Fuel market study raises pricing concerns


A study into New Zealand’s retail fuel market confirms that it has features which “may not be consistent” with a workably competitive market, Energy and Resources Minister Judith Collins says.

The study found that retail fuel margins have increased “significantly” over the last five years while fuel margins for aviation and commercial road users have been flat or falling.Optimized-image_5419

It also found that higher petrol prices in the South Island and Wellington are not explained by higher costs in those areas.

“There were difficulties in comparing the information received from the companies, and some very specific information that was required could not be obtained.

“As a result, the study doesn’t definitively answer whether fuel prices are reasonable or not.

“However, the report does 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.”

“This is a very complex area and the study takes us a significant step forward in our understanding.

“I have now instructed my officials to assess the recommendations of the study and report back to me by November.

“Furthermore, the Market Studies powers announced recently by the Minister of Commerce and Consumer Affairs will give the government the option to direct the Commerce Commission to undertake a further competition-specific fuel market study, backed by the ability to require comparable data across companies.

“There is currently no legal mechanism to do this.”

The fallout from the study has been immediate, with Z Energy shares dropping 3.6 per cent to $7.61 in the first hour of trading following an 8.7 per cent gain last year.

Wellington-based Z Energy said it had removed its main port fuel price (MPP) from its website, one of the recommendations made by the study.

The company said it had offered to provide the Ministry of Business, Innovation and Employment with more data, including daily pricing.

The report found retail gross margins on fuel have increased significantly over the period under review, between 2013 and 2017.

Fuel companies make the highest margins in Wellington, at around 31 cents per litre, with South Island margins about 30 cents per litre and North Island margins about 21 cents per litre.

The report recommends government examine the issue further, including contracts for independent firms to access terminals around the country.

It also recommended that government review the reasonableness of prices, using price and volume data that companies should be able to provide on a consistent basis.

Potential changes suggested include a registry to prevent major companies from seeing their competitors’ market shares and the possible creation of a liquid wholesale market.

The Fuel Market Financial Performance Study, MBIE summary of the study and the Cabinet paper are available here.