Fuel prices: why we pay more

The price of fuel on the Hibiscus Coast has become a bone of contention, with drivers taking to social media in large numbers to ask why prices are consistently higher here.

There are also concerns that despite having four competing fuel companies to choose from locally, there is little difference in their prices.

Observations in recent weeks, and prices recorded all on the same day from a range of fuel companies, here and in surrounding areas, appears to lend weight to those claims (see chart, below).

The variation in prices is not dramatic, but on the day of our survey it was possible to pay around 19c less per litre for 91 octane and 31c less per litre for diesel at locations outside the Coast.

At $1.82/litre, which was the cheapest on the Coast for 91 octane on the day of our survey, you would pay around $91 to fill a 50 litre tank. If you travelled to Oteha Valley Rd in Albany to fill up with 91 octane at Mobil, you would pay $81.50. For diesel, the comparison is $54 to fill up on the Coast, compared with the $38.50 you’d pay to do the same at Z Energy in Birkenhead.

Having seen the figures from our survey, car review website dognandlemon.com editor, Clive Matthew-Wilson, describes the situation as “a cosy arrangement” for local suppliers.

“Oil companies will charge what they can get away with,” Mr Matthew-Wilson says. “Cartels are strictly forbidden under the Commerce Act, but the actions of the Hibiscus Coast stations are worrying,” he says.

It’s a statement that the fuel providers strongly deny. BP communications manager Shelley Brady says that the company independently changes prices to ensure competitiveness. “This can lead to price similarities, or variations, even within similar geographies but that’s the nature of competition,” she says. “We have a national price for our company-owned stores, but in some areas there is heavy discounting. While we try to be as competitive as possible, unfortunately we can’t always match or sustain heavy localised discounting.”

Chevron NZ spokesperson Jeremy Clarke says its independently-operated Caltex retail service stations determine the final price based on the market they operate in, and their business considerations.

Z Energy spokesperson Jonathan Hill says the similar prices charged locally are an example of “straight competition”. “People complain when prices are wildly different and also when they’re the same, so sometimes you can’t win,” he says.

He says that the company watches its competitors’ pricing closely, matching any discounts as well as leading its own discounts and ensuring it is “on the pace and competitive with prices”.

“We are also the only company that discloses how much we make per litre of fuel – that’s approximately six cents per litre of profit,” he says.

A factor that is currently being watched closely in the industry is Z Energy’s proposed purchase of Caltex owner Chevron NZ, which would effectively hand Z Energy control over almost half the retail fuel market. The proposal is currently before The Commerce Commission.

Consumers urged to shop around

The Automobile Association’s (AA) senior policy analyst, Mark Stockdale, says that shopping around for petrol is the smart thing to do. “If locals are travelling into Auckland, take advantage of those lower prices,” he says. “No one needs to pay pump price for fuel using loyalty schemes like AA Smartfuel and supermarket vouchers.”

He describes prices on the Hibiscus Coast as close to “the national price”, commonly charged in the main centres (as at April 21, this was $1.87.9 for 91 octane and $1.08.9 for diesel). “We’d be concerned if they were charging above those prices, but it doesn’t appear they are,” he says. “The perception is that it’s a cartel, but it’s important to understand that the costs for those companies are all the same too. Ideally they prefer to charge the same price everywhere because that’s the type of business they run. It’s similar to supermarkets and electricity suppliers – there are specials on some goods, but the price of milk is fundamentally the same.”

Both Mr Stockdale and Mr Matthew-Wilson say that the entry of Gull (which Mr Stockdale describes as “The Warehouse of the fuel industry”) to the local market would have an immediate impact on prices. Mr Stockdale says this is called “the Gull effect”.

“A really good example is Masterton,” Mr Matthew-Wilson says. “Gull forced the prices down so low that you can sometimes get petrol in Masterton cheaper than in Wellington, despite the market being much smaller. This outraged quite a few Wellingtonians.”

Gull keeps its prices down through lower overheads (a lot of the stations are unmanned) coupled with a different supply chain and cheaper product. Gull currently has 15 sites in Auckland, with the nearest to the Coast being Albany, Greville Rd and Kumeu. There are two independent Gull stations in Warkworth.

Its national retail manager Graham Stirk says that the consent process is underway for Gull to build stations on the Hibiscus Coast. While Mr Stirk will not reveal where exactly the two sites are located, he says that subject to consents they may start breaking dirt on one of them in two to three months, with the other not far behind.

“What drivers on the Hibiscus Coast need is Gull,” Mr Stockdale says. “You will definitely see lower prices and more price competition.”

How pump prices are made up

Key factors in fuel prices are the price of refined fuel on the global market, the cost of refining, storing and transportation, the exchange rate (as all of NZ’s fuel and oil is imported) and tax (approximately half the total cost).

The TransportBlog, hosted by the Greater Auckland advocacy group, points out that another significant factor is the importer margin, which has risen steadily in recent years.

The Transport Blog states that from 2004 to 2010 the average importer margin was around 15c per litre. Since that time the margin has crept up significantly to be just under 40c per litre, an increase of more than 100 percent. “Is it realistic for the fuel companies’ operational costs to have doubled over a four year period?” the blog asks.

Clive Matthew-Wilson says that the increase in importer margin is an issue nationally. “When the price of crude goes up, the oil companies raise their prices. However, they generally don’t lower them as much when the prices fall,” he says.

The AA provides information on fuel pricing at aa.co.nz.