Channel Infrastructure NZ Limited (CHI) Earnings Call Transcript & Summary

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 this slide but more importantly, safety is at the heart of everything we do at Channel. And so I'm going to 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 the toilet. So that's behind us here. Follow the instructions of the generator staff and fire wardens in the event of an evacuation, they're 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 Auckland airport. Since joining Channel, I've been really impressed with the clear vision and highly capable team who have successfully delivered on the 3-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 really 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 spent the afternoon into 2 parts. We're going to 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 again of us. We'll then cover the outlook for fuel demand and I having meet a lot of you over the course of the past few months, either for investor meetings or post results, you're very keen to hear from the Envisory team, formerly known as Hale & Twomey. We're fortunate today to have Ian Twomey here with us. Where are you, Ian? Hand up, down the back, and he's going to 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 prices 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 saucy drools, 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 and 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 -- for Q&A sessions structured in the afternoon, that will keep us on time and get you out for a drink at 5:00. I trust that with the Q&A breaks, afternoon tea and the drinks after this event, all your questions will be answered. So 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 the 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 6 months is starting to pay dividends in this regard, which is turning -- 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 here, our General Counsel and Company Secretary. Steve Levell? Where are Steve? Over there. Steve heads -- or as a General Manager of our fuel testing business, IPL; and Caz Jackson, our Chief People Officer. Also in the room is Denise Jensen, our upgoing Interim Chief Financial Officer, who has been instrumental in delivering the pack that you see in front of you today. And 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 she is our HSEO Committee; and James Miller, who is 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 7 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. And doing that, we have safely shut down the refinery and commenced import to operations to plan in. 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 liters of private storage, doubling our jet fuel storage capacity at Marsden Point. And if the conversion activity completed so far, this has been done two plan and two budget in a high inflation environment. The Slide represents a number of very significant achievements and 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 5 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 is going to talk a lot about this later on in the presentation. We'll continue our focus on a highly disciplined investment criteria. We're committed to delivering above WACC returns with stable dividends and a stable capital structure and metrics that track towards the 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 want to 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 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, I think, quite a nice way. But it reinforces to me the importance of those enablers for our future strategy. So just focusing on those for a minute. The 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, deepwater 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 supplier route to jet fuel Auckland International Airport. And you'll hear a lot about this today. Auckland International Airport accounts for 75% of New Zealand seat capacity and 80% of New Zealand's jet fuel usage. So 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 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 $90 million and $100 million per annum over the first 6 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 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 volume 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 -- 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 is our core strength 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 going to 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 liters of fuel resiliency for New Zealand 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, this is a familiar story for you. I spent a lot of time talking about it and the uniqueness of the Marsden Point site. It is really hard -- it is 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. It 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 supplier 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 in the broader Auckland region. We deliver safe and reliable and unobtrusive jet fuel supply to Auckland. We don't contribute to 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 liters 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 have travel on it would understand its capacity, too. So on to our refreshed strategy. I'm actually going to go and point to the page with this one. So this is our fresh strategy. We've called it helping fuel New Zealand's future 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 tools 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 for all those other terminals in the world, i.e., world class. And next word, energy. We're a fuel distribution company today, clearly, but we have opportunities beyond fuels on our site and the eSAF project, which Peter is 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 2, 3, 4 or 5 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. Peter is going to 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 side. But to do that, we need to be world class. And then, obviously, supporting the energy transition. And again, Peter is going to 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 2. So it's really important to understand 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 because words are important. Right. To keep us all on time. I'm going to skip through to a bit of an introductory slide for Envisory. So what will be -- what will we be caught on to deliver for New Zealand? For us, we need to support a stable medium-term diesel demand outlook and a resilient transition of petrol. We've got a view that you will see diesel for longer than I think people would 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 at a sector that is incredibly important to our exports in 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-haul flight 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 with the [ head ] of name change since the published work in February but we're still essentially the same team as Hale & Twomey that now known as Envisory. And we've been doing independent forecasts, particularly on 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 -- on the charts here published in the document that I'm sure many of you have thought over to get numbers. Really highlights -- this one is just there to highlight the trends that Rob has already talked about. Petrol is already in transition. We're underway. It's not something that's going to happen. It's something that's happened. So those volumes, although they're still climbing post-COVID, that 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 of 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. So how do we -- a bit of detail behind our forecast? How do we come up with the forecast? It's important to really understand the demand sector as 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 going to 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 is going to change. Obviously, these policies 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 reduced 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 is going. And then obviously, for each segment of diesel, 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 going to 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 short term is actually the efficiency of the internal combustion engine. There's still a lot more ICE vehicles coming into the fleet. That 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 the 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. 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, well, which was 2017 or arguably surprising enough 2007. Petrol has actually been flat for a well over a decade. We're now in a transition downward. So we're expecting this year to be about 8% down on 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 is pretty much in line with forecast 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, it will transition more quickly the way you work. 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, they don't really affect our view of the long-term outlook. High prices, I think one of the few companies announced that 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 2 decades, really. So the fact that you think it's solid. It's actually coming off growth. It does increase higher to -- it will be higher than before COVID. So how we've 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 is an option, electric but at this stage, properly, even since we would have said in February, we were fuel agnostic in terms of the transition. In terms of what's going to happen, it could be hydrogen, could be electricity. You'd have to say over this year, electricity has probably got a bit lighter the way they're doing electric with the heavy trucks now is improved. Hydrogen, there's still a lot of cost questions about that. Probably really not going to impact later. So that's why the curve doesn't start going to 2030. But what's really important to model with the diesel is a 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 of coal and diesel to other fuels. So each one of those has their own path and that. We didn't really distinguish biofuels. Obviously biofuels could be in there and Channel Infrastructure is well placed to handle, and our view would be it 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 with diesel, there's more uncertainty, more of the transitions further away as you 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 have 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. A couple of examples on this. We're really assuming a breakeven capital cost, 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 to 2030 period. If it's slower or faster, that could change things of it. Obviously, the economy, how quickly the fleet is turning over, how often people buying it. And some of that is a shift obviously in New Zealand's cases, pretty close to half of what comes in as secondhand. So we are dependent on those countries transitioning in order to transition their fleet. So that's all modeled true. 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 going to be on the receiving end if the countries will get cars from, decide that they're only going to 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 want to focus, obviously, on aviation because of its importance. I will really skip over the slide in the sense of Rob's covered it. But the key figures here that we mentioned, 80% of New Zealand jet demand comes through Channel Infrastructure and about 80% of it is international. So -- and that's very high for looked at country statistics. I can't find another country like so much is the proportion of international. So this graphic came from Auckland Airport. It shows where they fly to all over the world to how do we model -- 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 and coming through and particularly the destination of that aircraft and particularly flight length. And also for fuel, you're looking at the balance between takeoff lending increasing because takeoff and landing use so much fuel just because 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, all the 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 thinking about the number of passengers being moved. So we've turned those models to jet demand over time to assure the robustness of those relationships. And we can model both in detailed going forward because the airlines will 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, we can get a forecast of the expected flight movements, where the passengers are coming from and translate that into a jet demand. And for Auckland Airport, which is what we're talking about here, there's a 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 and for Auckland Airport that would tend to split them into domestic regional, domestic trunk, that's a jet. Short-haul international covers straight here in the Pacific Islands and in long haul, which is everything else, pretty much everything over 6 or 7 hours flying. What we found is that the flight distance is a critical -- and in order to accurately understand what's happening to the fuel demand and 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, right? And now they make up around 20% of those fights. And if you just think about 1 case, which is 10 years ago, Emirates would fly a 380 to New Zealand but they fly across from Sydney, pack 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 play all the way back." How much debt do you need to put on flying, if it's going to Sydney, this is how much do you put on if it's going to Qatar. And that was the real driver of the jet increase between 2014 and 2019 debt demand shot up. We were using more jet fuel per passenger. And indeed, there's been some studies and people couldn't work it out. And it's like didn't you think about how far those planes are flying, and that's essentially it. So when we look at, fortunately, Auckland Airport's passenger forecast, forecast where those passengers are coming from, we're the flight group. So we can break the passengers into. So we made an [ extracted ] degree 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 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 going to 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 up Auckland Airport. And obviously, at the moment, extra flights with Qantas coming through Auckland Airport to flight to New York. Now that probably is not a long-term one because they want to do it direct from Sydney but certainly here for a number of years. So -- and obviously, our outlook, we worked together with Auckland Airport on those forecasts that I talked about on -- and that was developed by a company called DKMA, who are an airport market research and advisory and you'll see the same company Auckland Airport 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 is going to 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 nonliquid SAF alternatives could impact. And the ones we looked at were direct use of electricity. So this is direct use of -- this would be electric aircraft but 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 going to create a new demand center, more like a taxi than actually replace the 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 fleets 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 a design a whole new aircraft in the picking short haul, which is possible domestic trunk, possibly Australia. We saw that possibly having those sort of aircraft in the 2040s is still with limited impact because of the slow turnover. And just to go back to that chart, those 2 translate into that red area wet at the top is the demand. Now of course, that blue area, and this is going to be Peter's talk, could easily be -- doesn't have to be fossil fuel, we're just saying liquid fuel in terms of our forecast. So Peter will go into more detail with that but I'm very happy to take some questions.

Thanks, Ian. And well done with being on time. So perfectly handled. We got 10 minutes for Q&A for this section. So some microphones coming around. So feel free to put your hand up and we'll get somebody to you to ask a question.

You're talking about the active efficiency and internal combustion engine has been 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 the European markets?

I think it's -- they'll run together. And possibly, what I should say is the clinker standard that New Zealand's brought in, we were one of the last 2 OECD countries. Australia is the only one, he 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 up 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 balance. So I think it's sort of that trim 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've seen here the announcement of Toyota is to say, we're just doing hybrids is in response to that policy. And it's not New Zealand driving that. It's all the international main markets driving that sort of policy.

So as much of 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.

All right. Over here, Nevill.

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 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 travelers 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 indicators how many Chinese travelers we've got.

Yes, yes.

While I've got the microphone, maybe I won't [indiscernible]. You talked about sort of monthly forecast for jet, and I'm assuming you're doing the same for petrol, diesel. What's the seasonal profile like? And I guess when we look towards the total litreage, it looks like that's sort of roughly within the wrap sort of capabilities. You could be more specific about perhaps whether or not it is, but I wonder if there's a seasonal profile below the annual total that suggests you kind of peak over the top of the capacity to import through Channel.

I might actually leave that to Peter to talk to you actually. So Peter?

So all of our Envisory models tend to be annualized models and so long-term outlooks. What we do internally is to actually use historical trend of seasonality to convert Ian's information into literally month-by-month data. So we literally model out to 2050, monthly demand. I haven't do exactly that. Based on the profile you just saw before on the page, we have no capacity constraints what serve on the pipeline as it stands today.

Any other questions in the room? Andrew?

Yes, just a couple for me. The first one is probably just more of a clarification than anything. But I mean, government policy in the 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 than that sort of dealt within your upside, downside case. That's the right way to think about it?

That's a good way to talk about it. Yes.

And the second one, which I suspect the answer is, it's not significant. But I guess, post-COVID work from homes become -- or 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 is that having any meaningful impact at all?

If I -- yes. It's a really interesting question because modeling through COVID of how much the work from home impacted. Look, it probably does a little bit. If I was modeling beforehand, 2019 to 2023 without COVID there, probably would have gone down, not quite as much. Can I equate to that, that it just work from home, not exactly because I haven't done it in that detail. You've sort of got to wait until 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. We're talking 2% or 3% perhaps but I don't -- it's top of my head, not from detailed analysis. But it is -- I'm sure if you got inside the numbers and particularly the monthly ones and work backwards, you can come up with a number, yes.

Feels like it's a bigger feature in Wellington than Auckland anyway.

We try not to get too Wellington to...

Great. Any other questions in the room? No. excellent. I got that right on time. Thank you, Ian. We really appreciate that.

So I'm now going to 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, the transport fuels in New Zealand are undergoing a transition. The petrol demand has peaked and whilst the 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 assure all the heavy transport and agricultural sectors. And the outlook for aviation is for continued growth. And whilst 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 of the Pacific, we are heavily relied on the connectivity provided by 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. Whilst containerized sea freight makes up a large portion of New Zealand trade, air travel still accounts for 16% of our exports and 22% of imports by cargo value. This illustrates New Zealand dependence on air connectivity. And with Auckland International Airport being the gateway to New Zealand, there is no surprise, it accounts, as Ian said, 80% of New Zealand jet fuel consumption. And as you heard from Rob earlier, Auckland Airport jet fuel is totally reliant on our infrastructure, to [ reset ] the fuel from imports and to ship this down to Auckland. New Zealand is a small fish in a very large pond. The economic development taking place in China and India is expected to grow the middle classes by 350 million households over the next 10 years. And as the chart on the bottom right shows you travel with the 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 to 45,000 new aircraft that they expect to require to mid-fleet obsolescence and this projected growth. The largest portion of that is going to emerging economies. And most of these new planes we'll 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 are anticipating 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 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 it and they're respectively near to abide by increasingly stringent regulations. They will need to take action to decarbonize because that is what the customer base demands. IATA or the International Air Transport Association, which is the trade association for the world's airlines, representing 300 airlines and 83% of global air traffic, has committed toward 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 the sustainable aviation fuels By 2030. And Qantas has made further commitments to emission reductions by 2030. Fuel efficiency improvements and securing up to 500 million liters per annum of aviation fuel -- 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 decarbonization the aviation industry but these methods of propulsion have their limitations. The energy density of jet fuel is about 14x greater than that are batteries, even when we take into account the inefficiency of a jet engine. This means that electric aircraft will likely be used only on small aircraft in regional flights. This is shown on the chart in the dark green area in the lower left-hand corner, indicated only a very small portion of the aviation need will be met by a 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 3,000x lower than jet fuel. Although this can be improved, of course, if it's still under pressure or required a [indiscernible] temperatures of minus 215 degrees Celsius but this adds complexity, risk and cost. It is considerable that hydrogen may play a part in the short-haul sector. So this is still reliant on revolutionary technologies that are still under development, whether via fuel cells, to make electricity on both the aircraft or via the direct combustion of hydrogen in the engines. Whilst Boeing's interest in hydrogen is limited, Airbus is planned to have its first commercial hydrogen fuel cell power plane available by 2035. Airbus' ambition is to scale this over time, 200-seat passenger plans capable of flying up to a 1,000 miles. This is represented on the slide by the lighter green area. If this capability and time on is achieved, we can see this is still only provides limited substitution of jet fuels. But we have to consider that new aircraft take 10 or more years to develop, and there are currently no long haul or 100-plus 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 1 year is about 1,800. So even if these are 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. And the challenge in New Zealand at Auckland Airport is even greater. As Ian pointed out earlier, Auckland International Airport -- sorry, let me restart again. As Ian pointed out earlier, of the regional flights only account up 6% of New Zealand's jet fuel consumption. And nearly 90% of Auckland's jet fuel consumption come from international travel, but 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. So the greatest fuels and the emissions come from a small segment of aviation, which is a long haul. And this is a segment that can be decarbonize the 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 1.3 million liter cargo of sustainable aviation fuel just last year as part of the trial being performed by New Zealand and one of our customers. Today, there are already 7 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 road map to Zero, detected -- depicted by the pie chart in the slide. This shows the sectors we're pulling all the levers to reduce emissions to reach net zero by 2050. This includes improve -- engine efficiency improvements, further development of plane technologies, electric taxiing, optimized route plans and other operational efficiencies. And despite the focus on alternative propulsion systems, IATA anticipated 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 field infrastructure, which means it's expected to be the lowest cost route for the aviation sector to decarbonize. When we talk about the 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 meet this. This can be broadly grouped into 2 classes: Biogenic SAF and synthetics SAF, and both will be needed. Biogenic SAF will bioSAF for short, is a sustainable aviation fuel that produced from organic molecules and feedstocks like fats, oils, woody residues, and municipal solid waste. The beauty of this pathway can manufacture the technology pathways are in use today. And whilst today's production volumes only make up a fraction of percent of global jet consumption. Nearly all of this is bioSAF. BioSAF does face challenges though to scale of production that requires enormous amounts of feedstock. The quantities of used cooking oil, 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 feedstock scales up. The second type of SAF shown in blue on this slide, synthetic SAF or eSAF, is produced by combining renewable green hydrogen with carbon dioxide. The Fisher Tropsch process developed during the 1920s combines a hydrogen and the carbon -- the cab dioxide to produce the hydrocarbons that have been further refined into jet fuel. With the green hydrogen being produced by the electrolysis of water, this process is also known as a 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 the [indiscernible] pre-feasibility study is looking into. And I'll talk about this project a little bit more in my next presentation. The power to liquid process does not have not have the same scalability issues that bioSAF has, but the process is very capital-intensive and manufacturing is still in infancy. We are likely to see more synthetic SAF projects being announced in the future as this technology matures. Since both synthetic SAF and bioSAF are drop in fuel, it will make no difference to our business, whether fossil get fuel substituted by 1 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 staff mandates. So SAF targets -- consumption targets, most of these were 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 put the confidence that the 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 are committed to 10% SAF use by 2030. This includes our New Zealand there many other airlines flying out of Auckland Airport. [ ANZ ] is also working with [ MBIE ] to understand what it would take to stand up a domestic SAF production facility in New Zealand. And Qantas is working with Airbus to accelerate SAF production in Australia, initially focusing on the alcohol-to-jet process using the gas as a feedstock. So this is a fact returning the waste from sugarcane and to jet fuel. Airlines are driving the demand for SAF. And since last year, we have been almost 60 new offtake agreements signed accounting for 12 billion liters of SAF demand. Most of these are for bioSAF with only 6 -- 8 offtake agreements being based on the polo-liquid process. This demand is steering 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 that the aviation industry is currently based around fossil fuels is because these are relatively low cost. Switching to lower carbon fuels will cost born 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 the ratio consistent with the capacity of the plant that [indiscernible] looking at Marsden Point. The SAF cost premium would equate to about $23 on a ticket of worth $500. And the cost impact should be small in the long term also as continued fuel efficiency improvements will mean that less fuel we need to be consumed for the same flight and as the cost of production declines as the industry scales. This cost reduction is allowed to play out the most for power to liquids, which on the chart on the bottom left -- it can be seen about 3 to 9x 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 at 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 at 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 over -- to see over time that as industry scales up and the cost of production reduces such that it offsets the increasing proportions of SAF being blended into the jet fuel pool. And hence, the impact of 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 [ correlation ]. And this has been endorsed by major global aviation leaders, including Airbus and a variety of other companies. Signatories include more than 1/3 of the global airline industry, about 95% of the global commercial aircraft manufacturing industry and almost 2,000 airports in the 185 countries. The industry anticipates continued strong growth in aviation amount 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. Only about 11% of the emissions will be abated by the usual [indiscernible] propulsion such as hydrogen and battery electric, which means that the last 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 30 to 40 SAF manufacturing plants are required globally by 2030. And if we think about the fact it take about 5 years to design and build such plants, we can see the 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 old fossil jet. But we're likely to see increasing substitution with bioSAF and synthetic SAF. So just to summarize the key points in 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 play in this world of supply chain infrastructure. And 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 flight 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 Airports, jet fuel consumption coming from long-haul travel, that can be substituted with hydrogen or electric. There will continue to be a reliance on channels infrastructure for many, many decades to come, still allow New Zealand to decarbonize whilst 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 showed a proportion of aviation that is still reliant on some form of liquid aviation fuel, whether this be bioSAF or 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. You can imagine that's an incredibly large voluminous topic, and I think you've done an incredible job summarizing that for us and half an hour. So we 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 no domestic production in the future of SAF.

Good question. So the challenge with making SAF domestically is once to produce it, you need to go to the airport. As we mentioned before, Auckland Airport is 80% of the country demand. So that's -- I want to focus your supply to Auckland Airport. We currently have a pipeline that goes from our site to Auckland Airport -- to Auckland and there on to Auckland Airport. The cost of transport as such, if you want to move material volumes of aviation fuel, you probably be want 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, we'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 liters 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 6 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 know the answer to the question. The key thing for the SK study is actually looking at the renewal energy they're going to use? Is there 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 supply is a key picture of that. To the extent that the cost of harden production drops, even I believe the American target is $1 a kilogram over 10 years. So there wouldn't be much different to what -- to the number you're talking about.

Yes, I think the key thing with this is that if that's the case and where 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 we'll up that 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 can imagine quite a bit of national interest in this as well because I think initially, it's going to be pretty difficult to get a hold of this stuff. But there's just not a lot of it around today. And production is scaling up. But Peter talked about it being 5 years to build it. So I think there will 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.

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 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 but, yes, actually, if you look at ex-refineries around the world, they are indeed being repurposed for these things. And so you would have heard me at the start, talk about that electricity connection. So I talked about the challenge with woody biomass as you've got a truck it. The nice thing about electricity is as 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. Yes. So theoretically, there's nothing about the site that would stop I mean we're getting...

Undoubtedly, there'll be size constraints on our site, right, like, because 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...

Thank you. Firstly, thanks Peter, really appreciate your time. The -- 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 indistinguish role -- indistinguished from fossil fuel jet. So if it comes in ready blended, it's just a replacement substitute of existing volumes. If our customers saw a supply chain reason to bring it in neat and then want 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 nothing to do.

Over here.

Thanks, Peter. As you say, 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 China willing to sort of support transporting SAF at a lower cost?

I think.

Yes. 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 an Jet oil, petrol or diesel as it is today. So I don't think it's our supply chain that's going to be the cost inhibitor. I think your cost inhibitor as it stands today going on that chart is that eSAF today is 3, 6, 9x more expensive than jet fuel and sure in a 1%, 2%, 3% blend the impact is low. At a 50% blend, that's a very significant impact. And so you're going to need to see significant technology advances and the production to bring that cost down and make it more competitive with you.

Obviously, if you do collaborate on some sort of ECF production on site, you will suffer scale disadvantages relative to the global players. And yet you're probably going to have to price to 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 SNF test?

Yes. So I think from our perspective, as I said before, I don't think that there's not like a whole bunch of global production available today at scale and all, in fact, anywhere. In fact, I know in terms of the project on our site, Fortescue has been using that to help build their own model for how this looks globally. We also -- so what I would say in the first instance is that there's going to 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, 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 set consumption. And if you can't get a 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 us. But I think there's a long way to go in the business case to be able to support that. But isn't it a point that means [indiscernible] by 2030.

Even if you're up and running [indiscernible]. So is that going to hit [indiscernible]. So it doesn't mean [indiscernible].

Can you talk into -- sorry, the microphone, we just need to ask. So we want to record the question.

Sorry. So I'm just sort of saying if the Fortescue model could only contribute 6% of...

3% of New Zealand's jet fuel demand...

Of New Zealand, yes, but 6% of New Zealand. So ignore the global is because they have a global target. So if you look at New Zealand in isolation. So if you gave it all to New Zealand, that 6% of the aviation these, they have a stated objective of 10% by 2030, meaning they have to input at least as much as you can make. So there is going to be global production all these aspirational targets will not be met by anybody.

Correct.

Therefore, you have to price the parity.