Commission Encourages Kiwi Motorists To ‘Shop Around’ When Filling Up

The Commerce Commission’s first report on the performance of New Zealand’s $10 billion fuel markets shows encouraging signs of competition, and says Kiwi motorists can play an important part in further stimulating competition.

Initial analysis from the Quarterly Fuel Monitoring Report for the three months ended 30 June 2022 shows that while discounting is a prominent feature of the New Zealand retail fuel market, discounted prices do not always represent the lowest price.

Commissioner, John Small, says there is wide variation in prices between nearby fuel sites in many areas of New Zealand – “In some cases you can get a better deal simply by crossing the road to another petrol station."

“Kiwi motorists have choice, and we encourage shopping around for the best deal before filling up your tank,” Dr Small says.

New consumer information requirements that came into force in February 2022 mean pricing boards at retail fuel sites must display pricing for regular and premium-grade petrol along with diesel - that is clearly visible to motorists at the site or passing by.

Dr Small says fuel accounts for about half (almost $2,000) of annual household energy costs, so even a small difference in the price per litre could result in meaningful savings at a time when many New Zealanders are facing cost-of-living pressures.

For Regular 91, based on the average across New Zealand, the report revealed that importers' retail sites offering discounts were not offering the lowest retail price (after taking account of discounts). In some cases, independent retailers without discount programmes had the lowest retail price.

“The more Kiwi motorists are shopping for the lowest price in their local area, the more this will help drive healthy competition over time. This is an important factor in helping keep downward pressure on the price at the pump, and delivering better value to New Zealanders,” Dr Small says.

While fuel prices increased during the June quarter – driven primarily by the international price of crude oil and foreign exchange movements – the average importer margins were 32% lower for diesel and 27% lower for Regular 91, when compared with margins in 2018 when the Commission carried out its market study into the retail fuel sector.

Dr Small says falling importer margins are usually a positive indicator that competition has intensified but further analysis in subsequent periods will give a better indication of whether the reduction has been sustained over time.

“We expect to build a more robust picture of how competition is evolving over time as more data becomes available and is published in future reports.”

Information on the wholesale market shows that it remains almost entirely based on contractual sales, with Terminal Gate Price (TGP) sales accounting for only 0.01% of all wholesale trade. This indicates that a liquid wholesale spot market has not yet developed although there are positive signs TGP prices are being used as a reference point. Our initial review of wholesale contracts has found that at least one-quarter of contracts do contain clauses which incorporate TGP as part of a pricing methodology.

Dr Small says while it’s too early to draw conclusions, there “appear to be large differences between New Zealand Terminal Gate Prices and those in Australia and also between Terminal Gate Prices here and wholesale contract prices."

Future monitoring could look more closely at why TGPs in New Zealand were higher than expected.

Dr Small says, as competitive conditions and retail prices likely vary across the country, the Commission intends to also undertake further analysis of prices and discounts at the local and regional level. This may include a wider range of fuel retailers such as independent retailers.

Background

Fuel Industry Act 2020
The Commission’s monitoring regime was introduced following the first competition study carried out under Part 3A of the Commerce Act 1986. In its Market Study into the retail fuel sector report, published in 2019, the Commission identified shortcomings in the competitiveness of fuel markets in New Zealand. In particular, the absence of an active wholesale market and poor consumer information at the pump.

In response, the Government established a regulatory regime aimed at promoting competition in fuel markets for the long-term benefit of consumers. The Fuel Industry Act 2020 and related regulations came into effect in stages. The requirement to publish TGPs took effect on 11 August 2021. Requirements relating to fixed wholesale contracts also came into effect on 11 August 2021 (for new contracts) and 11 August 2022 (for all contracts, including those entered into prior to 11 August 2021).

Importer Margins
Importer margins are the difference between retail prices and the cost of importing fuel into New Zealand. Importer margins cover domestic costs of operating terminal storage facilities, distribution costs such as trucking and pipeline costs, and retail costs, as well as aggregate importer, wholesale and retail profit margins.

Commerce Commission’s role
The Commission is responsible for enforcement of the obligations of fuel industry participants under the Act. We monitor compliance with the requirements of the Act, investigate potential non-compliance, and take enforcement action where appropriate.

Where we have concerns about potential non-compliance, we may investigate. If we consider a breach has likely occurred, we will apply our Enforcement Criteria to select from a range of enforcement responses. One response is to seek pecuniary penalties against industry participants in the courts.

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