By Gavin Evans
Sept. 26 (BusinessDesk) - Owners of new fuel storage may have little to gain from joining the shipping and product-sharing arrangements of the major players, the Commerce Commission has been told.
The system the three major firms – Z Energy, Mobil and BP - use for borrowing and lending fuel around the country and coordinating fuel deliveries from the Marsden Point refinery with their own product imports is complex and takes a lot of work, BP told the commission yesterday.
While it does provide efficiencies, the arrangements were established to optimise deliveries from Marsden Point around the country. As such, shipping costs at times can be higher than for firms like Gull, which operates a single terminal at Tauranga and has generally pays less for shipping as a result.
Nicola Law, Z Energy’s integrated supply chain manager, said the firm is against changes that would reduce the efficiency of the refinery. And she said the commission’s proposal – intended to give smaller firms more equal access to fuel infrastructure around the country - could be achieved as effectively by making fuel providers offer wholesale prices at their terminals – another option the commission is considering.
Maurice Bone, BP’s supply strategy manager, said the joint venture shipping business – Coastal Oil Logistics – also manages and schedules the owner-firms’ imports to ensure that product from Marsden Point can always be delivered. That can result in an import cargo sometimes being split across four ports.
“I question as to why anyone would want to join up and change from a single-port discharge to a four-port discharge and to employ three accountants to try and understand the whole thing,” Bone said. “The system is very complex and inter-related.”
The commission spent the past day and half hearing from fuel and motor industry executives on its draft findings on retail fuel competition. Confidential hearings of commercially sensitive evidence were scheduled today and tomorrow.
Last month, the commission suggested all fuel distributors are making excess profits and that greater competition at the wholesale level might increase retail competition. As well as opening up the fuel sharing arrangements, other options the regulator proposed included requiring wholesalers to offer prices at each terminal, setting maximum terms on wholesale contracts, and barring exclusivity arrangements in such deals.
Much of that focus was driven by the commission’s belief that the major firm’s control of most of the country’s fuel storage and the pipeline from the Marsden Point refinery into Auckland gave them cost advantages over other players. Gull operates a terminal in Tauranga and Timaru Oil Services is building one there.
Gull managing director David Bodger told the commission that trucking fuel from a single terminal is highly efficient.
If the firm could buy fuel from rivals’ terminals tomorrow under the regulator’s proposed system of terminal gate prices, it would “probably not” do so in places like New Plymouth and Napier.
“It’s definitely not top of my wish list. We’ve got a good terminal that is supporting our markets in those areas.”
But were it able to buy fuel in areas the company couldn’t currently supply by truck “I suspect that we would be there like a robber’s dog,” he said.
Twenty-year-old Gull has more than 90 outlets in the North Island – about a third of them in Auckland. Next month it plans to open two outlets in Southland.
Z Energy’s Law said Gull’s success in Auckland to date is evidence that the major firms’ use of the fuel pipeline from Marsden Point to the Wiri terminal is not providing a material advantage.
While delivering fuel on the pipeline is cheaper than trucking it, the fuel is charged for at an import-parity price which doesn’t always reflect the shipping savings Gull can achieve on its imports, she said. Firms still then have to truck the fuel from Wiri.
“You have to look at all the costs,” she said.
The commission’s concerns about competition have sat uncomfortably with the ongoing expansion of firms like Gull, Waitomo, Allied and NPD, and the new terminal being built in Timaru. Its belief that access to tanks and pipelines determine the type of service station being developed was also challenged.
Z is trialling an unstaffed site in Alexandra, while Nelson-based NPD has a full-service operation in Queenstown, Law noted.
Gull’s Bodger told the commission that, while many of its recent sites have been unstaffed, full-service stations with convenience stores do have a place. The choices are site-specific, he said, and not driven by the assets used to supply their fuel.
Z and BP reminded the commission that the current distribution arrangements are driven by the location of fuel terminals built prior to deregulation of the industry in 1988. BP has previously submitted that, were it starting from scratch, it would have fewer tanks than it has today.
Law said that, while larger storage tanks can help a firm lower its shipping costs by receiving larger cargoes, the borrow-and-loan arrangements mean that benefit is also shared with its rivals, which weakens the incentive to invest.
Given the market is in decline, she doubted much more storage capacity would be built beyond that under construction in Timaru.
“It would be somewhat surprising to see further significant terminal investment in the near-term.”
The commission is due to report back to the government by Dec. 5.