Opening Of Gull (terminals Nz Ltd) Petroleum Tank Farm

I am delighted that I have been invited to open the Gull group of companies' petroleum storage terminal today. The entry of Gull into the New Zealand petrol market is very welcome indeed.

When I took over the energy portfolio, I was presented with a consultant's report showing that in 1996 there were good reasons why I should be concerned about the level of competition in the petroleum market.

There was a significant difference between New Zealand's petrol prices and those in major Australian cities. In 1995 Auckland retail petrol prices less tax were nearly 18 cents higher than in Sydney and over 11 cents higher than in Hobart. Our retail prices less tax were amongst the highest in the OECD.

Monitoring of Singapore export prices for petrol and diesel and comparisons with local retail prices showed a price gap was widening each year between 1990 and 1996 at a rate of about one cent a year (slightly less for diesel). This might not sound a great deal, but we need to remember that across New Zealand, one cent on or off the price of petrol is worth close to $30 million a year and one cent on the price of diesel is worth about $20 million per year. These are real costs to businesses and households.

Until a little over one year ago, the only companies supplying the New Zealand market were four of the world oil majors - Shell, BP, Mobil and Caltex. This was despite the fact that the industry had been deregulated in 1988 and obstacles to market entry had been removed.

We wondered why, when margins seemed to be increasing, there were no new entrants. So when we were contacted, or were approached by independents, such as Gull, they received a very warm welcome.

The first new entrant was Challenge, which began operating in April 1998. I am delighted by what has happened to retail petrol prices since then.

From December 1997 to December 1998, Auckland retail prices dropped by 9.2 cents per litre, with most of the fall occurring in the second quarter, that is, around the time of Challenge's entry.

For Hamilton, there was an extra fall in the fourth quarter, which matched the time that Gull opened up its first service station there. The total drop in retail prices for Hamilton for the year was 10.2 cents per litre.

Although the price of crude oil has also fallen significantly, crude oil contributes only a fairly small proportion of the final retail price, around 15 per cent. When we take into account downward trends in the exchange rate, plus the fact that an additional tax of 2.1 cents per litre for road funding purposes was added to the price of petrol, then these falls in petrol prices look even more remarkable.

By the end of 1998 Auckland prices were only 6.8 cents higher than those in Sydney and were 0.2 cents lower than those in Hobart. To remind you, in mid-1995 Auckland petrol prices were nearly 18 cents higher than in Sydney and 11.5 cents higher than in Hobart.

This is terrific news. Competition is the key, and this competition has been brought about by companies such as Gull, which are independent of the international oil majors.

Gull started modestly in Western Australia in the mid-1970's. From the start it was a thorn in the side of the oil majors. But Gull refused to give up and has grown and prospered in Western Australia. It is now Australia's largest independent wholesaler and retailer of quality petroleum products with nearly 100 service stations in Western Australia. I am confident that Gull will bring the same competitive spirit to its operations in New Zealand.

I understand that, as a result of experience from operating in Western Australia Gull decided that to ensure true independence from the oil majors, it was necessary that it operated its own terminal.

You identified the Port of Tauranga as the best place to locate such a terminal, due to its central North Island location and proximity to the Auckland market. When four tanks in prime condition came up for sale at the closed Marsden Point Power Station, Gull was quick to seize the opportunity to purchase these and ship them to the port of Mount Maunganui in what was a major engineering feat.

The terminal will service Gull and other parties who wish to take advantage of the first independent petroleum storage depot in New Zealand.

This is a tremendous advance for the competitive petroleum industry in New Zealand. I have no doubt it will prove to be a sound commercial investment as well.

I am delighted to welcome Gull to New Zealand and to declare this storage terminal open.

Thank you