Good News for Petrol Competition

  • Max Bradford

Energy Minister Max Bradford today released a report which gives encouraging news for consumers and new entrants to the petrol market.

Mr Bradford said a study by ACIL Economics of Canberra concluded there were no barriers which give the incumbents a cost advantage over new entrants and deter new entry to the petroleum market.

The study is the second of two commissioned by Mr Bradford as a result of concern over petrol prices and rising importer margins. The first study by the NZIER, released early this year, concluded there are grounds for concern over the trend of importer margins.

The ACIL report shows existing oil companies have some cost advantages arising from economies of scale and joint arrangements to share facilities. However ACIL concludes that these arrangements do not confer any long run cost advantages and that they would be mitigated by some cost advantages to a new entrant. This makes new entry achievable.

The fact that a significant investment was needed to enter the industry was not a barrier, Mr Bradford said.

Since deregulation of the petrol market in 1988, no new competition has entered the retail petrol market. However, today Australian company Liberty Oil announced it is opening at 35 sites around New Zealand within six months.

Mr Bradford said he had heard marketplace rumours that at least one other company was planning to do the same.

"That is good news for consumers because it is likely to force petrol prices down. Since I became Minister of Energy I have had serious concerns about competition in the NZ petrol market. The emergence of new competitors in the market will reveal whether consumers have really been seeing the benefits of a competitive market to date.

"Supermarkets and others should be reasonably encouraged by the report. ACIL pointed out that new entry to the New Zealand market need not involve a fully integrated operation. Instead there is opportunity for niche entry with new players entering at different points in the supply chain. This is how new entry developed in Australia.

"ACIL have gathered together extensive information about the New Zealand petroleum market which should prove useful to new entrants examining the issue." Mr Bradford said.

Mr Bradford said the Government would not tolerate anti-competitive behaviour by the four oil companies.

"I will be keeping a close eye on the competitive response of the existing players to see if any form of predatory behaviour is used to stifle competition."

Mr Bradford said he was delighted there appeared to be no need for the Government to intervene, but close monitoring and publication of prices and margins will continue.

Copies of the ACIL report are available from the Ministry of Commerce.