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freitasm

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#255596 20-Aug-2019 08:35
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Just received:

 

The Commerce Commission has identified several factors it considers are affecting competition in New Zealand’s retail fuel market, which may mean consumers are currently paying higher pump prices for petrol and diesel than could be expected in a competitive market.

 

In December 2018, the Government asked the Commission to undertake a market study into the factors affecting competition for the supply of retail petrol and diesel used for land transport in New Zealand.

The Commission’s draft findings released today are preliminary and subject to consultation, with its final report due to be published in early December.

“Fuel purchased at service stations and truck stops accounts for about 98% of the petrol and 73% of the diesel consumed in New Zealand, at an annual cost of more than $10 billion. For many families and businesses fuel is a significant weekly expense and there has been public concern for some time that pump prices may be higher than they should be,” Commission Chair Anna Rawlings said.

“Our current view is that the fuel market is not as competitive as it could be.”

Our reasons for this include:

 

  • Many fuel companies are highly profitable
  • Regional differences in retail fuel prices reflect variations in competition levels
  • Discounting does not provide a substitute for competition on board prices
  • Premium petrol margins have grown faster than regular petrol.

“Our preliminary findings suggest that many fuel companies are earning returns on investment that are higher than what we would consider a reasonable return to be. In our view, the problem is the lack of an active wholesale market in New Zealand.”

Z Energy, BP and Mobil (the majors) currently have a series of infrastructure sharing arrangements that date back to before the fuel market was deregulated in 1988. This includes allocated use of the Marsden oil refinery, a fuel pipeline to Auckland and a coastal shipping operation, with supporting logistics, which transports refined fuel to a network of storage terminals at regional ports.

These same firms use this joint network to supply 90% of the nation’s petrol and diesel, either through their own branded service stations or via other distributors or resellers on exclusive long-term wholesale supply contracts.

Without access to the majors’ shared network or the wholesale market, any new importer faces the challenge of establishing its own stand-alone supply chain, at considerable expense. The alternative is to convince existing distributors to switch from a major to their supply.

“The majors’ joint network gives them a significant advantage over any other potential rival importers, as their costs to deliver fuel are lower. They also have long-term supply relationships with their resellers, most of whom have only ever had the same supplier, which has made it very difficult for competitors to enter or compete more vigorously in the market,” Ms Rawlings said.

“Not only have other fuel importers been unable to access the wholesale market, but the majors themselves have limited incentive to compete with each other during the terms of their supply contracts. As a result, competitive pressure does not appear to be driving down wholesale prices in New Zealand.

“This then flows through to retail pricing where competition is inconsistent and often constrained by the wholesale price resellers pay the majors that supply them. While Gull has had a positive impact in reducing prices for consumers in areas it operates, it is also incentivised to maximise its own profits and can do so with little threat of further competition driving prices down.”

The Commission has outlined some options it considers could improve competition. There are two broad sets of options it thinks may have the potential to help create a competitive wholesale market. These are:

 

  • Greater contractual freedom to make it easier for resellers to switch between suppliers; and
  • Enabling wider participation in the majors’ joint infrastructure, notably the shared terminals and supporting logistics involved in their borrow-and-loan system.

Further options, including improving the transparency of premium petrol prices, are discussed in the draft report.

“The options we are considering in the wholesale market are not quick fixes, but may help to open up the market and improve competition over time. We particularly want to test their feasibility with fuel companies and other experts, and gauge whether there may be other options that could help competition,” Ms Rawlings said.

The draft report reflects the Commission’s current thinking and analysis. It will now test its findings and the options under consideration through public submissions and a conference.

Comments on the draft report are due by Friday 13 September. The conference will be held in central Wellington from 24 to 27 September, with only the first day likely to be a public session that will be open to the media (subject to space). Post-conference comments are to be received by 11 October.

 

LINK TO REPORT.

 

 





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BarTender
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  #2302113 20-Aug-2019 08:38
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Ping @sbiddle for your blog post about this.




Oblivian
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  #2302157 20-Aug-2019 09:34
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Z Energy, BP and Mobil (the majors) currently have a series of infrastructure sharing arrangements that date back to before the fuel market was deregulated in 1988. This includes allocated use of the Marsden oil refinery, a fuel pipeline to Auckland and a coastal shipping operation, with supporting logistics, which transports refined fuel to a network of storage terminals at regional ports.

 

It's in print now, so hopefully more people come to realise what I've struggled to explain to others previously. There should be a variance buffer due to this, multiple per week/same-day pricing adjustments should be less than we see


nickb800
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  #2302187 20-Aug-2019 09:50
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Oblivian:There should be a variance buffer due to this, multiple per week/same-day pricing adjustments should be less than we see

 

 

Could you elaborate on this please? Do you mean that the retail price should be related to the price of fuel when it was put on the boat at Marsden Point, rather than daily movements in crude prices?




kobiak
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  #2302278 20-Aug-2019 10:38
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Did they mentioned $1.16 is been a tax of $2.15 cost of 91 in AKL? But yup, it must be petrol corporation driving cost up faster than expected.





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Oblivian
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  #2302279 20-Aug-2019 10:43
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nickb800:

 

Could you elaborate on this please? Do you mean that the retail price should be related to the price of fuel when it was put on the boat at Marsden Point, rather than daily movements in crude prices?

 

 

I don't know what it should be based on. But likely shouldn't be on 1 sole reasoning like is usually given and vary so many times in a short space.

 

Same way we were all quick to point out the failures those 'boycott x station' promotions as you'll likely go the next day anyway and the stuff in the ground would likely be the same stuff that was there on boycott day. And didn't suddenly change price or get replenished at a different rate. One would expect the bulk purchase/replenishment of what's already in the storage worked similarly with some room to move.

 

Way I observe it is there's points where tiny fluctuations could level out, and not be adjusted 1 day due to 'high crude', Only to be lowered 2 days later. (They did that here last thur or friday). And then bam, 25c discount at the pump today. If crude was effecting the margins that much, you would think the 10-20c discounts during high times would be putting franchisees (or the resellers of said bulk) out of business. As Sbiddle finds it's pretty much a given there is a 6c inflation to allow for discounting - that in itself should leave allowance to absorb some 48hr 2-4c changes we see

 

Then there is the Raw product - Crude pricing (believe ours is blended from multiple sources, not just 1) - likely purchased and shipped at particular set amount and pricing rather than rolling?. Everyone likes a bargain and tend to shop around to ensure profits maximised. Surely our suppliers are no different.

 

Refined product - likely not a constant flow of product in/out - as production rate is used as a tool to shift pricing using supply/demand and absorb some of the raw cost fluctuations.

 

Bulk storage - There is legislations about requiring suppliers to have adequate volumes http://www.legislation.govt.nz/act/public/1981/0012/latest/whole.html - seen when the pipeline was busted in AKL how pricing adjusted to change demand and it had to be prioritised and moved around the country between storage facilities.

 

And then individual level of storage at pump based on prior factors. 

 

Understandable if you purchased 3 months worth of raw product today, at todays price. Refined it tomorrow, consumed it all, And then had to replenish the next and it's now 20% more costly. But would expect with so many storage points and flow adjustment (can't really predict consumption at the refinery based on retailer specials enticement) along the way 2-3 day pricing adjustments are... odd.


Oblivian
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  #2302280 20-Aug-2019 10:47
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kobiak:

 

Did they mentioned $1.16 is been a tax of $2.15 cost of 91 in AKL? But yup, it must be petrol corporation driving cost up faster than expected.

 

 

Flick open a national map sometime.. Even with that nasty tax ya'll are somewhat better off with proping-up. Further south is $2.20-$2.25 unless there's some strange local voodoo going on (like my local township where it goes from 2.15 one day due to the self-serve to 2.05 + 6/10c AP discount the next)


wellygary
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  #2302284 20-Aug-2019 10:52
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Basically they have produced a report that pretty much repeats exactly what the last fuel report in 2017 concluded, "the majors are vertically integrated, are making heaps and keeping out any real wholesale competition"

 

Now the government won't/can't  do anything until it gets the final report in December, at which point it will then have to run a whole lot of industry consolation over what actions to take [ its pretty clear that everyone expects "wholesale terminal gate pricing" to be enforced] 

 

But the majors will argue that things like the new Timaru Terminal will free the south Island free from any market dominance, and we should wait and see what difference it makes,

 

They will then lower the NI margins slightly and argue that there is no need to regulate..... 

 

 

 

My conclusion... not much will happen this side of 2021

 

 

 

 

 

 

 

 


 
 
 

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Geektastic
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  #2303000 21-Aug-2019 13:14
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The fastest way to drop the price is to make RUCs apply to all fuel.





networkn
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  #2303003 21-Aug-2019 13:17
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Geektastic: The fastest way to drop the price is to make RUCs apply to all fuel.

 

Including electric vehicles!

 

 


wellygary
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  #2303005 21-Aug-2019 13:24
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Geektastic: The fastest way to drop the price is to make RUCs apply to all fuel.

 

Under the current RUC rate for light vehicles,  anyone with a car that uses less than around 7.5 litres/100km would end up paying more road tax under RUC - ( its why small diesel cars make no sense in NZ)


nzkc
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  #2303013 21-Aug-2019 13:48
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wellygary:

 

Geektastic: The fastest way to drop the price is to make RUCs apply to all fuel.

 

Under the current RUC rate for light vehicles,  anyone with a car that uses less than around 7.5 litres/100km would end up paying more road tax under RUC - ( its why small diesel cars make no sense in NZ)

 

 

Doesnt that then confirm this approach would be a fairer system for all?

 

And obviously the rates can be rejigged if needed.


sbiddle
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  #2303032 21-Aug-2019 14:24
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BarTender:

 

Ping @sbiddle for your blog post about this.

 

 

All I will say is people need to be careful sometimes about what they're wishing for.

 

As already mentioned this report is already very similar to the one done a few years ago. The PM is basically telling porkies saying she can fix things.. Because she can't.

 

I've been saying for years the fuel companies are ripping us off, but I also fundamentally disagree with the bold statements made by media that there is no real competition in the NZ fuel market. There is intense competition between the big players, and the fact we see significant regional discounting is proof of this.

 

What is broken is the loyalty systems and the fact you can't pay the "true" price of petrol without big data knowing your habits. This is wrong.

 

Oh and has anybody asked the AA how much per year they make in profits from AA Smartfuel? (Their annual report details this).

 

 


evnafets
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  #2303049 21-Aug-2019 14:43
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sbiddle:

 

Oh and has anybody asked the AA how much per year they make in profits from AA Smartfuel? (Their annual report details this).

 

 

Ok, I'll bite.

 

How much per year does the AA make in profits from AA Smartfuel?

 

In 2017-2018 report I see they say "$63 Million in discounts earned by AA members"

 

but that probably isn't what you are referring to, and I can't see where "Smart fuel revenue" is mentioned in their financials. (Admittedly I haven't read it deeply)

 

Does it fall under "joint ventures" somewhere?

 

 

 

 

 

 


BarTender
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  #2303058 21-Aug-2019 14:57
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sbiddle: .... as expected BiddleCorp bleat.....

 

I'm surprised you lasted this long before posting, and haven't posted a snipping from the AA annual report.


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