New Zealand fuel market financial performance study: a report to the Ministry of Business, Innovation and Employment

29 May 2017

The Ministry of Business Innovation and Employment undertook a Fuel Market Financial Performance Study. A group of external consultants comprising NZIER, Grant Thornton and Cognitus Economic Insight undertook the Study on the Ministry's behalf. The study was undertaken following concern that a trend of steadily rising importer petrol and diesel margins since 2008 may indicate that retail customers in New Zealand are not paying reasonable prices for petrol and diesel. The study was also prompted by the emergence of significant retail fuel price variations between regions in New Zealand.

The study’s primary conclusion is that “we cannot definitely say that fuel prices in New Zealand are reasonable, and we have reason to believe that they might not be.” The study also found:

  • Gross retail margins (defined after discounts, transfer price, and storage, and handling and logistics costs) have increased significantly in the last five years, which is generally reflected in the data MBIE publishes.
  • Retail gross margins in the South Island and Wellington have increased at a faster rate than margins in the rest of the North Island. This could mean fuel prices in the North Island are subsidised by prices across the rest of the country (but the report is not definitive).
  • Capital expenditure, such as port upgrades, could have potentially explained the increase in fuel margins, but the study found the capital expenditure that has occurred does not explain the difference in fuel margins. Also, if capital expenditure was focused in the South Island, that could potentially have explained differences in North and South Island prices. However, this hasn’t been seen either.
  • In comparison, gross margins for fuel not sold to the public, for example in aviation or to commercial road users like trucking, have been flat or are declining.
  • There are parts of the market that we need to look at more closely to make sure the market is as competitive as it can be.

The report has made a number of recommendations for further action. The main recommendation is that Government carries out further inquiry into:

  • Aspects of the market that might be helping margins rise, but that couldn’t be looked at here (e.g. contracts for independent firms to access terminals around the country); and
  • The reasonableness of prices, using data that companies should be able to provide on a consistent basis (i.e. price and volume data).

The report also recommends certain changes to the market that should be considered. These are:

  • The removal of Z Energy’s Main Port Price (MPP), a national reference retail price, from its website;
  • The creation of a registry for the borrow and loan system that limits each participant’s visibility of other participants’ market shares; and
  • Giving consideration to the creation of a liquid wholesale market for retail fuels.
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