodgate mitigation, that will hopefully substantially mitigate a number of these risks.
This work builds on other natural hazards assessments that Channel has previously conducted, reflecting low to medium risk across the national category hazards, noting that one of the key drivers for selection of the Marsden Point site in the 1960s was due to the low seismic risk relative to the rest of New Zealand. So let's put this all together, and I'm gonna go straight to the concluding slide, given time. So what you've seen today with Channel Infrastructure is... Well, what you see today on the top of that slide is the Marsden Point import terminal system, 280 million L of in-service storage capacity and the Marsden Point to Auckland pipeline. That pays us today about NZD 86 million of EBITDAF on our forecast and a net dividend yield of 7% or a free, free cash flow yield of 11%.
That's our business as it stands today in service. We've talked to you today about some of the various options that are embedded into our assets. The 120 hectares of land available, that's got a book value of NZD 15 million. The unutilized tank capacity just currently stands at 400 million L. Ex refining plant that's available for sale, that has a book value of NZD 29 million. Electricity grid and gas and connection, connection options, and a deepwater port, as well as a consented solar farm. Those are all options that are an addition to that, that piece on the top, which is the import terminal system today.
And in addition to those options, we've got an ambition to grow, whether it's brownfield opportunities at Marsden Point site, being a consolidator of terminal assets beyond the Marsden Point site, looking at the low-carbon aviation fuels transition, other energy storage and distribution options, or the government's strategic diesel reserve, as an example. And so the way I think about this business today is you've got the very top, which underpins who we are and what we deliver today, all of these options and other growth opportunities, which are in addition to that.
In terms of how I think about it, and what you need to believe is we deliver a 7% yield today, free cash flow yield of 11%, and even if we didn't deliver all of those things, we've still got our free cash flow yield, and which will start to become quite material as the business de-levers over the coming three to four years. So in summary, what's next for Channel Infrastructure? We will need to provide the infrastructure that will enable the energy transition and support aviation fuel supply beyond 2050. We've got an ambition to become a world-class operator that will provide infrastructure resilience for many decades to come and enable us to pursue growth at Marsden Point and beyond Marsden Point.
We'll continue to focus on unlocking the value of our highly strategic, unutilized real estate at Marsden Point, and we'll continue to focus on our highly disciplined investment criteria. We're committed to delivering above WACC returns with stable dividends and a stable capital structure and metrics tracking towards the shadowed BBB+ credit rating. And critically, for New Zealand and globally, we'll continue to invest and support New Zealand's decarbonization efforts. So with that, I'm gonna pause or finish with Q&A. There's just two people in the room I just wanna thank before we go to it. So, one of those, I didn't introduce before, but is actually sitting right over there, Phil Jones, our GM Projects. He has been our friendly Australian, if you could believe there is such a thing.
He's been instrumental in delivering that conversion project on time and on budget. And if you wanna talk to somebody about how that happened, I suggest you have a beer with him afterwards.... I'd also like to mention Sue Dyke, who's my EA, and kind of the heart of our organization at Marsden Point. She's been with previously Refining NZ and Marsden Point for a long, long period of time, and has just been instrumental in pulling this day together. So we really couldn't have done it without them. So thank you. Questions?
Just, hopefully some reasonably quick-fire questions. First couple, just around the assets sale process, I guess. Just, are you able to give us a bit of a progress update on selling the other assets? And, I guess, embedded in that question really is, at what point do you decide that you just need to sell them for scrap as opposed to, as, something that can be sold off as an operational asset?
Yeah, I'll let, I'll let Peter comment. I mean, my overarching comment is we certainly haven't got to that point yet. I think the, the difference between selling ex-refinery kit and selling a business or a piece of real estate or a piece of land, is these are incredibly complicated pieces of kit. And it takes quite a while for people to understand whether the kit that we've got on the site, our site, can work in their project. I often describe it as trying to work out whether you can put a Volvo engine in a Toyota car somewhere else, and that's the, that's the process people need to go through. So that's one of the reasons it's taking quite a bit of time to work through this.
My personal perspective is we need to be a bit patient with it and, and let it play out. I think in terms of Seadra's progress?
Very much on schedule. Whether they exercise their extension option or not, we're not sure yet, but there's lots of work being done at the moment. But as Rob said, it is very complicated. We continue or our agent continues to market all the other assets. We have a lot of strong interest. For us, it's far too early at this point in time to call it quits. And there's also no regret either. So in terms of the resource being put in, this process is quite limited from our side, because we're going through an agent. And it's not holding up any other development opportunities right now. So still far too early.
Just to follow up on that, how much visibility do you feel like you actually have in terms of where Seadra will land in terms of completing the deal or extending the option or walking away?
Oh, look, I'll get that. I mean, nothing further to say on that. As I said, they're doing their work, they're doing what we'd expect them to do. You know, when we've got more information that's relevant to the market, we'll make sure we-
Well, what I can add, which is they're taking this very seriously. So we've had visits on site, by their subcontractors, to look at how they would go about dismantling, packaging, moving it. So this is very real, but to the extent of it going ahead, we just don't know. And Seadra doesn't know either, but that's the process they're going through.
And my last question was just around, you know, are you actively pursuing industry consolidation opportunities? And just knowing the other parties involved are three oil companies that took a long time to get over the line in the conversion. You know, how realistic is that if that's not something that's... You know, what's the trigger, I guess, as much as anything else?
Well, I think firstly, I'd say, you know, like the cheese ad, "Good things take time." Look, from our perspective, we've kind of led into this, we've talked about it quite openly today. Obviously, the oil companies know where we are. There are some changing dynamics that, you know, might make it quite real. And so changes in petrol demand, diesel demand, the need to consolidate infrastructure as that becomes high cost in a particular location, I think could drive some opportunities for us. Likewise, you know, the oil companies themselves are looking at how they can reinvent their downstream businesses, given the challenges that are faced, frankly, by the advisory forecasts. And that will take capital and investment. And so, you know, they'll, I'm sure they'll go through a process of looking at where the most efficient way to get that capital is.
You know, as Channel, we're setting ourselves up to be their partner. That's exactly why we're driving to be a world-class operator, because we know these guys look around the world and look at who else does this, provides terminal services, and we need to benchmark with those people. So we're putting ourselves in the place, the best place possible as to where, where if it could happen, but kind of nothing to update today, obviously. David, microphone's coming behind you.
Yeah. Could I just clarify on the, the comments you gave around the private storage revenue? You said at the half year and confirmed today that, you know, that NZD 9 million initial contract, you're at that run rate in the fourth quarter, and we should expect a, a full NZD 9 million real contribution in 2024. Am I right in thinking there's a second contract that you've talked about in the past, which is NZD 25 million over five years?
Yes.
What, can you just give us an update on, is that contributing this year, and when does it get up to a, a sort of normalized run rate?
That'll become a full run rate next year. There's some capital works underway now. Should be completed Q1 next year.
There'll be some contribution in this year or not, in 2023?
Beg your pardon?
Will there be some revenue contribution from that contract in 2023?
Absolutely. Absolutely. So, so after Q1, full run rate.
Sorry, final question: Is there any likelihood that it will persist beyond the five-year period for the NZD 25 million, or is that to be negotiated?
If I look at the nature of the fuels being used, I would expect to see a very high likelihood of continuation, but that's subject to the customer and their supply chains.