Quarterly Fuel Monitoring Report Quarter Ending June 2024

Wholesale prices and components

Breakdowns of the components of contracted wholesale prices and trends over time are shown in figures 1 to 3.¹¹

Wholesale margins are a useful metric to monitor the performance of the wholesale market as they can act as an indicator of either increased or reduced competition. A reduced wholesale margin can indicate an increase in competition whereas increases in the margin can indicate reduced competition, assessed over the medium- to long-term. The wholesale margin is the difference between the cost to the importers of purchasing and landing fuel into New Zealand (importer costs) and the price (less taxes and charges) that importers receive for the fuel sold to wholesale customers.

Wholesale customers

Below, we focus on dealers and distributors as well as multi-sourcing of fuel supply. Approximately 80% of wholesale volumes sold by importers are to dealers and distributors. Typically, distributors are able to source their supply from more than one importer, whereas (with rare exceptions) dealers purchase from a single supplier and have no option to source from multiple suppliers.¹² Sourcing fuel from more than one supplier can promote competition as wholesale customers can negotiate with multiple suppliers, potentially giving them greater leverage to obtain lower prices. The Regulations provide that no single contract may require a reseller (other than dealers) to purchase more than 80% of their fuel requirements from any one supplier in a year.¹³

We monitor any supplier switching and multi-sourcing taking place over time to provide insight on the impact of the Act and Regulations on the wholesale market.

For a breakdown by different customer types (dealer, distributor, commercial end user and importer), see Table 10 for wholesale prices, and Table 11 for sales volumes.

For a breakdown of the components of the wholesale prices for dealers and distributors showing importer costs and wholesale margins, see Table 12 for Regular 91, and Table 13 for diesel.

Terminal gate pricing

The terminal gate pricing regime under the Act was introduced to work together with the wholesale contract regulations to create the conditions for a more active wholesale fuel market in New Zealand. To achieve more transparent wholesale prices, the regime requires wholesale suppliers to post a TGP for each fuel type that it has the right to draw at a bulk storage facility.¹⁴ See Attachment B for further information on the regime and our approach to monitoring TGPs.

While we have not seen a significant number of ad hoc TGP sales since monitoring commenced, the TGP regime has a role in promoting competition by providing a publicly visible reference point that is used in a portion of the importers’ wholesale contracts with their customers. The regime could also incentivise spot sales under existing contractual arrangements (rather than being formally sold under the TGP regime).

Our analytical focus is to compare TGPs with importer costs and wholesale contract prices (rather than retail prices), as any movement towards these reference points could lead to more competitive outcomes, such as lower retail prices.

Additionally, Australian TGPs are used as a reference point for what we might expect a workably competitive TGP market to look like. When comparing TGPs in Australia and New Zealand, we have removed the taxes that apply in each country to ensure a consistent comparison and have converted the Australian TGPs into New Zealand dollars.¹⁵

TGPs are the average for the quarter or month of data presented (shown as the average for the supplier or sometimes for New Zealand or Australia). The Australian TGP data covers the seven main port locations in Australia. The ‘New Zealand average range’ is the range of average TGPs by supplier as shown in Attachment B.

Retail prices and components

Breakdowns of the components of the retail board price and trends over time are shown in Figure 8 to Figure 10 below.^{19 20}

The importer margin is the difference between the retail board price (less taxes and any discounts) and an importer’s cost to land fuel in New Zealand. Importer costs are those reported by MBIE.²¹

Discount and loyalty programmes

We monitor discounting practices, as discount and loyalty programmes can soften board price competition. Their use can create ‘customer stickiness’ to a brand and can focus consumer attention on the level of discount offered, rather than on the actual price paid for fuel. This may reduce the likelihood that a consumer will shop around for the best deal. The resulting lack of mobility could have a negative impact on competition and limit the benefits to consumers.

A number of importers offer discount and loyalty programmes, which provide discounts off retail board prices using both cards and supermarket dockets, eg, Everyday Rewards, Airpoints, FlyBuys, Mobil Smiles, Z Pumped, PAK’nSAVE, and Foodstuffs (PAK’nSAVE and New World). The average level of discounts for each quarter is estimated using information disclosed to us, including revenue, volumes sold and retail board prices.

Retail price variation in New Zealand

Retail price variation is calculated as the daily difference between the most and the least expensive site for each fuel type in a city, averaged over the quarter. The retail prices are discounted by average discounts, and exclude the Auckland regional fuel tax before June 2024. Premium grade includes Premium 95 and Premium 98. Military sites are excluded from the analysis.²²

Our approach to monitoring TGPs

Over the last quarter, we have continued to monitor and compare the TGPs offered by each importer at the different terminal locations around New Zealand. We are building a picture of performance as more data becomes available over time.

In our analysis of TGP levels in New Zealand, we currently use several reference points to provide an indication of whether TGPs are at a level we would expect to see in a workably competitive market. These include:

• importer costs (the cost of importing fuel into New Zealand),
• fixed wholesale contract prices,
• retail prices,
• TGPs in Australia (noting that Australia has a more mature regime with greater terminal competition).

In our view, these provide useful and relevant points of reference and shed light on the progress of New Zealand’s TGP regime for the following reasons:

• Importer costs: the costs of supplying fuel at the terminal gate are comprised of a number of components, including the cost of importing fuel into the port at which the terminal is located, as well as the costs associated with building and operating the terminal facility. For the purposes of our monitoring, we have used MBIE’s importer cost series as a reference point, although we note that terminal-related costs are not included.²⁶
• Fixed wholesale contract prices: wholesale contract prices are another reference point for TGP analysis. While these prices are based on similar costs to TGPs for the importers, wholesale contracts assure supply and, therefore, wholesale contract prices are lower than TGPs on average, as we would expect. However, the difference between wholesale contract prices and TGPs (the TGP premium) in New Zealand is larger than what is observed in Australia. Wholesale contract prices and TGPs in Australia are much closer than those in New Zealand.
• Retail prices: a comparison of TGPs with retail prices may reveal whether TGPs leave sufficient margin from retail board prices for an efficient competitor to compete.
• TGPs in Australia: we have also compared TGPs in New Zealand with TGPs in Australia, where there is a more mature TGP regime and greater terminal competition. As discussed below, we have made a number of adjustments when comparing TGPs in Australia and New Zealand, to take into account differences in taxes in each country.²⁷

TGPs that are closer to importer costs and wholesale contract prices in New Zealand, as well as Australian TGPs, are likely to enable TGPs in New Zealand to be a more viable option for potential purchasers of fuel.

TGPs by wholesale supplier