A two-speed fuel market appears to see some areas pay for losses elsewhere

Monday, 30 April 2018

A BP internal email revealed 'tactics' for reducing the price gap between fuel stations.

OPINION: For those who have watched the petrol industry for years, news of just how tactical the petrol companies are around setting the pump will come as no surprise.

In a way, all the email shows is that BP follows what many believe it a fundamental principle of business: charge what the market will bear.

But motorists have long scoffed at the public relations spin – the petrol companies would have us believe that they are almost powerless against global forces, with rivals constantly fighting for market share across New Zealand.

The reality is far more calculating.

* BP called to the Beehive

* Read the BP pricing email in full

BP's pricing email shows that not only will it squeeze every last cent out where it can, it will act in such a way that it is arguably feeling out rivals to see if they will do the same.

As the email shows, the tactic works: 'We have already increased all three sites mentioned by 5cpl (cents per litre) and have found that the Z in Paraparaumu has already matched our pricing.'

Does it happen elsewhere? You bet. Anyone who needs evidence only has to wander around the Wellington central business district.

Day after day, the prices are exactly the same. If one station drops its price, rivals quickly follow, sometimes within minutes of each other.

When one company raises prices, one of two things happen. Either its rivals follow suit, or, within a couple of hours, the station with higher prices drops back into line.

The petrol companies deny this happens, but at least some experts are dismissive of the industry's claims.

In 2016, the wise heads at the Commerce Commission came to the conclusion that allowing Z Energy to merge with Chevron New Zealand (which to the motorist means Caltex) would not lessen competition.

After a terse statement demanding to know how Stuff obtained an internal pricing email, BP has stayed silent.

But in a dissenting view Dr Jill Walker, a competition expert from Australia – where issues like this are arguably taken much more seriously – called the industry out for price co-ordination.

'The proposed merger would be likely to entrench that [price] co-ordination and see co-ordination occurring more completely and more quickly than it does presently.'

This wouldn't matter so much if the prices everyone was paying were fair. But New Zealand's fuel market appears to be effectively splitting into two.

In some areas, competition has led to lower prices, with strong evidence that fuel prices could arguably be being sold at a loss.

Then there are the unlucky souls who live in areas which do not have the same type of competition, who appear to be paying for struggles elsewhere. If you live around stations which sell at what is, incredibly, called the 'national price', margins appear to have climbed sharply.

Z Energy, which finds itself in the awkward position of being the only one of the major companies brave enough to communicate with the public, says the best cure for high margins, is high margins. Competition will eventually arrive.

Z Energy is also calling for the Commerce Commission to be given the powers to initiate market studies, to have a thorough look into the how the market operates.

But even if that were to happen, the competition watchdog, which has approved the industry's behaviour before, will not report for years.

The only thing we can do in the meantime is call out the petrol companies, in the faint hope it makes a difference.