Study finds fuel prices may not be reasonable

The Fuel Market Financial Performance study, commissioned by the Ministry of Business, Innovation and Employment following public pressure regarding petrol prices in New Zealand has found that prices may be unfair, although constraints of data meant the report was unable to reach a definite conclusion. The 118-page report gathered data from major fuel companies, including BP, Mobil and Z Energy, and some information from independent company Gull and industry participants, such as suppliers. Analysts sought to conclude whether fuel prices were reasonable, what regional factors could explain nationwide disparities in price, and if there was any evidence of cross-subsidisation between the product and the market. “We can indeed identify features of the New Zealand fuel industry possibly giving cause for concern that consumers are not as well served as they could be,” the report said, “but with the information and time available it has not been possible to be more definitive, nor could we assess whether the benefits of all of those measures exceed their costs.” “This causes us to conclude that we cannot definitely say that fuel prices in New Zealand are reasonable, but we have reason to believe that they might not be.” Data collected from the industry found that retail gross margins have increased significantly during the period studied, and in some cases, the Return on Average Capital Employed (ROACE), had doubled between 2012 and 2017. A weakening competitive intensity, a shift towards greater product differentiation and a rise in independent retailers were cited as the most likely causes for this rapid increase in price, and the report suggested several methods to mitigate this rise, including the removal of Z Energy’s Main Port Price on its website, and a possible liquid wholesale market in selected regions. Regional pricing was also singled out, and the report found a lack of competition was most likely to blame for high margins in Wellington and the South Island, and that a new competitor would struggle to enter the market due to low population density and high distribution costs. “This is a very complex area and the Study takes us a significant step forward in our understanding, said Energy and Resources Minister Judith Collins. “I have now instructed my officials to assess the recommendations of the Study and report back to me by November.” Collins thanked Z Energy, BP, Mobil and Gull for participating in the study.