Commerce Commission finds lack of active wholesale fuel market is stifling competition and costing consumers more than it should at the pump

Commerce Commission finds lack of active wholesale fuel market is stifling competition and costing consumers more than it should at the pump

The Commerce Commission has found the retail fuel market “is not as competitive as it could be” as New Zealand lacks an active wholesale market.

Releasing the draft findings of the market study the Government asked it to do in December 2018, the Commission said the $10 billion households and businesses pay at the pump every year is more than it should be.

“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,” it explained.

“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.

“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…

“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.”

The Commission said signs of a lack of competition in the sector included the fact many fuel companies are highly profitable, there are regional differences in fuel prices, premium petrol margins have grown faster than regular petrol and discount doesn’t provide a substitute for competition on board prices.

It believed competition in the wholesale market could be improved by:

  • 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.

It also discussed other options in the report like improving the transparency of premium petrol prices.

“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,” said Commission Chair Anna Rawlings.

“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.”

The Commission’s draft report is open for public consultation until September 13.

It will publish a final report in early December.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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It is essential that competitors can obtain open access to the terminals and supporting logistics including the borrow-and-loan system. Access to this system should be regulated.

Agree.
All should have pathway to experience a 5plus litre pushrod V8.
Life defining!

Competition in Opotiki currently. $1:15 desiel $1:75 91. Gull just opened.

Most truck-stop diesel is around the $1.21 mark via any of the numerous fuel-card schemes out there. What consumers are paying $1.55-odd for is the attended station and the cafe..... Direct-shipped on-farm diesel is a click below, again.

Essential that the tax collected actually be spent on roads and other transport solutions. Having it disapear into the consolidated fund was a huge mistake.

Did you know that non state highways roads i.e. the majority of roads are 50% subsidised by ratepayers and road maintenance is one of the biggest expenses that local government incurs?

Roads in NZ have never been users pays.

If the externality costs of road deaths and accidents, pollution cost to health, congestion cost to businesses etc were also calculated the subsidy increases even further.

Totally ignoring of course that roads are totally essential to everything the council (and business, and just people in general do). Buses need roads, rubbish collection needs roads, Emergency services need roads, goods deliveries needs roads. Infrastructure (Phones,Water, Wastewater etc) need roads.

The constant lefty/green demonisation of roads pisses me off, let them bugger off to the bits of Great Barrier Island where the "roads" are nothing more than dirt tracks that the locals use a horse and cart to traverse or walk for 5kms up the valley and see how soon they stop their bloody whinging.

I agree roads are good. I like them. Civilisation would fall apart without them. That has always been the case. Even before motorised transport.

How does the skit go? What did the Roman's ever do for us?

I just thought it was worth pointing out that fuel taxes in no way covers the full cost of roads.

Brendan was just arguing against the common belief that roads aren't subsidised; not that they aren't important.
I would add that food and electricity are quite important too, but that doesn't mean they need to be subsidised.
Can you think of a reason why roads shouldn't be 100% paid for by users?

They are 100% paid for by users. We all pay for them, and we all use them, just some of us use them indirectly, rather than directly.

Electricity shouldn't be subsidised.. yet it is, for some.. https://www.workandincome.govt.nz/products/a-z-benefits/winter-energy-pa...

Can you think of a reason why Buses/Trains shouldn't be 100% paid for by users? (I beat you can, suddenly we have a nice double standard). And those buses are also taking advantage of those subsidised roads.. complete with dedicated bus lanes in some places. And a train station with no road near it to get people to and from the train station (often on a subsidised bus).. would be quite useless wouldn't it?

But why not charge people for the amount they use (directly or indirectly) rather then subsidise the heavy users via rates and general tax?
Electricity is subsidised for poorer people (and Winston voters) - that is quite a bit different.

Just to be clear.. you want to charge Bus and train users the full amount of providing them services as well as Road users?

Now that is a whole different kettle of fish. To remove the subsidies on public transport you would need to fully remove all of the subsidies on roads - probably by privatising the entire roading network or at least expecting a return on the massive land and infrastructure investment. That would increase the cost of driving stupendously (in Auckland at least) and make more space efficient (public) transport able to compete without subsidy. But I doubt that would be that good for the economy.

As I thought.. A double standard.

Not at all. Roading gets very high land use and environmental subsidies, public transport gets very high operational cost subsidies. If you remove one of those subsidies without the other, that mode will find it hard to compete.
However I don't see a need for roading to also get an operational subsidy. It could be more user pays than it is.

In Tokyo car parking on public streets is not allowed and is certainly not free. Cars have to pay for the land they consume. Because of this more spatially efficient transport modes are profitable. Tokyo's rail companies are very innovative, highly customer focused and very profitable.
https://medium.com/land-buildings-identity-and-values/japanese-urbanism-...

Yes, we know you hate cars and freedom.

And that has nothing to do with the Tokyo density population of 6,158 persons per square kilometer Vs Auckland population density of 1,210 people per square kilometer. I bet if Auckland population density increases to that level, there will be no car parking allowed on the central streets (or anywhere in the city for that matter) as well. With such population density, the public transport will be used to full capacity probably more than 60% of the time. Any company (public or private) who operates public transport in such an environment and yet makes a loss is surely run by monkeys.

Disappointing that it has taken so many years to actually investigate. Not surprising that it lines up with all the anecdotal evidence.

What is worse, is that we all know that it will take decades to make minimal, if any, change.

Nearing 40, I wonder if I will live long enough to see similar investigations into:
- Banking
- Insurance
- Supermarkets
- Electricity
- Rates
- Regional air travel

+building materials

Rates are obviously not competitive, but if there are issues we need to look at the people who vote in the Councillors.. ie, Us.

Power is competitive, there are plenty of providers and it is worth shopping around, pity more people don't. I must make time to review the offerings again, it been over a year since we last switched.

Supermarkets.. now there is one that needs busting. Just back from a month in Europe, and the offerings and prices over there are simply hugely better. We are getting shafted by Foodies and Progressive.

The cost of living in NZ is ridiculous. I definitely agree regarding supermarkets.

Making supermarkets more competitive for food would not be difficult. All that is needed is more public spaces where large numbers of market gardeners can sell their wares directly to the public.

There is good NZ research showing how fresh fruit and vegetable prices respond to this sort of competition.
https://blogs.otago.ac.nz/pubhealthexpert/2014/03/25/study-of-nz-fruit-v...

I agree rates aren't competitive across councils. But what do you do when the Councillors repeatedly ignore the voters?

Re Power - it is not competitive in the slightest. There are a range of providers - yes. But having worked in the industry and done a lot of research into the pricing, it is priced to create maximum complexity and therefore minimal transparency. i.e. it is the hardest thing to compare pricing for. Hourly/Daily rates, time based, location based, quantity based, demand based, gst inclusive/exclusive, "Prompt payment discounts", even the terminology is explicitly different (Controlled/Anytime/flexi)

The price comparison tools are estimates only. You really have your work cut out for you to find the actual price per unit to make a valid comparison.

I would challenge anyone/everyone. Look at your actual bill. This is what you actually pay.There are generally 3-4 charges made up of:
- uncontrolled price per unit
- controlled price per unit
- EA Levy
- Daily connection fee.
- GST

Now - Go and check with each retailer, see if you can find these explicit amounts anywhere. Most only have "How much could you save" type comparisons. The actual rates are hidden to the point of non-existence for most retailers.

Yeah, it can be a pain getting to the actual rates, but most websites cough them up after a few clicks. If they don't, then assume there is a reason and move on. When we moved into our current place i did the comparison, the difference between best and worst after taking into account prompt payment etc was ~$800/year to ~$960/year (we are pretty frugal on the electricity)

Not to hard to understand this lot (https://www.energyonline.co.nz/electricity-gas-for-home/plans-prices?pro...) once you know your metering setup (in our case we would be low user, on the controlled rate) , it say on the page Ea levy included, and GST excluded.

Oh, sneaky buggers at Contact, if you go for the bundled "discounted" broadband plan, they bump up your electricity rates.. now that is nasty.

Contact are funny - About 5-6 years ago when we left them we got offered a deal to stay with 40% discount, this still worked out 10-15% more than any other retailer, so we left anyway.

The poor CSS that rang us didn't believe me, so I gave them some details of the other providers and they looked them up, realized even with their 45% staff discount they were getting screwed.

Agreed, I'd be very interested in an analysis of food distribution and building material economics.

We need to investigate Briscoes.

Mr Orr wants inflation doesn't he? These monopolies are the way to go then, we need to encourage this behavior.

We have been letting these companies buy up the competition for years and told it was all going to benefit the consumer. Someone was telling porkies

No surprises there. I have been tracking their margin for years and over the last 5 years or so they have gone through the roof.
Something else that they/Govt/Tax dept should be looking at, is the fact that all the oil and liquid gas goes overseas and is not processed in our our refinery or blended into LPG sold in NZ. It looks very much like wealth shifting out of NZ, tax avoidance in NZ and an excuse to charge more for the products in NZ.
For example. I have been told that our LPG is shipped to Australia to blend with theirs because it is a lower quality (?). Then some of it is shipped back to us in NZ. LPG price in Australia NZ$0.92. LPG price in New Zealand NZ$1.43. What is going on?

Can't comment on LPG but Oil from NZ has a high WAX content so generally has a higher SELL price.

Used industrially while the stuff we use for fuel is a much cheaper oil.

Marsden point is much better setup for processing certain types of crude (sour crude IIRC), which is why our good crude get exported, and we import cheap nasty crude that marden point is good at dealing with.

https://thespinoff.co.nz/business/20-09-2017/nz-makes-its-own-oil-so-why...

Marsden is best suited to heavy crudes, more specifically.
Tui light sweet is about as good as it gets. We are better off exporting it and arbitraging the value.

Yes but does NZ and more especially the NZ end users benefit or do all those extra profits fly off overseas tax free into the oil company coffers. If we are making our products from a lower priced oil then that should be reflected in the price, however we seem to be paying far too much.

Let's hope the Government takes the cue - and introduces effective regulation.

That would certainly help its (declining) 2020 election prospects........

TTP

Government regulation?!
Definitely not a war on Petrol companies, too?!
The war on landlords was enough!

A blow softened by the accommodation supplement?

Rip off at the pumps again, wonder what this govt will do? probably nothing , they investigate then nothing happens , Yawn more discussion groups no action

Given the growing trajectory of our transport emissions, wouldn't policy aimed at reducing demand for their product be more sensible than policy aimed at making them more competitive?

Interesting. Do you believe petrol companies are better at reinvesting excess profits in renewable energy than consumers?
Because that's effectively what you are saying.

No it isn't. She's suggesting policy as a way of changing something that is heading to kill off lots of species, including our own. If the 'market' was capable of that, it would have done so by now - Beyond Petroleum for instance.

Okay. so you too believe that it is better to allow petrol companies to continue earning excess profits that they obviously reinvest in climate friendly activities.
Kate suggested we ignore this and focus on reducing demand for petrol (I assume) - which as you know is extremely inelastic (hence why we tax the hell out of it). I didn't at all object to this. I merely noted that it is a weird perspective to take that we should just focus on the supposedly bad behavior on the part of the consumer.

Stop worrying about being so contrary all the time and think about what you are saying.

Better competition could also come in the form of consumers have the choice of not using an internal combustion engine. EV cars, EV bikes, public transport especially of the electric variety...

Brendon - those options are all good, and indeed should be the target. The problem is that all e-vehicles are essentially dependent on a fossil-fuelled 'economy' to deliver them. It is an EROEI fallacy to think that we will seamlessly produce e-vehicles using renewable energy alone. Much as I champion same, and live on it myself, it isn't a patch on FF. So it will never be a market-driven 'choice'. The attempt to remove FF from the underwrite, will always raise tha 'price' of e-vehicles beyond 'affordability'.

So it has to be by legislation, which is spawned by policy. 'The market'- and by association, its adherents - flies totally blind. I see it as having the same effect as lying purposely.

Electric trams and trains are scalable in NZ. We used to be self sufficient in this technology and we could again. Electric bikes are another good scalable option. Micro-mobility devices also could be handy, E-scooters etc... Electric cargo bikes -some with business applications... Auckland could electrify its ferry fleet...
https://www.forbes.com/sites/jamesellsmoor/2019/08/18/the-worlds-largest...
Lots of options that would require a lower FF underwrite than electric cars.

Nobody has made the main point yet - certainly the writer hasn't.

The point is that this is a finite resource. The point is that vis-a-vis future generations, the price should be approaching infinity. And the mitigation of burning it should be approaching 100%.

Arguing for self-serving, short-term gain (whether that be 'consumers' at the pump, or those who advocate finding even more of the stuff at this CC stage) is to argue for theft from those in the future. Arguing so knowingly, goes close to being labelled fraud. Time we matured the debate.

On some timeline many (most?) resources are finite in nature from Marble to Uranium. Just because it's finite doesn't make it infinitely valuable.

I think his point is with regards to emissions and actually using FF at all. I'd like to see NZ leave all its FF in the ground - not so much for climate change reasons but for future security reasons.

We are leaving ours in the ground - and instead buying from our morally upstanding friends in the Middle East. In New Zealand we have remained flat in terms of per capita oil consumption for about 20 years, improved efficiency has just about offset our increasing consumption: https://data.worldbank.org/indicator/EG.USE.PCAP.KG.OE?locations=NZ

And there's 300 years' worth of transport energy at today's consumption rates in the Otago/Southland lignites....good buffer. Could be dug with a Large EV....

Yes, my point. Policy aimed at lowering the price and/or making the industry more competitive is short-term thinking with no regard for inter-generational well-being. FF is a finite resource - it makes no sense that this government would ban further oil/gas exploration on the one hand and then encourage further fossil fuel consumption on the other. Such a position makes me think the oil/gas ban was only virtue signalling and there was never any real concern for the underlying ethical reason for doing so.

"Such a position makes me think the oil/gas ban was only virtue signalling and there was never any real concern for the underlying ethical reason for doing so." This made me laugh. You didn't think they were virtue signalling until this??
FF is finite: of course. Oil/gas ban helps the situation? only in La La Land. Labour and Greens hoping it gets them votes? You betcha!

Wow, costing more at the pump.....

What about the gouging of 15.9% tax increase by Labour on fuel ?

What about the fact its a floating % ?

That tax is going into building roads etc. Much better use of our money than fuel companies (offshore) profits.
Floating % ? Fuel tax is a fixed amount per litre.

Its ComCom & the governments own fault. ComCom should have never allowed the Z fuel merger and the government should strengthen the competition laws. It takes 7 companies with equal market share to have a fully competitive market (HHI Index). Our fuel market is well short of that.

Best comment on this thread.
I'm glad someone else has been paying attention.
For anyone that missed it, z was allowed to buy caltex, enough said.

Well who is to blame for a lack of competition ?

We have seen the aggregation of fuel retailers to the point the retailing of fuel is a oligopoly