What we are paying for when we buy petrol

Tuesday, 21 May 2019

Taxes account for more than half the price we pay at the pump. (Video first published in May 2019)

The Commerce Commission says consumers are paying too much for petrol.

A draft report on the price of retail fuel was released on Tuesday by the Commerce Commission, which said fuel companies appear to be pocketing more than it would consider a 'reasonable return' in a 'competitive market'.

In the March 2019 quarter, New Zealand had the third highest pre-tax premium petrol and diesel prices in the OECD, the report says.

Two factors are at play. Firstly, the infrastructure network that the oil majors, Z Energy, BP, Mobil have gives them an advantage over current and potential fuel-importing rivals, and secondly, wholesale supply agreements between the majors and their resellers reduces competition, the report says.

The national average price for a litre of 91 octane petrol is $2.13, 95 is $2.30 and 98 is $2.35.

Average prices for a litre of 91 across the country this week vary as much as 26c, with the West Coast paying $2.302, while in the Bay of Plenty, consumers pay $2.039.

Collectively, Z Energy, BP, Mobil and Gull control the supply of fuel to more than 1,300 retail sites under 20 different retail brands, either directly or indirectly through a distributor or reseller.

In the March 2019 quarter, New Zealand had the third highest pre-tax premium petrol and diesel prices in the OECD, a new report from the Commerce Commission says.

* More pain at the pump, but help looks like it's heading south

* Drivers told to expect more pain at the pump as petrol prices rise**

'The market is nervous and so the commodity price is being talked up, and we're wearing the brunt of that at the pump.'

Geopolitical uncertainty and exchange rates frequently drive the price of petrol up and down.

Gull led fuel prices down in the North Island at every location it opened a service station.

Here's what goes into the price we pay at the pump.

The (AA) says about half of a litre of petrol is tax. This includes a 31 per cent excise (a dedicated tax on fuel), and a 3 per cent levy for an emissions trading scheme. In Auckland, there is also a 10 cent regional fuel tax.

The fuel excise goes into the National Transport Fund, which pays for things like roads and policing.

GST is added to the price of petrol, after the excise, which the AA argues is a tax on tax. That adds 10 cents to the price of a litre of petrol.

The cost of the actual fuel makes up 32 per cent of the total price.

The fuel companies add an 19 per cent 'importer margin' which covers their overheads, including things like transporting the fuel from the ports to the service stations, wages, marketing and a profit margin.

Shipping the fuel to New Zealand is just 2 per cent of the cost total cost.

So why does the price of petrol change depending on where you are?

The price of petrol can vary by as much as 20c a litre, even in the same city. This is sometimes called the Gull effect. Here's why.

Petrol is dominated by four big fuel companies, BP, Mobil, Z and Caltex, which owned by Z.

But Gull, an Australian-owned fuel retailer that sells through un-manned stations with a no-frills set up, has slowly spread across the country providing a cheaper option.

Typically when Gull sets up shop in an area, the surrounding majors drop their prices to compete.

Other cut-price fuel companies like Waitomo in the North Island, or Nelson Petroleum and McKeown in the South Island, have a similar effect on prices in areas where they compete.

But Gull and Waitomo, the two largest no-frills petrol brands only operate in the North Island to date, and until Waitomo opened in Upper Hutt in May, were not operating in Wellington either.

This has led to Wellington and the South Island generally paying much more for fuel than much of the North Island.

Both Gull and Waitomo have announced plans to expand in Wellington and the South Island.

Last year a leaked email revealed the industry's pricing behaviour, showing that BP planned to stem its losses at its Otaki station, hoping rivals would follow suit.

It appeared that South Island and Wellington prices were being pumped up to subsides losses from the effect of no-frills competitors elsewhere.

In December, the Government decided the retail fuel market's competitiveness should be investigated by the Commerce Commission over fears that motorists were being 'fleeced' at the pump.

CHEAPEST 91 PETROL (On Tuesday, August 20)

Caltex Bridge Street - $1.757

Gull Opotiki - $1.757

Caltex Opotiki - $1.759

Mobil Opotiki - $1.759

Gull Speedlane Te Ngae Rd - $1.917